In our paper, Are Mutual Funds Active Voters?, which was recently made publicly available on SSRN, we document that mutual funds vary significantly in how they fulfill their fiduciary duty to vote their shares in shareholders’ interests. Approximately 25% of mutual funds vote with ISS on nearly all company agenda items throughout our five-year sample period. However, many other mutual funds disagree frequently with ISS, particularly on contentious votes. We find that certain types of funds are more likely to find it optimal to incur the costs of evaluating the necessary information to independently assess the items up for vote. For example, large funds and funds from top 5 families can spread the costs over a wider asset base, and low turnover funds are more likely to own the stocks long enough to realize the valuation effects of the vote outcome and any consequent changes in company governance. We would thus expect such funds to be more likely to actively vote. A summary measure of fund activism, which is based on six fund characteristics, highlights the extent to which variation in funds’ costs and benefits of actively voting translates into dramatically different voting patterns. Across a sample of contentious compensation and governance votes, we find that passive funds follow ISS in 86% of the compensation and 77% of the governance votes, compared to analogous rates of only 15% and 19% among actively voting funds. Similarly, across a sample of contentious director votes, passive funds are approximately three times more likely than active funds to follow ISS.
Posts Tagged ‘Michelle Lowry’
In our paper, Are Busy Boards Detrimental?, which was recently made publicly available on SSRN, we attempt to measure effects of busy directors serving on the boards of venture-backed IPO firms, and by so doing, address concerns that busy boards are detrimental and that multiple directorships should be limited. The issue of busy boards has received considerable attention in the academic literature and popular press. Yet, even though the academic literature has long recognized that venture capitalists are active on the boards of IPO firms in which they have invested, it is silent on the effects, or even the existence, of busy directors on IPO firms’ boards.
A recent Wall Street Journal article, “Start-Ups Grumble About Directors Too Busy To Help” (7/29/2010), discusses this very issue of the costs and benefits of busy directors among young firms. Focusing on the negative aspects of busy boards, the Wall Street Journal article articulates entrepreneurs’ concerns that venture capitalist directors are juggling too many companies and that the hands-on guidance they can provide to their portfolio companies becomes diluted. Consistent with evidence presented in this paper, however, a number of associated commentaries by executives of private companies with busy boards on the WSJ.com website emphasize that busy directors also provide substantial benefits to the companies on which they serve. The following quote from executive Marcie Black of BandGap, Inc. incorporates the sentiments of several executives’ posts: “The article focuses heavily on the amount of attention a board member offers, but it’s the quality of attention that matters. Many abilities of a mentor improve as they sit on more boards—experience, breadth of network, personal skills, and sense of perspective. No matter the issue that we’re confronting, Forest [board member at BandGap Inc. who also serves on 19 other Boards] has seen it before and usually more than once. The clarity I get from a 20 minute conversation is worth hours from a less experienced mentor.” The executive commentaries to the WSJ article are consistent with our evidence that busy directors can provide strong benefits to young firms’ boards.