Drop In Voting Adds To Costs
By Daisy Maxey
Shareholder inertia may be taxing your mutual fund.
A number of fund companies, including Fidelity Investments and DWS Scudder, have postponed special meetings of shareholders recently because they haven't received enough of a response. That has forced asset managers to take costly measures, such as hiring proxy solicitors, sending out repeated mailings and making numerous telephone calls, to grab shareholders' attention.
"When shareholders do vote, they generally vote with trustee recommendations, but we are seeing a decline in response rates, making it difficult for funds to take action on important issues," said Lemuel Brewster, a spokesman for DWS Scudder.
Vin Loporchio, a Fidelity spokesman, said, "We try to make it as easy as possible for shareholders. They can vote electronically, through the mail, by touch-tone phone or even at the meeting." Still, he said, "it's generally a bit of a challenge to achieve quorum."
On Wednesday, shareholders in six Fidelity-managed funds rejected a proposal to create a process for screening out stocks of companies that the funds believe are abetting genocide, a shareholder measure aimed at companies with stakes in Sudan. But at nine other Fidelity-managed funds -- including Fidelity Contrafund, Fidelity Magellan and Fidelity Diversified International -- too few shareholders voted on the proposal to reach a quorum. As a result, another meeting was set for June 18.
Proxy votes are fund shareholders' main route for making their voices heard on special items, such as a change in the control of a fund, its advisory agreement or its investment objective, as well as on shareholder proposals concerning social or environmental issues. Yet many shareholders seem distracted.
"People have a lot going on in their lives, and they're not focusing on this," said Vincent Di Costa, senior vice president of D.F. King & Co., a proxy solicitor. "It's not a priority."
Whatever the reason for the lack of action, some fund companies are practically pleading with shareholders to take note.
A March 31 letter from DWS Scudder to shareholders in its DWS Large Cap Value Fund noted that a special meeting of shareholders had been adjourned from March 31 to May 1 for lack of votes, and emphasized the costs of such efforts. Voting now, it told shareholders, would help save the fund the cost of additional mailings and calls.
It has become so bad that Fidelity recently proposed lowering the amount of shares outstanding needed to reach a quorum in some cases. Some funds that previously required a majority of shares outstanding for a quorum on change now require less than that for some proposals.
Other fund companies are likely to follow suit, said Carl Frischling, a partner at the New York law firm Kramer Levin Naftalis & Frankel LLP, which focuses on financial-services and investment-company law.
The costs of these extra efforts are borne by the fund itself, and ultimately hit the shareholder's pocket.
Generally, shareholders think that if they don't vote or attend a meeting, they are having no effect. That isn't always the case, said Eric Cohen, chairman of Boston-based Investors Against Genocide, which spearheaded the proposal on genocide that was put before Fidelity fund holders.
If the fund is held through a broker and the shareholder doesn't vote, the broker in some cases may vote those shares. Such "uninstructed broker votes" routinely are cast with management and can tip the scale on resolutions in the fund manager's favor.
In a March 19 vote on the genocide-related proposal, 47% of shares outstanding of Fidelity Select Health Care Portfolio didn't vote. Some 15% of the votes that Fidelity did count were either "broker nonvotes" or abstentions, both of which counted against the proposal, Mr. Cohen said.
By Daisy Maxey
Shareholder inertia may be taxing your mutual fund.
A number of fund companies, including Fidelity Investments and DWS Scudder, have postponed special meetings of shareholders recently because they haven't received enough of a response. That has forced asset managers to take costly measures, such as hiring proxy solicitors, sending out repeated mailings and making numerous telephone calls, to grab shareholders' attention.
"When shareholders do vote, they generally vote with trustee recommendations, but we are seeing a decline in response rates, making it difficult for funds to take action on important issues," said Lemuel Brewster, a spokesman for DWS Scudder.
Vin Loporchio, a Fidelity spokesman, said, "We try to make it as easy as possible for shareholders. They can vote electronically, through the mail, by touch-tone phone or even at the meeting." Still, he said, "it's generally a bit of a challenge to achieve quorum."
On Wednesday, shareholders in six Fidelity-managed funds rejected a proposal to create a process for screening out stocks of companies that the funds believe are abetting genocide, a shareholder measure aimed at companies with stakes in Sudan. But at nine other Fidelity-managed funds -- including Fidelity Contrafund, Fidelity Magellan and Fidelity Diversified International -- too few shareholders voted on the proposal to reach a quorum. As a result, another meeting was set for June 18.
Proxy votes are fund shareholders' main route for making their voices heard on special items, such as a change in the control of a fund, its advisory agreement or its investment objective, as well as on shareholder proposals concerning social or environmental issues. Yet many shareholders seem distracted.
"People have a lot going on in their lives, and they're not focusing on this," said Vincent Di Costa, senior vice president of D.F. King & Co., a proxy solicitor. "It's not a priority."
Whatever the reason for the lack of action, some fund companies are practically pleading with shareholders to take note.
A March 31 letter from DWS Scudder to shareholders in its DWS Large Cap Value Fund noted that a special meeting of shareholders had been adjourned from March 31 to May 1 for lack of votes, and emphasized the costs of such efforts. Voting now, it told shareholders, would help save the fund the cost of additional mailings and calls.
It has become so bad that Fidelity recently proposed lowering the amount of shares outstanding needed to reach a quorum in some cases. Some funds that previously required a majority of shares outstanding for a quorum on change now require less than that for some proposals.
Other fund companies are likely to follow suit, said Carl Frischling, a partner at the New York law firm Kramer Levin Naftalis & Frankel LLP, which focuses on financial-services and investment-company law.
The costs of these extra efforts are borne by the fund itself, and ultimately hit the shareholder's pocket.
Generally, shareholders think that if they don't vote or attend a meeting, they are having no effect. That isn't always the case, said Eric Cohen, chairman of Boston-based Investors Against Genocide, which spearheaded the proposal on genocide that was put before Fidelity fund holders.
If the fund is held through a broker and the shareholder doesn't vote, the broker in some cases may vote those shares. Such "uninstructed broker votes" routinely are cast with management and can tip the scale on resolutions in the fund manager's favor.
In a March 19 vote on the genocide-related proposal, 47% of shares outstanding of Fidelity Select Health Care Portfolio didn't vote. Some 15% of the votes that Fidelity did count were either "broker nonvotes" or abstentions, both of which counted against the proposal, Mr. Cohen said.