Inside Scoop: Shareholder Engagement - It’s About Communication

Adrienne Monley, Head of Investment Stewardship for the Americas region at The Vanguard Group, joins Inside Scoop to discuss the importance of shareholder engagement and the best methods for companies to navigate this critical topic. During this segment, we look at why it is more crucial than ever for companies to engage with shareholders on important corporate matters such as governance and sustainability, as well as the various ways companies can communicate — from direct one-on-one engagement, written content such as letters from the CEO, website content, and voluntary reports to taped video messages. Adrienne provides practical tips and guidance on shareholder engagement, including pitfalls and challenges to avoid.

Transcript

Kathy Jaffari:

Hello everyone, and thank you so much for joining us today on Inside Scoop, a series brought to you by Cozen O'Connor.

Welcome to your 30 minutes of getting the Inside Scoop from top minds in corporate governance and securities, and learning some tips of the trade to solve the most pressing problems faced by board members, executives, general counsel, and compliance officers.

My name is Kathy Jaffari, and I am chair of the Corporate Governance & Securities Group here at Cozen O'Connor. I'm very happy to introduce you to Adrienne Monley of Vanguard, Head of Investment Stewardship for the Americas region.

Kathy Jaffari:

As chair of the Corporate Governance & Securities Group, I have the privilege of advising clients with respect to shareholder and stakeholder engagement. Fortunately, I have had the pleasure of working with Vanguard's Investment Stewardship Group as co-chair of the Governance and Sustainability Group and as chair of the Diversity in the Boardroom taskforce at the American Bar Association. Vanguard is, and has been for some time, leaders in the good governance practices that, as shareholders, they expect of the companies in which they invest. This is why we thought Adrienne and Vanguard would be the perfect fit to speak with you regarding shareholder and stakeholder engagement.

Kathy Jaffari:

Adrienne's team manages engagement and proxy voting for the United States and the rest of the Americas. That's approximately $4 trillion in assets under management and 4,500 companies. Adrienne, that's a lot.

Kathy Jaffari:

Their investments are long-term in nature, as they are invested through index funds, and so too is their thinking on environmental, societal and governance oversight. Adrienne, thank you so much for joining us today on Cozen O'Connor's Inside Scoop. I'm hoping you can provide us with some practical thoughts and guidance on the topic of shareholder engagement and any thoughts on stakeholder engagement, including maybe pitfalls and challenges that you might've seen in your experiences. I actually really enjoyed our conversation when we were planning for this conversation, and I had a few questions I wanted to ask you based on that planning session, but as we talk, this may go in a couple of different directions. We'll see.

Kathy Jaffari:

Let's get started. Adrienne, I want to start with the definition. What does shareholder engagement actually mean? And maybe when you're defining it, you can describe for us what it looks like?

Adrienne Monley:

Well, I really appreciate you having me, Kathy, and the Cozen O'Connor team. It is great to have good thoughtful partners in industry who sort of help our portfolio companies interpret the environment in which they're operating, and so I really appreciate you bringing me on to bring Vanguard's voice. Engagement, of course, is something that my team does quite a lot of. We also consume a lot of content. But let me take you back just a handful of years ago, I'd say eight to 10 years ago, when I think the engagement world really started to kick off.

Adrienne Monley:

As the story goes, shareholders would occasionally vote against some pay or vote against directors to express some kind of concern. More and more, our team, then led by Glenn Booraem, would receive calls from issuers asking, “why did you guys vote against this?  I want to understand the content, the thought process behind it. How can we earn your support next year?” Therein lies the impetus for what is now a very active two way engagement process between issuers and their shareholders, multiple times a year, if not every other year.

Adrienne Monley:

I think, in that spirit, it's been really positive to see issuers bring great interest to hearing, probably, the very different views of different shareholders. Of course, we really appreciate the audience we get because we're able to represent the interests of our clients, and our clients are 30 million people, in households around the world, who invest for long-term investment goals, whether retirement or other savings, and they're invested in index funds, which are also long-term.

