Vanguard Releases 2025 U.S. Policy Updates

Vanguard has published its updated voting policies for U.S. portfolio companies, which take effect in February 2025¹  Its most pronounced alterations deal with its policies on board composition — specifically board diversity — and on shareholder proposals on environmental and social (E&S) matters. Vanguard has also made minor changes to its policies on board independence, board responsiveness and director commitments, and has clarified the factors it considers when evaluating mergers, acquisitions and financial transactions.

Board Composition

Vanguard has largely gutted its discussion of board diversity in terms of explicit references to gender, race and ethnicity and replaced “diversity” with “personal characteristics.”  In evaluating board composition, Vanguard will continue to look to disclosures regarding the skills, background, experience and personal characteristics of each director, preferably in a matrix format.

Vanguard has deleted its policy of supporting shareholder requests to disclose the company’s approach to board composition, inclusive of board diversity.  It has also revised its policy of voting against the nominating/governance committee chair if the company’s board is not taking action to achieve board composition that is appropriately representative, relative to its market and the needs of its long-term strategies.  Vanguard will now take such action if, based on its research and/or engagement, the company’s board composition and/or related disclosure is inconsistent with market norms or market-specific frameworks.

Environmental/Social Proposals

Vanguard will continue to evaluate shareholder proposals on E&S issues on their merits and in the context of a company’s current practices and public disclosures.  However, it has underscored that it is not the funds’ role as passive investors to dictate company strategy or interfere with a company’s day-to-day management.  Its analysis of E&S proposals aims to strike a balance between avoiding prescriptiveness and providing a long-term perspective.

Reflecting the fact that it did not support any E&S shareholder resolutions in 2024, Vanguard’s revised policy simply states that it is likely to support proposals seeking disclosure of material risks and/or the company’s policies and practices to manage them over time.  It has eliminated its list of specific types of E&S proposals that it is inclined to support, which previously included requests for the following:

• Disclosure of Scope 1 and 2 emissions data and Scope 3 emissions, where material.
• Disclosure of climate change impacts.
• Disclosure of workforce demographics.
• Disclosure of board oversight of material DEI or other social risks.
• Disclosure of the company’s approach to board diversity and adoption of targets and goals.
• Inclusion of additional protected classes in a company’s employment and diversity policies.

Vanguard has additionally made minor changes to the following guidelines:

Board Independence

Vanguard votes against members of the nominating committee and all non-independent directors of a non-controlled company that does not maintain a majority independent board.  Previously, it would escalate its opposition vote to the entire board in the second year that it was not majority independent.  This has been revised to situations where the board is not majority independent over multiple years.

In the past, Vanguard followed the relevant stock exchange listing standards in defining director independence, except in the case of former CEOs, CEO interlocks or where Vanguard concluded that a director’s independence had been compromised.  Going forward, Vanguard will base its determination of director independence on company disclosures within the context of relevant market-specific governance frameworks (e.g., listing standards, governance codes, laws and regulations) supplemented by its own research and/or engagement.

Director Capacity and Commitments

Vanguard has altered its policy on overboarded directors by applying its limit of two public company directorships to any public company executive rather than just named executive officers.

Vanguard may vote in favor of an overboarded director due to company-specific facts and circumstances, but it will now also consider relevant market-specific governance frameworks.

Board Responsiveness

In the sections on board accountability and independent board leadership, Vanguard has revised its language regarding board responsiveness to shareholders.  It will look to whether a board has failed to adequately address or consider shareholder concerns on significant matters—rather than failing to respond to majority shareholder votes–in deciding whether to oppose directors or support a shareholder proposal calling for an independent board chair.

Executive Compensation

Vanguard has eliminated its policy and discussion related to annual and long-term bonus plans.  Its prior policy stated that it would vote against bonus plans that are excessive or unreasonable using criteria similar to its say-on-pay (SOP) analysis.

Mergers, Acquisitions and Financial Transactions

Vanguard has provided more details on the four key factors it considers when evaluating mergers, acquisitions and financial transactions:

• Valuation: Does the consideration provided in the transaction appear consistent with similar transactions (adjusting for size, sector, scope, etc.)?
• Rationale: Has the board sufficiently articulated how the transaction is aligned with the company’s long-term shareholder returns?
• Board oversight of the deal process: How did the board manage any potential conflicts of interest among the transaction parties and has the board provided sufficient evidence of the rigor of the evaluation process?
• The surviving entity’s governance profile: If the funds will be holders of any entities resulting from the transaction, will they retain rights that sufficiently protect shareholder interests?

¹See Vanguard’s 2025 policies here.