Mutual funds herdlike in director voting

When it comes to voting their proxies in elections for corporate directors, mutual fund companies prefer not to stand out from the crowd. In fact, fund firms tend to “feel out” what other firms intend to do before casting their votes and “huddle” when going against management’s choice for a director, according to Michael Ostrovsky, an assistant professor of economics at the Stanford (Calif.) Graduate School of Business. “If only one fund votes against management, and others vote with management, management may retaliate against the objecting fund,” according to a study released earlier this month, of which Mr. Ostrovsky was a co-author. The study looked at more than 3 million votes cast by 3,600 mutual funds from 2003 to 2005. How can management retaliate? “It can do so by limiting its interaction with the fund to the minimal level required by the law,” the study found. Not everyone, however, is convinced that fear of retaliation is what drives funds to vote in unison. For the full report, see the upcoming June 4 issue of InvestmentNews.