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Stewardship Principles

01 April 2019

Stewardship Principles

Stewardship of assets by institutional investors is growing in prominence. This approach is supported by a multitude of market and internationally scoped codes or similar initiatives.

Vanguard, one of the world’s largest asset managers, is an example of a US-based institution that is at the forefront of this trend. David Shammai, Morrow Sodali’s Director of Corporate Governance- Cross Border, asked W. Robert Main III, Head of Portfolio Company Engagement, Analysis, and Voting at Vanguard about their stewardship program.

The growing volume of stewardship activity at Vanguard has been widely reported, but how has the program and the approach evolved?

As a long-term shareholder of publicly traded companies across the globe, Vanguard cares deeply about good governance and has continued to invest in our Investment Stewardship program. Since 2015, the team has doubled in size, and now stands at over 30 team members, including teams in both the United States and Europe. Though the team has grown, which has enabled us to broaden and deepen our advocacy, engagement, and voting activities, the core tenets of our program have remained consistent. Our approach remains anchored to our four principles of good governance – board composition, executive compensation, oversight of risk and strategy, and governance structures that empower shareholders.

How do you see the relation between your stewardship activity and the fiduciary duties you owe to the ultimate fund investors? Are they always complementary, for example in cases when there is an ethical dimension to a certain issue, would stewardship approach imply a more powerful imperative to gauge beneficiary preferences?

Our stewardship activity is directly tied to our fiduciary duty to our fund shareholders. At Vanguard our core purpose is, “To take a stand for all investors, to treat them fairly, and to give them the best chance for investment success.” One way we further this mission is through our investment stewardship efforts, seeking to maximize the long-term investments of our more than 20 million fund shareholders. Through our years of experience and research on a range of corporate governance matters, we have learned the relationship between ESG issues and long-term financial value is complex. That’s why our team uses the Sustainability Accounting Standards Board (SASB) framework to identify material environmental or societal issues by industry, which informs our engagement and voting approach.

What would be your advice to companies facing several issues here, some are to do with the increased resource that is needed to address investors’ growing appetite for engagement, but also having to cater to much more nuanced variations in the expectations of their investor base?

From our perspective, one element of good company governance is an effective engagement program with shareholders. However, we appreciate that increased demand from investors on a growing list of topics has created some tension with companies. Based on our engagements with more than 700 companies last year, here are a few takeaways from companies that are demonstrating leadership in their engagement practices:

  • Companies need to effectively communicate and coordinate internally to ensure the right participants are engaging with investors. This often involves discussions between the corporate secretary or general counsel’s office and with investor relations. For example, when investors seek to discuss topics like executive compensation and board oversight of strategy and risk, companies should expect to involve independent board directors in those discussions.
  • Before requesting an engagement, companies should do their “homework.” In other words, seek to better understand the principles, priorities, and investment approach of their key investors. Most investors make this information readily available on their websites, which should help companies to prioritize engagement and should inform discussions that do occur. If an investor’s policy or practice is unclear, companies should ask for clarification.
  • Companies should be prepared to discuss topics that are relevant to long term shareholder value creation. At Vanguard, when it comes to sustainability risks, companies should be prepared to discuss the industry risks highlighted by the SASB framework.


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