Vanguard Wants Greater Shareholder Accountability From BoDs

Fund manager Vanguard has started a new campaign to demand greater accountability from the boards of directors of the companies it invests in.

Vanguard, an industry leader that manages $3 trillion in funds, said it will present the idea in letters to company boards that it will be sending out early next year.

The Vanguard corporate accountability initiative comes at a time of increased activism by hedge funds and ethics campaigners in the U.S. and globally, as well as growing demands from long-term institutional investors for greater input into decision-making.

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Statement from Vanguard CEO

Bill McNabb, Vanguard’s CEO, told the Financial Times in a recent interview that he believed it was wrong that most company directors never met shareholders in their companies. He noted that directors at larger companies typically left the task to the CoB or a designated senior independent director.

“Independent directors are doing a good job but we find they are not as engaged with shareholders as they should be,” McNabb noted. “Directors are standing in on behalf of owners — it is an important concept — and there are many independent directors who have never met an investor.”

Part of the growing global debate on corporate governance

Vanguard’s new corporate governance proposal, which will be floated to the US companies in which it invests initially, also dovetails well with the ongoing international debate on best practices in corporate governance.

In Asia, recent changes in corporate governance practice and transparency have largely been driven by regulation and shareholder pressure. Europe has had somewhat more open corporate governance norms for some time, and Norway’s $870 billion oil fund is trailblazing in this area again as it plans to make its votes at shareholder meetings public from now on.

Of note, a new Investor Forum comprising the country’s top shareholders was launched in the UK in June of this year, and the forum will discuss pressing governance issues such as compensation, auditing procedures and company strategy.