| Sept 13
Sept 13 Fund manager Vanguard Group Inc opposed
the election of board members in a number of high-profile proxy
contests this year, votes that help explain why directors at
firms such as Hewlett-Packard Co and Occidental
Petroleum Corp had a hard time getting re-elected.
While Vanguard continued to support the vast majority of
directors, its votes come at a time when institutional
investors, which in the past often followed management's wishes
or outsourced proxy voting responsibilities, are increasingly
exercising more influence.
In the 2013 proxy season, funds run by the $2.3 trillion
investment company opposed five of seven directors targeted by
the AFL-CIO labor federation, according to recent filings to the
U.S. Securities and Exchange Commission. The labor group had
opposed six directors at other companies between 2010 and 2012
as well, but Pennsylvania-based Vanguard backed the directors in
Vanguard also switched sides at several other contested
shareholder meetings flagged by proxy adviser Institutional
Shareholder Services. ISS said in a report last month that
fiercely contested proxy battles at companies like
Hewlett-Packard and Occidental "made it the worst of times" for
Hewlett-Packard directors John Hammergren and G. Kennedy
Thompson left its board in April after receiving just narrow
majorities of shareholder votes. At Occidental's annual meeting
in April, shareholders ousted Chairman Ray Irani and another
director, Aziz Syriani, withdrew from the election.
Vanguard funds, like its $142 billion Vanguard 500 Index
Fund, opposed all four after supporting them in 2012.
A spokesman for Hewlett-Packard declined to comment on
Vanguard's voting. A spokesman for Occidental could not be
The votes of managers such as Vanguard have a wide-ranging
impact on U.S. companies because of the vast holdings of their
funds. With about $1.4 trillion of equity assets, for instance,
Vanguard is the top institutional investor in market leaders
like ExxonMobil, Apple Inc and Microsoft Corp
"You can't take them for granted," said fund industry
consultant Burt Greenwald, referring to passive managers. Also,
index funds can turn activist because they cannot simply sell
shares of companies with which they are unhappy and take what
Amy Borrus, deputy director of the Council of Institutional
Investors in Washington, called "the Wall Street Walk."
"If you can't sell your shares, you look for other ways to
hold portfolio companies accountable," Borrus said.
Glenn Booraem, Vanguard's head of proxy voting, declined to
discuss votes at individual companies and downplayed the overall
significance of the switched votes on directors. He said it
"just means with the passage of an additional year of both
behavior and engagement, we reached a different voting
Booraem said he speaks with hundreds of executives every
year to press Vanguard's views behind the scenes. He said he
often tells them that as an index fund manager, "We're going to
be practically permanent shareholders. We're not going away."
Vanguard supported 95 percent of company directors overall,
up from 94 percent in 2012.
But in addition to the votes at Hewlett-Packard and
Occidental, filings for Vanguard funds show they switched sides
and opposed directors at other companies where board members
These included Cablevision, Apple Inc,
Nabors Industries and Vornado Realty Trust. - the
latter three of which were identified as "top meetings" by ISS,
along with Hewlett-Packard and Occidental.
John Coates, a Harvard Law School professor who follows
corporate governance, said Vanguard's votes are in line with a
new consensus among institutional investors that voting against
directors puts more pressure on companies than does voting for
specific shareholder proposals.
"It's becoming conventional wisdom that's the best way to
get the board's attention," Coates said.