Vanguard’s new stewardship insight publication on how it evaluates shareholder proposals on diversity, equity, and inclusion (DE&I) explains the circumstances under which it believes DE&I-related matters may give rise to material financial risks that might prompt its support for DE&I-related shareholder proposals. Generally, Vanguard analyzes such proposals on a case-by-case basis based on its assessment of the financial materiality of the risks, reasonableness of the proposal, and whether the requested action addresses a gap in a company’s current practices or stated intentions.
DE&I disclosure proposals - Vanguard is likely to vote in favor of shareholder proposals that call for reasonable enhancements to financially material DE&I risk disclosures; however, where companies are already providing sufficient disclosures or a request is determined to be overly prescriptive, it may not support such proposals.
DE&I board oversight proposals - Vanguard will generally support DE&I board oversight proposals if the requests are clear and focused on DE&I risks that are likely to be financially material to the company and could affect long-term shareholder value. It may view a proposal as misdirected and withhold its support where a company is already sufficiently addressing the topic or has credibly committed to address the request in a reasonable time frame or where the request is overly prescriptive.
Third-party racial equity audits - Vanguard may support a racial equity audit proposal where a board’s current oversight processes or disclosures suggest a failure to sufficiently oversee the company’s DE&I risks or where the company endorses the proposal on its merits. It is likely to support such a proposal if it believes that a third-party audit is in the best interest of shareholders based on its assessment of how the board and management are overseeing financially material risks to long-term investors.
Vanguard informs it may also withhold support for “relevant” directors if it observes a lack of board oversight on material risks such as DE&I.
Notably, the publication emphasizes Vanguard’s focus on company-specific financial materiality in its proxy voting evaluation and decision-making processes: “As a fiduciary for our more than 30 million investors, Vanguard must distinguish between general societal concerns about DEI and the financial materiality of DEI risks to a particular company.”
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This post first appeared in the weekly Society Alert!