published this month (June 2012) by the Investor Responsibility Research Center (IRRC) Institute and conducted by Tapestry Networks takes a look at the decision-making process for proxy voting used by 19 North American asset management firms. In particular, the study looks at how these leading US mutual funds develop proxy voting guidelines and reach decisions regarding how to vote. The 19 asset management firms used in the study account for over $15.4 trillion in assets under management, or more than half of the mutual fund assets under management in the United States.
In addition, Tapestry reviewed major academic studies and current literature on the topic, and conducted a comprehensive survey of academic research and commentary on the relationship between proxy advisers and institutional investors. While the study revealed no standard or uniform approach to voting decision-making amongst the mutual funds studied, it did find that mutual funds rely extensively, but not exclusively on proxy advisers in making their voting decisions.
The IRRC's report, Voting Decisions at US Mutual Funds: How Investors Really Use Proxy Advisers, found among other things that:
- Proxy firms’ role as data aggregators has become increasingly important to asset managers.
- Proxy advisers play a role in asset managers’ formation of voting policy.
- Asset managers have a wide range of approaches to decision-making throughout the voting process.
- Regardless of how wide a net they cast for inputs into voting decisions, most asset managers find proxy firm data particularly useful in say on pay and international votes.
- The demand for investor-issuer engagement will continue to grow.
While proxy voting by mutual funds is clearly still influenced by proxy advisers, the study and the prevailing literature demonstrate that this influence is neither uniform, nor linear. It is clear, however, that proxy advisers' recommendations carry great weight and can significantly influence the governance dialogue at major mutual fund players.
Both the academic literature and our conversations with research participants reveal the complexity of investor voting decision making, which we view not as a linear process, but as a dynamic system, with multiple information flows and feedback loops. While causal relationships between proxy firm recommendations and voting results are not as easy to identify as correlations, proxy advisers clearly impact the governance dialogue in general and say-on-pay and international voting in particular. They also affect the behavior of issuers and investors outside the annual proxy voting cycle.