Volume 2, Issue 4 May 2015

VIEW FROM CALIFORNIA— CalSTRS’ ANNE SHEEHAN

TENUOUS TENURE— US PENSION FUND VOTING

VOTING NEWS PROXY MONTHLY

 www.proxyinsight.com Proxy statement Nick Dawson, Co-Founder & Managing Director, Proxy Insight Limited

hareholder Activists continue at 71% and 70% of proxy contests Executive to dominate the headlines, in respectively, Vanguard and Northern Compensation Sparticular Nelson Peltz’s attempt Trust Investments only supported the has already to gain four seats on the DuPont board dissident at 13% and 24% of proxy lead to via his Trian Fund Management vehicle. contests respectively. high profile investor This follows above average opposition opposition with more at their 2014 AGM notably for A.M. BlackRock CEO, Larry Fink made a very “set to follow” Cutler who received against votes public anti-activist statement last month from key investors such as Franklin urging chief executives of the S&P 500 to be back to business as normal Resources and BNY Mellon. to stop being so nice to shareholders after the introduction last year of the and in particular resist pressure for Remuneration Policy vote every 3 years. For the 2015 vote Glass Lewis is backing short term “so-called shareholder- Centrica, ARM Holdings, HSBC and Peltz’s election, ISS is supporting both friendly steps like paying dividends and BP have all faced significant opposition Peltz and John Myers, another Trian buying back stock”. to their Remuneration Report votes. nominee and Egan Jones is backing all It seems likely that there will be many four Trian nominees. Sticking with Activism, there are others who suffer the same fate. further signs that the UK issuers are Most institutions will form their own increasingly under the microscope I am pleased to announce that we are opinion when voting at proxy contests following what is now commonplace launching our new Vote Results service and hence the support of the proxy in North America. A pretty hostile within Proxy Insight. The module voting advisers is perhaps not as campaign between Elliott and Alliance captures total shares voted – For, critical as it would normally be. Each Trust ended in an agreement however Against, Abstain etc. as disclosed by investor makes up their own mind Alliance is rumoured to have spent £3m each company after their shareholder regarding the activists as reflected in in fees to advisors to help defend them. meetings. Assuming they disclose, Proxy Insight’s data which shows a firm, Electra is next in all US issuers should be covered significant divergence of opinion. While the firing line with Edward Bramson’s together with the majority of Canadian T. Rowe Price and Deutsche Asset Sherborne Investors having another go, and UK companies. Companies in Management voted the dissident card after his failed attempt to capture the the top indices for France, Germany, firm in October last year. Switzerland, Netherlands and Australia should also be covered. While the UK issuers are Executive compensation, often a results are only available at a company increasingly controversial topic, has already lead to level at present, the next step is to under the some damaging headlines. Three top include them within our advanced Activists’ Canadian firms, CIBC, Barrick Gold search so you can see all companies microscope, and Yamana Gold have all lost their who received less than x% support for following what is now say on pay votes leading to the CEO any type of resolution.  “commonplace in North of Yamana returning his special share America” units. Meanwhile in the UK, it seems Nick Dawson

2 WINNING IS EVERYTHING As long as there are teachers An interview with Anne Sheehan, Director of Corporate Governance at the California State Teachers’ Retirement System (CalSTRS).

