Our four pillars of governance
Vanguard's core values of focus, integrity and stewardship are reflected every day in the way that we engage with our clients, our crew and our community. We view Investment Stewardship as a natural extension of these values and of Vanguard's core purpose.
What does great corporate governance look like? Vanguard's four pillars of governance frame our thinking.
Good governance starts with a company’s board of directors. Board members are elected to represent the interests of all shareholders, and they have key responsibilities that are critical to companies setting themselves up to stay relevant today, tomorrow, and well into the future. These responsibilities include planning for the succession of company management, overseeing strategy and risk, setting executive pay, establishing a strong foundation of corporate governance, and engaging with shareholders. Such responsibilities directly affect the long-term interests of Vanguard investors.
We believe in the importance of governance structures that empower shareholders and ensure accountability of the board and management. We believe that shareholders should be able to hold directors accountable as needed through certain governance and bylaw provisions. Among these preferred provisions are that directors must stand for election by shareholders annually and must secure a majority of the votes in order to join or remain on the board. In instances where the board appears resistant to shareholder input, we also support the right of shareholders to call special meetings and to place director nominees on the company's ballot.
We believe that performance-linked remuneration policies and practices are fundamental drivers of the sustainable, long-term value for a company's investors. The board plays a central role in determining appropriate executive pay that incentivises performance relative to peers and competitors. Providing effective disclosure of these practices, their alignment with company performance and their outcomes is crucial to giving shareholders confidence in the link between incentives and rewards and the creation of value over the long term.
Boards are responsible for effective oversight and governance of the risks most relevant and material to each company in the context of its industry and region. We believe that boards should take a thorough, integrated and thoughtful approach to identifying, understanding, quantifying, overseeing and – where appropriate – disclosing risks that have the potential to affect shareholder value over the long term. Importantly, boards should communicate their approach to risk oversight to shareholders through their normal course of business.