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Vanguard gave investors in a handful of its funds the chance to vote their shares last year, part of a revolutionary push to give people a say in the governance of America’s largest companies.
Instead, almost half of investors opted to let Vanguard do it for them after all.
Nearly 45 per cent of shareholders chose to let the $9.7tn asset manager vote their shares, data shows, the default option for investors who have not been offered the chance to vote their shares at all.
The move comes as the largest index investment providers deal with political pressure from both the left and right for the amount of control they have over US companies through the assets they manage. Critics contend the index firms have too much power because they control 15 per cent to 20 per cent of shares in many US-listed companies.
As the political backlash to environmental, social and governance shareholder initiatives has intensified, asset managers have rushed to find ways to transfer responsibility for voting to individual shareholders in their funds, whom they previously voted on behalf of. BlackRock and State Street also recently launched programmes to allow some individual investors to vote their shares. The firms already gave some institutional investors the ability to choose how their shares were voted.
But many investors have shown they are happy to let their investment firms speak for them.
“It is a data-driven answer to the question that some have raised about, ‘What do investors actually want?’ and ‘Is it appropriate that the asset manager is picking how their shares are voted?’,” said John Galloway, global head of investment stewardship at Pennsylvania-based Vanguard, who heads the proxy pilot programme. The data shows that for many investors, “that seems totally appropriate because they are choosing to pick that same policy”.
Vanguard’s policy for voting shares is clear and supports measures that create value for shareholders, Galloway said. It’s “gratifying to see that policy is something that resonates with investors”.
The Vanguard pilot programme, launched in early 2023 and expanded this year, allowed investors in five funds to participate in proxy voting on company proposals. Investors in the funds with more than $100bn in combined assets could select blanket voting options such as to abstain, vote with an ESG focus, vote alongside the company’s board or allow Vanguard to vote their shares. Participation in the programme was voluntary.
Nearly a quarter of the 40,000 retail investors in the programme voted to support ESG shareholder proposals, according to the data, while 30 per cent opted to vote in line with the recommendations of company boards. But the largest number of investors chose to vote their shares in line with Vanguard’s recommendations, the way their shares were voted before the programme.
“The fact that the retail investors opted to allow Vanguard to vote their own shares is quite meaningful . . . it shows they value the decision-making practices that their institutional investors adopt with regards to these issues,” said Matteo Tonello, the managing director of ESG research at The Conference Board, a US think-tank.
The individual proxy voting initiatives were largely a response to the heavy politicisation of ESG in the US, as asset managers came under fire and politicians questioned the ability of asset managers to vote in a way that was representative of the interests of their underlying shareholders.
“The next time Republicans complain about non-representative corporate democracies, the asset managers are going to turn around and say look at the data,” said Shiva Rajgopal, a professor at Columbia Business School.
Adoption of the programme has also been slow, with just 2 per cent of the 2mn individual investors invited to participate opting in.
“It puts into perspective that perhaps fewer people are truly invested in the details of proxy voting than expected,” said Ali Saribas, a partner and corporate governance specialist at shareholder advisory SquareWell Partners. He added that Vanguard has kept a lower profile on ESG issues than BlackRock and the investor willingness to stick with Vanguard “suggests their stewardship approach is largely uncontroversial.”