University of Illinois law professor Larry Ribstein critiqued a recent New York Times article by well-known business journalist Gretchen Morgenson by arguing that mutual fund voting on company proposals is not as conflicted as the reporter stated.
Ribstein wrote, “Morgenson makes minimal efforts in today’s article to present the other side by getting quotes from Fidelity. Obviously these self-interested defenses do not have the same impact as would reporting evidence from neutral academic studies. Moreover, Morgenson deliberately slants her writing to minimize the impact of the rebuttals. For example, while Morgenson does state Fidelity’s position that it will oppose anti-takeover provisions proposed by management and support shareholders in other respects, this paragraph is immediately followed by the quote about conflicts of interest presented at the beginning of this post.
“Morgenson’s conflict-of-interest slant is critical to her approach to this issue, as is evident by how often it appears in her stories. Indeed, without this slant there would hardly be a story. Even Morgenson has to acknowledge that mutual funds do not vote rigidly for corporate managers. In any event, her readers care about fund returns. They don’t care whether their funds are activists unless it’s evident any such activism would help the bottom line. And whether it would requires them to accept that Morgenson and the tiny stable of shareholder “activists” she trots out week after week know better than the mutual funds how they should vote. For example, ‘activists’ have long touted separating the board chair and ceo positions â€“ a position that doesn’t look so self-evidently brilliant in light of the dysfunction it brought to HP.
“So to create a scandal about mutual fund voting, Morgenson needs smoking guns. She’s tried techniques other than the conflict of interest angle. For example, Morgenson tries the populist gambit, lamely asserting today that Fidelity doesn’t care about executive compensation issues because its chief executive is so rich. And she ends with a murky story about Fidelity’s support for efforts to water down SOX provisions that are unpopular with much of corporate America in exchange for some sort of exemption â€“ a story Fidelity denies. These misfires demonstrate how badly Morgenson needs the conflict of interest angle.”
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