ANNUAL REPORT 2015 INFORMATION FOR INVESTMENT PROFESSIONALS GOVERNANCE AND PROXY VOTING 2015 ANNUAL REPORT COLUMBIATHREADNEEDLE.COM
Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies.
SUMMARY At Columbia Threadneedle Investments, EMEA, we view actively voting at company meetings by proxy as an important way of signalling our approval (or otherwise) of a company s practices and approach. Where appropriate we look at wider environmental, social and governance (ESG) issues and integrate them in our voting practices: for instance where there are ESG-related shareholder s resolutions, or where we have identified severe ESG issues or controversies. We take a collaborative approach to making voting decisions, and draw on a range of different research sources to inform and enrich our voting analysis. We make our final voting decision in collaboration with the firm s portfolio managers and analysts. Across all global markets, our aim is to actively vote our holdings where we are entrusted with the voting rights, regardless of size. Our initial voting analysis and assessment is derived from our corporate governance principles and benchmarked against our own proxy voting policy. We believe in a proactive approach to voting: in making our final voting decision, we will consider company-specific context and any clarifications that have resulted from engagement. However, we are mindful of the role proxy voting has in promoting good standards of corporate governance and signalling areas of potential concern and sensitivity around a company s practices. Percentage of meetings with one or more dissenting votes 60% 50% 46% 49% 40% 38% 30% 20% 10% 0% 2013 2014 2015 During 2015, we voted at 1,871 meetings, registering our dissent from one or more resolutions at 49% of meetings, compared to 46% during 2014. We classify a dissenting vote as one that does not support management, whether it is opposing or abstaining on a management resolution, or supporting a proposal tabled by a shareholder that is not endorsed by management. Of the 21,863 individual resolutions we voted on throughout 2015, we voted in line with management on 19,523, opposed management on 1,649 and either abstained or withheld our vote on 691. We disclose our voting decisions, 14 days after the relevant company meeting, on our website 1. 1 http://vds.issproxy.com/searchpage.php?customerid=2775 1
DISSENTING VOTES AND OUR POLICY Voting is a clear, tangible signal to companies that there are issues, sensitivities or potential concerns around a proposal and related company practice, and we register dissenting votes for a variety of reasons. During the year, we did not support 2,340 resolutions. Dissent from director and remuneration-related items continues to drive around two thirds of our dissenting votes overall. Director and remuneration-related voting action has seen, respectively, a relative increase and decrease. This is driven by developments in the UK, which accounts for almost half of all meetings. Breakdown of dissenting votes 50% 45% 44% 43% 40% 39% 35% 30% 25% 25% 20% 19% 20% 15% 15% 15% 13% 10% 5% 9% 9% 9% 7% 7% 6% 6% 5% 2% 2% 2% 2% 0% Supporting Shareholder Resolutions Reorganisations & Mergers DIRECTOR RELATED 2013 2014 2015 Director-related voting action continues to be the most frequent reason for dissenting. In 2015, we abstained on or opposed the elections of over 900 individual nominees. It is important that companies are overseen by an effective, balanced board: where we have concerns, we may not support the election or re-election of relevant directors. Issues include: overall level of independence, skills, attendance or volume of directors outside commitments. We also consider the matters relating to companies ESG practices. Where significant issues or controversies have arisen, we may not support the re-election of individual directors or committee/board chairs. REMUNERATION Dissenting from remuneration items has fallen from 525 individual items in 2014 to 458 in 2015 individual items. This is due to relative lack of voting items; the UK is our biggest market and 2015 saw a fall in the number of forward-looking remuneration policy votes across companies. This meant that the number of UK remuneration-related items fell by one third. We supported proportionally more of these, hence the fall in the number of dissenting votes. 2
We analyse a company s pay arrangements according to six clear drivers by which we set our voting policies and which direct our analysis, shown below. 1. Clear, simple and understandable pay structures 2. Balanced and proportionate 3. Aligned with the long-term strategy and shareholder interests 4. Appropriately incorporating robust performance criteria 5. Delivering outcomes that reflect value creation 6. Structured to avoid pay for failure Where we feel that a company s practices do not meet these, we may not support remuneration-related items. We may also not support members of the Committee if our concerns are sufficiently great. CAPITALISATION issues remain a key reason for dissent and led to 328 votes in 2015. On one hand, we look at the potential dilution risk of issuances, particularly those without pre-emptive rights which we consider a key shareholder protection. On the other hand, we are cognisant of the strategic drivers or capital authorities. Discussions with portfolio managers, looking at individual companies investment strategies, drive many of our voting decisions. The matter remains a concern in many markets including France, China and Hong Kong. We also dissented on items relating to the levels or timings of buybacks, the