Saturday, June 4, 2011

Investor Equality for Women starts with (Proxy) Votes

Over the last year or two, I have grappled with a situation that many has plagued the most knowledgeable investor advocates, been largely ignored by directors of not only corporate boards and the mutual funds who vote for their shareholders, and as the business of investing has expanded, the folks who bring you the ability to invest. This situation has not improved and in fact, doesn't show any signs of doing so in the near-term.

Martha Burk is a political psychologist, women’s issues expert, and director of the Corporate Accountability Project for the National Council of Women’s Organizations (NCWO) and because of this involvement with these issues, has helped advise numerous presidential candidates over her fifty year career. And even as she recently pointed out in a column posted in the East Texas Review concerning the number of women now serving on the boards of directors as less than representative of the workforce at large, the difficulties of making the corporate world more representative of the workforce that now represents a majority of women comes with a cost.

Her points are valid when she suggests that the problem is not as simple to solve as it seems. Simply selling your shares in a particular institution will not change the way the corporation is run, how representative it is of the shareholders or worse, how your mutual fund, the proxy voter for every 401(k) investor, approves or disapproves the boards the vote for on your behalf. While money can always walk, the message it sends is muted when it comes to the numerous layers, twists and turns it must take when trying to send a message.

Last week on the Financial Impact Factor radio, we spoke with Lewis Braham about the sad state of the proxy vote. For those of you who may not be versed, the proxy vote is what you mutual fund does for you when it comes time to vote for the underlying investments in your fund choice. For an S&P 500 index fund, your mutual fund company votes for you on 500 separate occasions. While the conversation during this broadcast was centered on the mutual fund giant Vanguard and their ability to say one thing and do another when it comes to this task, the issues is systemic amongst almost all mutual funds.

And while Ms. Burk does suggest that the corporate boards need to be more representative of the shareholders, those shareholders are in the greatest majority in the funds we own and not as individual investors who could simply sell their shares and move on. And while this sort of revolutionary stance feels good, it also jeopardizes the long-term financial goals that women already trail when compared to their male counterparts.

So from which direction do we approach this complicated topic? If you were to suggest that women find more suitable mutual fund investments, and Ms. Burk does by offering a socially responsible fund family such as PaxWorld, the cost of doing so can be so egregious as to actually add to the problem. Because most SRI type funds are actively managed with a host of caveats (on what and how they should invest the fund assets) placed before its investment teams, the cost of running such funds can run as high as 2%. Add to that, or should I say subtract from the paltry returns most of these funds have posted, and you could easily trail the broadest of benchmarks by 5% or more in returns. Advocacy apparently has a very high cost.

Nothing says responsible like keeping the socially conscious from gaining ground for retirement. Which brings us to another fork in the road. While Ms. Burk wants better exposure at the corporate level, a move that would increase the voice on executive compensation, there is no guarantee that much would change.

In fact, women still trail their executive male cohorts in terms of top level, high paying jobs. This keeps the statistics for female compensations statistically lower, often skewing the numbers. More women at the top would level those numbers dramatically but as we have witnessed, over the last ten years, the pace has been much slower than most would like to see.

Over the last six months, I have had numerous conversations with women concerning this topic and two things stand out.

One, I'm not so sure women believe me when I suggest that the financial crisis we recently had would have in large part been preventable had women been at the helm. Even women who have made their living in the world of finance seem surprised by this proclamation. While women have their own set of biases when it comes to investing, intuition plays a major role in how they approach decisions. To advance to the top, empirical evidence, the sort of thing that men survive on often displaces this feeling of what is right and wrong. They may know better but convincing men to act otherwise is often back-burnered in favor of profits.

Two, because of this parsing of information to make it more digestible to the men who already reside at the top of these companies, this additional layer of thinking about what is right and perhaps what might be wrong would have kept the markets from reaching bubble-like status. Do women get exuberant about investing? Of course they do. But for different reasons. Do women desire the same compensation? Of course they do and when they do, the

The solution will be slow in coming. As Ms. Burk does point out, the workforce is now more skewed towards women while their presence at the executive level, both corporately and on the boards of mutual fund companies has been stagnant. It has been well noted that women who participate in their retirement plans at work has increased, it still lags behind men in total invested dollars.

It is easy to suggest that women increase their contributions to these plans. But doing so only enables the current corporate structure to stay in place. Ms. Burk's assertion is correct: "The money female workers pour into these retirement funds is huge, and the folks that control the votes ought to pay attention to who is represented on the investment end. All these entities should have policies against supporting all-male boards."

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