30% of board candidates not backed by Vanguard

At least 1 corporate pick in 60% of companies fail to get proxy votes in year

August 31, 2004|By BLOOMBERG NEWS

VALLEY FORGE, Pa. - Vanguard Group, the second-largest U.S. mutual fund manager, withheld votes from at least one corporate board nominee at 60 percent of the companies in which it submitted proxies.

In all, Vanguard didn't support 30 percent of board candidates during the 12 months that ended June 30, the company said yesterday in a posting on its Web site. The year before, Vanguard voted against 40 percent of individual nominees and opposed at least one director at 70 percent of the companies.

The firm did vote to keep Chief Executive Officer Michael Eisner on Walt Disney Co.'s board. Investors led by the California Public Employees Retirement System sought to oust Eisner, and 45 percent of investors withheld votes in March for his re-election. Disney's board later split the chairman and CEO roles, with Eisner relinquishing board leadership.

Vanguard and Fidelity Investments, the world's largest mutual fund manager, opposed the rule that requires mutual fund companies to reveal, for the first time, how they vote on corporate proxy issues.

Fund firms must file their votes with the Securities and Exchange Commission by tomorrow. Fidelity, based in Boston, made public its funds' votes Friday.

Putnam Investments, a unit of Marsh & McLennan Cos., said it withheld votes from the entire board slates at 21 percent of the 1,250 U.S. companies whose stock it held and which conducted elections. Putnam also held back votes for 95 individual nominees, about 8 percent of those nominated, the company said. Outside the United States, Putnam withheld support of the boards at 56 percent of 450 companies.

"Our guidelines emphasize the need for directors to be effectively independent from company management and free of the personal financial interests that might impede their faithful representation of shareholder interests," said John Hill, chairman of the Putnam fund board.

Overall, Vanguard said, it was more supportive of corporate management in the most recent voting period than a year ago.

"In more cases than not, the directors and managements of our portfolio companies are appropriately focused on creating shareholder value and are eager to address substantive issues raised by their owners - the shareholders," Vanguard said.

Vanguard supported 46 percent of corporate proposals on compensation, up from about one-third a year earlier. While it supports policies that align employee interests with shareholders, Vanguard said, many plans had "undesirable features," such as discounted options or high levels of dilution. "Although there is still substantial room for improvement in this area, it's clear positive change is occurring," Vanguard said.

Vanguard opposed audit company nominees 8 percent of the time, questioning the independence of those who were paid for nonaudit work. Vanguard's level of opposition on the issue halved from last year, the company said, and it supported 80 percent of companies it previously opposed.

Vanguard supported 69 percent of shareholder resolutions on compensation or corporate governance and only 4 percent of proposals involving social issues. Vanguard voted against a shareholder-sponsored resolution requiring Comcast Corp. to have a board consisting of two-thirds outsiders.

In January last year, Vanguard Chairman John Brennan and Fidelity Chairman Edward "Ned" Johnson wrote a joint Wall Street Journal commentary saying that disclosing the votes would "politicize" proxy voting. The SEC voted that month to make the votes public.

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