Vanguard, the US index fund giant with $3trn (€2.8trn) in assets, has unveiled a voting and engagement which shows it backed management at around half of all recent shareholder proposals at company AGMs on environmental and social issues.
The report is the first of its kind since the US firm signed up to the Principles for Responsible Investment (PRI) a year ago. Back then, Vanguard Chief Executive William McNabb said that while the firm was known for its passive investment products, it cared a “great deal” about the governance at investees and therefore actively engaged.
The report showed that in the year to June 30 2015, Vanguard cast its ballot 120,000 times at some 13,000 annual general meetings (AGMs). Of the 290 shareholder proposals dealing with environmental and social issues, Vanguard said it backed “management recommendations” 51% of the time.
It was, however, not clear how often Vanguard abstained. Said Vanguard: “We typically abstained from voting on proposals that sought additional reporting or corporate policy changes regarding environmental or social matters for which a sufficient impact on shareholder value had not been established.” Of the 1,460 shareholder proposals related to the board or its directors, Vanguard backed management 31% of time. But again, there was no breakdown of its abstentions or how often it supported the proposals outright.
In voting, Vanguard supports annual elections for directors; investor say on executive pay; performance-based pay for executives; and, to a large extent, proxy access.Vanguard backed 15 proxy access proposals from shareholders and 11 more from management itself during the period in question. However, Vanguard said it voted mostly for those proxy access proposals requiring shareholders to own at least 5% of company stock when nominating directors. Also, such proposals must contain “safeguards to avoid potential abuse by those who do not have a significant long-term interest in the company,” it said.
The report also reflected that in the year to June 30, Vanguard engaged with 700 companies. Through its funds, the asset manager owns about 5% of every listed US firm and around 1% of companies outside the US. Citing examples of what it achieved, Vanguard said that it induced a “large consumer services firm” to reduce the size of stock awards by 40% and to make those awards more dependent on performance.
It also said that it made progress in promoting the “one share, one vote” principle among US firms that have multiple shares and urged French firms to not adopt the country’s new “Florange Law.” Under the measure, double voting rights are given to investors who hold company stock for more than two years – unless the company opts out.
Finally, Vanguard said that thanks to its engagement, a “large energy company” had agreed to set up a new board committee responsible for environmental risks. According to Vanguard, the move was preceded by concerns that the firm was not doing enough following the litigation that stemmed from pipeline spills and other environmental abuses. Link