Endereçando preocupações de investidores institucionais e ... · 4-SODALIStewardship Code –Developments in Europe EU EFAMA –European Fund & Asset Management Association, Code

Endereçando preocupações

de investidores institucionais

e fundos de investimento e

Proxy Vote

Giulio Pediconi

Souza, Cescon, Barrieu & Flesh

Rio de Janeiro, 14 February 2014

2 - SODALI

“�I spend a huge amount of time planning my Annual General Meeting�.and then it turns out to be the most boring event, in which nothing happens”

(besides some individual shareholders complaining for the dividend, for lack of good catering and requiring a present upon attendance)

General Meeting Players

• Investors

• Proxy Advisors

• Intermediaries (i.e. Global & Local Custodians, Electronic Voting Platforms, ADR Providers)

Index - Framing the topic

3 - SODALI

Investors - Stewardship Codes – Goals

enhance quality of engagement

improve long-term returns to shareholders

efficient exercise of responsibilities

Spotlight on investors: Stewardship Codes

GOALS

� Strategy & Performance

� Risk management

� Issues subject to GM votes

purposeful

dialogue

UK Stewardship Code (2010 – revision 2012 - www.frc.org.uk)UK Stewardship Code (2010 – revision 2012 - www.frc.org.uk)

4 - SODALI

Stewardship Code – Developments in Europe

EU EFAMA – European Fund & Asset Management Association,

Code for External Governance (2011)

UK FRC – Financial Reporting Council,

The UK Stewardship Code (2010, 2012)

GERMANY Audit Committee, Corporate Governance

Kodex für Asset Management-Gesellschaften (2005)

NETHERLANDS Eumedion, Best Practices for Engaged Ownership

ITALY Assogestioni, Italian Stewardship Code (2013)

FRANCE Association Française de la Gestion Financière,

Code of Good Practice (2011)

LUXEMBOURG ALFI – The Association of the Luxembourg Fund Industry

Code of Conduct for Luxembourg Investment Funds (2009, 2013)

SWITZERLAND Ethos, Swiss Foundation for Sustainable Development

Guidelines for institutional investors governing the exercising of

participation rights in public limited companies (2013)

Developments in Europe

5 - SODALI

Engagement - Institutional Investors (I)

Institutional

Investors

� Governance teams devoted to AGM analysis, long-term matters

� Guidelines: corporate governance, proxy voting and disclosures

� Letters to investee companies – focus on “hot topics”

� Engagement with investee companies on corporate governance

� Varied Decision-making structure affects the voting decision

Legal & General Long-Term – Passive manager but active in corporate governance

� INVESTORS gain Information on strategy and business performance

� MANAGEMENT gains Forum to discuss possible changes� Structure

� Management

� Finance

� Remuneration

Communicate freely and consider the others’ viewpoint

Brazil: PoA requirements an obstacle to vote

6 - SODALI

Engagement - Institutional Investors (II)

NBIM

Enhance mutual understanding and seek change, if concerns

Promote LT value of portfolio (macro-issues vs. individual eng.)

� GUIDELINES Universal Owner (7.000 stocks – 1,2% world stock)

Ethics Council

� SUSTAINABILITY Avoid micro-management & special interests

Board of Directors focus

BlackRock

� INTEGRATED approach Consistent message to companies (letter to 600 companies)

� Governance + Responsible Investment + Portfolio Manager

� PRIVATE Individual engagement

� Unlikely to make public statements

� DIRECT No prescribed escalation strategy

� Do not see engagement as mechanistic

� Unlikely to call an EGM or propose shareholder resolutions

Active in Brazil

APG, Robeco, Blackrock, Capital, F&C, Hermes, Newton, Aberdeen

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For a company

• increase shareholder understanding of a

company’s business-model, strategy & LT

value creation

• listen to and understand shareholders

concerns and expectations

• increase shareholder understanding of a

company’s business-model, strategy & LT

value creation

• listen to and understand shareholders

concerns and expectations

Engagement – Goals and Benefits

For an investor

• ensure companies are acquainted with

investors’ voting practices, policies &

responsible investing approach

• help ensure the board and management are

better prepared to deal with fall-outs

• ensure companies are acquainted with

investors’ voting practices, policies &

responsible investing approach

• help ensure the board and management are

better prepared to deal with fall-outs

the “bad news”:

all “active” investors

no more routine AGMs

the good news:

more accountability

less confrontation

contextual governance

predictability

8 - SODALI

Does company communications with shareholders on governance and policy matters

offer Companies a better way to manage their corporate governance responsibilities?

