Vanguard CEO Espouses Demystifying Corporate Power


The leader of the world’s largest mutual fund company wants investors to get involved in the companies they own — and help make changes for the better.

“One fundamental premise we have; it’s very simple but very important: We think corporate governance should not be a mystery,” Malvern-based Vanguard Group CEO F. William McNabb told a group of students gathered at the University of Delaware’s Weinberg Center according to a recent article.

“Corporate boards should understand how investors think, how they vote, what their expectations are. The reverse is true [investors should understand their boards.] We need to remove the mystery.”

That’s because of the way Vanguard’s indexed investments work. The company has a financial stake in whether companies and their stocks succeed.

“We own about 5 percent of every publicly-traded [U.S.] company. We own at least 1 percent of every company in the world,” he added. “… If you’re a board or a CEO of a company we own, we’re going to own you whether your earnings are up or down. Whether everybody loves you or hates you. It’s our obligation to do so. That’s why governance has become so vitally important.”

As an activist investor, McNabb said Vanguard strives to optimize corporate governance whenever it can. His principles for corporate power: First, get your board of directors right. Make management accountable. Give one vote for every share. Conduct board elections without anti-takeover provisions. Give shareholders a say in executive pay. And foster engagement between investors and boards.

Proactive engagement, defining the perfect board, and limiting terms are all trending topics right now in corporate governance, he noted.

Read more about practical examples of McNabb’s quest to demystify corporate power on here.

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