Adrienne Monley:

As you suggested in your intro, Kathy, that sort of structural long-term orientation, I think, drives a lot of our pragmatism around corporate governance, but engagement does not just have to be a discussion today. I think that was a great place to start. I think many companies and many investors learned a lot in the last decade about how boards really work, how investors really think, and try to find common ground. But today, I'm guessing everyone who's watching this is feeling like, wow, the universe has completely ballooned. Nobody even has time for all the engagement that they feel beholden to.

Adrienne Monley:

Frankly, given the numbers you cited at the onset of this conversation, we have a capacity constraint, especially those investors who are widely diversified or invested widely across the market, as Vanguard is. In that spirit, I think about engagement, Kathy, as really three things. There is the traditional word, engagement, which is the two way conversation or sometime group conversations. Those can be helpful at times.

Kathy Jaffari:

But one-on-one, meaning company with Vanguard.

Adrienne Monley:

Company or?

Kathy Jaffari:

I was going to say meeting in person, but maybe Zooming.

Adrienne Monley:

Meeting face to face, I think that still qualifies.  So, meeting face-to-face or voice to voice, as it may be sometimes. But then, there are a couple of other gradations of it too, which I would really encourage issuers to think about and lean into, to the extent it's efficient and effective for you. Frankly, our team, as I said consumes an enormous amount of information about issuers to inform our decisions. That information comes not just from your formal disclosures. I know every one of you, especially with your firm's help, thinks about the content of those disclosures to excruciating detail.

Adrienne Monley:

We also consume a huge amount of communication. Let me just delineate between those two things and why I think those things are different than the traditional face-to-face engagements. Disclosure, of course, is important in our regulated environment. It helps us to see and interpret what's happening at different issuers in a consistent format and informed and shaped by regulation. We really like that, appreciate it, which is why many issuers hear us encourage them to put so and so in your proxy, or feel free to think about incorporating that into your 10K.

Adrienne Monley:

We want companies to be really thoughtful about what goes into that disclosure. But the reality is there's a lot of contexts, there's a lot of qualitative information, and there's other thoughts that can be shared with investors, we think, through communication channels. Whether that communication channel is a sustainability report, not necessarily regulated, whether it's information on your boards or your sustainability websites, or whether it's even taping interviews with board members or executives in this way. Making those types of discussions available more publicly, not just relying on them to be live scheduled meetings.

Adrienne Monley:

The reason I encourage you to think about all these different formats is that, frankly, most investors today are probably interested in a lot of the same things. I think there is a way for investors to do this in a slightly more efficient manner, and there's a way, I think, for issuers to be more efficient, but still share those same insights, and it really is the insights that matter. Frankly, Vanguard doesn't have to hear something in an engagement to give company great credit for it.

Adrienne Monley:

If we read something really helpful in your proxy, or if we read it and pick it up in a chairman's letter or in a sustainability report, or even somewhere on your website, we're going to take it seriously. Trust me, if we have questions about it, we'll reach out and let you know. But if we don't have questions about it, we don't need to check the box and have that one-on-one conversation. It's a huge draw on time, particularly in this environment where everyone's busy and working day and night as it is. Maybe I'll stop there, Kathy, and see where that leads us.

Kathy Jaffari:

That was just a phenomenal introduction. In terms of what engagement can look like, and I actually want to tease out a couple of tips from what you just said because we want to provide some guidance for folks who are listening. There were a lot of incredible nuggets in that, so I'm going to try to tease out a couple, and maybe we can even discuss them a little further. But I loved how you talked about the fact that engagement is more than the one-on-one. It can be in the form of communication and a variety of different ways to communicate.

Kathy Jaffari:

I want to tease out the tip for folks to think twice about all of your communication and all of the, I'll call them, opportunities, to be able to communicate.

Adrienne Monley:

Channel or medium.

