I hold a lot of shares in various investment vehicles for my retirement and savings, however, how much power do I have to influence the companies that I own shares in? That is a question  that keeps swirling around in my head these days (this time of year I get a lot of prospectus from various stocks, asking for me to vote on various actions at the General Shareholder meeting).

A clarification would be that I owe some common stock for a few firms, and I owe a little stock in many firms thanks to my purchasing of a few Mutual Funds and Index Funds. It could be argued that I don’t really own stock in the latter case, I own portions of a group of stock (since most Mutual Funds won’t let you trade your mutual fund holdings, for the portions of each stock held in the fund), but that is where I start questioning things.

With my common stock, every year I receive a prospectus from the Company, as well as a voting card (and sometimes) an invitation to the Annual General Meeting. At this meeting (usually) I could stand up and voice my displeasure with the firm about their dealings, or how the business is being run (and if I owned enough stock, I might even be able to change that), but who speaks for me with all my Mutual Fund and Index Fund holdings?

The easy answer is, The Mutual Fund or Index Fund manager(s) are the ones who speak and has control of the votes from the common stock held in the funds. I am sure that the board of directors are swayed by the manager(s) since they must be a major block of shares for many companies, and that is where I start scratching my head.

We now have a major stock holder who’s goals are to drive up the stock price (in my opinion) who is now working with the board of directors and the company’s management, who most likely have bonus programs which are based on stock price (partially) as well.  I guess this sentence is a bit accusatory, but it is kind of “hinky”.

I guess I should really read more about this since I wonder:

  • Are there rules about Fund Managers sitting on the board of directors for stocks held by the Mutual Fund?
  • Rules about how close Mutual Funds can work with companies that are held in their funds? Working closely is a loose term, but how closely can they work?
  • The only way I feel I can sway a Mutual Fund Manager is by simply not buying, or selling their fund(s) if they do things that I disagree with, are there other ways? I know I can send them a stern letter, or try to corner them at their General Meeting.

Anybody who knows a lot more than me (which is a lot of you), have any ideas?

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  • Beardie March 21, 2012, 6:27 AM

    There is a series of funds called “Ethical” (now part of NEI) where they do act as shareholder activists. Mainly they press for more robust and transparent corporate governance. There’s a list of their interventions somewhere on their website. That’s the only fund company I’ve heard of doing that.

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