Shareholder proposals are an important and effective way for investors to make their voices heard. Often addressing matters such as shareholder rights, or social or environmental concerns, these proposals provide shareholders an opportunity to drive change at the companies in which they invest.

Shareholders typically vote on a range of proposals at a company’s annual general meeting (AGM), most of which will be routine business and added to the meeting agenda by management. However, each year, the AGM season produces some interesting shareholder proposals, with a handful attracting media interest. These proposals, and the level of support they achieve, can shine a light on a certain topic at a particular company and the demands of activist shareholders.

With AGM season around the corner, we explain how Vanguard approaches shareholder proposals issued to companies owned by our equity index funds.

What is a shareholder proposal?

If a shareholder – usually an organisation or institution – or group of shareholders wants a company to take a specific course of action, they may decide to submit a proposal. It could be asking the company to share its analysis of relevant climate-related risks, for example, or details about the diversity of its employees.

These proposals will be added to the meeting agenda for consideration by other shareholders. They are in addition to the proposals put forward by a company’s management team when they want, or require by regulation, shareholder approval for their plans, including executive remuneration or changes to corporate governance practices, for example.

Once a proposal is submitted, shareholders are able to vote in favour or against it at the company’s next AGM.

In the UK, companies are required to hold their AGM within six months of the financial year-end (6 April to 5 October) – known as ‘AGM season’ or ‘proxy voting season’.

What role does Vanguard play?

When a shareholder proposal is issued to a company owned by any of Vanguard’s equity index funds, our investment stewardship team evaluates and decides whether or not support the motion. The team then votes on behalf of our fund(s) – and thereby investors in the fund, known as proxy voting.

Vanguard’s position on each proposal may be guided by a variety of factors, including existing disclosures by the company, third-party research and direct engagement with the company and/or proponents of the proposal.

Ultimately, we don’t view the funds’ votes as being ‘for’ or ‘against’ a company, but rather in the best long-term interest of the company’s shareholders. In our experience, discussing a shareholder proposal with both its proponents and the recipient company can lead to greater shared understanding and better outcomes for long-term investors, regardless of the voting results.

To learn more about how Vanguard approaches shareholder proposals, download the attachment below.

 

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© 2021 Vanguard Asset Management, Limited. All rights reserved.