Vanguard will float the idea of “shareholder liaison committees” in letters to company boards that it plans to send in the new year.
The call is particularly significant coming from Vanguard, a permanent shareholder in every major company and world’s second-largest fund manager. Its power has been growing as investors move capital from active managers to the low-cost tracker funds in which it specialises.
Bill McNabb, Vanguard chief executive, said it was wrong that many directors had never met shareholders in their companies, leaving the task to the chairman or a senior independent director.
“Independent directors are doing a good job but we find they are not as engaged with shareholders as they should be,” he said. “Directors are standing in on behalf of owners — it is an important concept — and there are many independent directors who have never met an investor.”
The Vanguard initiative comes amid a surge in activism by hedge funds and corporate governance campaigners, and increasing demands by long-term institutional investors for greater input.
A growing shareholder movement is trying to make boards more accountable, not just on issues such as executive pay but also on strategy.
Meetings with shareholder liaison committees would allow investors to express their opinions on how a company’s strategy compared with its competitors, or to suggest questions that independent directors should be asking of management, Mr McNabb proposed.
Vanguard’s proposal, which will initially be put to the US companies in which it invests, will feed into an international debate on best practice in corporate governance.
In the UK, an Investor Forum, comprising the country’s leading shareholders, was launched in June to discuss issues such as pay, auditing and company strategy.
Daniel Godfrey, chief executive of the UK Investment Management Association, said: “We are trying to improve communication and engagement between directors and shareholders that will lead to greater focus on long term, sustainable wealth creation in the boardroom. The Investor Forum was a decisive step towards this.”
In the US, a majority of companies combine the roles of chairman and chief executive but increasing criticism of the practice has seen more create the role of lead independent director to act as a conduit for shareholder concerns.
Would more women on board help corporatee governance standards?