oes this year mark a watershed has not changed but in our updated Where does CalSTRS stand on for proxy access? How quickly guidelines, we have provided more implementing a universal ballot for Ddo you expect change from specific detail on the types of access proxy voting in the US? In your opinion companies on this topic? proposals we prefer. We have put the would it lead to increased shareholder three-and-three construct into our activism, and if so, is that good or bad? Yes, we at CalSTRS do believe that proxy voting guidelines and have said this marks a watershed. We have been we will back shareholder proposals We are supportive of the SEC taking long-term supporters of proxy access; based on specific criteria. I think that’s up the issue of the universal ballot. we supported the SEC rule and were more effective, because companies It wouldn’t necessarily lead to more disappointed when the rule was will no longer be left wondering what activism, as most activists already vacated. We are expecting over 100 thresholds we prefer. wage proxy fights from time to time proposals this year, so we think we are under the current regime. However, the at a tipping point. universal ballot would be efficient, and There’s some could be used to both companies’ and And it’s not just the shareholder reluctance to shareholders’ advantage. That would proposals. With the SEC suspending adopt proxy come with the evolution of the use of a no-action letters after the Whole Foods access, but universal ballot. We’re not talking about situation, there is a greater opportunity often times on these wholesale change every year. to push for change. Sentiment is issues, companies beginning to coalesce on this issue. “have to digest what CalSTRS has a number of governance Although there are some outliers, shareholders want” managers and we do partner with our the “three-and-three” formulation* managers on some of their proposals. structured on the original SEC proposal In past years, we’ve voted against The message to companies is that appears to be widely accepted among lower thresholds, such as a “one- they have to be on their toes. We’re institutional investors. and-one” or three-and-three without not worried about the level of activism; any protections. They didn’t quite fit activists play a beneficial role in the I’ve heard from some corporate issuers the model, and in those situations capital markets. that the shareholders have “won”. It’s we explained to the proponents why fair to say there’s some reluctance we voted the way we did. CalSTRS Did the Shareholder Director Exchange on the part of issuers to adopt proxy believes that this is a fundamental make a difference over the last year? access, but often times on these right that should be available to all Will Jim Woolery’s new fund provide an issues, companies have to take some shareholders but should have enough important example for newer activists? time to digest what shareholders want. structural protections to make sure this right is not abused. For instance, The Shareholder Director Exchange How has CalSTRS’ policy on proxy we don’t believe that hedge funds will and similar initiatives have been very access changed and how is it expected be prepared to wait three years for a positive from our perspective. These to be more effective? proxy fight, in order to avail themselves types of initiatives have resulted in of access. more discussion with issuers, on Our policy toward supporting access issues such as compensation with the

4 “THE MESSAGE TO COMPANIES IS THAT THEY HAVE TO BE ON THEIR TOES. WE’RE NOT WORRED ABOUT THE LEVEL OF ACTIVISM; ACTIVISTS PLAY A BENEFICIAL ROLE IN THE CAPITAL MARKETS”

