How do fund managers engage in shareholder activism and proxy voting?

Fund managers engage in shareholder activism and proxy voting on behalf of their mutual fund shareholders to influence corporate governance and decision-making at the companies in which they invest. This engagement is part of their fiduciary duty to protect and enhance the value of the fund's investments. Here's how fund managers typically participate in shareholder activism and proxy voting:

1. Monitoring Holdings:

   • Fund managers actively monitor the companies in their portfolio to identify governance issues, environmental and social concerns, and other matters that may impact shareholder value.

2. Proxy Voting Guidelines:

   • Fund managers establish proxy voting guidelines or policies that outline their stance on various corporate governance matters, such as executive compensation, board structure, shareholder rights, and environmental practices. These guidelines serve as a framework for voting decisions.

3. Proxy Voting Process:

   • Prior to a company's annual shareholder meeting, fund managers receive proxy statements containing proposals and resolutions that require shareholder approval. These proposals cover a wide range of topics, from electing directors to ratifying auditors and approving compensation plans.
   • Fund managers carefully review the proxy materials, assess the potential impact on shareholder value, and determine how to cast their votes in line with their proxy voting guidelines.

4. Active Engagement:

   • Fund managers may engage in active dialogue with company management and boards of directors to express concerns, seek explanations, or advocate for changes in corporate policies and practices. These engagements can take various forms, such as private meetings, letters, or public statements.

5. Proxy Voting Decision:

   • Based on their analysis and engagement efforts, fund managers decide how to cast their proxy votes. They may vote in favor of management's recommendations, against them, or abstain from voting on certain issues, depending on their assessment of what is in the best interest of fund shareholders.

6. Stewardship Reports:

   • Some fund managers publish stewardship or engagement reports that detail their proxy voting decisions, engagement activities, and the rationale behind their votes. These reports provide transparency to shareholders and other stakeholders.

7. Collaboration:

   • Fund managers may collaborate with other institutional investors, such as pension funds and other mutual funds, to amplify their influence and advocate for common objectives. This collective action can carry more weight with companies.

8. Filing Shareholder Proposals:

   • In some cases, fund managers may file shareholder proposals themselves to address specific governance or ESG (Environmental, Social, and Governance) issues at a company's annual meeting. These proposals are subject to a shareholder vote.

9. Legal and Regulatory Compliance:

   • Fund managers must ensure that their shareholder activism and proxy voting activities comply with applicable securities laws and regulations. They must also follow disclosure requirements regarding their voting decisions and engagement efforts.

10. Ongoing Monitoring:

    • Shareholder activism and proxy voting are ongoing processes. Fund managers continue to monitor and engage with portfolio companies, especially those where governance or ESG concerns persist.

The goal of shareholder activism and proxy voting is to influence positive changes in corporate governance, enhance transparency, align companies' practices with shareholder interests, and ultimately protect and enhance the value of the fund's investments. Fund managers act as stewards of their shareholders' capital and play a vital role in holding companies accountable for their actions and decisions.