Posted on the Harvard corporate governance blog:
A new shareholder advocacy group has been formed, the Main Street Investors Coalition. The Coalition aims to mitigate the adverse effects created by the concentration of shareholder voting power that now resides in the hands of mutual fund advisors. This concentration has developed because of the growing popularity of index mutual funds and the industry practice of delegating shareholder voting rights to their advisors.
This is nothing less than hogwash. MSIC is an advocacy group but they are in no way advocating on behalf of shareholders. And there is no evidence that any financial institutions do, can, or should delegate shareholder voting rights. As we have pointed out earlier, Main Street Investors is industry-funded and industry-controlled. They have a lot of nerve to write:
Shareholder voting, when it is done with the intent of maximizing the wealth of all shareholders, is an important component of efficient corporate governance. According to the Delaware Supreme Court, “[w]hat legitimizes the stockholder vote as a decision-making mechanism is the premise that stockholders with economic ownership are expressing their collective view as to whether a particular course of action serves the corporate goal of stockholder wealth maximization.”
And yet, they are trying to undermine shareholder votes here. What is especially outrageous is their argument that mutual funds are “uninformed,” because what they are suggesting here is that individual investors are somehow more informed. On the contrary, individual investors entrust their money to managers who have the expertise, resources, and fiduciary obligation to buy, sell, hold, and vote their shares.
MSIC asserts without any substantiation that retail investors don’t know and don’t approve of the way fund managers vote. They assert contrary to documented data that fund managers outsource their votes to proxy advisors. They engage in the slimiest possible rhetorical trick by assuming without evidence and contrary to the record that fund managers are somehow voting contrary to the economic interests of their customers. And it takes a special kind of contempt for the audience to assert that the people who manage money do not know what their customers want but they do.
We do agree with one point made by MSIC: the best decisions about proxy voting are made by those with the most significant economic interest. MSIC has none; indeed its interests are entirely the other way. So until they fully disclose all of their sources of funding and put some actual retail investors on their board they should stay out of it.