The Mutual Fund Directors Forum issued a report entitled “Practical Guidance for Fund Directors on Oversight of Proxy Voting.” In broad terms, the report highlights key issues that the board of a registered fund should consider in establishing and overseeing the fund’s proxy voting processes and procedures, and summarizes common proxy voting structures and processes used by registered funds. The report is based largely on discussions with fund directors and management representatives from fund families of all sizes, representing over 50% of U.S. mutual fund assets under management, and two major proxy voting service providers.
Key Considerations. The report reviews the following issues that the board of a registered fund may want to consider when establishing or reviewing a fund’s proxy voting processes:
- delegation of voting authority to a third party
- use of third party vendors in proxy voting and types of third party services
- involvement of fund managers and other investment professionals
- the process for overriding any proxy voting guidelines
- vote splitting within a fund complex
- engagement with portfolio companies on proxy votes
- conflicts of interest
- voting loaned securities
The report includes various examples of how some boards have addressed these issues.
Approaches to Proxy Voting. The report reviews three general approaches to proxy voting taken by fund boards: (1) retaining all voting authority, (2) delegating voting authority to the fund’s adviser, or (3) delegating voting authority to a third party service provider that votes proxies according to board‑approved voting guidelines. The report includes an appendix that describes the features and key benefits of common proxy voting models.
Oversight. The report describes threshold decisions a fund board must make in determining how it will oversee the proxy voting processes it has put in place, such as:
- oversight by the full board or a committee
- frequency of review
- reports to be provided, including in-person presentations by management