and Investors a better way to exercise their stewardship and oversight of portfolio?

Dialogue (engagement) is a game changer

• The focus on implementation

• Contextual governance – from disclosure to communications

Increased role of the Board of Directors

• Opening a window (not a door!) in the Boardroom

• Board communications: the best practice of the future (?)

IR must reinvent itself: the concept of institutional Investor Relations

Engagement – Future Challenges

It takes two to tango

Matthew Fells, CBI (Financial Times 25.10.2010)

It takes two to tango

Matthew Fells, CBI (Financial Times 25.10.2010)

9 - SODALI

Examples of Successful Engagement

Company engagement with investors ensures better understanding of AGM

resolutions and maximizes support for management.

Cases:

Effective way to build

shareholder trust in

Management decisions and in

the overall direction of

company’s business.

Intended to help, protect and

increase the long-term return of the

funds managed by shareholders by

actively working to change how

companies address their governance

responsibilities.

Can lead to an improvement of a

company’s risk management,

reputation, long-term ability to

compete and its overall

economic value for

shareholders.

Schneider Electric pre-AGM engagement at

Chairman level – 82% shareholder support to

unification of Chairman-Ceo positions, despite

Proxy Advisors recommended against

Schneider Electric pre-AGM engagement at

Chairman level – 82% shareholder support to

unification of Chairman-Ceo positions, despite

Proxy Advisors recommended against

FRANCE

Gamesa Direct access to top foreign

investors facilitated an open exchange of

ideas & opinions, promoting investor support

on their governance practices at critical

moments.

Gamesa Direct access to top foreign

investors facilitated an open exchange of

ideas & opinions, promoting investor support

on their governance practices at critical

moments.

SPAIN

UniCredit 24-month remuneration outreach

program targeting both international investors

and Proxy Advisors - increase in support for

their remuneration schemes from 63% to 93%.

UniCredit 24-month remuneration outreach

program targeting both international investors

and Proxy Advisors - increase in support for

their remuneration schemes from 63% to 93%.

ITALY

10 - SODALI

Proxy Advisors

Proxy Advisors provide analysis and voting

recommendations to their clients (Investment Advisors &

Beneficial Owners) to assist them in taking informed voting

decisions on Agenda resolutions submitted by their investee

companies ahead of AGMs

Their business model is grounded upon the growing

consensus that institutional investors should actively exercise

their voting rights as part of their fiduciary duties as

responsible investors

The increasing level of shareholder dependency to Proxy

Advisors is a growing element of consideration / concern for

listed companies and is increasingly in the spotlight of the

financial markets and of national regulators

But remember: Proxy Advisors don’t vote, shareholders

vote!

11 - SODALI

Proxy Advisors & Investors

Proxy Advisors have different level of

influence in investors

� Highly Dependent - voting decisions are

based mainly on Proxy Advisor analysis

and recommendations;

� Reference Only – influence of Proxy

Advisors, an internal team will review

recommendations & issue final decision;

� Own guidelines – own guidelines; Proxy

Advisors only provide analysis

� Client Request - only vote upon clients

specific request.

Many other variables determine

shareholder behavior: i.e. own

guidelines for holdings exceeding a

certain amount, 100% reliance on proxy

advisors recommendations for small

positions, etc..

