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News March 21, 2005 Issue

Funds' Business Ties May Influence Proxy Voting Policies, Says Study

A recent academic study concludes that while a fund groupís pension business may not sway individual voting decisions, it may affect decisions made at the proxy voting policy level.

In a paper titled "Would Mutual Funds Bite the Hand that Feeds Them?," two University of Michigan business professors used data from the first round of Form N-PX filings to evaluate whether the level of a fund companyís pension fund business influences its proxy voting. The study found that the more business ties a fund company has, the more likely it is to vote with management as a policy matter.

A fund company with heavy business ties "has an incentive to adopt a voting policy that leads to fewer votes against management in general, thereby reducing the risk of alienating the management of client firms," said the academics.

Or, put another way, while funds "may have to bite some feeding hands in order to appear even-handed," the more "feeding hands" there are, the more incentives for the fund company "to create policies that lead to less hand-biting" overall.