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Able But Not Willing: The Failure of Mutual Fund Advisers to Advocate for Shareholders' Rights

Jennifer Taub

Vermont Law School

March 31, 2009

Journal of Corporation Law, Vol. 34, No. 3, 2009

This paper is both empirical and conceptual. First, it examines how investment advisers to large mutual fund families cast proxy votes on shareholder-sponsored, corporate governance resolutions. It links the amount of assets the Adviser managed at defined contribution (DC) retirement plans as of year-end 2005 to the overall percentage of proxies it cast in favor of 11 key categories of governance proposals at US-listed corporations during the 2006 proxy season. For the ten largest fund families, the amount of DC assets under management by the Adviser is negatively correlated with support for shareholder governance resolutions. This supports prior research findings that Advisers who have important business interests in the DC channel place those interests in asset gathering ahead of their fiduciary duties. This paper recognizes that Advisers to mutual funds are just one of the many intermediaries who stand between the underlying, risk-taking investor and the corporate managers who control the investor's capital. Accordingly, this paper explores how investors who are many links away from the corporations in which they place their money at risk may be empowered. Among the suggestions is to borrow from British reforms by creating a uniform set of best practices for corporate governance. Fund Advisers would be required to report and justify any departure from casting proxy votes (related to management or shareholder proposals) in line with best practices. Ideally, this comply or explain practice would be inserted at each link of the intermediation chain - from the corporation all the way to the underlying investor.

Number of Pages in PDF File: 51

Keywords: mutual funds, corporate governance, proxy voting, shareholder resolutions, retirement plans, conflict-of-interest

JEL Classification: K22, M14, G23, G18

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Date posted: April 13, 2011  

Suggested Citation

Taub, Jennifer, Able But Not Willing: The Failure of Mutual Fund Advisers to Advocate for Shareholders' Rights (March 31, 2009). Journal of Corporation Law, Vol. 34, No. 3, 2009. Available at SSRN: https://ssrn.com/abstract=1066831

Contact Information

Jennifer Taub (Contact Author)
Vermont Law School ( email )
164 Chelsea Street
South Royalton, VT 05068

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