Give mutual fund investors a voice in shareholder proxy voting – Gita Rao

MIT Sloan Sr. Lecturer Gita Rao

From MarketWatch

Are you concerned about climate change, or about social issues such as corporate board diversity? Can you as a shareholder have your preferences communicated to company management and perhaps impact corporate policy on these issues? For the majority of individual investors, the short answer is “no.”

That’s because most individual investors own mutual funds. But the structure of the mutual fund makes it difficult to reflect shareholder objectives and values related to environmental, social, and governance (ESG) issues.

The growth in individual shareholder ownership ironically has created a huge gap in corporate governance and accountability. The ownership of Corporate America lies largely with employees through 401(k) plans and other retirement vehicles, except these same employee-owners cannot and do not have proxy voting rights — these are exercised by the fund providers.

Given the size of retail assets that fund managers control — collectively close to $10 trillion — there is a valid concern about their voting practices not reflecting the preferences of the millions of investors in their funds. A typical fund has to vote on hundreds of proxies each year, most of them routine. The voting process is centralized and fairly automated, with default guidelines regarding how the shares are voted. The fund manager conducts analysis only on issues that materially impact a company’s financial or operating performance, and then casts a vote.

Having managed mutual funds for a long time and voted hundreds of proxies globally, I believe there is a simple and direct way to reflect shareholder ESG preferences in the voting of proxies: Through the fund prospectus.  Read More »

How Corporate America can create better jobs — Thomas Kochan

MIT Sloan Professor Thomas Kochan

MIT Sloan Professor Thomas Kochan

From Fortune

In the 1987 movie Wall Street, Gordon Gekko’s memorable pronouncement that “greed is good” epitomized the worst features of American corporations that focus only on maximizing immediate shareholder returns without regard to the impact on their employees, customers, or communities.

That corporate caricature has continued to prevail. But recently, people ranging from Harvard University Business School Professor Michael Porter to leaders of the Sloan, Ford, Aspen, Hitachi (more here) and other foundations are putting forward the case that companies can provide great returns to shareholders and great jobs for employees.

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Social responsibility can boost bottom line — Caroline Flammer

Caroline Flammer, Lecturer, Global Economics and Management

We generally think of corporate social responsibility (CSR) as a sort of feel-good policy, as something that is good for public policy or public relations but not a company’s bottom line. But my research finds that good corporate citizenship can actually lead to superior financial performance. A company’s social engagement is actually a resource that can create positive value and improve competitiveness. Read More »

U.S. corporate taxes: A strong incentive to move overseas

MIT Sloan Assoc. Prof. Michelle Hanlon

When a U.S. company owns a subsidiary overseas, it has a big decision to make when it comes to the earnings of that subsidiary. Does it send the money back to the parent company in the U.S. and pay U.S. corporate taxes or does it avoid the U.S. tax by permanently reinvesting the money abroad?

Given that the U.S. has one of the highest corporate tax rates of any country in the world, it’s not surprising that many companies choose not to repatriate the money.

Our current system in the U.S. — known as the worldwide tax system — is one where U.S. companies’ earnings are taxed in the U.S. even if earned overseas. However, companies are not required to pay the U.S. taxes on operating income of foreign subsidiaries until they bring cash home to the U.S. parent company.

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