Vanguard's newly-released Investment Stewardship 2020 Annual Report, which captures its investment stewardship activities for the 12 months ended June 30, reveals stepped-up engagement based in its four pillars of good governance — board composition, risk & strategy oversight (including climate change and diversity), performance-linked executive compensation, and shareholder rights — all encompassed within an overarching long-termism theme, accentuated by the COVID-19 pandemic and the social justice movement triggered by the George Floyd killing.
Aside from noteworthy big picture statistics like the fact that Vanguard discussed board composition in 70% of its nearly 800 company engagements, met with independent directors in nearly half of its engagements, voted against 384 directors because of executive compensation concerns, and engaged with 258 companies in carbon-intensive industries (representing 33% of all companies engaged), the report includes a number of instructive narratives in the form of engagement case studies spanning all of its good governance pillars.
Climate- and diversity-related risks and associated board oversight were among Vanguard's focus in the Americas region. The US specifically fared relatively well as respects Vanguard's support for management proposals — averaging about 94% on director election and executive compensation proposals; 89% on governance-related shareholder rights proposals; 92% on capitalization proposals; and 100% on M&A proposals.
The report also reiterates Vanguard's board diversity expectations included in last year's report (which we reported on here — see "Vanguard Expects"):
In a Q&A with Glenn Booraem and John Galloway, whom Vanguard announced as its new Global Head of Investment Stewardship, John comments on the firm's beyond-the-boardroom diversity expectations:
Q: How do societal matters such as diversity, equity, and inclusion play a role in corporate governance?
John: We see opportunities for continued improvement across our portfolio. For example, in 2019, we communicated to companies that our expectations regarding diversity in the boardroom go beyond gender and include racial and ethnic minority representation. While some companies have taken meaningful steps, too many others haven’t. We will continue o push for progress—and our expectations will evolve to reflect a growing focus on the importance of diversity across boards, leadership teams, and the broader workforce.
He further notes in the release: "Over the coming months, we will make clear our expectations for board and workforce diversity, climate change risk, and will engage with companies to better understand how COVID-19 has shaped their views of systemic risk.”
The nearly 800 company engagements are listed by company name and engagement focus beginning on page 52 of the report.
See our recent reports: "Vanguard: Climate Risk Governance Expectations in Action," "Vanguard Speaks on COVID-19 Executive Pay," and "Vanguard & State Street Concede Need for Flexibility in COVID-19 Crisis," and additional information & resources on our Institutional Investors page.