advent of say on pay. There are certain Is there any sign that the tech industry’s out that you see these firms lack the issues where we need to escalate famously high barriers (e.g. different mechanisms for shareholders to exert things to the level of the board, or where share classes, staggered boards) are influence. management are not in a position spreading beyond Silicon Valley, or to discuss a board matter, such as is the general trend positive for US What three things would you seek to executive compensation. It is awkward corporate governance? change, either about the proxy voting to hold a conversation about a CEO’s or engagement process? remuneration with the HR team, who We have some concerns, as evidenced work for that very CEO. I wish Woolery by some of the practises Silicon Valley I think our three things would be the the best. He’s clearly learned a lot from technology firms. While they are not universal ballot, a universal proxy his time as a lawyer and has partnered completely isolated their governance access rule – companies are starting with an experienced professional from practises don’t seem to have gone to adopt bylaws governing this but we JP Morgan. I think that doing activism mainstream either. There is a certain think it would be useful if the SEC could and having the corporate perspective is culture among these firms and our standardise this, although they are still an innovative approach. view is that at some point they need very busy with Dodd Frank – and a to “grow up” and mature by adopting majority voting standard. You’re supportive of Trian’s campaigns best governance practises expected in at PepsiCo and DuPont. Both stocks the wider market. If they are good, well- We’ve been sending 100 letters a year are doing well. Why is an activist run firms, they don’t need to defend to companies in the Russell 2000 needed? themselves. Actually, one of the best calling for majority voting, starting with performers in recent years, Apple, has the largest and working our way down The issue for larger firms is not the a very good governance profile. the list, for the last four years. We think performance per se, but that they this is best practice – plurality voting need to demonstrate their right to be a We’ve been is simply not the best way to elect conglomerate which does have a direct sending 100 directors. When we started, we had to impact on performance. Trian’s thesis letters a year to file a shareholder proposal. Now, most is that if it is not the most efficient way companies in companies adopt it after they receive to manage a business, then change the Russell 2000 calling our letter. So far, we’ve had about a is required. DuPont spinning off its for majority voting... 95% success rate, with a handful of specialty chemicals unit is a testament plurality voting is simply companies saying that they want to that there is a better way to manage “ delay the process because of a deal or not the best way to and impact performance—a testament elect directors” specific issue. In those cases, we look to Trian’s thesis. for a firm commitment, not just a wish and a hope.  Are you worried about IPO companies Our CIO, Chris Ailman has a saying that building in too many takeover defenses as long as there are teachers in California, Thank you, Anne. or is the general trend positive? we will be invested in the capital markets. This long-term ownership gives us the CalSTRS is always concerned about opportunity to speak with the companies * The SEC attempted to introduce any company, new IPO or mature, which in our portfolio about their governance. a proxy access rule that, broadly adopts unnecessary takeover defences. Many times certain shareholders are speaking, allowed shareholders who Ten percent of our portfolio is in private fine with a well-performing company had owned 3% of a company for at equity, so we see plenty of IPOs. There not having certain good governance least three years to nominate directors are certain best-governance practices practises, but when the company is making up less than a quarter of the that we like to see and we work to bring no longer performing well, then the board. all our portfolio companies up to that shareholders realize they do not have the standard within a reasonable timeframe, rights necessary to make any changes if not at the IPO stage. at the company. It’s when the tide goes

5 Don’t leave it to chance

Proxy Insight has all the intelligence you need for a successful shareholder vote. Understanding who votes, how and why puts you in control—so don’t leave it to chance.

 www.proxyinsight.com Tenuous Tenure Proxy Insight looks at brand new US pension fund data to see which funds vote most aggressively on director  elections and who is most supportive of dissidents.

ith shareholder activism Proxy contests throw up more surprising So what is it that pension funds look for in set to rise in 2015, board data. Voting aggressively on director board nominees? Mike McCauley from Wseats are looking more elections clearly doesn’t translate into Florida State Board of Administration, tenuous than ever. Activists have been a willingness to support activists as which ranks seventh in our list, said the increasingly successful in winning very few funds that are most likely to pension fund tends to oppose directors places on corporate boards in recent vote against directors also appear in who are over-boarded, have adopted years, often unseating their incumbents our list of those most likely to support governance changes that materially in the process. In addition institutional an activist. Despite only supporting the impair shareowner rights, are not investors can be liable to vote against election of directors just over a third of considered independent or there are management nominees even when the time in normal elections, CalSTRS concerns about corporate performance. there is no alternative, if their corporate actually voted the management card at Ray Ciranna at Los Angeles Fire & Police governance policies oblige them to. proxy contests 72% of the time. Pensions said his fund prefers directors who are independent and have good Throughout this drama some of the Meanwhile, Employees Retirement board attendance. biggest players, with an estimated System of Texas, the fund most likely $22 trillion under management, are to vote the dissident card (a significant If boards have been slow to adopt to US pension funds. Overleaf, we’ve 82% of the time), supported the these standards, it doesn’t look like listed those most likely to vote against election of directors 93% of the time pension funds will be going easier management’s nominees and most when uncontested. on them any time soon. Deborah likely to vote on the alternative proxy. Goldberg, the State Treasurer of Activists won’t necessarily be able Massachusetts Pension Reserves Unsurprisingly, given that its overall to rely on the support of pension Investment Management, which voting strategy is often quite funds for their full slates. Despite an already ranks ninth in the list, has aggressive, CalSTRS is one of the overwhelming preference for voting proposed a series of amendments to least likely to support the election or on the dissident’s slate, Vermont the investor’s proxy voting guidelines. re-election of directors. The California- State Treasurer only voted for all of the These include a mandate for the fund based pension fund supported dissidents’ nominees 27% of the time. to vote against all of a company’s board management nominees just 36.7% of nominees if less than 25% of the slate the time, some way below their average The popularity of voting against is diverse in terms of race and gender. level of support for management management’s board nominees isn’t “Demanding that companies create proposals at 53.6%. CalSTRS is also necessarily personal. Most institutional diverse leadership teams and confront almost twice as aggressive as the next investors say serious enough concerns the threat of climate change are no manager on the list: the Illinois State in any area will result in votes against longer simply admirable social goals,” Board of Investment. not just the relevant resolutions, but Goldberg said in a statement. “These also against the re-election of any reforms will help protect the stability Another fund that votes particularly directors deemed responsible. For and financial success of the companies aggressively on director elections is example, the State of Wisconsin that we invest in.”  State Teachers’ Retirement System of Investment Board recently opposed Ohio. Its average support for directors the re-election of members of BNY was 72.2%, compared with 81.8% for Mellon’s board because the company management proposals overall. has a combined Chairman and CEO.

