Voting on Vanguard's Proxy Proposals

May 8, 2009 by TFB

I received in the mail a booklet from Vanguard. They are asking me to vote on some proposals they put in front of the shareholders. I actually read the booklet. Here's how I'm going to vote.

Proposal 1 – Elect Trustees for Each Fund. I have nothing against the trustees. I don't know exactly what they did but the funds are doing alright. I'm going to vote for all of them.

Proposal 2 – Update and Standardize the Funds' Fundamental Policies. Each mutual fund is actually a separate legal entity. It has its own policies. Vanguard wants to adopt a set of policies that apply consistently to all the funds. This way they don't have to worry about the minor differences in different funds. I like simplicity and consistency. But the proposed new policies all go toward the lowest common denominator. They impose the least restriction. Basically as long as it's legal, the funds are permitted to do it. That's not cool. Other than inconsistency, I don't see how the funds have been limited by the policies currently in place. I don't see any good reason to relax the policies. If Vanguard had gone to the most restrictive policy, I would vote for the proposal. This proposal has seven sub-proposals:

Proposal 2a – Purchasing and selling real estate. I'm voting against it.

Proposal 2b – Issuing senior securities. I'm voting against it.

Proposal 2c – Borrowing money. I'm voting against it.

Proposal 2d – Making loans. I'm voting against it.

Proposal 2e – Purchasing and selling commodities. I'm voting against it.

Proposal 2f – Concentrating investments in a particular industry or group of industries. I'm voting for this sub-proposal because some Vanguard funds are sector funds and they need to concentrate in some industries and because this sub-proposal didn't leave any backdoor like "except permitted by law."

Proposal 2g – Elimination of outdated fundamental policies not required by law. I'm voting against it. Those policies may not be required by law but they are still good safeguards. I'm not ready to ditch them just because they are not required by law.

Proposal 3 – [paraphrasing] Do not invest in companies that substantially contribute to genocide or crimes against humanity. I'm voting against this proposal, not because I support genocide or crimes against humanity, but because I believe this should be handled at the investor level, not at the mutual fund level. If an investor wants to invest in a socially responsible fund, he or she can choose one from many socially responsible funds on the market. If an investor doesn't want to invest in a specific company in a fund's portfolio, he or she can short that company.

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Comments

13 Comments on Voting on Vanguard's Proxy Proposals

  1. TIE on May 8, 2009 | permalink
    2.  

    For what it's worth, I'm voting the same way as TFB.

    You can vote by proxy online at this link.

  2. Iris on May 8, 2009 | permalink
    3.  

    Thanks for sharing your analysis on the proxy proposals.

  3. Pablo on May 9, 2009 | permalink
    4.  

    This is well reasoned; thanks for sharing.

  4. Mary on May 12, 2009 | permalink
    5.  

    I appreciated the info regarding the policy changes. BUT I voted FOR the shareholder proposal (we should put as much pressure on all companies, including the mutual fund companies, to stop condoning and even supporting genocide.

  5. Jed on May 13, 2009 | permalink
    6.  

    I'm in favor of proposal 3. I'm unsure about the technical aspects of making it work in an index fund. Any ideas?

  6. Kath on May 26, 2009 | permalink
    7.  

    No matter how you feel about Proposal #3, Vanguard did not handle the issue in a professional manner.

    Am I the only one who noticed that, although the proxy booklet says the Board recommends voting against Proposal #3, on the written proxy form Vanguard does not allow the voters to make a choice and has only NOT APPLICABLE in the voting space.

    This is not indicative of the consumer-friendly Vanguard I began investing in years ago.

  7. TFB on May 26, 2009 | permalink
    8.  

    Kath – Whoever created Proposal #3 did not make it apply to all the funds. It sounds like you own a fund to which it doesn't apply. Vanguard properly indicated so on your proxy form.

  8. Chris J. on June 7, 2009 | permalink
    9.  

    I think it is interesting that an application of your Proposal 2 arguments to Proposal 3 would lead an investor to vote for Proposal 3:

    "But the proposed new [Proposal 2] policies all go toward the lowest common denominator. They impose the least restriction. Basically as long as it's legal, the funds are permitted to do it. That's not cool."

    In effect, you are saying that you favor tighter restrictions on things as mundane as making loans and purchasing commodities; but when it comes to contributing to genocide, you favor looser restrictions. The policies in Proposal 2 could also have been handled at the investor level.

  9. TFB on June 7, 2009 | permalink
    10.  

    @Chris J. – Can you explain how the policies in Proposal 2 could also have been handled at the investor level?

  10. Chris J. on June 7, 2009 | permalink
    11.  

    Just as an investor can choose to invest in socially responsible funds, an investor can also choose to invest in funds on the basis of the strictness of their fundamental policies.

  11. TFB on June 8, 2009 | permalink
    12.  

    Theoretically yes, in practice, no. While I know there are socially responsible funds and websites that help you choose one, I know of no fund that advertises that it cannot issue senior securities for example. If I really want one, I'll be going through prospectus after prospectus. Not realistic.

  12. greg r on June 19, 2009 | permalink
    13.  

    I just had the bizarre experience of voting on these issues over the phone. the phone agent not only steered me repeatedly to ratify the board's recommendations he didn't know, or pretended not to know, how to register votes any other way. a vanguard colleague, melinda, was on the recorded line and helped me register my votes.

    vanguard must be concerned about this because they are calling shareholders encouraging them to vote, and steering them to the phone where they a) can get a glimpse into the votes and b) steer people toward their preferred outcomes.

    Not the way a clean and proper proxy vote should be handled.

  13. Larry H on June 29, 2009 | permalink
    14.  

    The mere fact proposals have been made to invest my index, bond and money market funds in such speculative markets has cause me to:

    1. Withhold votes for all trustees and vote no on Proposal Number 2.
    2. Loose all confidence in Vanguard
    3. Begin looking for a safer place to invest my money
    4. Send an email to Vanguard stating the above

    I can not afford to loose the rest of my money to high risk investment strategies. My vote is to take what is left of my investments after the banking industry had their way with them, and run.

    Concerning the way in which telephone proxy voting solicitation is being handled, I believe a letter to the SEC is justified.

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