“Vanguard Group, the nation’s second-biggest mutual-fund firm behind Fidelity Investments, is turning up the heat on corporate CEOs,” writes Ken Brown in today’s Wall Street Journal.

“In a letter sent last week to the chief executive officers at several hundred of Vanguard Group’s top holdings, the fund firm said that while there has been progress in corporate governance following the scandals of the past few years, ‘there is much more change needed.’ “

“So, Vanguard is taking a much harder line this year, going against the managements’ wishes in hundreds of proxy votes.”

“Vanguard’s stance on three key proxy issues highlights its new standards. In voting for corporate directors, Vanguard approved just 29% of the full slates of directors proposed by companies in which it invests. Last year, Vanguard approved 90% of the full slates of directors.”

“In addition, Vanguard approved 79% of its companies’ auditors, down from 100% last year. And the firm voted in favor of just 36% of employee-option plans, the same number as last year.”

“Votes like those by Vanguard are one reason why a record number of proposals from shareholders were approved this year. According to Institutional Shareholder Services Inc., which advises mutual funds and pension funds on proxy voting, 164 shareholder resolutions on everything from staggered boards to takeover defenses to executive compensation earned majorities this year. The previous record was 106 for all of last year. ‘It was a record year for activism any way you look at it,’ says Patrick McGurn, senior vice president of ISS.”

“Corporate governance — which is simply how a board oversees management, makes sure the company is run well and that shareholders are treated fairly — has been a hot-button issue since the collapse of Enron Corp., WorldCom Inc. (now MCI) and others. Since then, investors have become increasingly skeptical that board members and managements have their best interests at heart. Many have registered that displeasure by voting against proposals favored by management in the companies’ annual proxy — proposals that usually are approved with little notice.”