Activists press funds to nix big comp deals

BOSTON — Labor activists are using a Securities and Exchange Commission rule requiring mutual fund proxy disclosure to ratchet up the pressure on executive compensation that they consider excessive. All too often, the activists charge, mutual funds vote their proxies in favor of management. The complaint is based on disclosures that stem from a rule the SEC put in place in 2002 requiring fund managers to disclose how they voted on corporate proxies. The activist organization, CtW Investment Group, is using the disclosures to pressure fund managers to withhold votes over the issue of executive compensation. The investment arm of the Washington-based federation of labor unions known as Change to Win, which sponsors $180 billion in pension assets, CtWIG analyzed the proxy votes of 20 major investment managers last year to see how their votes on executive compensation compared with those of other shareholders. “It was highly frustrating to see that so many large money managers, entrusted with the retirement assets of millions of working families, ended up supporting executive pay packages even as those pay packages harmed shareholders,” said Brishen Rogers, in-house attorney for CtWIG. Nevertheless, Michael Garland, director of value strategies at New York-based CtWIG, said that there were signs of improvement, since a few years ago it would have been rare to see any institutional managers withhold their votes. In the study, CtWIG analysts reviewed the voting records of 20 investment firms, in regard to four companies CtWIG had targeted with “withhold vote” campaigns against 17 directors last year. The companies were Clear Channel Communications Inc. of San Antonio; ExxonMobil Corp. of Irving, Texas; The Home Depot Inc. of Atlanta; and UnitedHealth Group Inc. of Minnetonka, Minn. They found that in most cases, the firms voted to re-elect every director, and six firms, including Boston-based Fidelity Investments, the largest fund company, voted for every director at all four companies. CtWIG sent letters this month to officials at 14 investment firms, including Fidelity; Deutsche Bank AG of Frankfurt, Germany; and Chicago-based Northern Trust Corp. to express concerns over their voting records. Mr. Rogers said that though many of the 20 funds CtWIG scrutinized manage the retirement funds of CtWIG members, it hasn’t yet threatened to recommend that its members move their money from those firms for not following its suggestions. He added that by early in the second week of this month, the organization hadn’t received any responses to its letter. CtWIG said that for 2007, it is keeping an eye on companies where directors have received suspiciously timed stock option grants and others with executives that have particularly generous pay packages. In its cross hairs are CVS/Caremark Corp., of Woonsocket, R.I.; ExxonMobil; Los Angeles-based KBHome and Sunrise Senior Living Inc. of McLean, Va. CtWIG also is monitoring the votes at 180 companies that recently have adopted majority vote provisions on re-electing directors. CNS