Kathy Jaffari:

And the channels can be used as opportunities to be able to communicate with their investors. I loved how you talked about, not just the sustainability reports, but also the websites.

Kathy Jaffari:

It was really interesting how you touched on the fact that folks can even do interviews or conversations.

Adrienne Monley:

Other social media conversations. Absolutely.

Kathy Jaffari:

Have you seen any of those?

Adrienne Monley:

Yes, we have. It does come in different forms, and I'll admit, I think sometimes we can all be intimidated by the production value or the need to be formal. But the reality is, if a director is going to show up to a video engagement with an issuer, and share much the same thing in every meeting, why could we not tape that interview and make it available broadly to all investors, who could then sort of get a sense of the person's personality? Get some of the most common questions answered, and yet still get the benefit of seeing someone's face and understanding the sincerity behind their words, which is, frankly, probably most of the behavioral reason why most firms really like that in-person engagement.

Kathy Jaffari:

I love that you said that, Adrienne, because of the word sincerity. It also demonstrates a form of corporate culture when you get to really hear from an individual, and I think maybe that's why folks always say, well, we have to have engagement. We have to call them. We have to meet with our investors. We have to get that meeting. But when I was learning that we're talking about 4,500 companies.

Adrienne Monley:

In this region alone it's a volume and scale. Frankly, it's not just a challenge for Vanguard. There are many investors all throughout this country and globally who invest in different styles. Maybe I want mentally active investors. They have wide portfolios too. That's really great; it's great for their clients. They're ideally offering diversified investment products, but the challenge is for teams like mine and for issuers, getting an audience can be difficult. I really empathize with that, and in the environment that we're in today, I think it really is beholden to all of us to think about all those different channels and mediums we can use to get our message through.

Adrienne Monley:

Now, one other tip I will offer, and a pitfall I've seen is, if the content that's showing up on the website or the disclosure is different from one another about telling the same story. Or if it's different from, or in conflict with, things we would hear in a direct engagement, that's something to pause. If I were an issuer or in a role where I'm thinking about using those mediums really well, I'd want to make sure that we're telling the same story, perhaps telling it in different ways so that it resonates really well. But let's be careful to make sure that we're telling the same story and we're really addressing the topics of interest to investors. Because here's another pitfall. I think it can be easy to want to publish a lot of detail on content that's not as important or that's maybe easier. I'll give you an example…

Kathy Jaffari:

What does that look like? Just speak on that a little bit more.

Adrienne Monley:

In the vein of ESG, environmental societal risks, or even just other governance topics; frankly most investors, I'm comfortable saying that widely, and especially Vanguard, we're interested in issues that we think are material to your business. For some companies if they're formerly in office recycling process, or the amount of paper that they saved in their printers, maybe it's material if you're a printing company. But for the average company, those types of sort of traditional corporate responsibility issues may actually not be financially material to your sector, to your business, or to the environment you're operating in geographically.

Kathy Jaffari:

And you take that into account as an investor, correct?

Adrienne Monley:

Definitely, Kathy. The materiality assessment for us informs what types of themes we're going to be digging into when we conduct our research. They absolutely inform the framework we use to make decisions on an ESG shareholder proposal. What those of us who read our content and our reporting externally will see is that our policies and our perspectives are shaped by those issues we're seeing grow in materiality across the market, like climate change, for example. That materiality assessment is a really important thing to be aware of, understanding that investors are bringing that view. Investors are not investing necessarily just for fun.

Adrienne Monley:

We're investing to try and deliver returns to our clients. In order to do that, we need to make sure the issuers are focused on the right, material, ESG risks.

Kathy Jaffari:

For their business.

Adrienne Monley:

Again, not just to make everybody feel good, but to also deliver long-term sustainable returns. Now, maybe a quick side note on that. I think there is growing conviction in the market, and Vanguard shares this conviction, that some of these risks long-term, they're probably really important for society. They also will present risks and they will be important for businesses. I'm not saying that doing something that's right and something that's good for businesses is necessarily in conflict. In fact, in most cases, it's probably not. But our lens on it is through that fiduciary lens. That's the one we bring to our analysis.

