Publicizing proxy votes offers view of fund workings

September 19, 2004|By JAY HANCOCK

INDIVIDUAL INVESTORS own almost a fifth of publicly traded corporate America through their mutual funds, but until last month most had no idea how those stakes were used to influence the companies.

Do you own a piece of Verizon Communications through your T. Rowe Price Growth and Income Fund? Are you mad about Verizon's executive-pay bonanza and Ivan G. Seidenberg's hold on both the CEO and chairman jobs?

Would you like to know how Baltimore-based Price voted your shares on those issues?

Now you can find out. As part of the movement toward better corporate governance prompted by scandals at Enron and elsewhere, mutual funds were required to reveal proxy votes for this year's shareholder meetings for the first time. Aug. 31 was the deadline.

Price's Growth and Income Fund voted to strip Seidenberg of the chairman's hat and give it to an independent director. It also voted to require shareholder approval of especially large executive-retirement packages, defying the Verizon board's recommendation in each case.

Both proposals lost, and neither was binding anyway. But the measures got substantial chunks of "yes" votes, indicating widespread disapproval of how Verizon runs itself and suggesting they'll be back on next year's ballot.

The motion to separate the CEO job from the chairmanship got 37 percent of the votes; 38 percent favored requiring shareholder approval for major pension goodies.

Just as important, we now know that Price's Growth and Income Fund and other Price funds made the right decisions on these issues. They sided with their investors, in my opinion.

A seemingly simple thing, to disclose these votes. But getting it done took, first, the worst corporate shenanigans in decades, and then ignoring the kicks and screams by Price and other fund companies.

They complained that posting the votes would be too difficult and expensive, and that they would get second-guessed by unions, environmentalists and other interest groups.

Regarding the first objection, Price recently reported record earnings, and its stock has been hitting all-time highs. Regarding the second, welcome to America.

It's too early to draw conclusions about how mutual funds voted. There are thousands of funds and tens of thousands of proxy proposals, and people are still crunching numbers.

But early scans indicate that Price "seems to be voting more with management" than some other firms, says Burton Rothberg, an assistant professor of accounting at New York's Baruch College who's compiling a database of votes. "They had a fairly low number of `withhold' votes" for directors compared with, say, Vanguard, he said.

Price says it generally voted against activists' attempts to get stock options recorded as expenses on income statements, which is a key proxy issue these days. It says it favors expensing options but wants to wait until accounting regulators set a standard for valuing them.

Price also often opposed environmental measures, such as one that would have had ExxonMobil disclose research data on global climate change.

"Sometimes these proposals are so specific that we don't view them as feasible," says Anna Dopkin, who manages Price's Growth and Income Fund and is co-chair of the firm's proxy committee.

But Price doesn't automatically back management, executives say. For example, it voted against ExxonMobil on a proposal to amend the company's equal employment opportunity policy to prohibit discrimination based on sexual orientation. ExxonMobil's board opposed the change; Price's New Era Fund was for it.

Price also voted against management recommendations on stock option plans about 30 percent of the time, says Bill Stromberg, the other co-chair of Price's proxy committee. And it consistently goes after "poison pills," dug-in board structures and other bulwarks against hostile takeovers.

"We opposed anything that prohibits management from seriously considering, eventually, some takeover or anything that would diminish the value of a company," says Dopkin.

At the same time, Price gives fund managers leeway to be tougher on management than what's recommended by the proxy committee. For example, Donald Peters, who runs Price's Tax-Efficient Multi-Cap Growth Fund, says he believes strongly that executive stock options should be expensed and votes in favor of doing so "whenever there is a question," he says.

Good for him. And good for the government to shine a light on proxy votes. That wasn't so painful, was it, T. Rowe Price?

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