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Monday, November 23, 2009

Activists Worry Over Anti-Genocide Proxy Voting at American Funds

News summary by MFWire's editors

In the continued debate over investments in genocide-ridden Sudan, the latest battle is being waged on American soil –- American Funds' soil that is, with concerns about the legitimacy of shareholder proxy voting contests taking center stage.

Capital Group's American Funds, which is scheduled to reveal the results of a vote on investments in Sudan at a shareholder meeting on Tuesday, is taking flack from Boston-based activist group Investors Against Genocide (IAG), which questions whether mutual fund families like American are conducting these voting contests with due transparency and accuracy.

Red flags were raised when several American Funds shareholders complained that they encountered difficulty getting their votes recorded correctly via phone, Reuters reports. Moreover, IAG alleges that millions of ballots mailed to American's shareholders did not fully detail the organization's proposed resolution on Sudan.

“Certainly there's something going on,” Eric Cohen, chairman of IAG, told Reuters. “I'm not sure they are miscounting votes, but who knows?”

For their part, American Funds and other large mutual funds who have come under fire, such as Fidelity and Putnam, maintain that their investments are legal and their proxy votes fair, asserting that they have provided shareholders with sufficient information about the resolution and ensured a transparent voting process.

“We believe that every shareholder received substantial enough information to make an informed decision on each of the proposals,” Chuck Freadhoff, American Funds spokesperson, told The MFWire.

One of the murkiest areas in voting contests surrounds the role of proxy-solicitation firms. As reported by Reuters, one American Funds shareholder claimed that a proxy-solicitor made it difficult for her to record her votes in support of the divestment proposal and did not follow up on promises to call her back. She perceived that this 'mistake' was not mere negligence but instead intended to block her vote.

The SEC is also jumping into the fray as part of its broader examination of corporate election processes and is taking a closer look at mutual funds' practices for conducting proxy voting.

“We want to ensure that the U.S. Proxy voting system as a whole operates with the degree of reliability, accuracy, transparency and integrity that shareholders and companies have the right to respect,” stated Mary Schapiro, SEC Chairman in a speech on Nov. 4th.

Typically, IAG's nonbinding shareholder proposals on Sudan garner roughly 20 to 30 percent. Yet as complaints mount, IAG anticipates that the credibility of these figures and the processes by which they were obtained will begin to gather doubt. 

Edited by: Patricia Kelly

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