Kathy Jaffari:

Well, I think that's very helpful. I think it's so helpful for companies to hear that because I think some companies think that some investors are pushing forward or pressing for certain areas, in ESG, for example, that is not material to the business. For investors to share, we do look at it with that lens, its important for them to remember. I share that in my practice. I would also say the investor today may be different than the investor from 20 years ago, so there is a difference in what investors are looking for.

Kathy Jaffari:

The important thing, in terms of our topic today, is understanding what investors are interested in, and you can get that with maybe one-on-one shareholder engagement. Or if not the one-on-one, I loved how you talked about understanding your investors own policies. You can learn that. Vanguard publishes their policies. They tell the world what they're interested in, what matters, what their voting policies are, and so it's really important for companies to make sure that they understand that, and they don't have to just get that in a one-on-one, what we used to traditionally think about as engagement.

Adrienne Monley:

I'm glad you mentioned that, Kathy, because much like issuers have felt, Vanguard has felt that we could do a better job over time making our priorities and our topics of interest known. That's one of the reasons you've seen, over the last handful of years, our annual reporting, our other topical insights reflect the things that we care about that our research shows is likely to help companies perform better over the long-term. We also want it to be available to companies and to other stakeholders so that our perspective is clear and well understood.

Kathy Jaffari:

I think that's been incredibly helpful, Adrienne.

Adrienne Monley:

And we've gotten great feedback on it, so you're just going to continue to see more depth, more quality because we've really found that it's been helpful, and again, sort of in the spirit of this conversation, that transparency and that deliberate communication from us we think is really important for the market. Now, I will note, Kathy, that in companies looking to better understand how is an investor viewing me, in what lens is an investor evaluating my practices, I'll tell you a great tip. My team uses the SASB materiality matrix. Sustainability Accounting Standards Board materiality matrix, that looks at different sectors and different ESG topics and offers a perspective of issues that could potentially be material in different sectors.

Adrienne Monley:

That's our starting point. Now, appreciating not every company feels that tool reflects them 100%, I think that you know as an issuer that your investors are likely using that tool, which I hear on the street, many investors are, that's a helpful starting point. That's a great way to look at your own communication, your own disclosures, and even prepare for your own one-on-one engagements through that lens of, what issues am I likely to get questions about? What issues of interest are my investors bringing? And frankly, what is the perception of what's material to my company? If you know that that is our perception, you can help to start to address that more in your communication and your disclosures.

Kathy Jaffari:

Exactly. I think actually that's a great tip, Adrienne, because it starts with the perception, but then the company can evaluate that and be responsive to that.

Adrienne Monley:

To fill in the gap.

Kathy Jaffari:

Exactly, fill the gap, or if and when the time is necessary, have a conversation about it. Why we think it's not material to us as a company and therefore may not be necessarily material to the investor and then have a dialogue about that.

Adrienne Monley:

Exactly, that's a perfect way to think about it.

Kathy Jaffari:

Got it, excellent. I'm going to change gears just a little bit, because I do want to bring us back to the extent of, if a one-on-one engagement as possible, when is the best time to do that one-on-one again?

Adrienne Monley:

I think that the common answer here is not during the proxy season and the US proxy season. Which is a reminder, for most issuers in America, their annual meetings take place between April and June. That means that investors who own multiple issuers are flurrying through annual meetings, preparing for proxy votes, conducting research, and frankly, seeking to make good decisions on our client's behalf, and my team is just about entering that zone right now.

Kathy Jaffari:

That's why I'm very grateful for you to be with us.

Adrienne Monley:

I appreciate you asking, that is often a very busy time. But these days, all the time is busy. I think applying that critical lens, is this conversation one that's really crucial? Is it needed? Is it an issue or a topic that we could address through one of those other communication channels? That's really appreciated by us. That said, we do get thousands of requests for engagement each year by our investee companies. I think that's great. I love knowing that companies are interested to hear from us and talk to us, but what many companies will find is we say, thank you, but no thank you. We don't need to connect. A common question I get, Kathy, is, what does that mean? Is that scary?

