More disclosure. More transparency. How many times have you heard those calls over the past few years? Yet the fund management industry that cries out for companies to improve their disclosure practices tends to run scared if such calls are bounced back in its direction. If companies have a responsibility to their shareholders to reveal more information, then the people who manage money on behalf of those shareholders surely bear some of the burden and reveal more about their own operations.
The fund management industry in the US has already had to face up to its responsibilities in this area following last year’s SEC move, which forced managers to reveal their voting records. The new rules came into effect a year ago and require all registered investment advisers and mutual funds to disclose their proxy votes to their clients. The rule was introduced only after the SEC faced down bitter opposition from the investment community, which claimed that such a move would impose hefty cost burdens liable to cripple the industry.
Sound familiar? When companies complain that another round of corporate governance rules and regulations impose too much of a cost burden they are generally given short shrift by the fund management industry.
Fund managers have been trying to weasel their way out of being more open and transparent for years while continuing to bang the drum for corporate reform. So it came as something of a refreshing change when the UK’s Isis Asset Management voluntarily announced in December that it would be publicly revealing how it votes its holdings in the future. Isis is one of the few European fund managers that recognizes the hypocrisy of shouting about corporate transparency while maintaining a marked reluctance to reveal any voting information under the pretense of client confidentiality. The firm had previously disclosed its voting on behalf of its parent company, Friends Provident, but it has now opted to extend the policy to all of its retail funds.
Expect other UK fund managers to follow suit – but only when they are forced to do so by the regulators. Various activist bodies have been calling for greater fund management transparency in Europe of late and 2004 may well be crunch time.
In fact, it is hard for fund managers to argue against such transparency if they wish to be taken seriously on the corporate governance and socially responsible investing front – hence the move by Isis. In the US, proxy-voting transparency was embraced by socially responsible funds, such as Domini and Pax World, long before the SEC forced managers down that route. Other big players in the corporate governance field, such as pension funds Calpers and TIAA-Cref, also made public commitments to publicize their proxy voting decisions long before the SEC acted.
European-based investors will find it hard to claim that they are leading the field in the corporate governance debate if they fail to live up to their own transparency and disclosure responsibilities for much longer. Let us hope that this move by Isis will increase the pressure on its counterparts to act long before European financial regulators enforce greater voting disclosure through regulation.
