If the proxy vote is an asset, then for most investors, especially 401(k) investors, it is a hidden asset.
Investors typically don't know how their shares are voted by registered investment advisers and mutual funds, even though the Department of Labor declared in the now often-cited Avon Products Inc. case in 1988 that the proxy vote is an asset.
But proxy votes might soon become less obscure.
The issue is important not only for investors in corporate governance matters. It also is critical because of potential conflicts of interests arising at any investment firm that might seek to manage money for the same companies whose proxies it votes.
When asked about the issue of proxy-voting disclosure, Patrick McGurn, vice president and director-corporate programs at Institutional Shareholder Services Inc., Rockville, Md., pointed out the Securities and Exchange Commission issued this month a proposal to require registered investment advisers to disclose proxy voting practices in their ADV forms.
The SEC proposed the disclosure requirement "so that clients will be fully informed about who is responsible for voting their proxies and how their interests in proxy voting decisions are protected," according to the proposal.
Advisers would have to state whether they vote proxies. Those that do would have to disclose their voting policies, practices and procedures. The rule would not require advisers to disclose how they vote on proxy issues. But it would require the adviser to disclose whether clients can find out how it voted their securities on a given issue.
The SEC's comment period for the proposal ends June 13.
The move is part of a proposal to require all 8,000 SEC- and 12,000 state-registered advisers to file their federal ADVs or state forms electronically, making them available free to the public on the Internet.
Only one mutual fund company is believed to disclose its votes on proxy issues, Domini Social Investments LLC, New York, according to Timothy Smith, executive director of the Interfaith Center on Corporate Responsibility.
TIAA-CREF is another exception. It publicizes its proxy voting policy. Patrick Connor, a spokesman, said that lately "there has been some discussion about" revealing votes.
The Investment Co. Institute hasn't pursued the issue among mutual funds. "That falls into the not particularly erudite category of `that's their business,'|" said Christopher Wloszczyna, a spokesman. Even so, Paul R. Carey, SEC commissioner, spoke before an ICI gathering last December on the subject of proxy disclosure.
Among pension funds, the California Public Employees' Retirement System posts its proxy votes and reasoning on its website. Many pension funds and other institutional investors look to it for guidance, according to Mr. McGurn.
At what price will investors be willing to pay for investment advisers to list such information? The SEC shouldn't require disclosure of proxy policies or individual votes among investment advisers. The market should decide.
Proxy disclosure provides a check to judge how well advisers act in the interests of investors. Mr. Carey, in his speech, quoted a recent remark by John Bogle, founder of Vanguard Group, who "questioned whether advisers were living `up to their responsibility of corporate citizenship.'|"
Investors should demand more disclosure from their fund managers.