Does index fund address social issues? SEC official seeks transparency

“I think Jackson is a leader and ahead of his time on this,” said Tim Smith, director of shareholder engagement at Walden Asset Management in Boston. “Remember, years ago the SEC had to be encouraged to require the N-PX report,” he noted. “It didn’t happen without support.”

“He will get pushback, for sure,” Smith added.

The pushback may come from within the SEC itself, where the top level of leadership — its commissioners — remain divided over the core issue of shareholder proposals submitted as part of proxy seasons. Smith noted that one of Jackson’s co-commissioners, Hester Peirce, is a “” who supports updating proxy rules to make it more difficult for shareholders to file resolutions.

“I’m not criticizing her [Hester Peirce] for having her view, but she has spoken her mind, just like Rob Jackson,” Smith added. “These dynamics within the SEC will affect whether such an idea would get air time and be considered a priority, but you have to put these things forward to get public debate.”

Jackson is a Democrat; Peirce a Republican.

Niels Holch, a mutual fund lawyer and head of the Coalition of Mutual Fund Investors in Washington, D.C., said he has found Jackson to be thoughtful and not partisan. “He joins with the GOP on some issues and the Dems on others.

“He is definitely an independent thinker, not just voting the party line.”

SEC Chairman Jay Clayton, an Independent, said in a speech last December “it’s clear” that the shareholder resolution process needs to be reviewed, specifically, the way in which proposals that fail one year are allowed to be resubmitted (shareholder advocates say it often takes several years to gather significant support). Since being appointed by Trump to chair the SEC in 2017, Clayton has received some criticism from Republicans for for Trump’s pro-business policies.

Smith said asset managers would be more likely to agree to more prominent, formal disclosure of proxy voting at the point of sales if it weren’t also a requirement to show their data versus competitors. “They would fight very hard against comparing themselves to others,” he said. “It would be easier to say ‘Vanguard’ should disclose on their website.”

But Smith said comparing across companies is the best solution. Signs point to that happening in the future, whether or not the SEC requires it, and companies have to be dragged along. Morningstar — which played a key role in the disclosure of fund fee and performance information in recent decades — plans to use its acquisition of FundVotes to surface as much N-PX research from the 2019 proxy voting season as possible, and as soon as the N-PX documents are filed by fund companies.

Referring to the pushback from asset managers that came before N-PX was approved, Cook said, “We will see it again with any greater push for transparency.”

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