How Vanguard advocates on behalf of investors

23 October 2020 | Topical insights

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How Vanguard advocates on behalf of investors

Our engagement with the companies in which we invest is one of the clearest expressions of how we advocate on behalf of our clients. Vanguard’s index funds are long-term owners of companies and we champion good governance through our investment stewardship programme.

Vanguard’s investment stewardship team voted on more than 168,000 proposals and engaged with nearly 800 firms across 27 countries on behalf of Vanguard funds for the year ended 30 June 2020.

As detailed in our Investment Stewardship 2020 Annual Report, the team engaged and voted on matters concerning Vanguard’s four principles of good governance, including performance-linked executive compensation, a well-composed board, effective oversight of strategy and risk and shareholder rights.

In numbers, Vanguard’s investment stewardship team:

  • discussed board composition in 70% of engagements;
  • voted against 384 directors because of executive remuneration concerns; and
  • engaged with 258 companies (33% of all companies engaged) in carbon-intensive industries.

Source Vanguard.

Below are case study examples from the report that detail the rationale behind some of our voting decisions and engagement efforts.

Executive compensation

We discussed with tech conglomerate Alphabet (Google’s parent company) the large proposed compensation package for its new CEO, who was appointed in December 2019. Alphabet executives said the package signalled their confidence in the new CEO to lead the company. The size and structure of the equity plan awarded to the new CEO was not, however, in line with our belief that such packages should be long-term-focused and tied to performance metrics to incentivise long-term shareholder value creation.

Board composition

French media company Lagardére faced a proxy contest at its 2020 annual general meeting (AGM) by an activist shareholder group that nominated eight new directors and sought to remove seven existing ones. Following discussions with both parties, we concluded that a change in board composition would support the supervisory board in challenging and overseeing the company more effectively on behalf of shareholders. The dissident candidates did not win the election but did receive considerable support, which we expect Lagardére to reflect on and consider implementing changes as we continue to engage.

Oversight of strategy and risk: climate

At the Barclays 2020 AGM, a shareholder proposal requested the company report annually on its targets to phase out financial activities in the energy and utilities sectors that are not aligned with the Paris Agreement. Concerns around the language and specific implementation aspects of the proposal led Barclays’ management to put forth an alternative climate-related proposal, including ambitious goals to become net zero on greenhouse-gas emissions by 2050. Vanguard funds voted in favour of management’s proposal, which we felt presented a workable transition over a sensible time frame and was in the best interest of shareholders.

Shareholder rights

Among a number of proposals by the management team of US-based industrial distribution firm Lawson Products, Vanguard opposed a motion to eliminate supermajority vote requirements. The presence of a single shareholder controlling 48% of voting power meant that reducing the vote requirement from 75% to a majority could potentially harm shareholder rights.

We did, however, support proposals to declassify the board and establish the right of shareholders to call special meetings, highlighting our case-by-case approach to voting and engagement.

For a summary of votes and our proxy voting history by region, please see the full report.

As the voice of 30 million investors worldwide, Vanguard takes its investment-stewardship responsibility seriously. We will continue to encourage portfolio companies to adopt principles of good governance and hold them accountable for following through.

 


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© 2020 Vanguard Asset Management, Limited. All rights reserved.

© 2020 Vanguard Investments Switzerland GmbH. All rights reserved.

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