terms or approach to them and other risks such as creeping control or entrenchment. SHAREHOLDER RESOLUTIONS Supporting those shareholder proposals not endorsed by management drove 9% of all dissenting votes. There was a strong country bias, with 88% of these resolutions at meetings in the United States. A key trend came from shareholders requesting proxy access. Typically, these were requests that shareholders owning 3% of a company s stock (either alone or in-concert) for three years would have the right to nominate board members normally up to a quarter of seats. This item came to the fore in 2015; notably, we supported all proposals. Unusually for the UK market, 2015 saw some high profile shareholder resolutions. The Aiming for A coalition tabled resolutions at oil giants BP and Shell which were supported by management seeking greater transparency around climate change and the associated risks. We supported these resolutions alongside over 98% of shareholders. AUDIT RELATED In 103 cases during the year, we did not support the election or remuneration of auditors. We are mindful of the importance of the audit function and the importance that the auditors are and are seen as independent. We look at the services provided by the external auditors and the breakdown of fees paid by the company. When looking at audit and non-audit fees, we examine what services are required for consistency of assurance and do not take these into account when assessing whether an auditor could be conflicted. OTHER BUSINESS This category aggregates a number of voting areas which may not arise frequently and can vary in nature. We would not support amendments are made to company bylaws, for example, that we do not view as being in the interests of shareholders. A technical item we tend to oppose, making up a fifth of other business items, relates to opaque items on agendas that would allow business to be moved at the meeting without proper scrutiny. This is not in the interests of those voting by proxy, normally minority shareholders, so we tend to oppose. 3
VOTING TRENDS Voting activity is heavily concentrated around the second quarter of the year proxy season when most regions company meetings peak. In April, May and June, we voted at 1,056 meetings compared to 815 during the other nine months of the year. Monthly volume of meetings per region Number of meetings voted 200 180 160 140 120 100 80 60 40 20 0 January February March April May June July August September October November December UK Far East & Emerging Markets North America Europe Japan Latin America Monthly volume of meetings and individual resolutions Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total Total meetings voted 70 67 131 327 456 273 139 49 106 75 96 82 1,871 Total resolutions voted 605 678 1,139 4,187 6,495 3,532 1,836 417 1,076 496 856 546 21,863 Meetings voted by region 50% 45% 40% 42% 41% 40% 35% 30% 25% 24% 24% 23% 20% 15% 10% 5% 14% 17% 16% 11% 12% 12% 7% 4% 4% 3% 2% 3% 0% UK Far East & Emerging Markets North America Europe Japan Latin America 2013 2014 2015 4
REGIONAL VOTING TRENDS The quantity of meetings per region has remained fairly consistent with those in the UK, Far East & Emerging Markets and North America accounting for over 80% of all company meetings voted. UNITED KINGDOM Number of meetings voted: 760 Peak month: May Meetings with dissenting votes: 37% n The United Kingdom is our largest voting market by volume of meetings, as well as by the percentage of our equity assets under management n We frequently did not support UK director nominees elections for reasons of overboarding: where we view the individual as having too many outside commitments. Our concerns come from the possibility of directors having to cope with crises at multiple companies concurrently and the effect this would have on their ability to commit their time and expertise n In 2014, shareholders had the opportunity to register binding votes on companies forward-looking remuneration policies in addition to advisory votes on backward-looking remuneration reports. This year, however, only around a quarter of companies put new policies to vote, meaning the number of remuneration-related items fell significantly n The issue of remuneration and executive pay continued to generate significant media attention and drove both company engagement and dissenting votes throughout the year n Of the 511 dissenting votes we registered in the UK, 34% related to remuneration, a 12% reduction from 2014 5% 34% 7% 3% 1% 2% 47% Supporting Shareholder Resolutions Reorganisations & Mergers FAR EAST & EMERGING MARKETS Number of meetings voted: 442 Peak month: June Meetings with dissenting votes: 52% n The Far East & Emerging Markets are a geographically diverse group of markets but share many common traits: lower board independence levels, lower levels of disclosure and higher sought capital authorities. The issues mean that companies in these markets typically carry a relatively higher governance risk n Almost half (42%) of dissenting votes in the regions relate to directors n Where boards are not made up of majority independent members, we may not support individuals. This is an ongoing concern: we view the ability of the board to act as an independent overseer as crucial in holding management to account n Markets such as Indonesia and Turkey present bundled director elections where the shareholder is given an all-or-nothing choice on electing board members. We view the ability to hold individual directors accountable as a key shareholder right n At Chinese and Hong Kong-based meetings, concerns around dilution led to many votes against capital authorities, which tend to be presented without pre-emptive rights a key shareholder protection 28% 7% 2% 3% 5% 13% 42% Supporting Shareholder Resolutions Reorganisations & Mergers 5
