TheCorporateCounsel.net

On Friday, Vanguard published its updated Proxy Voting Policy for U.S. Portfolio Companies for Vanguard-advised funds. The policy was effective on February 1, 2025 and is applicable to 2025 annual meetings.

Consistent with changes we have seen with the proxy voting policies of other investors, Vanguard appears to have revisited its approach to environmental and social shareholder proposals, eliminating guidance regarding specific types of proposals in favor of the following more general statement of the funds’ approach:

It is not the funds’ role as passive investors to dictate company strategy or interfere with a company’s day-to-day management. That said, we believe that a company’s fulsome disclosure of material risks to its long-term shareholder returns is beneficial to the public markets to inform the company’s valuation. Clear, comparable, consistent, and accurate disclosure enables shareholders to understand the strength of a board’s risk oversight. Because sustainability disclosure is an evolving and complex topic, a fund’s analysis of related proposals aims to strike a balance in avoiding prescriptiveness and providing a long term perspective. As such, the funds are more likely to support proposals seeking disclosure of such risks and/or the company’s policies and practices to manage them over time. Finally, shareholders typically do not have sufficient information about specific business strategies to propose specific targets or environmental or social policies for a company, which is a responsibility that resides with management and the board.

As a result, a fund may support a shareholder proposal that:

– Addresses a shortcoming in the company’s current disclosure relative to market norms or to widely accepted investor-oriented frameworks endorsed or referenced by Vanguard’s Investment Stewardship program (e.g., the International Sustainability Standards Board (ISSB));

– Reflects an industry-specific, materiality-driven approach; and

– Is not overly prescriptive, such as by dictating company strategy or day-to-day operations, time frame, cost, or other matters.

Yet another hot topic this year is how investors will be addressing the topic of board composition, and for 2025 Vanguard notes the following approach:

The funds look for boards to be fit for purpose by reflecting sufficient breadth of skills, experience, perspective, and personal characteristics (such as age, gender, and/or race/ethnicity) resulting in cognitive diversity that enables effective, independent oversight on behalf of all shareholders. The funds believe that the appropriate mix of skills, experience, perspectives, and personal characteristics is unique to each board and should reflect expertise related to the company’s strategy and material risks from a variety of vantage points.

To this end, the funds seek fulsome disclosure of a board’s process for building, assessing, and maintaining an effective board well-suited to supporting the company’s strategy, long-term performance, and shareholder returns. This disclosure should include the range of skills, background, and experience that each board member provides and their alignment with the company’s strategy (typically presented as a skills matrix); additionally, the funds look for such disclosure to provide an understanding of the directors’ personal characteristics to enable shareholders to understand the breadth of a board’s composition. The funds also look for disclosure regarding the board’s process for evaluating the composition and effectiveness of their board on a regular basis, the identification of gaps and opportunities to be addressed through board refreshment and evolution, and a robust nomination (and renomination) process to ensure the right mix of skills, experience, perspective, and personal characteristics in the future.

The funds look for a board’s composition to comply with requirements set by relevant market-specific governance frameworks (e.g., listing standards, governance codes, laws, regulations, etc.) and to be consistent with market norms in the markets in which the company is listed. To the extent that a board’s composition is inconsistent with such requirements or differs from prevailing market norms, the funds look for the board’s rationale for such differences (and any anticipated actions) to be explained in the company’s public disclosures.
A fund may vote against the nomination/governance committee chair if, based on research and/or engagement, a company’s board composition and/or related disclosure is inconsistent with relevant market-specific governance frameworks or market norms.

Now we await the updated proxy voting policy of State Street Global Advisors, which usually is not published until March.

– Dave Lynn