The Cox Commisson and the Legacy of Anti-Shareholder Bias: In re Intech Investment Management (A Perspective)

We are discussing In re Intech Investment Management, a recent administrative proceeding brought by the Commission against an adviser with pro-shareholder voting practices.

Intech put in place a system of voting that tracked an approach apparently developed by ISS in consultation with the AFL-CIO. 

One can imagine, therefore, that the standard more completely tracked the interests of shareholders rather than management.  The release indicated that this was done to attract more union pension business.  Perhaps, but it was an approach to voting that favored shareholders and, presumably, beneficiaries of pension plans.  It was apparently this motivation that caused Intech to be sanctioned.  See In re Intech Investment Management ("INTECH chose an AFL-CIO-based voting platform for all clients without addressing and describing its potential effect on INTECH’s ability to retain and obtain business from existing and prospective union-affiliated clients.")

Intech did disclose the actual voting results to its clients and a significant number (27%) were switched back to the more pro-management platform.  Ultimately, Intech opted to not use the AFL-CIO inspired platform as a default but instead to select as a default platform the approach that "best represent[ed] the client type."  In short, unions were voted in accordance with the union supported platform and company pension plans voted in accordance with the pro-management platform. 

There are several notable things about this case.

First, one suspects that advisers often vote in a manner that is designed to assuage clients and attract additional business.  Thus, having to say that a voting policy can have this effect is in some ways redundant.

Second, one further suspects that the majority of advisers who do this are voting in a pro-management fashion.  In other words, advisers know that in order to attract additional pension plan business from corporations they must vote in a management friendly fashion. Yet the Commission happened to sanction an adviser voting pro-shareholder, remaining silent on what is probably a far more common practice.

Third, the Commission did not in fact establish that the policy implemented by Intech was not in the best interests of the beneficiaries of the pension plans.  The approach clearly was not favored by some of Intech's clients.  These were presumably corporate pension plans, with management of the various companies unhappy with the pro-shareholder voting platform.  The Commission made no attempt to ascertain whether the clients insisting on a change in the voting platform were actually operating in the best interests of their beneficiaries.

This case in the end sanctioned an adviser for voting in a pro-shareholder fashion.  It essentially required advisers wishing to do so to disclose that they are doing so in order to attract additional business, something few are likely to do.  As a practical matter, therefore, advisers are less likely to opt for the pro-shareholder platform. 

On the other hand, the Commission did not impose a similar requirement on those voting in a pro-management fashion.  As a result, advisers can employ a pro-management platform without any revealing disclosure.  It is what most are likely to do.  In short, this case was designed to discourage pro-shareholder voting by advisers.  It is a legacy of the Cox Commission.