Lucian Bebchuk has given more thought to the issues surrounding the Big Three Index Funds than other researchers. He and Scott Hirst recently provide a “comprehensive theoretical, empirical, and policy analysis of index fund stewardship.” Reference also Strine: Big 4 Responsible to “Forced Capitalists,” as well as The Untenable Case for Keeping Investors in the Dark by Bebchuk, et al. as we examine further strategies to make large investors work more effectively for those who use their services. Continue Reading →
Tag Archives | Vanguard
In a recent paper, Delaware Supreme Court Chief Justice Leo E. Strine Jr. excoriates the Big 4 mutual fund families for voting against shareholder proposals seeking transparency for political contributions. His recommended action is radical. I offer a more moderate strategy. Continue Reading →
Do the Opposite was funny in the sitcom Seinfeld but not so funny when Franklin Resources does the opposite of shareholder proposals. In fact, doing the opposite threatens the existence of even the facade of democratic corporate governance, alive since 1947 with the legal right of shareholders to file and vote on proposals. Continue Reading →
Support for corporate political disclosure sponsored by the Center for Political Accountability’s resolution jumped among the largest mutual funds in 2018. An analysis by Fund Votes found support moved to 53%, up from 45% in 2017. This 8% increase was the largest since CPA began tracking institutional investor votes on its resolution in 2008. Continue Reading →
The battle over Main Street Investors could determine the future of the American economy for decades to come. According to Cydney Posner of Cooley PubCo, on one side are those who believe investors must focus on maximizing financial return and management knows best. On the other side are those who want to broaden the focus of investors to include environmental, social and governance (ESG) issues, with everyone participating in the debate. Continue Reading →
Shareholder Collaboration is a new ECGI working paper by Jill Fisch and Simone M. Sepe. Fisch is one of my favorite researchers, being insightful and less predictable than many of those in the primary academic hubs of corporate governance (Harvard, Stanford, and Delaware). In Shareholder Collaboration, the authors discuss the growing importance of a collaborative model, in contrast to models based on management power or shareholder power. (download paper in pdf) Continue Reading →
NAM Board Targeted
Investors led by Walden Asset Management, New York Common and the California State Teachers’ Retirement System (CalSTRS) called on 45 companies sitting on the Executive Committee and Board of the National Association of Manufacturers (NAM) to end the trade association’s attacks on shareholders.
The investors’ letter asks the companies to distance themselves from NAM’s recent attempts to discredit shareholder engagement, particularly on climate change. These efforts have been undertaken primarily through NAM’s membership in the Main Street Investors Coalition (MSIC) and through a report NAM funded and distributed that wrongly asserts that shareholder resolutions diminish company value. MSIC represents no investors. In my opinion, it is a front group for corporate managers attempting to generate fake news, stirring public opinion against investor rights.
Quotables on NAM
“The irony is that many companies on the NAM board are active business leaders on climate change,” said Timothy Smith, Director of ESG Shareowner Engagement at Walden Asset Management.
They understand the very real risk to our environment and have active forward-looking policies and programs on climate. Yet their dues to NAM are funding an aggressive attack against the very investors they meet with regularly to address climate change. We are appealing to these companies to clearly state their opposition to these positions taken by NAM and Main Street Investors Coalition. It is important to do so to protect their company reputations and integrity.
“Environmental risk consideration is part of the evolution of investing. Whether a retail or institutional investor, assessing the risks of investments is a standard practice,” said CalSTRS Portfolio Manager in Corporate Governance Aeisha Mastagni.
NAM appears out of touch with its own constituents. Over the last decade more than 75 percent of the environmental-related proposals CalSTRS filed were withdrawn because the companies were willing to negotiate a mutually agreeable outcome.
The Letter’s Key Paragraph
The MSIC perpetuates the myth that incorporating environmental, social and governance (“ESG”) factors inherently conflicts with protecting and advancing shareholder value. However, the 1,200 members of the United Nations-backed Principles for Responsible Investment – including Fidelity, BlackRock, Vanguard and State Street – with over $70 trillion in assets under management, have committed to consider ESG issues in the investment decision-making process since these factors may affect shareholder value. There is ample evidence that incorporating ESG issues into investment decisions is part of responsible management as a fiduciary. Moreover, hundreds of global companies demonstrate leadership and transparency on sustainability issues. These companies’ action are not guided by “political and social interests” but by what is good for their investors and stakeholders over the long term.
