By Cameron Berube
According to yet another investment scorecard, Vanguard is failing to advance the best interests of its investors.
The new scorecard, issued by the Nathan Cummings Foundation, ranks mutual funds based on their support for “Proxy Access” proposals. Seven out of the 10 largest mutual fund companies in the United States voted in favor of proxy access proposals the majority of the time. Vanguard, on the other hand, the largest mutual fund family in the United States, only supported proxy access proposals 18 percent of the time.
Proxy access, or granting significant shareholders (those that hold at least 3 percent of a company’s shares) the ability to nominate a director to the board of a company they invest in, is a bread and butter shareholder rights issue. Control of the board is central to the interests of shareholders because it provides them with a mechanism to weigh in on issues of corporate governance which effect shareholder value. According to the CFA Institute, a global association of investment professionals focused on promoting accountability and integrity in financial markets, “proxy access would serve as a useful tool for shareowners in the United States and would ultimately benefit both the markets and corporate boardrooms, with little cost or disruption to companies and the markets as a whole.”
Currently, many firms do not allow shareholders without a large percentage of shares owned (sometimes 5 percent or more) to nominate a director. The result of that policy is that proxy voting decisions are held tightly by an elite group of major shareholders, and doesn’t necessarily represent the needs of many retail investors. Major mutual funds represent the financial interests of millions of people who count on them to manage their 401(k)s and college savings plans. This enormous amount of market power gives groups like Vanguard a corresponding responsibility when it comes to voting on shareholder resolutions.
With this in mind, it is easy to imagine the impact a mega-fund like Vanguard could have if it was to vote in favor of proxy access shareholder resolutions at firms in which they invest. For example: if Vanguard had supported proxy access in 2015, companies like Exelon, Peabody Energy, and Exxon Mobil could all have proxy access policies in place today. Unfortunately, Vanguard chose, instead, to abstain, leaving their shareholders out of the conversation.
This type of proxy voting behavior on key issues that really matter to investors is not unusual for Vanguard. According to a 2015 report from the Center for Political Accountability, major mutual funds like Vanguard are doing next to nothing to encourage companies in which they hold a large percentage of shares of to disclose how they use our money to influence policy, information eagerly demanded by many investors and the public.
Vanguard holds over $3 trillion in assets and controls about 5 percent, on average, of almost every publicly traded company in the United States. Yet it routinely abstains from voting its proxy in favor of shareholder resolutions calling for important investor priorities like political spending disclosure and proxy access.
This begs a question: Is Vanguard standing up for the best interests of its investors?
According to these last two indexes, not really.
Cameron Berube is the democracy associate for Public Citizen’s Congress Watch division.