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Conservatives have accused Vanguard and other index fund
managers of pushing leftwing politics on American companies ©
Bloomberg
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Brooke Masters
in
New
York NOVEMBER
18 2024
Vanguard is giving retail shareholders the
chance to vote in favour of putting profits above all else as it
doubles the size of its experiment with letting more investors have a
say on proxy votes.
Nearly 4mn people controlling up to $250bn in
shares in US companies will now be able to choose one of five options,
which also include letting Vanguard make the decision, voting with
management, prioritising
environmental, social and governance factors or in effect voting
“present”.
The addition of a profits-above-politics
option comes as
Vanguard and other large asset managers try to navigate a
conservative backlash against ESG without angering customers who
remain committed to fighting climate change and social inequality.
“It’s a response to feedback from investors,”
said John Galloway, Vanguard’s global investment stewardship officer.
“Investors have different perspectives on what they believe maximises
shareholder value.”
Vanguard, which has $10.1tn in assets,
drew criticism from progressive campaigners earlier this year when
it announced that it had voted against every single environmental and
social proposal on US shareholder ballots this year. But it and other
index fund managers remain in the crosshairs of conservatives who
contend that money managers are using their large shareholdings to
foist “woke capitalism” on American companies.
Eight Vanguard funds will participate in the
voting choice programme in the coming proxy season, three more than in
2023-24, although they still do not include the company’s biggest
funds, those that track the S&P 500 and the total US market.
The Pennsylvania-based fund manager said it
was also working towards letting investors who own their shares
through retirement accounts to participate, which would vastly expand
the programme’s potential reach. Three times as many US investors own
mutual funds through retirement accounts as through other means,
according to the Investment Company Institute.
Vanguard’s big index fund rivals are also in
the process of giving clients greater control over shareholder votes.
BlackRock’s Voting Choice programme started
with institutional clients and added its first individual investors
earlier this year. The owners of $2.8tn in equity assets are eligible
to chose between letting BlackRock vote for them or 16 other policies.
The owners of roughly one-quarter, or $634bn, have made a selection.
State Street Global Advisors' voting programme
has 10 options, including letting SSGA make the choice and not voting,
and it is available to $1.7tn in assets, including all of the group’s
US-based index mutual funds that invest in American equities.
The effort to hand off responsibility comes at
a time when BlackRock and Vanguard are in the crosshairs of regulators
at the Federal Deposit Insurance Corporation because their index funds
own such large stakes in many US banks. The FDIC is considering
whether to require additional scrutiny when the fund managers hold 10
per cent or more of a lender. SSGA is part of the custody bank State
Street and already subject to oversight by banking supervisors.
It is not clear
whether the voting programmes will help get the fund managers off the
hot seat. So far, nearly half of Vanguard investors who expressed a
preference have told the fund company to use its best judgment and
vote for them.
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