Avon Letter: Historical Background

(From CorpGov.net ) -A major landmark in establishing a fiduciary duty for proxy voting was the Department of Labor’s (DOL) 1988 Avon Letter, which was based on specific sections of ERISA (sections 402, 403, 404 and 405), summarized as follows:

‘In general, the fiduciary act of managing plan assets which are shares of corporate stock would include the voting of proxies appurtenant to those shares of stock. For example, it is the Department’s position that the decision as to how proxies should be voted with regard to the issues presented by the fact pattern are fiduciary acts of plan asset management’

Votes should be consider plan assets. Fiduciaries were also required to monitor and document proxy voting.

The Avon Letter was followed by the Monks Advisory Letter in 1990. In response to questions by Robert Monks, then head of Institutional Shareholder Services, regarding the practice of some fiduciaries opting out by assigning the duty to others, DOL responded:

‘If either the plan or the investment management contract (in the absence of a specific plan provision) expressly precludes the investment manager from voting proxies, the responsibility for such proxy voting would be part of the trustees’ exclusive responsibility to manage and control the assets of the plan. ‘

The letter reinforced the requirements of fiduciaries to monitor and document proxy voting. DOL followed these letters with Interpretive Bulletin (29 CFR 2509.94-2), 1994, outlining documentation that would explicitly satisfy the fiduciary responsibilities for voting proxies and confirmed that“…a statement of proxy voting policy would be an important part of any comprehensive statement of investment policy…..”


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