Inside Financial Services

Ignore Proxy Advisors. Portfolio Managers Should Think For Themselves.

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It’s not often that it’s appropriate for a CEO to disparage his own shareholders by calling them lazy and irresponsible, but when Jamie Dimon did just that on Tuesday, he was absolutely on target. “God knows how any of you can place your vote based on ISS and Glass Lewis,” he told attendees at an investor conference. “If you do that you are just irresponsible. I’m sorry, and you probably aren’t a good investor, either. And you do—some of you here do it because you’re lazy.”

Bingo. An institutional money manager has a fiduciary duty to the parties that have entrusted money to him. The last thing he should outsource to a third party is the decision on how to vote shares his firm owns on those investors’ behalf. Yet too many do, out of laziness—and, I would add, cowardice.  The whole proxy advisory racket came about on account of some purported conflict of interest money manages supposedly have. In particular they’re supposedly too cowed to honestly vote against the managements of companies, since they might one day solicit asset-management business from those same companies.

Baloney. Here’s a tip if you’re shopping around for a money manager: if you don’t think a given candidate has enough integrity to look out for your interests during proxy-voting season, run away as fast as you can and don’t look back. Mis-voting your shares is the least damage he’ll do.  At our firm’s daily morning meeting the other day, we got to talking about what great money managers think is the single most important characteristic of successful investors. Joel Greenblatt  is said to have listed “patience.” Warren Buffet is reported to have said “focus.” I buy both of those, but will offer a third choice: stiff-necked independent-mindedness.  Great investors think for themselves, regardless of what the conventional wisdom happens to be. I spend an enormous amount of time and thought considering shareholder questions put before the companies our funds own. It’s my duty to my investors. The notion that I should reflexively rely on the judgment of an outsider—even an outsider that doesn’t come up with ludicrous recommendation as routinely as ISS and Glass Lewis do—would be an awfully serious dereliction of that duty.

Good for Jamie Dimon for calling out investors too lazy to think for themselves.

What do you think? Let me know!

3 Responses to “Ignore Proxy Advisors. Portfolio Managers Should Think For Themselves.”

    • John Vollrath

      Dick Kovacevich agrees with Dimon, and so do I.

  1. Thad MacMillan

    Bingo! And for those who still buy and hold individual Co. shares it’s particularly important.

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