July 21, 2009
As ETFs Gain Popularity among Investors, Their Proxy Voting Power Grows as Well
by Robert Kropp
A new report by the Investor Responsibility Research Center Institute and PROXY Governance examines
the proxy voting guidelines and voting records of the seven largest ETFs in the US.
Exchange-traded funds (ETFs) have experienced remarkable growth since Standard and Poor's created
its Deposit Receipt ETF in 1993. By the end of 2008, there were approximately 750 ETFs with more
than $500 billion in assets under management in the United States alone. ETFs are open-ended funds
that are traded on an exchange. Unlike mutual funds, ETF shares can be traded at any time while the
host stock market is open.
Because of the growth of ETF assets in the US, the
impact on proxy voting and corporate governance by their largest sponsors has grown as well. A new
report, prepared by PROXY
Governance, an independent proxy advisory and voting firm, for the Investor Responsibility Research Center Institute (IRRCi),
examines the proxy voting policies and voting records of seven of the largest ETF sponsors.
The report, entitled Proxy Voting by
Exchange-Traded Funds: An Analysis of ETF Voting Policies, Practices and Patterns, considers
the shareowner activities undertaken by Barclays Global Fund Advisors, State Street Global
Advisors, Vanguard Group, Invesco PowerShares Capital Management, ProFunds, Rydex Investments, and
In its examination of proxy voting guidelines at the seven ETFs, the
report found that with the exception of Rydex, which voted with management on 19 of 21 proposals
analyzed, all of the funds use a case-by-case policy approach. The three largest ETFs—Barclays,
State Street, and Vanguard—tended to vote with management a greater percentage of the time, while
the three smallest funds—Invesco, ProFunds and WisdomTree—were more likely to vote against
management and in favor of shareowner proposals.
On the other hand, according to the
report, "the three largest ETFs appear to withhold votes from incumbent director nominees at a
greater number of companies than the smaller funds." The authors speculate that "this appears to be
their preferred means of expressing dissatisfaction with management or board governance, rather
than voting against management on specific proposals."
The report concluded that the proxy
votes cast by ETFs in 2008 were generally consistent with their written proxy guidelines, which it
attributes to the case-by-case policy approach adopted by all but one of the seven ETFs. According
to the report, "Funds that rely heavily on a proxy advisory firm for voting guidelines or to make
their vote decisions tend to vote against management proposals, and in favor of shareowner
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