8 “DEMANDING THAT COMPANIES CREATE DIVERSE LEADERSHIP TEAMS AND CONFRONT THE THREAT OF CLIMATE CHANGE ARE NO LONG SIMPLY ADMIRABLE SOCIAL GOALS”

Public Pension Fund Voting for Director Re/Elections (globally)

Investor/Voting Manager No. of times voted No. of meetings voted Votes for Against Abstained Withheld Did not on this resolution this type of resolution (%) (%) (%) (%) vote (%) California State Teachers’ Retirement System 175,259 23,613 36.7 48.4 0.1 14.8 0.0 (CalSTRS) Illinois State Board of Investment 63,434 9,725 67.4 14.3 0.1 17.2 0.0 State Teachers Retirement System of Ohio 24,221 3,326 72.2 7.8 0.0 18.4 0.0 State of Connecticut Retirement Plans & Trust 23,694 3,445 73.5 10.0 0.1 16.0 0.0 Funds State of Wisconsin Investment Board 29,340 4,387 75.3 16.2 0.2 7.9 0.0 State Universities Retirement System of Illinois 17,865 2,994 75.5 5.8 0.1 18.2 0.4 (SURS) Florida State Board of Administration 92,542 15,525 77.3 15.1 0.1 6.7 0.0 Ohio Public Employees Retirement System 87,174 11,521 78.1 7.5 0.1 14.2 0.0 Massachusetts Pension Reserves Investment 71,073 12,138 80.9 9.2 0.1 9.1 0.0 Management (PRIM) Los Angeles Fire & Police Pensions 8,296 1,071 81.4 6.1 0.1 12.4 0.0

Public Pension Fund Voting at Proxy Contests

Investor/Voting Manager No. of proxy No. of meetings % times voted No. of times % voted % voted for when contests voted dissident dissident card voted all all not voting for all voted card dissidents dissidents dissidents Employees Retirement System of Texas 11 9 81.8 5 55.6 62.7 Vermont State Treasurer 14 11 78.6 3 27.3 54.3 City of Philadelphia Board of Pensions and 22 17 77.3 7 41.2 49.3 Retirement New Jersey State Treasury 11 8 72.7 5 62.5 40.2 Pennsylvania Public School Employees’ 10 7 70.0 3 42.9 46.7 Retirement System (PSERS) Illinois State Board of Investment 33 23 69.7 8 34.8 54.7 Investment Council 23 15 65.2 6 40.0 59.4 Teacher Retirement System of Texas 20 13 65.0 5 38.5 59.0 Massachusetts Pension Reserves Investment 31 20 64.5 9 45.0 56.6 Management (PRIM) Florida State Board of Administration 39 24 61.5 12 50.0 59.7