Kathy Jaffari:

I was just about to ask you that.

Adrienne Monley:

Does that mean that you've already made your decision on my proxy? Does that mean that you have a concern, or does it mean the opposite? You don't have a concern. Here's the thing, if we have a concern, we will let you know.

Kathy Jaffari:

What does that mean, Adrienne? You'll let them know?

Adrienne Monley:

We can let them know through email, we may agree to have a phone call, we may agree to have an in-person or face-to-face conversation. But my point being that, in whatever channel we may do it, if we have a question or a concern, we do feel like we want companies to understand what drives those questions. Again, back to the spirit from 10 years ago, it's not helpful if the Vanguard funds reflect a concern and a vote against management and then don't tell a company why we've done that. How could we possibly drive constructive change on an issue of concern if we don't communicate?

Adrienne Monley:

I think we take, hopefully helpful for your clients to understand, we take our communication responsibility seriously too. My team is extraordinarily open and pragmatic and communicative with companies. Again, it may not always come in the form of a face-to-face conversation, but if we have a question or a concern, we may send that via email. We may be willing to get on a quick phone call. For those issues or those policies that are a few years more mature, let's say they're not brand new, well, as you noted earlier, we're very public about publishing what our perspective is, so oftentimes our view is already public and we would hope or expect that a company would have already consumed some of that information at some point.

Kathy Jaffari:

Well, and I'm going to highlight that. I'm going to call that an expectation. That's what I advise my clients on. There is information out there. That's a tip, right? The information is out there about what your investors are interested in, what they are concerned about, so don't have a blind eye to that. Make sure that you visit that and you address those concerns if you can. Again, I appreciate that you appreciate that Vanguard as an investor appreciates, it is all dependent upon an individual company too, in terms of what is material.

Adrienne Monley:

Yes, we all have a role. We do all have a role here. Now, the other thing I find really helpful during the busy engagement and proxy season is patience. Our teams are not always able to respond to inquiry for engagement within a single day. It may take us a few days. Let me help you understand what happens behind the scenes there.

Adrienne Monley:

We do have an email inbox that companies can use to conduct the outreach to us. The emails do not just sit in that inbox not being looked at. We have teams of analysts here. We have teams of analysts in London who review the company's information, look at our history with the company. We may conduct a deeper dive corporate governance, proxy, or ESG analysis just to make sure that there's not something there that does warrant discussion. That level of thought is going into our response. What that means is, if we say thanks, but no thanks, that means we've conducted some level of review.

Adrienne Monley:

Now, here's the other reality. Sometimes we will get an inquiry for our requests for engagement, let's say on like the first week of the month, and we conduct the analysis, we say, thanks, but no thanks. But then a few weeks later, something happens in the markets, or some news gets released from the company. You know what? I hope you can respect we are entitled to change our mind. We may, in those instances, come back and say, you know what? We're sorry. We'd actually like to engage after all. Again, we appreciate company's flexibility with that, because sometimes we can't read your minds, we can't always anticipate what's coming. Of course, we're not on the inside very intentionally.

Adrienne Monley:

We, of course, will not know what's coming down the pike in some instances, and so we may need to reverse our decision at some point, but again, we hope to be really communicative if and when we do that.

Kathy Jaffari:

That can tease out a tip that you actually touched on earlier in the beginning of the conversation, where all communication matters. While a certain set of circumstances may look like something on the beginning of the month, they may look very different at the end of the month or two months later.

Adrienne Monley:

Yes, or in the context if the world changes, right?

Kathy Jaffari:

Exactly.