12 - SODALI

Proxy Advisors negative recommendations

Brazilian proxy season highlights – 2013 vs. 2012

266 resolutions submitted to vote in 49

companies

� 39 AGAINST recommendations from ISS

(14,66%), in 32 companies (65,31%)

� 17 companies did not receive any AGAINST

recommendations (34,69%)

� 0 resolutions rejected or withdrawn

256 resolutions submitted to vote in 48

companies

� 38 AGAINST recommendations (14,84%), in

31 companies (64,58%)

� 17 companies did not receive any AGAINST

recommendations (35,42%)

� 1 resolution withdrawn

2012 – BOVESPA2013 – BOVESPA2013 – BOVESPA

All consolidated data present in this report is drawn from ISS sources, and therefore confidential. No classified information is disclosed. Data provided is on an aggregated base, results are analytical.

The proportion of resolutions that received a negative recommendations

from ISS remained stable, with a very small increase from 14.66% in

2012 to 14.84% in 2013

The proportion of resolutions that received a negative recommendations

from ISS remained stable, with a very small increase from 14.66% in

2012 to 14.84% in 2013

13 - SODALI


Proposal type – 2013 vs. 2012

2013 – BOVESPA2013 – BOVESPA

Total number of AGAINST recommendations from ISS = 38

2012 – BOVESPA

Total number of AGAINST recommendations from ISS = 39


The topics between both years don’t changeThe topics between both years don’t change

14 - SODALI


Rationales – 2013

� Executive Remuneration Packages

� Failure to disclose the remuneration of the

highest-paid administrator (not consistent

with CVM’s compensation disclosure

requirements)

� Failure to include all the required elements of

the executive pay of the total compensation

of the highest-paid administrator

� Lack of transparency in regards to certain

key remuneration figures

� The proposed increase in remuneration does

not appear consistent with the company's net

losses and stock performance

� (Re)election / Approval of Remuneration of

Directors

� Bundling board election and remuneration

proposals


� (Re)election of Directors

�The level of independence of the Board

fails to meet the expectations of

institutional investors and to reflect the

company's free float (despite technically

meeting the minimum independence

requirement of the Novo Mercado)

�Failure to disclose the names of director

candidates prior to the meeting, in time for

institutional investors to cast an informed

vote

� Dividend approval

� Payout ratios have consistently fallen

below a reasonable 30-100 percent range,

and the company's strategy has not

resulted in above-average shareholder

returns

15 - SODALI

A look at 2014

� Disclosure: general acknowledgement of improvement of disclosure

standards (timely Proxy Statements)

� Opposition to bundled resolutions (7 unbundled Directors’ elections in 2013)

� Directors: increased attention on professionalism and skills (Board Evaluation)

� Directors: level of independence

� Director Elections: manage the process balancing the interests of shareholders

� Compensation: individualized compensation

� Compensation: Long-Term Incentive Plans

� Share issuances: (100% with preemptive rights – 20% without)

16 - SODALI

Conclusions

The real subject of corporate governance is business strategy and economic

performance, not compliance

� The AGM is the central corporate governance and investor relations for a listed

company

� Investor relations and communications on governance matters are a necessary

complement to the traditional IR activity and function

� Institutional Investor Relations is still an aspirational concept – it requires a

profound change in the way in which companies relate to shareholders and vice

versa.

The perfect engagement outcome respects the following principle:

“Corporations should carefully consider the views of shareholders, but keep in

mind the duty of the board to act in what it believes to be the best interests of

the corporation and all its shareholders”

17 - SODALI

Conclusions

“The best indicator of a company’s future performance is not its past

performance but its culture”

(a company’s “culture” and its corporate governance are synonymous)

Herbert Allison, former CEO and Chairman of TIAA-CREF

www.sodali.com

ATHENS

GENEVA

LONDON

MADRID

MILAN

NEW YORK

PARIS

ROME

SAO PAULO

TOKYO

Giulio Pediconi

Managing Director

+39 348 7460404

[email protected]

Endereçando preocupações de investidores institucionais e ... · 4-SODALIStewardship Code –Developments in Europe EU EFAMA –European Fund & Asset Management Association, Code

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