Monday, January 20, 2003

It seems that departing Securities and Exchange Commission (SEC) Chairman Harvey Pitt is having a George Ryan moment. Mr. Ryan, of course, is the disgraced former Illinois governor who recently left office seeking liberal absolution by granting blanket death-sentence commutations to more than 150 prisoners on Illinois’ death row. In the same way, the long-embattled Mr. Pitt seems bent on exiting the SEC only after he has managed to push through an unnecessary “reform” that just happens to rest atop the anti-corporate agenda of Big Labor and the rest of the liberal establishment. If Mr. Pitt gets his way, the special-interest gadflies, who now merely agitate for their pet causes at annual corporate meetings, will soon be exerting pressures against the best interests of shareholders, whose primary concern is maximizing the returns from their stocks.
As early as this week, the SEC could adopt rules that would require mutual funds to publicly disclose how they vote their proxies on stockholder resolutions at annual corporate meetings. This would subject the $6.6 trillion mutual-fund industry and the investments of its 95 million shareholders to massive politicization. It would invite special-interest lobbying from the likes of Big Labor bosses, self-styled consumer advocates, radical environmentalists and animal-rights zealots whose least concern would be maximizing shareholders’ returns. Moreover, because the proposed public-disclosure rule would not apply to proxy votes by insurance companies, foundations, pension funds or bank-trust departments, it would inevitably encourage political activists and social ax-grinders to focus their efforts on the most vulnerable target mutual funds.
The proposed rule is being hailed by its advocates as “corporate governance reform.” Yet, there is not a shred of evidence that the mutual-funds industry was in any way involved in the recent spate of corporate scandals that contributed to the stock market’s collapse.
One of the leading advocates of the rule is Fund Democracy. Its Web site says it was formed “to serve as an information resource for mutual-fund shareholders and an advocate of shareholders’ rights and interests.” Fund Democracy describes itself as “largely derivative” its ultimate power flowing from “the membership organizations interested in improving the financial situation of their members.” And who might they be? These “real crusaders,” Fund Democracy tells us, include the AFL-CIO and the Teamsters neither of which is exactly a paragon of fiduciary responsibility.
After three years of declining stock prices, why would the SEC want to subject the mutual-funds industry the repository of nearly 20 percent of all publicly traded corporate equities to such targeted, politicized pressures? Is it Mr. Pitt’s swan-song gesture to the “do it for the children” crowd?
The tipoff is found in the background section of the proposed rule, where the SEC notes that “millions of individual American investors” rely upon their mutual-fund holdings to fund “their childrens’ educations.” Well, the best way to finance those educations is to maximize the returns from the shares in the mutual funds.

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