Adrienne Monley:

Some of those are company specific factors, and the course, some of them are environmental, literally or figuratively environmental factors. I think another good example here, the tragedy of George Floyd, I think rightly raised society's attention to issues of diversity. During that period, we may have gone and looped back to companies where we had diversity in the boardroom, with questions, when there are policy advancements, or policy news around climate change. We may revert back to companies from just a few months ago and say, hey, we've noticed that some of that policy environment's shifted, how are you thinking about that?

Adrienne Monley:

Even if we had said initially, no, we don't need to engage this very day. Appreciating that the context does shift and that we monitor that context very closely, I think it's great and helpful for there to be flexibility on both sides, because being a forever investor means that we're going to vote your proxy every year, we have the opportunity to develop a relationship over many years. It doesn't all have to happen in a very small window. We can have some patience around how and when we exchange information.

Kathy Jaffari:

Actually, I love that you're talking about that piece as well, because a few minutes ago, you used the words, how are you thinking about this area? This concept that you're raising, we have patience, we have time to get to know you because we are a long-term investor. I'm going to ask you a question about that. Does that mean that a company doesn't have to have all the answers right now in this moment about how they're going to address the topic of the day? What would your response be to a question like that?

Adrienne Monley:

I know why you're asking this question and my big capital letters answer is absolutely. It's okay to not have all the answers. In fact, if you wait to have all the answers, you will never be able to say anything.

Kathy Jaffari:

Thank you for sharing that.

Adrienne Monley:

There lies the challenge. I mean, investors are interested to know, at least we're interested to know, how is the board thinking about this issue? How do you discuss the issue in the boardroom? Is there a committee structure? Is it the full board? Is it a regularly scheduled agenda item or does it come up organically? You could think about any issue and we could ask that series of questions, but nowhere in there am I saying, I need to see the hard concrete evidence of your progress on this issue. Now, there may be some matters where that is needed. Of course, there are, but for ESG risks and some of these bigger societal questions, we just want to understand, as a starting point, how it's being discussed.

Adrienne Monley:

Is it being discussed?

Kathy Jaffari:

That it's being discussed. You want to make sure that it's being discussed.

Adrienne Monley:

Exactly. It may be a question that could be raised through a sustainability report or a Q&A could be published on a website. It doesn't have to be in a proxy and it certainly doesn't have to come through in a one-on-one conversation, not to say it doesn't, and it won't, in either case.

Kathy Jaffari:

Do you have a view, actually, on what we are seeing, what we are even advising on, especially with, as the SEC rules are changing, for example, the human capital management disclosure requirements over the fall? We are recommending to the extent that it can help tell the story about a company and what they're thinking about and what they're doing, especially around ESG type topics, that the proxy statement could be a nice place to share that story, that description. Do you agree? Are you finding that helpful, not helpful? Are there different ways folks could do that?

Adrienne Monley:

Yeah. I think, Kathy, we're not a regulator, so we of course have preferences. I would say I prefer and my team prefers high quality content, probably over the specific location of the content.

Kathy Jaffari:

 Perfect, I love that tip.

Adrienne Monley:

It is a tip. High-quality content matters. The anxiety that may come with putting that content in a regulated document is that we understand, we empathize with it, but that doesn't mean the information shouldn't be made available.

Kathy Jaffari:

Can I add one more thing?

Adrienne Monley:

Yes, go ahead.

Kathy Jaffari:

Also, consistency. I want to highlight what you said earlier in the conversation. So important to have high quality content that is consistent.

Adrienne Monley:

But consistent and not boilerplate. I mean, that's my other nudge, I think it can be tempting to make boilerplate statements about a lot of these issues. Boilerplate statements feel safe. Frankly, they're not helpful when we read the same statement by every public company that does not assure us that the company's taking a company sector, industry geographic specific approach. Again, when I say high quality content, I really mean more depth, more sincerity, more specific, and over time, more evidence.

Adrienne Monley:

A good example here is, a couple of years ago, if we talked to an issuer about how they're thinking about their workforce strategy or their workforce diversity, we may have been talking more at the process. How is that overseen in the boardroom? Today, we may expect that issuer to be publishing EEO data with more context around why the data looks the way it does and how is that demonstrative of a good or a flawed process?

