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Mutual Funds Reveal Shareholder Votes

By Ben White
Washington Post Staff Writer
Wednesday, September 1, 2004; Page E01

Vanguard Group Inc. voted in favor of a shareholder proposal demanding that Intel Corp. expense stock options. Putnam Funds and Fidelity Investments voted to dump Walt Disney Co. Chairman Michael D. Eisner. Vanguard voted to keep him.

Those were just a few of the highlights revealed Tuesday as mutual fund companies, which control about 20 percent of all publicly traded stock, met a federally mandated deadline to disclose how they vote at corporations' annual meetings.

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Walt Disney Co (DIS)
Intel Corporation (INTC)
Vanguard Airlines (VGDAQ)
Marsh & McLennan Cos (MMC)
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Shareholder advocacy groups that had long demanded the data were still poring over hundreds of thousands votes yesterday, and broad generalizations about how strongly funds pressed corporate management over issues such as director independence and executive pay were hard to make.

But initial indications were that the nation's biggest fund companies had registered significant displeasure with corporate management by casting a large number of votes against management-supported candidates for board seats.

For instance, Vanguard, the nation's second-largest mutual fund company, said it withheld support from at least one director at 60 percent of the nearly 4,000 companies in which the company's funds own shares.

Putnam, a unit of Marsh & McLennan Cos. that was implicated in the mutual fund trading scandal, said it withheld votes from all directors at about 21 percent of U.S.-based companies whose shares its owns.

Putnam said the "vast majority" of its opposition to directors was based on a lack of independence from company management. Fidelity, the nation's biggest mutual fund company, disclosed its votes but did not provide a summary.

Nell Minow, co-founder of the Corporate Library and a leading shareholder advocate, said it was too soon to grade mutual fund companies on how well they exercised their considerable power. But she said it was clear that funds were taking their role as corporate overseers more seriously.

"It appears they've gotten tougher on boards, and yes, it's because they have to disclose" their votes, Minow said. "But in fairness, it's also partly because of a general understanding that corporate governance is an essential element of investment risk."

Mutual fund companies and their lobbyists in Washington had strongly resisted the disclosure requirement, saying it would be too costly.

The Securities and Exchange Commission rejected those arguments and imposed a deadline of Aug. 31 for fund companies to disclose their votes at meetings held between July 1, 2003, and June 30, 2004.

While the total amount of "no" votes against management-supported directors was high, several fund companies said the numbers were down from the previous year. The funds said that was in part because companies eager to avoid embarrassing votes had instead cut deals. "I think we are already seeing progress," said John A. Hill, chairman of the board of trustees at Putnam. "We voted against more people last year."

"The increasing rate of approvals for each major category of management proposals certainly does not reflect a softening of Vanguard's positions on key issues," the mutual fund company said in a statement. "Rather, the trend shows that, in more cases than not, the directors and managements . . . are appropriately focused on creating shareholder value."

Minow and others said the high numbers did not surprise them because several companies experienced significant "no" votes for directors in the past year, a phenomenon that could only be explained by mutual fund activity.

For instance, at Disney, shareholders angry about tepid performance withheld about 45 percent of the vote from chief executive Eisner in March, leading the company to strip him of the chairmanship.

The new mutual fund disclosures indicate that several big funds, including Putnam, voted against Eisner. Vanguard, however, voted in favor of the Disney chief executive. A Vanguard spokesman did not return a call for comment on the vote.

Meanwhile, several mutual fund companies, including Vanguard and Fidelity, voted in favor of Safeway Inc. chairman and chief executive Steven A. Burd, who was the focus of a union-led vote-no campaign. Those votes help explain how Burd won about 83 percent support at the company's contentious annual meeting in May, a figure that disappointed Burd opponents.

The disclosure also displayed how some investor-supported ballot measures won majorities in the past year. For instance, several big fund companies supported a measure on the ballot at credit card giant MBNA Corp.'s meeting demanding that the company have a majority of independent directors. Despite management opposition, the measure won 56 percent support. The ballot measure at Intel demanding the expensing of stock options won 54 percent of the vote, but management chose to ignore it.

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