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October 31, 2002
Mr. Harvey L. Pitt, Chairman
Securities and Exchange Commission
450 Fifth Street NW, Room 6012
Washington, DC 20549
Dear Chairman Pitt:
We write to submit the following comments in
response to the Securities and Exchange Commission's recently proposed
rules, File Numbers S7-36-02 and S7-38-02, concerning proxy voting
policies and voting disclosure by mutual funds and investment
advisors. We strongly support the recommendations set forth by the
SEC, and congratulate the agency for its forward-looking positions on
a topic of utmost importance to the investment community.
Petersen Hastings Investment Management is a
locally owned, independent, SEC Registered Investment Adviser with
approximately $170 million under management. Our mission is to create
financial solutions for our clients that provide an inseparable union
between their personal or organizational values and financial
performance. We provide financial planning services for individuals
and qualified retirement plan investment services for businesses. We
also integrate socially responsible issues into our client portfolios
when our clients’ objectives call for it and we take our proxy voting
role seriously. We get involved with corporate responsibility and
governance issues through the Social Investment Forum and other
organizations because we consider the investment advisor as the final
line of defense for the individual financial planning client or 401(k)
participant from corporate wrongdoing. We were one of the early
pioneers of the fee based approach to investment management as opposed
to the commission based approach. We also are part of a larger group
of advisors called the Zero Alpha Group LLC that represents over $1
billion under management across the United States. Zero Alpha Group
Members have similar beliefs regarding the financial planning process
and selection of investments based upon low cost index or passively
structured vehicles.
Comments Regarding File No. S7-36-02:
Disclosure of Proxy Voting Policies and Proxy Voting Records by
Registered Management
Investment Companies
We support Rule S7-36-02, and feel it is a major
step forward in providing transparency for investors. This rule is
also consistent with recent SEC moves designed to increase
transparency in financial filings and transactions. The SEC is making
a clear statement that proxy voting is a fiduciary duty and should be
exercised with the best interests of investors in mind. The SEC must
also realize that investment advisors cannot fully protect their
client’s interests when mutual fund proxy voting information is not
fully disclosed or readily available.
It is of increasing concern to some investors (both
individual and professionals) that there is no way of knowing how most
mutual funds voted on key corporate governance and social issues.
Rule S7-36-02 would better enable shareholders and
their advisors to monitor mutual funds' involvement in corporate
governance, compensation, and social policy activity at companies. The
proposed amendments would encourage mutual funds to be more actively
engaged in the companies they hold, instead of passive institutional
investors.
HOW THIS RULE BENEFITS INVESTORS:
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As an investment
advisor, we are in many cases the final line of defense for the
individual financial planning client or 401(k) participant from
corporate wrongdoing. It is difficult for the investment advisor to
protect investors from mutual funds or separate account managers who
have a practice of voting proxies inconsistent with good governance
when there is not full disclosure and transparency of proxy votes.
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We will typically
search for low cost index or passively structured funds that meet
our client’s overall asset class needs. We should also be able to
evaluate proxy voting policies to better represent our client’s
positions and force mutual funds to take their proxy voting role
more seriously with greater transparency. With proxy voting
guidelines as another advisor tool, we will be able to better
represent and protect our clients’ interests.
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Spotlights conflicts of
interests that may exist between fund companies that vote with
management at corporations, where they have 401(k) or other
business.
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Provides investors with
ways of distinguishing fund companies, including identifying those
that have strong corporate governance or social responsibility
engagement guidelines.
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Forces fund managers to
treat the proxy as a client asset.
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Presses mutual funds to
take their responsibility seriously for their voting.
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IT IS IN THE BEST
INTEREST OF THE INVESTOR, A MEASUREMENT THAT WE HAVE USED AT OUR
INVESTMENT ADVISORY FIRM FOR YEARS IN OUR DECISION MAKING!
RESPONSE TO INDUSTRY ARGUMENTS AGAINST THIS
RULE:
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Such disclosures are
not costly or cumbersome to mutual fund companies--small funds with
fewer resources and revenues have been doing this for years.
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The largest public
pension in the world, CalPERS, also discloses its votes and
guidelines (since 1999), even though it deals with thousands of
companies and proxy votes each year. It does this through web site
databases, and hard copy disclosure on request.
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Many mutual funds and
large institutional investors already engage companies in serious
positive dialogue, yet are able to still vote against management on
issues without destroying that relationship.
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Most fund companies
already have web sites, and could easily reach the bulk of their
investors through web disclosures, which is low-cost.
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Funds should already be
internally keeping track of votes, so it's just a matter of
converting existing data to new fields for web interface.
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The surprise opposition
to this rule by one of the largest investment organizations ignores
the fact that confidentiality should be protected for the individual
investor, not hidden from the investors that this organization and
others like it ultimately represents through a fiduciary role.
Comments Regarding File No.S7-38-02 :
Proxy Voting By Investment Advisers
Under this rule, investment advisers are expected
to create policy guidelines to disclose to clients how they will vote
on given proxy issues. Advisers are also to keep adequate records of
their voting in order to provide transparency to clients when
requested. Because investment advisers have voting authority over $12
trillion in assets, in addition to the $7 trillion controlled by
mutual funds, and vote these assets on behalf of their clients,
methods for disclosing such votes seems a reasonable request. These
assets make up the lion's share of the investment market in the U.S.,
and yet many individuals and institutions entrusting voting rights and
obligations to advisers are left in the dark about how their assets
are being used to strengthen a company's bottom line. Transparency
regarding voting by portfolio managers is paramount in strengthening
corporate governance at U.S. companies. We are one of these Advisers
and not only recommend full proxy voting disclosure, we embrace it!
We commend the SEC on its recent efforts to
encourage greater disclosure and transparency by mutual funds,
including a "plain English" prospectus, and detailed disclosure
requirements regarding investment strategies, fees, and risks. The
proposed rules concerning disclosure of proxy votes and guidelines is
a solid step on the path for true transparency for investors that have
indirect control of their assets. Investors feel disempowered and
frustrated by the litany of corporate scandals gracing newspapers and
television screens. They want to know how their hard-earned monies are
being invested for the future, yet are dubious that adequate checks
and balances are in place to prevent future "Enron’s."
Transparency of action and intent go a long way to
alleviate such anxieties. This in turn will help to restore lagging
faith in our currently volatile equities markets, and the mutual fund
sector.
We look forward to your response concerning our
comments.
Sincerely,
Jeffrey C. Petersen
Petersen Hastings Investment Management Inc.
cc: Commissioners Harvey Goldschmid, Roel Campos,
Paul Atkins, and Cynthia Glassman; Secretary Jonathan Katz.
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