9 IR Magazine A4 – May 7th.qxp_Layout 1 23/04/2015 11:43 Page 1

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PLATINUM GOLD SILVER EVENTS PROGRAMME MEDIA PARTNER SUPPORTER News summary  A round-up of the latest developments in proxy voting

BofA offers vote on CEO/Chairman In a statement, Beaumont said CIBC fails to pass say on pay vote “AeroCentury has underperformed the Bank of America has given in to investor broader market and specifically the Shareholders at Canadian Imperial pressure and has promised a vote on the aerospace and aircraft leasing market Bank of Commerce expressed their company’s decision to combine the roles for many years due to excessive displeasure with the company’s of CEO and Chairman, although the board management fees, and a restrictive remuneration as 57% voted against only said that it would hold the vote “no poison pill shareholder structure that the company’s advisory resolution on later than” next year’s AGM. The bank also limits the unleashing of shareholder executive compensation. The high level didn’t specify whether such a vote would value.” “AeroCentury needs a new voice of opposition is believed to have been be binding, and a spokesman said it was on the Board that has a committed caused by the company’s severance too early to say what the language would desire to unlock true shareholder payments, which were criticised by be in the resolution. Shareholders were value,” he added. The company argued CIBC shareholder Ontario Teachers’ particularly annoyed by the company’s that Beaumont had “failed to make a Pension Plan. decision to combine the roles because compelling case” for his election, in 2009 they passed by a binding vote a something it said was borne out by The two executives who left the requirement for the roles to be separate. Glass Lewis’ recommendation. company recently, Chief Executive Officer Gerald McCaughey and Chief ISS and Glass Lewis, who both Operating Officer Richard Nesbitt, are recommended a vote against director We’ve heard expected to receive C$16.7 million and Tom May following the company’s you loud and C$8.5 million respectively. “We have decision to combine the roles, have said clear”—Barrick significant concerns with the decisions they will uphold their recommendations. Gold Chairman taken by the Management Resources ISS is also recommending a vote against after losing say on pay and Compensation Committee over the the company’s corporate governance vote past year with respect to the succession committee. Glass Lewis said it was “ planning and post-employment continuing to oppose directors because of Barrick Gold fails pay vote arrangements made with both Mr. “the timing of the announcement and lack McCaughey and Mr. Nesbitt,” Ontario of specific information about the nature of Almost three quarters of shareholders Teachers’ said in a statement last week. the shareholder ratification.” in Canada’s Barrick Gold rejected the company’s executive compensation ISS gives “cautious welcome” to Third Proxy advisers divided at AeroCentury scheme. Announcing the results to Point’s Dow plan investors at the company’s annual Proxy advisers ISS and Glass Lewis have meeting, Chairman John Thornton said ISS gave its wary approval to a diverged in their recommendations for reforms would follow the vote. “We’ve compensation plan Third Point Partners shareholders at AeroCentury, a plane- heard you loud and clear,” he stated. specified for members of its slate who leasing company based in California. ISS Thornton was paid around $12.9 million were offered seats on the board of Dow recommended shareholders elect activist in 2014, a 36% increase. Barrick’s Chem. The company settled with Third investor Lee Beaumont to the board, shares have lost value for four straight Point late last year under terms that while Glass Lewis suggested that the years, the news agency said, setting will eventually see four of the activist’s management slate was best qualified to up a confrontation with shareholders. nominees appointed to an expanded, take the company forward. 13-man board.