NAM is a trade organization that represents and advocates for manufacturers across industrial sectors. Many NAM members are taking active steps on climate issues as a result of shareholder engagement. Nevertheless, NAM has established significant ties to MSIC, which purports to speak for investors, but which instead appears to be engaged in an attempt to undermine shareholders’ rights by denouncing ESG-related shareholder proposals and by suggesting shareholders’ concerns are politically motivated.
Why NAM is Attacking Shareholders Now
The investor letter noted that, “The emergence of MSIC and the release of this report come at a time when investor support for shareholder proposals is growing” because the “business case behind them is clear and convincing.” The signatories requested that the companies explain their views on MSIC’s public attempts to discredit investor engagement and shareholder proposals.
Over 80 institutional investors, including state and city pension funds, investor trade associations, investment firms and mutual funds, foundations and religious investors added their organization’s names in support of the letter.
Investors are actively engaging companies in their portfolios as concerns over climate risk grow. Most recently, investors representing approximately $30 trillion urged some 150 companies to reduce their greenhouse gas emissions, disclose their assessment of climate risks, and explain what actions they plan in response to climate risk.
Investors like BlackRock, Vanguard and State Street have made it clear that they want the companies in which they own shares to address climate risk.
“It is extremely bad timing for NAM and by implication the members of its board to be attacking investors addressing climate change at a moment when we desperately need to work together,” said Smith.
Since I am older than most of my readers, I offer the following historical perspective. The investor letter sent to the Executive Committee and Board NAM is correct in assuming that shareholder rights are under attack because their proposals are winning. The current fight on climate change and social issues reminds me of an older one on proxy access. In 1977 the SEC held a number of hearings to address corporate scandals. At that time, the Business Roundtable (BRT) recommended amendments to Rule 14a-8 that would allow access proposals, noting such amendments
… would do no more than allow the establishment of machinery to enable shareholders to exercise rights acknowledged to exist under state law.
The right to pursue proxy access at any given company was uncontroversial. In 1980 Unicare Services included a proposal to allow any three shareowners to nominate and place candidates on the proxy. Shareowners at Mobil proposed a “reasonable number,” while those at Union Oil proposed a threshold of “500 or more shareholders” to place nominees on corporate proxies.
One company argued that placing a minimum threshold on access would discriminate “in favor of large stockholders and to the detriment of small stockholders,” violating equal treatment principles. CalPERS participated in the movement, submitting a proposal in 1988 but withdrawing it when Texaco agreed to include their nominee.
Early attempts to win proxy access through shareowner resolutions met with the same fate as most resolutions in those days – they failed. But the tides of change turned. A 1987 proposal by Lewis Gilbert to allow shareowners to ratify the choice of auditors won a majority vote at Chock Full of O’Nuts Corporation and in 1988 Richard Foley’s proposal to redeem a poison pill won a majority vote at the Santa Fe Southern Pacific Corporation.
In 1990, without public discussion or a rule change, the SEC began issuing a series of no-action letters on proxy access proposals. The SEC’s about-face was prompted by fear that “private ordering,” through shareowner proposals was about to begin in earnest. It took more than 20 years of struggle to win back the right to file proxy access proposals.
Let’s hope the current attack on shareholder rights by NAM and the fake Main Street Investors Coalition does not set investor rights back by another 20 years.
Tesla Proxy Access, item #4
Tesla shareholders meet Tuesday, June 5, 2018, at 2:30 p.m. Pacific Time, at the Computer History Museum located at 1401 N. Shoreline Blvd., Mountain View, CA 94043. In the interest of more accurate press coverage of Tesla Proxy Access, item #4, I (James McRitchie) am posting the text of my draft presentation on Tesla Proxy Access in advance. Continue Reading →
Shifting Investor Perspectives on Climate Risk & Board Climate Competency
These notes on climate competency are my last post from the Council of Institutional Investors Fall 2017 conference. Find more at
#CIIFall2017. As a member of the press, I was excluded from the policy-making meetings. Still, it was a great opportunity to touch base with members of CII and to learn of recent developments and where we may be headed.