Kathy Jaffari:

Got it.

Adrienne Monley:

You see what I'm saying? So, concept to content and outcomes will be an expectation over many years.

Kathy Jaffari:

Over time, yeah. You want to see, it's not just okay we're thinking about it, but then nothing happens.

Adrienne Monley:

Then what happens as a result?

Kathy Jaffari:

Exactly.

Adrienne Monley:

That often can't happen in the blink of an eye. When I think about Vanguard's long-term investment horizon, of course, as I said earlier, that does give us some patience. We have the ability to come back and take a look, have those discussions, or consume your content year over year. We are not infinitely patient around progress on important material risks. I think let's not misinterpret what we mean by patience. Patience is the gift of time.

Kathy Jaffari:

Exactly. Understood.

Adrienne Monley:

But the follow through is really important.

Kathy Jaffari:

I think actually that, Adrienne, this may be the time to turn the conversation over, just for a few minutes, to what are the policies that you are really focused on at this time?

Adrienne Monley:

We have a broad set, many hundreds of pages of policies that we operate on internally, but maybe I'll answer this question, Kathy, by highlighting a couple of policies that I hear are of interest to the market.

Kathy Jaffari:

That's good Adrienne, we'll take them.

Kathy Jaffari:

I'm hoping none will be a surprise to our listeners.

Adrienne Monley:

I don't think any of them will be a surprise. A couple of key highlights here. First of all, we, for many years, said that we looked to boards to oversee strategy and risk issues, that’s another way to have a really intelligent and intentional approach to ESG risk oversight, especially material ESG risks. What that means is, when we see ESG risk failure, or we see a failure or something that may signify a failure in the governance process, we, this year, more than ever before, are going to be willing to hold directors accountable for those failures. Now, everyone will have seen and read in the news select instances over the last few years where we have deployed accountability votes or votes against a particular director and his or her role in a situation.

Adrienne Monley:

But that ESG universe, I think, is widening because our view on materiality is more mature this year than it has ever been. That means we will use that policy when we evaluate risk oversight as it relates to climate change, as it relates to diversity and other material risks that may be present in a company. The other thing that we'll do, I think, to help the market better understand that, is we will publish more case studies, including naming companies that help those companies understand what our concerns were and help other companies see how we analyze the issue.

Adrienne Monley:

We've already done a good number of those this year in 2021, and so those can easily be found on our website. I think they're called voting insights. They highlight the key issues that we analyzed and why we watched the votes that we did. Again, that was a response to feedback and asks from the market and from companies to get a better window into our work. So we'll be doing that. But two other topics that I get a lot of questions about, and I think rightfully so, the market's really buzzing. The first is climate risk.

Adrienne Monley:

As I noted earlier, especially in the United States, and I've lived in Europe for a couple of years, there is a lot of attention to the growing concern in materiality of climate risk. Probably wider and more outside the traditional sectors today than we've necessarily looked at it in the last few years. In that spirit, our expectation of companies to demonstrate great oversight and to mature their own reporting and disclosure with standards like SASB (Sustainability Accounting Standards Board) or TCFD (Taskforce on Climate-Related Financial Disclosures), our expectations will be maturing.

Kathy Jaffari:

Okay.

Adrienne Monley:

When we see companies who appear to be a laggard in their sector, a laggard among peers, or where we got a signal that oversight isn't happening quite in the way we would expect for a company of their size or maturity, again, we may deploy votes either in favor of shareholder resolutions or to hold directors accountable for progress.

Kathy Jaffari:

Okay.

Adrienne Monley:

I can't predict today exactly what that will look like. I haven't seen all the proxies from this proxy season yet, but we do have that spirit today, to try and drive progress and drive implementation of really thoughtful oversight of risk, and I think climate risk is one of those risks that we're seeing is likely to affect the wider set of companies.

