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Corporate Reform Coalition Response to Vanguard’s Glenn Booraem’s Letter on Proxy Voting

While the Corporate Reform Coalition appreciates the consideration of concerns raised about proxy voting and the response from Vanguard’s Corporate Governance Program, we find many points in the response problematic. Thus we will continue to push Vanguard, one of the largest investors in the world, to do better. Specifically

  • Glenn Booream Vanguard’s Fund Treasurer writes, “We agree with your assertion that social and environmental issues may affect long term company performance, and the many derivatives of these topics are well within the bounds of our analysis and advocacy” but goes on to explain that Vanguard has historically abstained from environmental and social (ESG) shareholder proposals because “sufficient impact on shareholder value had not been established”. This is precisely our point. Certain issues like political spending and climate change may pose material risk to a company. If there is risk involved, Vanguard should at least support disclosure to fully assess the affects of an issue like political spending or climate change on long-term performance.
  • The letter also states, “Our aim is to influence change that is clearly linked to value creation, and in some cases a simple vote “for” or “against” a proxy proposal doesn’t get to the heart of an issue. In fact, voting is only one part of a broader picture.” We agree with this point, there is a need for multiple strategies. . But,– How can Vanguard effectively engage with corporations they invest in  to assess long term value if they do not call for disclosure of ESG issues as a minimum requirement
    • Furthermore, Vanguard is playing down the power mutual fund proxy voting could have if they chose to engage and vote more proactively. Mutual funds own a quarter of the U.S. stock market and the top few mutual funds, including Vanguard, own an outsized portion of that quarter, which translates to a power to swing shareholder votes.
  • We would also argue that Vanguard’s current proxy voting policies are not consistent with the Principles for Responsible Investment (PRI). One of the six principles of PRI is “We will seek appropriate disclosure on ESG issues by the entities in which we invest” and specifically within that category “support shareholder initiatives and resolutions promoting ESG disclosure.”
  • We find the presentation of their proxy voting intentionally misleading. By showing the “% of votes supporting management recommendations” as 51 percent it implies to the average investor that they voted with shareholders the other 49% of the time when in fact they abstained.

In conclusion, this response from Vanguard only confirms where we thought they are getting it wrong. Shareholders need disclosure on issues like political spending and climate change because there is material risk that can affect the bottom line. When Vanguard signed on to PRI they acknowledged this and their guidelines for proxy voting should follow.