John Bogle: Vanguard Should Say More On How it Influences Companies

Ted

FYI: Vanguard Group's decision to publish details about how it uses its huge shareholder clout to influence corporate governance issues is a step in the right direction, but does not go far enough, according to the founder of the mutual fund company.
"We still have a long way to go," said Jack Bogle, who now runs a market research group funded by Vanguard, but no longer has an executive role at the company he founded in 1975.
Regards,
Ted
http://wealthmanagement.com/print/industry/vanguard-should-say-more-how-it-influences-companies-founder

LewisBraham

While I applaud this step in the right direction by Vanguard, it is not enough in my view. As usual, I am in agreement with Bogle. If you own shares of a Vanguard 500 Index fund, you are also owners of its underlying stocks--Apple, Exxon, Walmart. Why shouldn't you be able to know what Vanguard is doing with your money when it negotiates with these companies regarding crucial issues of corporate governance--issues such as executive compensation and board structure that a large body of research show have a significant impact on shareholder returns?

The idea that private, i.e., secret negotiations are more effective at eliciting change in companies as opposed to open public pressure seems a little ridiculous to me. Also, I disagree with this notion that "Vanguard lacks leverage because its index funds cannot pressure executives by threatening to sell shares." If Vanguard as the largest shareholder of many companies started voting against certain directors it disapproved of and executive compensation packages that are excessive and instead started voting for shareholder proposals to positively change companies, it would have a huge impact. The problem is the idea that a private negotiation without any real public, legally binding action in the proxy votes seems toothless.

Ted

@Lewis: Your beating a dead horse !!!!

LewisBraham

@Ted Given the fact that the world's largest mutual fund company just changed its policies regarding how it discloses its proxy votes, this horse seems very much alive.

JohnChisum

In the case of the Vanguard 500 Index Fund, if Vanguard were to sell shares of companies they felt did not abide by their standards, then it would not be an index fund any longer.

LewisBraham

You're right, John. Vanguard as an indexer can't sell shares. It also means as an an indexer it is the ultimate long-term investor holding shares essentially forever. Therefore these issues of corporate governance at companies matter a great deal. John Bogle has argued that shareholders not keeping on an eye on executive compensation, board structure and governance had a direct connection with many of the abuses that caused the 2008 crash, essentially allowing compensation packages incentivizing CEOs to take excessive long-term risks for short term gains. How companies are governed matters a great deal to long-term investors, but little to short-term ones. And although Vanguard can't sell shares, it can still vote on proxy resolutions and for or against directors and compensation packages. Those votes can be hugely influential.