10 “WE HAVE SIGNIFICANT CONCERNS WITH THE DECISIONS TAKEN BY THE MANAGEMENT RESOURCES COMPENSATION COMMITTEE (CIBC) OVER THE PAST YEAR WITH RESPECT TO THE SUCCESSION PLANNING AND POST-EMPLOMENT ARRANGEMENTS”—OTPP

In what was once a controversial practice BNP Paribas, Crédit Agricole, L’Oréal, issue. Having considered this feedback in activist campaigns, Third Point GDF Suez, Vinci, Renault and Vivendi. we have worked with Elliott to find a wanted to pay its nominees a bonus compromise which we believe is in the based on the performance of Dow’s Investors split over proxy access best interests of all our shareholders.” stock if they were elected to the board. So-called “Golden Leash” payments The proxy access campaign has Rory McNamara, a former investment became a major issue in proxy fights at exposed a division in the views of some of banker at Morgan Grenfell and Lehman Hess and Agrium in 2013. Neither plan America’s largest institutional investors. Brothers, and Anthony Brooke, a former was implemented, with JANA losing its Fidelity is opposing all proxy access Vice-Chairman of SG Warburg, are the battle at Agrium and Elliott dropping the proposals, even those that receive Elliott nominees who will join the board. matter at Hess. a management recommendation. Alliance will have seen votes rolling in Third Point’s plan has apparently Vanguard is voting against the bulk of the and may have felt the compromise was been carefully structured to pass proposals, preferring a 5% ownership necessary to avoid embarrassment in muster with shareholders and proxy threshold as opposed to the 3% being the contest, its second run-in with an advisers, according to the Wall Street suggested in most proposals. activist in four years. Elliott held a 12% Journal, with three- and five-year time stake in the company. assessment periods for the directors, However BlackRock, the world’s largest untied from whether Third Point remains asset manager, has said it will support Activists win at BP annual meeting in the stock. The activist also won praise most of the proposals, while T. Rowe for releasing details of the contracts, Price and TIAA-CREF are among those Activists have won the backing of 98% and guaranteeing that they could not be most in favour. Most of the proposals of BP plc shareholders for a resolution changed later on. seen so far this year have been proposed compelling the oil giant to increase by large public pension funds, including reporting on the impact of climate Investors oppose introduction of double- the City Retirement System change on its business, according to vote law in France and CalPERS. the Financial Times. The same group of investors, which include CCLA, A campaign led by PhiTrust that has Alliance Trust settles with Elliott the Church Commissioners, and the backing of 19 institutional investors local authority pension funds, plans that manage €2.3 tn in assets is looking Alliance Trust and Elliott Advisors to advance a similar resolution at the to counteract the Florange law, which settled their proxy contest, a day annual meeting of Shell. automatically grants double voting rights before the company’s annual meeting. from 2016 to shares registered for more In a statement to the London Stock Carl-Henric Svanberg, BP’s chairman, than two years unless two-thirds of Exchange, Dundee-based Alliance said backed the proposal, but warned the shareholders vote to overturn it. it would add two of Elliott’s nominees largest oil companies may not have as with immediate effect in return for a one- much power as some think over the This comes amid a wider European year standstill agreement. The parties oil and gas reserves. “[Major western debate over the issue, with amendments will also begin the search for a third, oil companies] control less than 10% to the Shareholder Rights Directive mutually-agreeable director with input — over 90% are with national [state- being discussed this year, which would from other major shareholders. owned] oil companies,” he said. force the bloc’s 28 member states to Speaking about the energy business’ allow deviations from one share one Karin Forseke, Alliance’s Chairman and prospects, Svanberg warned that future vote. Proxy advisers such as ISS and a staunch defender of CEO Katherine shareholder returns may not be as Proxinvest have all recommended Garrett-Cox against Elliott for much strong as they were in the past, arguing French companies vote against the rule. of the battle, said in a statement “On “the price of oil has gone back to the old, 11 of France’s largest companies will behalf of the whole Board, I would like to volatile days after six years of relative attempt to reject the double voting law express my gratitude to our shareholders stability.”  during the 2015 AGM season, including for engaging with us on this important

11 Connect Communicate Collaborate

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