Vanguard Group, the globe's second-largest asset manager, announced Thursday plans to allocate a fraction of its vast voting powers on corporate boards to outside fund supervisors that control more than $470 billion of its holdings.
Firms that manage Vanguard's active equity funds will soon receive approval to vote on some of the important decisions in the lives of companies, including management changes, board elections and mergers and acquisitions.
Vanguard said that despite relinquishing voting rights over about 9% of its assets, it will continue to leverage its own in-house investment team when voting on its vast index funds and ETFs. Vanguard oversees $5.3 trillion in assets around the world.
"We believe proxy voting is a great way to integrate investment stewardship responsibilities with investment management practices," Vanguard Chairman and CEO Tim Buckley said in a news release. "Our external managers are well-positioned to take on proxy voting responsibilities in a manner that supports shareholder value creation over the long term."
It will have an outsized effect on Vanguard host of subadvisors like Wellington Management, which earlier this year offered a rare opinion on Bristol-Myers's bid for Celgene. Wellington, which also manages about $1 trillion, has long worked with Vanguard though typically doesn't make its opinions on contests known to the public.
"Crucially, Vanguard's philosophy on proxy voting is unchanged," Glenn Booraem, Vanguard Investment Stewardship Officer, added in the release. "This philosophy carries through to each vote on behalf of each fund and is consistent even when the resulting vote is different from fund to fund."
Though Vanguard will continue to supervise voting over the vast majority of its assets, the announcement represents the latest in multiyear debate over the ballooning influence the largest money managers have over corporate governance.
Some critics say the growing presence of huge passive — index fund — managers like BlackRock, Vanguard and Fidelity Investments is intrinsically problematic to other investors. Such critics argue that a stakeholder's ability to question and critique a company through ownership is a critical component of the U.S. marketplace. That system of checks is lost, they argue, when huge stakes are managed through a passive vehicle.