NORTH AMERICA Number of meetings voted: 301 Peak month: May Meetings with dissenting votes: 68% n North American company meetings tend to be concentrated over half of the year s meetings were voted in May n Shareholder-tabled resolutions are far more common in the US than any other market. Of the 456 shareholder resolutions voted on globally, over half were in this market n These non-binding resolutions, which are rarely supported by management, are wide-ranging in subject, and can relate to board composition, remuneration, transparency and sustainability themes n This was a source of 37% of dissenting votes in the region n We most frequently supported sustainability-related proposals resolutions relating to increasing levels of reporting around steps companies are taking in light of climate change and greenhouse gas emissions n Advisory votes on remuneration Say on Pay are now common in the US n A vote on the frequency of such items are sometimes raised. We tend to support annual votes, rather than every third or fifth year n Where companies do not offer annual Say on Pay votes, we may register dissenting votes on members of the Committee (as we may also do if we view pay practices as particularly egregious) 37% 2% 11% 50% Supporting Shareholder Resolutions Reorganisations & Mergers EUROPE Number of meetings voted: 227 Peak month: April Meetings with dissenting votes: 67% n During the year we voted in 17 individual markets in the region, each with its own individual characteristics n Meetings are most frequently voted in France, Germany, Ireland, the Netherlands and Switzerland n We dissented from one resolution or more at 67% of European meetings, a total of 463 votes cast that were not in support of management n 38% of all dissenting votes across the region were cast in France, many of which related to advisory Say on Pay proposals, on the ballots for the second year n In Switzerland, binding votes on remuneration were introduced for the first time n We welcome the introduction of such voting items in markets as it allows us to assess the rigor of the link between pay and performance and whether management incentives are likely to encourage sustainable growth n France s Florange Act was introduced in the year, which also allows registered shares held for two years to acquire double voting rights, violating the key one-share, one-vote principle n Double voting rights were also introduced as part of Italy s Sunset Clause. Both initiatives led to a number of dissenting votes n We also opposed all-or-nothing bundled director elections held in Norway, Sweden, Denmark, Finland, Greece and Poland 22% 4% 12% 1% 1% 29% 32% Supporting Shareholder Resolutions Reorganisations & Mergers 6
JAPAN Number of meetings voted: 76 Peak month: June Meetings with dissenting votes: 29% n In Japan, meetings are concentrated more so than other markets with three-quarters of all meetings taking place in June. This presents a logistical challenge in terms of lead time for meeting analysis n The country introduced a Corporate Governance Code during the year, which should help matters as part of its recommendation is to increase the amount of time between companies publishing meeting circulars and holding the meetings n This is one of the corporate governance reforms in the Code which is highlighted as a key part of Prime Minister Abe s strategy to revitalise the economy n Three-quarters of dissenting votes cast at Japanese meetings related to directors npositively, directors tend to be elected annually n However, many company boards fail to meet minimum independence criteria n Until the introduction of the country s Code, there was little scrutiny or requirement to appoint outside directors n Though the number of companies with at least one outside director on the board has increased hugely throughout the year, due to Japan s concentrated proxy voting season the effects of the reforms will most likely be felt in the coming years n We also did not support a number of directors where we had concerns with their attendance at board meetings 3% 3% 8% 11% 76% Supporting Shareholder Resolutions Reorganisations & Mergers LATIN AMERICA Number of meetings voted: 65 Peak month: April Meetings with dissenting votes: 37% n Latin American meetings tend to have lower levels of disclosure than many other markets n Bundled elections are the norm in Brazil, Chile, Mexico and Argentina and, in many cases, the names of the directors are not disclosed before the meeting. This is a tradition of the markets. For example, in Mexico, it is due to security concerns n However, it puts those investors voting by proxy at a disadvantage and makes casting an informed vote impossible n Where directors names are disclosed, however, levels of board independence do not always meet our standards of a majority independent board. These issues led to almost half of the region s dissenting votes n Concerns around levels of disclosure also drove the large number of other business items that were not supported n Opaque remuneration practices also led to dissenting votes we may not support remuneration items if we are unable to fully judge how a company aligns its management pay structures with shareholder interests and company strategy 35% 2% 2% 12% 49% Supporting Shareholder Resolutions Reorganisations & Mergers 7
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