Advocating for the long term

April 24, 2018

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Investors depend on Vanguard to be a responsible steward of their assets. This includes managing the funds, offering investment perspectives and advice, and assisting with questions and transactions.

But because a long-term perspective informs every aspect of our investment approach, we also work on behalf of investors in less obvious ways, such as by advocating for responsible governance among the companies in which our funds invest.

We have continued to expand our efforts in this area as our investor base has grown. The Investment Stewardship team has doubled in size since 2015 and continues to add analysts, researchers, and operations team members. The team advocates for leading governance practices across the market, engages with company leaders and directors to share our views, and votes proxies at shareholder meetings globally in our fund investors' long-term interests.

Vanguard's four pillars of governance frame our thinking

4 pillars

"Vanguard index funds own shares in nearly every publicly traded company, and our funds are practically permanent shareholders—so it's really important to us that all companies perform well in this area," said Glenn Booraem, the Vanguard funds' investment stewardship officer. "When companies generate value, our funds generate value for Vanguard shareholders."

Four investment stewardship pillars

Vanguard has identified four pillars that underpin its evaluation of companies' governance. These pillars guide our engagement and proxy voting activity, and are prominent components of our research and analysis.

Guided by these pillars, the Vanguard Investment Stewardship team engaged in nearly 1,000 discussions with portfolio company directors and leaders worldwide during the 12 months ended June 30, 2017. The team also cast the funds' votes on more than 171,000 agenda items at more than 18,000 shareholder meetings.

Advocating for gender diversity on boards and climate risk disclosure

As Vanguard engages with companies, Mr. Booraem said it is devoting increased attention to two specific topics.

The first is gender diversity on boards. In recent years, a growing body of research has demonstrated that greater representation of women on boards can lead to improved governance and company performance. Vanguard is advocating for boards to incorporate diverse perspectives and experience into their strategic planning and decision-making. One example of Vanguard's commitment to more diverse boards is its membership in the 30% Club, a global coalition working to increase the representation of women in boardrooms and leadership roles. Closer to home, effective this year, 40% of the Vanguard Funds' directors are women.

"We believe that diversity among directors—along many dimensions including gender, experience, race, background, age, and tenure—can strengthen a board's range of perspectives and its ability to make good decisions," Mr. Booraem said.

The second matter is climate risk disclosure. Regardless of one's perspective on climate risk, the potential is real for changing regulations, demographics, and consumption behavior to affect business results for companies in many sectors. For example, as the market for electric cars grows, how will fossil fuel companies be affected? Vanguard engages with companies to understand their responses to such risks.

In the past year, Vanguard funds have voted for shareholder proposals at two energy companies that called for management to improve its climate risk assessment and planning, and Mr. Booraem said the funds will support similar proposals if they are beneficial to long-term shareholder value.

"We want to ensure that such business and regulatory risks are sufficiently disclosed so that stock prices reflect the full range of risks and opportunities for a given company," he said. "When a proposal from a shareholder presents a strong case for change, we're more than willing to consider it. And even if the case falls short, these proposals often catalyze a discussion that generates meaningful change over time."

But Vanguard does more than just vote on these matters. "We also seek long-term shareholder value through our engagement with companies, as well as our advocacy through industry-wide initiatives such as the Sustainability Accounting Standards Board (which encourages consistently comparable disclosure of material risk to long-term value) and the 30% Club," Mr. Booraem said. "We believe that as these efforts drive changes in governance, so too will they promote better long-term wealth creation for fund investors."

Vanguard's stewardship reflects its mission

Our investment stewardship approach could not be more clearly aligned with our core purpose—"To take a stand for all investors, to treat them fairly, and to give them the best chance for investment success." Each time we engage with a company's board and/or its management team, vote the funds' proxies, or advocate for enhanced governance across our global portfolios, we do so on behalf of the 20 million investors who have entrusted their assets to Vanguard.

"You can expect us to speak out when we detect threats to the economic interests of our shareholders," Mr. Booraem said. "We take positions on these matters not because they are inherently good or noble but because they are tied to the long-term economic value of the funds' investments."

We invite you to learn more about our investment stewardship program, including how Vanguard funds have voted.

Note:

  • All investing is subject to risk, including the possible loss of the money you invest.