John Galloway is Global Head of Investment Stewardship at Vanguard, Inc. This post is based on a publication by Vanguard Investment Stewardship.
Our four principles
Board composition and effectiveness
Good governance starts with a company’s board of directors. Directors are elected to represent the interests of shareholders and have important responsibilities that they carry out in accordance with their fiduciary duties to shareholders. These include selecting and appointing the CEO, being involved in company strategy formation, overseeing material risks, designing executives’ compensation plans, and ensuring that shareholders’ rights are protected.
Our primary focus when evaluating a company’s governance practices is ensuring that the individuals who serve as board members and represent the interests of shareholders are independent, capable, and appropriately experienced. An effective board should reflect diversity of skill, experience, and opinion, as well as diversity of personal characteristics (such as gender, race, and ethnicity), as research shows that diverse boards can make better decisions. Well-composed, effective boards can set in motion a virtuous cycle that enables a company to innovate, seek out new customers, and enter new markets, enabling long-term shareholder value creation for investors in their company.