Last week, Vanguard updated its voting policies for this proxy season. Remember that Vanguard has split its stewardship teams into two – and for this proxy season, it appears there are no substantive differences between the Vanguard Capital Management policy and the Vanguard Portfolio Management policy for US companies.
Overall, Vanguard’s policy updates closely track the trends we saw in BlackRock’s recent updates, including a stronger emphasis on financial materiality, the removal of diversity based on personal characteristics (such as age, gender, and race and ethnicity) from consideration in board assessments, a softening of certain voting positions – but there aren’t any significant changes to core voting policies.
Courtesy of Cooley’s Vince Flynn, here are seven things to know about Vanguard’s updated voting policies:
- Less detailed guidance: On several key topics- including independent board leadership, director accountability, and overboarding – Vanguard no longer provides examples of specific items it considers when analyzing those topics, resulting in a more general, principles-based articulation of its approach. For example, the updated policy removes prior examples of unilateral board actions and oversight or responsiveness failures (e.g., zombie directors or unilateral actions limiting shareholder rights) that could trigger negative votes under its director accountability policy.
- Board composition: Vanguard no longer identifies personal characteristics such as age, gender, or race/ethnicity as a relevant consideration in assessing board composition. Vanguard also shifted its view on board skills matrices from something companies “should” provide to something they “may” provide.
- Overboarding: Vanguard replaced “will” with “may” when describing potential votes against directors who either (a) serve as a public company executive and sit on more than two public company boards or (b) serves on more than four public company boards. Vanguard also removed examples of company-specific facts and circumstances that could influence its assessment of an overboarded director.
- Environmental and social (E&S) proposals: Vanguard’s updated discussion on E&S proposals places greater emphasis on “financial” materiality and removes a prior reference to disclosure frameworks “endorsed or already referenced by Vanguard’s Investment Stewardship program,” though the ISSB reference in the policy is retained.
- E&S metrics in incentive plans: When nonfinancial metrics (such as ESG metrics) are included in incentive plans, Vanguard now states that they should demonstrate the same alignment with “shareholder returns” as other financial metrics, reflecting a stronger focus on financial materiality. While last year’s policy emphasized rigor, disclosure, and alignment with key strategic goals and material risks in its assessment of nonfinancial factors, the updated policy retains these considerations alongside the new emphasis on alignment with shareholder returns.
- Anti-takeover provisions: Vanguard replaced “will” with “may” when describing potential support for shareholder proposals to opt out of state-law anti-takeover provisions.
- Exclusive forum provisions: Vanguard removed the following language from its policy: “The funds will consider withholding support from governance committee members when a company unilaterally adopts a provision that meaningfully limits shareholders’ rights without a compelling rationale for the choice of forum.” However, this unilateral action may still be scrutinized under Vanguard’s director accountability policy, as this was among the examples included in last year’s policy.
Authored by
Broc Romanek