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Vanguard Increases Proxy Engagement

The ETF and index fund manager is increasingly stepping into a more aggressive role at companies in which it invests.

  • Alicia McElhaney

Vanguard Group is taking a more active approach to monitoring companies in its portfolios.

The asset manager engaged with 954 companies this year, jumping 39 percent from 685 companies in 2015, according to the firm’s Investment Stewardship 2017 Annual Report released Thursday. The number of companies Vanguard invested in remained stable over the period.

The firm’s increasing engagement is notable because it’s an exchange-traded fund manager focused on ordinary investors. While activist hedge funds regularly shake up corporate boards, Vanguard has made a name for itself providing low-cost, passive index funds.

“When a company has a great board of directors, good results are more likely to follow,” Vanguard Chief Executive Officer Bill McNabb said in an announcement about the report. “A strong board comprises diverse, experienced directors that serve as our eyes and ears on risk.”

Vanguard said in its report that the firm has seen a significant increase in the number of proxy contests and contentious transactions at the companies it has engaged with this year.

“Engagements are a critical part of our approach to stewardship,” the firm said in the report. “Some engagements were issue-related or event-driven, while others focused on gaining a deeper understanding of a board’s role in a company’s overall strategy.”

Vanguard is voting in more proxy contests. The firm voted on 171,385 proposals this year, up 39 percent from 2015, according to the report. Most of its votes were on board nominees and corporate matters, including proposals tied to capitalization and mergers and acquisitions.

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“We continue to address traditional governance issues, such as misaligned compensation practices, unequal shareholder voting rights and ineffective boards,” Glenn Booraem, Vanguard’s investment stewardship officer, said in the announcement. “Increasingly, we’ve taken stronger positions on emerging topics, including gender diversity on boards and climate risk disclosure.”

During the 2017 proxy season, or the 12 months through June, contests and contentious transactions were a “prominent issue” representing 16 percent of Vanguard’s company engagements, according to the report.

The firm noted that it evaluates activist situations on a case by case basis, and requires that activists make a “strong strategic case” for changes at a company in order to vote in its favor.

“You can expect us to speak out to serve as a voice for our clients, and to protect and further their economic interests,” Booraem said.