Walden Asset Management has engaged a number of investment managers and mutual funds on their proxy voting practices, specifically challenging voting records on shareholder resolutions addressing significant social and environmental issues. I see this as a major victory. However, more Vanguard shareholders need to speak out to ensure momentum continues. Contact Vanguard.
In 2017, Walden filed resolutions with two Vanguard equity index funds that requested a review of their proxy voting at portfolio companies, particularly on shareholder resolutions focused on climate change. While mutual funds are not required to hold annual meetings for investors, Vanguard scheduled a November meeting for other reasons, thus setting up the opportunity for a vote on the Walden resolution. Continue Reading →
The Investor Stewardship Group (link), a collective of some of the largest U.S.-based institutional investors and global asset managers, along with several of their international counterparts, announced the launch of the Framework for U.S. Stewardship and Governance, a historic, sustained initiative to establish a framework of basic standards of investment stewardship and corporate governance for U.S. institutional investor and boardroom conduct.
My own impression is that this group has been carefully constructed, probably stemming from many discussions at ICGN and CII. They have certainly started with an impressive group. Although most of the principles are relatively ‘safe,’ I am delighted to see their position that “shareholders should be entitled to voting rights in proportion to their economic interest.” That one recommendation alone is huge. I hope they continue to build on their initial consensus items.
Of course, the internet changes everything. Companies used to go public to raise money for factories, staff, etc. Now, they raise funds from private equity funds and scale all the way because they can build out through the internet with coding and algorithms. They go public only when founders and initial supporters want to cash out a portion of their investment. Continue Reading →
After making the decision to apply the principles of SRI investing, many clients embark on the initial step of selecting a core stock fund. Traditional investors have literally hundreds of highly efficient core investment solutions. However, SRI investors aren’t so blessed—which is why I put together this core list of Best SRI Funds.
Best SRI funds need to start out by being financially sustainable. Some fund companies seem to believe that they can rake in higher fees on the backs of well meaning investors. The primary objective of a core fund is to match the market with as little cost drag as possible. Continue Reading →
Let’s change Vanguard’s political disclosure vote. Our nation’s largest mutual fund voted against all resolutions submitted by shareholders asking for companies to disclose their political spending. Shouldn’t we have the right to know what candidates our investments are supporting?
Vanguard’s Political Disclosure Vote Needs Changed
Join more than 59,000 American’s who have already petitioned Vanguard to change their proxy voting behavior. Support shareholder resolutions that seek disclosure of political spending at companies where Vanguard owns a shares. If Vanguard votes with us, instead of against us, it won’t be long before other large funds like BlackRock start doing the same. Within a few years, we could actually begin to know what companies are funneling how much money to which candidates. Vanguard’s political disclosure vote can be changed – with your help. Sign the petition by U.S. PIRG to change Vanguard’s political disclosure vote. Continue Reading →
There it was under my tree, Reeds delivered a corrected proxy for Christmas!
Santa has finally been good to Reeds (REED) shareholders.
I’m tacking notification of the corrected proxy as a sign that Founder/CEO, Christopher Reed might be at the start of a new attitude toward SEC rules and corporate governance, I changed my vote. I voted for Mr. Reed, the auditors, my own proposal to require a majority vote to elect directors and against the rest of the board and the “incentive” stock option plan. The incentive plan lack specificity.
Of course, my proxy didn’t magically appear under my Christmas tree. Reeds Inc. had to pay to have the link to their revised proxy sent out by Broadridge to brokers and banks all over the country. After being reminded several times, Reeds finally did the right thing. Unfortunately, their reluctance and delay necessitated postponing their annual meeting for more than a week but, despite the additional cost to company and shareholders (including me), it is good to see our company now following the law. Continue Reading →
On February 27, 2015 Vanguard sent out an important letter to many boards of directors of publicly traded companies. The letter, signed by Vanguard’s Chairman and CEO, exhorts directors to follow best practices to ensure that corporate resources are stewarded effectively. But what happens to those boards of directors who are stubbornly entrenched? Continue Reading →
Buying and holding stocks and bonds for the long term and maintaining a diversified portfolio are still the smartest strategies for the average investor, says Vanguard founder Jack Bogle in answer to Mark Cuban and other critics of these traditional approaches. In the Big Interview with Journal columnist Jason Zweig, Bogle takes aim at the culture of market speculation. Betting on long odds, he says, “doesn’t pay off very often.” Continue Reading →
Vanguard, Northern Trust, BlackRock and Fidelity scored the lowest among researched funds in supporting AFL-CIO endorsed proxy issues in 2012, according to their 2012 Key Votes Survey. Calvert, Amalgamated Bank, McMorgan and Bridgeway scored the highest.
