TheCorporateCounsel.net

Earlier this week, Vanguard published a statement on its approach to board responsiveness to shareholders & other stakeholders.  After a couple of pages devoted to the usual platitudes about the importance of engagement and the general need for directors to be responsive to shareholder input, Vanguard lowered the boom by laying out its policy on board responses to majority supported shareholder proposals:

When a board fails to respond to a proposal supported by a majority of its voting shareholders and the Vanguard-advised funds supported the proposal, the funds will generally vote against relevant members of the board. For example, concerns with compensation matters would likely impact votes on members of the compensation committee, while governance concerns would generally impact votes on members of the nominating/governance committee. A pattern of unresponsiveness to shareholder feedback (e.g., a failure to act, or slow action, on shareholder votes) may be an indicator of poor governance practices and may result in increasing levels of opposition to board members’ election.

Not surprisingly, Vanguard doesn’t specify what an appropriate “response” would be to a majority-supported shareholder proposal, which is probably impossible to do in the abstract. Nevertheless, companies need to know that their responsiveness to these proposals will be graded at the ballot box by one of their largest shareholders.

Vanguard’s policy may not have a significant impact on most companies, at least for now. That’s because, as SEC Commissioner Mark Uyeda pointed out in his speech at the Society for Corporate Governance’s conference earlier this week, the percentage of shareholder proposals receiving majority support has fallen precipitously in recent years. Only 5% of proposals received majority support this proxy season, compared to 19% just two years ago.

– John Jenkins