January 18, 2022

Vanguard’s ’22 Voting Policies: Overboarding, Board Diversity & More

On Friday, Vanguard posted its 2022 proxy voting policies for US portfolio companies – which go into effect March 1st. Like SSGA, Vanguard’s updates also address governance & disclosure practices around director overboarding. Here’s an excerpt:

For 2022, the Vanguard funds will also look for portfolio companies to adopt good governance practices regarding director commitments, including the adoption of an overboarding policy and disclosure of how the board oversees policy implementation.

Here are Vanguard’s thresholds for overboarding:

– Non-NEO Directors: Vanguard will generally vote against directors who serve on 5 or more public company boards – at each company except the one where they serve as board chair or lead independent director.

– Directors Who Are NEOs: Vanguard will generally vote against a director who is a current NEO at a public company and sits on more than 2 public company boards (which the new policy clarifies could be either the NEO’s “home board plus one outside board, or two outside boards if the NEO doesn’t serve on their home board). A fund will typically vote against the nominee at each company where they serve as a non-executive director.

In addition, Vanguard’s new voting policy steps up expectations for board diversity and related disclosures, by saying:

Boards can inform shareholders of the board’s current composition and related strategy by disclosing at least the following:

– Statements from the nominating committee (or other relevant directors) on the board’s intended composition strategy, including expectations for year-over-year progress

– Policies related to promoting progress toward increased board diversity

– Current attributes of the board’s composition

Board diversity disclosure should at least include the genders, races, ethnicities, tenures, skills, and experience that are represented on the board. Disclosure of personal characteristics (such as race and ethnicity) should be on a self-identified basis and may occur at an aggregate level or at the director level. Disclosure of tenure, skills, and experience at the director level is expected (see details on “skills matrix” formats below)

New this year, Vanguard will vote against the nominating and/or governance committee chair (or other director if needed) if a company’s board is making “insufficient progress” in its diversity composition and/or in addressing its board diversity-related disclosures. Vanguard will consider applicable market regulations & expectations, company-specific context, diversity of personal characteristics (gender, race, ethnicity, tenure, skills, experience), and believes that boards should reflect a composition that is appropriately representative given their markets and strategies.

Vanguard’s approach to shareholder proposals that call for skills matrix disclosures and board diversity policies is unchanged from last year.

Vanguard’s new voting policies also address factors that funds will consider when assessing climate risk oversight failures (pg. 7) and shareholder proposals calling for “hybrid” or “virtual-only” meetings (pg. 18).

Liz Dunshee