Does Vanguard vote with the shares in its funds?

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atomiclightbulb
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Does Vanguard vote with the shares in its funds?

Post by atomiclightbulb » Sat Mar 06, 2010 3:02 pm

VFNIX for example holds 90 Billion dollars worth of large cap stocks. Does the fund management use the voting power associated with those shares?

Another thing I am wondering: Vanguard has many different funds... TSM holds stock in many of the same companies that 500 Index holds. Do the funds vote separately, or can they band together to form one huge shareholder bloc?

smathew005
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Post by smathew005 » Sat Mar 06, 2010 3:24 pm

I believe the vote by entity (fund) would be separate but the decision unanimous amongst all of the Vanguard funds.

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docneil88
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Re: Does Vanguard vote with the shares in its funds?

Post by docneil88 » Sat Mar 06, 2010 9:13 pm

atomiclightbulb wrote:VFNIX for example holds 90 Billion dollars worth of large cap stocks. Does the fund management use the voting power associated with those shares?
Hi atomiclightbulb, Vanguard does use that power, and, as far as I know, they almost always vote with what the company boards recommend. Moreover, Vanguard has never done a broad survey of Vanguard shareholders to find out where we stand on the typical kinds of issues that come up on proxy votes of shares held by Vanguard funds. In my opinion, they should do such a survey, and use it as guidance when they vote the shares for us. Because Vanguard has a mutual company structure, the shareholders are the owners of Vanguard; all the more reason to do what I suggest. Best, Neil

mjcis50
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Does Vanguard Vote Shares in Funds

Post by mjcis50 » Sun Mar 07, 2010 9:52 am

Too new to post a link.

New York Times article on March 5 entitled "Voting Your Shares May Start to Matter" cites a study on how Mutual Fund companies -including Vanguard- voted shares on compensation issues.

Quote from the NY Times article
"Collectively, they own about 30 percent of outstanding shares. They hold a much larger stake when you consider their holdings in pensions and mutual funds. But since investors technically own shares of mutual funds and not their underlying investments, the fund companies cast the ballots. As you may imagine, many of them do a poor job."


Link on words "poor job" Takes you to study
Study is entitled "Failed Fiduciaries" and was Produced by the American Federation of State, County and Municipal Employees
the Corporate Library
and the Shareowner Education Group

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anthau
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Post by anthau » Sun Mar 07, 2010 10:23 am

Proxydemocracy.org examines the proxy voting of several mutual fund companies, and graphs them as they relate to directors, executive compensation, corporate governance, and corporate impact.

Edit: The funds' proxy voting policies can be found in the statement of additional information, which can be found by searching for "statement of additional information" on Vanguard's web site.
Best, | | Anth

Wagnerjb
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Re: Does Vanguard vote with the shares in its funds?

Post by Wagnerjb » Sun Mar 07, 2010 11:50 am

docneil88 wrote: In my opinion, they should do such a survey, and use it as guidance when they vote the shares for us. Because Vanguard has a mutual company structure, the shareholders are the owners of Vanguard; all the more reason to do what I suggest. Best, Neil
Neil: I think your idea (if I understood it clearly) is a good one. Have Vanguard take a vote of its investors, and then vote the proxy in the proportions of the investor voting. Thus, those that support the resolution will have their votes in favor, and those that oppose will have their voice heard as well. That doesn't result in my preference being overruled by the decision of the fund manager or anybody else.

I think the problem with this is a) it isn't practical, and b) it is expensive. You would need to design a system to collect this information on a short notice (since proxies are issued weeks before the vote). This system would be expensive and would be reflected in the cost of the mutual funds. That alone would make Vanguard - or whoever first implemented such a voting system - uncompetitive in the ER race.

Unfortunately, the only answer is to buy individual stocks and vote your own proxies. But that results in poor diversification, so you are stuck between a rock and a hard place on this issue.

Best wishes.
Andy

sommerfeld
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Re: Does Vanguard vote with the shares in its funds?