On proxy-voting issues at 32 companies the AFL-CIO considers representative of a “worker-owner view of value that emphasizes management accountability and good corporate governance,” Vanguard voted against all 32 proposals; Northern Trust, 28 out of 29; BlackRock, 30 out of 32; and Fidelity, 28 out of 30. Continue Reading →
United Natural Foods ($UNFI) is one of the stocks in my portfolio. Their annual meeting is coming up on 12/12/2012. ProxyDemocracy.org had collected the votes of three funds when I voted on 12/5/2012. I voted with management only 17% of the time. View Proxy Statement. Warning: Be sure to vote each item on the proxy. Any items left blank will be voted in favor of management’s recommendations. (See Don’t Let Companies Change Shareholders’ Blank Votes) Continue Reading →
I believe ISS/Risk Metrics created a policy on the Frequency of Advisory Vote on Executive Compensation (Management “Say on Pay”), a new proxy item required under The Dodd-Frank Wall Street Reform and Consumer Protection Act.
Their Recommendation: Vote FOR annual advisory votes on compensation, which provide the most consistent and clear communication channel for shareholder concerns about companies’ executive pay programs.
Rationale for Update: The Dodd-Frank Act, in addition to requiring advisory votes on compensation (aka management “say on pay” or MSOP), requires that each proxy for the first annual or other meeting of the shareholders (that includes required SEC compensation disclosures) occurring after Jan. 21, 2011, include an advisory voting item to determine whether, going forward, the “say on pay” vote by shareholders to approve compensation should occur every one, two, or three years.
In line with overall client feedback, ISS is adopting a new policy to recommend a vote FOR annual advisory votes on compensation. The MSOP is at its essence a communication vehicle, and communication is most useful when it is received in a consistent and timely manner. ISS supports an annual MSOP vote for many of the same reasons it supports annual director elections rather than a classified board structure: because this provides the highest level of accountability and direct communication by enabling the MSOP vote to correspond to the majority of the information presented in the accompanying proxy statement for the applicable shareholders’ meeting. Having MSOP votes every two or three years, covering all actions occurring between the votes, would make it difficult to create the meaningful and coherent communication that the votes are intended to provide. Under triennial elections, for example, a company would not know whether the shareholder vote references the compensation year being discussed or a previous year, making it more difficult to understand the implications of the vote.
From my understanding, ISS held a conference call on the new policy. I wasn’t on the call but I understand 250 were. I also understand that during the call it came out that CalSTRS, State Street and Vanguard all support annual votes. CalSTRS was expected but State Street and Vanguard supporting annual votes is likely to mean greater success. Annual vote seems headed for the default position.
It is great to see an article in the WSJ from John Brennan, chairman emeritus of Vanguard on Improving Corporate Governance: A Memo to the Board (5/10/10). Brennan says boards are improving and offers several bits of advice to keep the momentum going:
1) Know that you are the shareholders’ first line of defense.
2) Build value through mutual respect.
3) Communicate. Great boards of directors listen and hear.
4) Measure your success. Great boards are self-reflective and self-evaluating.
5) Compensate yourselves in equity.
6) Share your metrics.
7) Hold yourselves accountable.
8) Establish an “owner’s relations committee.”
Great to see a representative of Vanguard speaking out about the importance of corporate governance. I’m delighted to learn that largely passive investor Vanguard “hardly takes a passive approach to corporate governance.” Much good advice and I’d love to see Vanguard take it as well.
However, when I look at their voting track record on ProxyDemocracy.org I see, for example, the Vanguard 500 fund only voted against management twice on Board Independence and Performance proposals out of 235 times. If they really take corporate governance and voting seriously, why not announce those votes in advance on sites like ProxyDemocracy.org and MoxyVote.com. If their votes really are thoughtful, retail investors will follow their lead. It looks to me like they need to put a little more thought into proxy voting. (Hat tip to Martin Robins for bringing the article to my attention.)