Vanguard to begin testing proxy voting pilot program for retail clients early next year

Vanguard Group is planning a trial to give retail clients more say over how their shares are voted at corporate meetings, as large money managers’ influence over hot-button issues faces mounting scrutiny.

Instead of making decisions exclusively on its own, Vanguard will give individual investors in several equity index funds more options about how their shares are voted, the Valley Forge, Pennsylvania-based company said Wednesday in a statement. It will begin testing the strategy early next year.

“As the only investor-owned asset management firm, Vanguard is uniquely positioned to partner with Main Street investors on ways to participate in the proxy voting process,” Anne Robinson, Vanguard’s general counsel, said in an email. “This early 2023 pilot will give our investors-owners the chance to express their preferences for how the underlying shares of their equity index holdings are voted.”

The trial is expected to offer investors additional voting options including following company management recommendations, opting not to vote or choosing to rely on guidance from a third party. Vanguard’s stewardship team currently helps oversee voting policies for about 30 million investors.

“Our clients have diverse perspectives, and a growing number would like the option to weigh in on how their index funds vote on important proxy questions at the companies held in the funds,” Vanguard said in the statement.

Big asset managers are facing increased questions from investors and lawmakers about the outsize sway firms can have over the corporate world. Each of the three biggest index-fund managers — BlackRock Inc., Vanguard and State Street Corp. — is a top-five shareholder in most S&P 500 companies, giving them significant power at shareholder meetings.

BlackRock has started giving institutional investors more control over how their shares in index equity funds are voted and said in June that clients with about $530 billion in combined assets had participated. Last month, Charles Schwab Corp. said it was testing a strategy of polling shareholders about their views on broad topics affecting companies in three funds and would use the results to determine the firm’s approach to proxy votes.

Asset managers are facing a growing backlash this year over ESG — environmental, social and governance — matters. Republican officials across the U.S. have scrutinized firms for consolidating power and pursing societal agendas, and in BlackRock’s case have withdrawn money from the firm over its stances.