Post by sommerfeld » Sun Mar 07, 2010 11:55 am

atomiclightbulb wrote:Does the fund management use the voting power associated with those shares?
Yes.
Another thing I am wondering: Vanguard has many different funds... TSM holds stock in many of the same companies that 500 Index holds. Do the funds vote separately, or can they band together to form one huge shareholder bloc?
The latter. They have a few mainly objective principles -- for instance, any director who misses too many meetings doesn't get their vote. Google found "Vanguard Proxy Guidelines Worth A Look For All Investors", as well as "Fund managers split on J.C. Penney vote" which states:
It says in general there are three reasons why it would not vote for a director: non-attendance, presence on other committees that leads to being considered non-independent, actions on other committees that are outside Vanguard's guidelines, such as serving on a compensation committee and approving excessive pay.

Vanguard says that its increasing director approval rates, "reflect companies' increased attention to good governance practices, particularly with respect to board independence."

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docneil88
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Re: Does Vanguard vote with the shares in its funds?

Post by docneil88 » Sun Mar 07, 2010 4:48 pm

Wagnerjb wrote:Neil: I think your idea (if I understood it clearly) is a good one. Have Vanguard take a vote of its investors, and then vote the proxy in the proportions of the investor voting. Thus, those that support the resolution will have their votes in favor, and those that oppose will have their voice heard as well. That doesn't result in my preference being overruled by the decision of the fund manager or anybody else.

I think the problem with this is a) it isn't practical, and b) it is expensive.
Hi Wagnerjb, I didn't mean to suggest that a survey be taken of Vanguard shareholders for every proxy they receive from every company they hold shares in. Rather, once in a while, say every year or two, Vanguard would put together and send out a survey to determine its shareholders opinions on the issues that came up most frequently in all the proxies over the prior year. Also, they could ask what reasons we'd find sufficient to vote against a director being retained. Then they would use all this information as their primary guidance for how to vote the proxies they receive.

I hadn't thought of the idea of Vanguard voting the shares it holds in proportion to how its shareholders would vote. I like that idea more than their using a simple majority on the surveys to determine how they'd vote all the shares in a proxy. Do proxies allow a fund company to divide its votes like that? If not, they should. Best, Neil

Topic Author
atomiclightbulb
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Post by atomiclightbulb » Tue Mar 09, 2010 10:57 pm

Wow, lots of interesting info there!

The article that sommerfeld linked to (from Reading Eagle newspaper) is pretty illuminating. I'm gad that Vanguard exercises its shareholder voting rights. Most individual shareholders are but a blip on the radar, but when a big player like Vanguard votes, companies will pay attention :D

saves nine
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Post by saves nine » Thu Mar 18, 2010 11:06 pm

Atomiclightbulb, thanks for introducing this topic. You inspired me to reread John Bogle's The Battle for the Soul of Capitalism, published in 2005 but perhaps less prescient than insufficiently heeded. Bogle's approach is less directly democratic than the ideas I've read under this topic so far; the Bogle ideal is representative -- "a fiduciary society." For him, "Our society today [..] is no longer an 'ownership society.' It has become an 'intermediation society,' and it is not going back." It requires faithful stewards. (Has he written on current reform proposals? I'd be happy for a link if anyone has one.)

It seems to me that Vanguard has made a conscientious effort at good stewardship. Below is a link to a statement of Vanguard’s guidelines on proxy voting of shares held by its funds, “an overview of proxy votes by Vanguard funds along with our perspective on key corporate governance issues,” and “detailed reports on how individual Vanguard funds voted on proxy issues between July 1, 2008, and June 30, 2009.”
https://personal.vanguard.com/us/conten ... ontent.jsp
[/u]

jefmafnl
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Compensation policies

Post by jefmafnl » Fri Mar 19, 2010 7:18 am

Saves nine,
thanks for the link, very interesting reading.

What I found a bit upsetting was the following passage from the "Update on proxy voting"

"Over the year ended June 30, the most numerous shareholder proposals requested that companies subject their executive compensation programs to an advisory shareholder vote. Although we strongly agree that compensation should not be excessive, we voted against this proposal at each company where it was presented. We believe that shareholders have the right to express a point of view on executive compensation, but we do not believe that a simple "yes/no" vote on such a multifaceted issue provides helpful feedback to the board. Our belief is that discussing specific concerns with directors of a company is far more productive. If dialogue fails, the funds always have the option of voting against members of the compensation committee."

In view of the excessive compensation paid to many CEO's and other executives, wouldn't a "say on pay" vote by shareholders be a more direct (and therefore desirable) means of sending a message to boards and compensation committees who are injudicious in setting or approving compensation, rather than "discussing specific concerns"?

J

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