On Nov. 15, Vanguard will hold an enormous shareholder meeting and proxy vote for the first time in almost a decade. If you’re a customer of the world’s largest mutual fund company, you’re also a shareholder, which is why you’ve likely been hounded by calls, emails, and paper mail to try to get you to vote.
Tucked into the ballot after boilerplate proposals is an interesting item — Proposal 7 — put forth by activist investor group Investors Against Genocide. The proposal moves to have Vanguard not invest in companies that, “in management’s judgement, substantially contribute to genocide or crimes against humanity.”
“A shareholder proposal to institute transparent procedures to avoid holding investments in companies that, in management’s judgement, substantially contribute to genocide or crimes against humanity, the most egregious violations of human rights. Such procedures may include time-limited engagement with problem companies if management believes that their behavior can be changed.”
An example cited in the proposal was PetroChina, which has a connection to the genocide in Darfur. Vanguard’s management advises investors vote against the proposal.
Vanguard investors are surprised and angry
To many Vanguard investors, not investing in companies that “substantially contribute to genocide” is about as low a moral bar as there is, and they are outright angry at what appears is the company’s callousness. As the vote nears, investors are airing their confusion on Twitter, Reddit, and Vanguard forums.
Victoria Santoro, a Boston-based trial lawyer and Vanguard investor, is one of them. “When I got to the genocide item, I assumed the board’s recommendation would be to approve it,” she told Yahoo Finance. “I was very disappointed to find the opposite.” Santoro said she picked Vanguard over others due to its reputation for ethics.
Dr. Beverly Tchang, a doctor from New York and a Vanguard investor, had a similar reaction. “I found the proposal to be timely and appropriate. Especially since there has been so much coverage on the Rohingya recently,” she said, referring to a group of refugees fleeing Myanmar.
Tchang said she didn’t know specifics about PetroChina and Sudan, but argued that transparency was a low standard. “I don’t think [transparency] is too much to ask for,” she said.
Why Vanguard needs your vote
Vanguard, unlike most public companies, doesn’t hold an annual vote and generally only holds them when really necessary.
“Last time we did this was in 2009,” Arianna Stefanoni Sherlock, Vanguard’s head of corporate public relations, told Yahoo Finance. “Every time we do this, it’s a lot of time and money so we try to do this as infrequently as possible.”
Desperate for a needed quorum of one-third of shareholders for each fund, Vanguard is spending $17.6 million on a campaign to get its 20 million shareholders to vote to install board members.
When the last vote occurred, Vanguard had just a fraction of the assets it does now. The astronomic rise in passive investing has brought $3 trillion in new assets under the company’s management, bringing the total to $4.6 trillion. At that time, a similar measure appeared on the ballot but only earned between 7% and 17% of the vote, depending on the fund.
Those new assets mean a higher number of voters are required for a quorum. Should Vanguard fail to have a quorum, it would have to hold another vote until enough shareholders turn out — an expensive proposition and one that has happened before. Fidelity, a Vanguard competitor, had to postpone its meeting eight times from October to April. “We need investors to come out and vote,” Sherlock said.
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