Vanguard

I spent three or four days researching and writing letters to Vanguard’s two new leaders, who take up their positions on January 1. Here’s an excerpt from one, to the new CEO:

Vanguard has an opportunity to go beyond quietly supporting resolutions at the most egregious firms, such as Exxon and Occidental, to become a public leader on climate risk. This could be the hallmark of your tenure as Vanguard’s leader. If being the low-cost leader remains Vanguard’s raison d’être, someone may make a documentary some day similar to “Wal-Mart: The High Cost of Low Price,” which focused on exploitation of Chinese workers. While that may seem far-fetched, the effects of intense cost competition among asset managers were described in a Harvard Law paper as diminished spending on stewardship and increased fealty to management. “The upshot is that companies in the U.S. are increasingly free to act without proper shareholder oversight, theoretically leading to more executive self-dealing, lower investment returns, and lower economic growth.”

So there. Until this year, Vanguard was among the lowest ranked for its voting stance on ESG issues (environmental, social, governance). In the wake of the Paris Agreement, it is becoming increasingly untenable for large investors to give the companies they invest in a pass on emissions. Vanguard has been feeling the heat from an activist investor, who put a resolution on the ballot for its November annual shareholder meeting. Vanguard agreed to increase disclosure of its voting record and its attention to environmental issues in exchange for the investor withdrawing the ballot item.

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