Vanguard accused of being a ‘lazy’ investor
Vanguard has been accused of being a “lazy” investor by the deputy chair of the common ownership inquiry, over concerns that being a low-cost investor meant they did not scrutinise the companies it held.
In its submission to the inquiry, Vanguard said it had never proposed a motion or resolution during an annual general meeting (AGM) of a company it held, nor had it nominated a director or sought a seat on a board.
Committee deputy chair, Dr Andrew Leigh, said there might be a concern that being a low-cost investor meant being a “lazy investor”.
“That is, your incentives are all about keeping costs down and people aren’t buying Vanguard for the scrutiny you place on the companies in your portfolio,” Leigh said.
Daniel Reyes, Vanguard head of investments – Asia-Pacific, said the firm had no incentive to be a “lazy” investor solely for the purposes of driving low cost.
“In our view, thinking about the concept of common ownership more broadly, we have a vested interest in making sure companies as a whole and the economy as a whole is highly competitive,” Bowerman said.
“When someone buys our ASX 300 ETF, what they’re effectively doing is making an investment in the Australian economy.
“If anti-competitive behaviours or ‘lazy’ owners allowed anti-competitive behaviours to be pervasive, that would lead to an anti-competitive economy and we understand that an anti-competitive economy is not going to perform as well as a dynamic, vibrant and innovative economy.
“We’d make the point that we do have an incentive to make sure organisations and firms that we invest in have good corporate governance.”
Despite not putting forward any motions during AGMs, it said it did go through a process of deciding on how to exercise the power of its members, which included buying reports from proxy advisers but that ultimately the decision came down to the discretion of Vanguard after an internal review.
Robin Bowerman, Vanguard head of corporate affairs, said the firm had a well-established framework that included a 35-person global investment stewardship team.
“We have a variety of inputs in the research process, there’s our own internal research and we buy research from proxy advisers, the likes of ISS [Institutional Shareholder Services] and Glass Lewis, etc,” Bowerman said.
“[That is] as an input into the process, but that key point here is we do not in concert with anyone else.”
Asked was it hypothetically feasible for a company to hold a 20% share of a company without having a seat on the board or having any say over direction, Reyes said it was a “sustainable model”.
“I’d argue that is sustainable in the sense that our practices are driven by trying to drive good corporate governance,” Reyes said.
“Just because we never put forth a shareholder proposal, doesn’t mean that we don’t engage with individuals or organisations who are putting forth that shareholder proposal as any diligent fiduciary would do.
“There is a good healthy dialogue within our investment stewardship team around the issues that are going to impact a company, primarily overseeing the process of whether or not that company has the right governance to oversee the execution of its own strategy and the risks associated with that strategy.”
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