TheCorporateCounsel.net

Sometimes it isn’t clear why investor votes come down on one side versus the other. Last week, in an effort to give more insight into those decisions, Vanguard released a 12-page report about key votes cast during the 2023 calendar year. The report covers both management and shareholder proposals (including director elections) and is broken down by region. The report is worth reviewing if Vanguard is a significant holder at your company and you are uncertain of how they will vote on this year’s proposals. Specifically, the report highlights “significant votes” as defined in the EU’s Shareholder Rights Directive, which means they:

(i) involved a vote at a company in which Vanguard-advised funds hold a meaningful ownership position, or (ii) conveyed Vanguard Investment Stewardship’s perspective on an important governance topic that arose in connection with a shareholder vote.

The “Key Votes Report” follows the publication of Vanguard’s Investment Stewardship Report, which was released earlier this month and includes high-level stats for the asset manager’s voting record on various management and shareholder proposal topics (see pg. 56) – as well as case studies and general takeaways. In this report, Vanguard noted that U.S. boards are responding to “universal proxy” with enhanced disclosure of director skillsets and effectiveness. Here’s an excerpt:

We saw many companies implement practices and enhance disclosure related to their board skills matrices, director capacity and commitment policies, and board effectiveness assessments. We shared with companies our perspective that these changes and their related disclosures give shareholders greater visibility into board operations and a better understanding of how boards fulfill their oversight role.

Across the Americas, independence was a primary factor in instances where the funds did not support a director’s election. When we observe a lack of sufficient board independence and/or have concerns related to key committee independence, the funds may not support the election of certain directors.

In addition, in the U.S. and Canada, the funds did not support compensation committee members in instances where issuers had not appropriately responded to significant concerns with executive compensation expressed through the prior year’s Say on Pay vote.

If you are amending bylaws this year, make sure to catch this nugget as well:

We observed that many U.S. companies, in response to legal and regulatory changes, unilaterally amended company bylaw provisions to limit executives’ liability, require specific jurisdictions for litigation, and/or adopt advance notice provisions impacting shareholders’ ability to bring proposals and director nominations to votes at company meetings of shareholders.

In these cases, we reviewed the impact these changes had on shareholder rights and engaged with companies to understand their rationale for adopting the provisions. In instances where we determined that the provisions were unduly onerous and/or otherwise alienated shareholder rights, the funds voted against relevant members of the board’s governance committee to express concern.

The Investment Stewardship report also notes that the team regularly attended industry events to promote corporate governance practices and share their perspectives. I know that everyone on the corporate side appreciates being able to gain insight & understanding from John and other members of Vanguard’s Investment Stewardship team at these events. I was happy to see that the report recognized those efforts!

– Liz Dunshee