DID you miss it? Did you see Business Week’s special report entitled Fidelity’s Divided Loyalties.
This is easily the most significant story in IR this year. The article looks at Fidelity’s voting record at annual meetings and questions where its loyalties are — with management or with the shareholders.
The only thing that could have made this story more significant is if it had appeared in USA Today. And that’s coming because this stuff is obvious fodder for the media. Management Expense Ratios people don’t understand, but loyalty they do.
|1774 print of “The Bostonians Paying the Excise-Man” referring to the tarring and feathering of Boston Commissioner of Customs John Malcolm four weeks after the Boston Tea Party.|
The publication of this article is a watershed. Mutual funds have just learned that the SEC’s rule requiring them to disclose how they vote at annual meetings is dangerous to their business.
It can lead to bad press if, like Fidelity with its $1.3 trillion in assets under management, your voting practices suggest you’re too cosy with fat cat CEOs and lethargic boards — and you may have an ulterior motive for being that way.
Bad press like this amounts to a public tarring and feathering. It can turn people off your mutual funds. That’s scary in a business where profit comes in large part from management fees that are a percentage of assets.
Big fund firms like Fidelity are the initial targets for these stories. But it’s just a matter of time before investors will be able to easily look up how their fund companies vote at annual meetings and incorporate that into their investment decisions.
If two funds — or ETFs! — are equal in all respects, the deciding factor for investors could well be where they stand on corporate governance and social responsibility issues.
Knowing that, it becomes much more difficult for fund managers to back management on shareholder proposals, especially if the shareholder is attracting publicity to their cause.
In many cases the vote will be determined not by the merits of the argument at hand, but by fund managers’ assessments of the PR risk to themselves should they vote with the “wrong side.”
Frankly, I think this is a good thing because it will force directors and management to get out in front of their shareholders and explain themselves.
It will improve investor relations communications. Are you ready?