Did you know that Fidelity Investments, the nation’s biggest mutual fund company, is using its power as a shareholder to make it easier for public companies to discrimination against gay people?
A study by the Pride Foundation, a nonprofit that supports the gay, lesbian, bisexual and transgender (LGBT) community in the Pacific Northwest, has found that Fidelity consistently votes against shareholder resolutions that ask companies to include sexual orientation in their nondiscrimination policies.
This should be of more than passing interest to people at big companies like Microsoft and Time Warner (where I work) whose 401-k programs are managed by Fidelity. MSFT and TWX are both gay-friendly companies, but the Fidelity mutual funds in their employees’ 401-k program are all voting proxies against gay rights. (This 401-k business may be key to understanding Fidelity’s actions, as I’ll explain below.)
Fidelity’s position makes the company an outlier. Vanguard and American Funds, two other big mutual fund companies that were researched by Pride, both vote in support of resolutions asking companies to ban discrimination against gays and lesbian. That’s also the recommendation of Institutional Shareholder Services (ISS), the influential shareholder advisory group.
In fact, of the 100 biggest companies on the FORTUNE 500 list, all but two have publicly pledged not to discriminate against gays and lesbians. ExxonMobil and Plains All American Pipeline are the exceptions.
So what’s going on at Fidelity? I called the Boston-based firm to find out and a spokesman named Vincent Loporchio rather sheepishly told me that the company did not intend to vote against the interests of gay people. “We have a strong anti-discrimination policy for our own workforce, which includes sexual discrimination,” he said.
He explained to me that Fidelity, like other mutual fund companies, has a set of proxy voting guidelines that govern the way it votes on shareholder resolutions. When the guidelines do not cover an issue–and and they do not cover most social and environmental issues, including gay rights–Fidelity supports management. That’s the default position. So Fidelity ends up voting against gays and supporting management at companies like ExxonMobil, Plains Pipeline and Micron, where top execs have said they don’t want to adopt a policy of non-discrimination against gays. (All assure you that they don’t discriminate against anybody.)
“We cast more than 50,000 proxy votes in a short period of time,” Loporchio told me, suggesting that the company may have overlooked the issue.
Zach Wright, a Seattle lawyer who chairs the Pride Foundation’s shareholder activism committee called that a “lame excuse.” He told me: “It seems unlikely to me that it would just slip through the cracks–that they would have no idea what they are voting on. If they’re voting against LGBT rights, they’re voting against LGBT rights. That’s all there is to it.” Hard to argue with that.
I’ve got my own theory about Fidelity’s motivation. The company makes a lot of money running 401-k programs for big companies. A lot of money. It is, therefore, beholden to the management of big companies, and reluctant to buck them. That’s why its default position is to oppose shareholder resolutions. This is called a conflict of interest. It’s also called a breach of fiduciary duty, because Fidelity is obligated to vote the proxies in the interests of its own fund shareholders. (Lawyer-readers, pls correct me if I’m wrong on this.) Notice that Fidelity did not even try to persuade me that it had a legitimate, thought-out reason to vote against these resolutions.
Loporchio did say that the proxy guidelines re discrimination on the basis of sexual orientation are likely to be re-evaluated soon.
Two final points. First, these resolutions matter. They give GLBT employees the confidence that they can come out, and organize themselves, without getting fired. (See my story about Wal-Mart’s GLBT group.) The New York City Comptroller’s Office, the Pride Foundation, and shareholder activists at social investment firms Trillium Asset Management (Shelley Alpern) and Walden Asset Management (Meredith Benton) deserve credit for their work in this arena.
Second, I suspect that it won’t take much to get Fidelity to change its position re gay rights. The company has an 800 number for Fidelity investors (including anyone at MSFT, TWX or other companies whose 401-k programs are managed by Fidelity) to call. It’s 800-343-3548. You’ll be asked for a Fidelity account number or social security number to lodge your comments with the Fidelity value network.