Kathy Jaffari:

And the second one?

Adrienne Monley:

The second one is board diversity. I hear that you've had other sessions here talking about board diversity. I'm sure your clients are thinking about who's in our boardroom and what's our future pipeline for great directors. In a similar spirit, we will be looking at companies who are laggards in board diversity this year, and we'll be holding non gov chairs accountable for a lack of progress. When I say laggard, the typical standard we'll be looking at is boards who have no women and/or boards who do not have any racial or ethnic diversity.

Kathy Jaffari:

I was going to ask you about that.

Adrienne Monley:

Yes, there's no perfect way to measure that. We don't necessarily have consistent disclosure to help us see in aggregate where that diversity exists or where it lags. We will be conducting outreach to companies to validate some data points as we conduct our analysis, but this year you will see and your clients will see that those laggards will hear from Vanguard and may experience accountability votes for that progress.

Kathy Jaffari:

It will make a difference.

Adrienne Monley:

It will make a difference, we hope, and the good news is we've seen a lot of progress on women on boards. We're not seeing as much progress on racial and ethnic diversity. We need to. We think it's an important investment priority for the Vanguard funds. We think boards will operate better when they have the right composition of skills, experience, racial, ethnic, gender diversity, age, tenure, all the factors. They get questions about all of them. Yes, they all matter. What we're looking for is that boards compose themselves in a very thoughtful way and with consideration for the growing expectations that investors are bringing, which includes some of the ones I just outlined.

Adrienne Monley:

Now, an accompanying area of interest for us is also disclosure. We will also look to see whether companies have disclosed a policy, whether they're disclosing more about their board recruitment pipeline management considerations about diversity.  And we will even be looking to see, do we have a window into the diversity makeup of this board? One of the trends I'm seeing now is companies disclosing diversity more in aggregate rather than individuals. As I sit here, that's a great step. I think that'll be really helpful, so it would really encourage companies to think about it.

Kathy Jaffari:

Adrienne, your team is busy. You all are working so extremely hard in the efforts to help, as we are all trying to manage the capital markets in our own ways, in the right ways, and in the best ways possible with some great avenues of good governance and thoughtful governance. I think that's what I heard a lot about, be thoughtful about what you're doing and how you are sharing that information, and share it, and find the ways to share it. As a securities lawyer, I appreciate that investors appreciate that we also need to be careful where, and when, and how to do that, but there are many avenues to be able to do that. I think you provided so many tips of where and how to do that, so thank you for that as well. I just realized, I think you and I could talk all day about this topic.

Adrienne Monley:

We will do a sequel and another sequel and we'll just carry it on, but I do really appreciate the invitation.

Kathy Jaffari:

Exactly. We'll do a post proxy season session as well. This is where I will simply say thank you, Adrienne. Thank you so much for sharing your thoughts, guidance, and really a number of tips that our listeners can take away as they continue to do their very best in the work that they're doing as well.

Adrienne Monley:

Kathy, maybe that's a great place to end. I really appreciate the work that all of your clients, that the leaders of and the boards of issuers, do to look after our clients' assets, because it's a partnership. We manage the assets and you all oversee them and turn them into value, and that's why this ecosystem works. So, really appreciate all the efforts that everyone's providing in this difficult year to deliver that value.

Kathy Jaffari:

That is a perfect place to end, so thank you again, Adrienne, for helping us and being here with us. If anybody has any questions, they can reach me at, at kjaffari@cozen.com. I'm sure if they need to, I can find a way for them to reach you if they don't already know how. With that said, I really want to thank the audience for joining us today and listening to this conversation, and also ask the audience to keep their eyes open for our future programs, including programs on ESG disclosure with some sustainability officers, and we're also going to have some tips on D&O insurance in the governance world. This will be all brought to you by the Inside Scoop from Cozen O'Connor. Thank you, everyone.


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Katayun Jaffari

Chair, Corporate Governance & Securities

kjaffari@cozen.com

(215) 665-4622


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