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Legal & General Investment Management (Holdings)

PRI reporting framework 2018

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(Proxy) voting and shareholder resolutions

Overview

LEA 15. Voting policy & approach

New selection options have been added to this indicator. Please review your prefilled responses carefully.

15.1. Indicate whether your organisation has a formal voting policy.

15.2. Indicate what your voting policy covers:

other description

          LGIM's ESG philosophy, areas of focus, engagement strategy, stewardship, collaboration.
        

15.3. Attach or provide a URL to your voting policy. [Optional]

15.4. Provide a brief overview of your organization’s approach to (proxy) voting.

Voting decisions are taken in-house by the independent corporate governance team. Our structure and conflicts of interest policy ensures that, where the corporate governance and active equity team do not agree on voting issues, these can be escalated at board level.

Decisions are primarily based on LGIM’s policies which set out our position and expectations on key governance topics, based on regulation, best practice and clients’ beliefs. They are available on our website. We  also take into account previous engagement with the company, present circumstances, third-party research, collaboration with global investors.

All voting decisions are made by LGIM. The instructions are sent to appropriate custodians through the ISS voting platform. All our votes are saved on the platform. This allows us to keep all our voting history, and use the information when reporting to stakeholders on our voting activity.

We report on our voting  activity regularly, including publicly within a month of the shareholder meeting.

We operate a stock-lending programme in selective overseas equity markets under strict conditions. We do not currently engage in stock lending in the UK. More information is available in the policy section of our website.


Process

LEA 16. Typical approach to (proxy) voting decisions

16.1. Indicate how you typically make your (proxy) voting decisions.

Approach

Based on

16.2. Provide an overview of how you ensure your voting policy is adhered to, giving details of your approach when exceptions to the policy are made (if applicable).

To ensure our proxy provider votes in accordance with our position on ESG, we have put in place a minimum standards custom voting policy with specific voting instructions. These instructions apply to all markets globally and seek to uphold what we consider are minimum best practice standards which we believe all companies globally should observe, irrespective of local regulation or practice. For all other issues not covered by our minimum standards, we defer to the decisions to our voting information provider.

In addition, we have also set specific custom voting policies at market level for markets which we adopt a stricter stance on. All our custom voting policies are developed in accordance with our publicly disclosed position on ESG in our Principles document and country specific policies.

Note that we retain the ability in all markets to over-ride the decisions taken by the service provider. This may happen where engagement with a specific company has provided additional information (for example from direct engagement, or explanation in the annual report) that allows us to apply our own voting judgement. For example, it is our policy to oppose the election or re-election of the Board Chair of a FTSE 100 company if they are less than 25% women on the board. We overrode our own policy at eEasyJet’s 2017 AGM in relation to gender diversity on the Board. The company had previously exceeded our 25% target of female representation on the board, however this changed when a non-executive director stepped down from the board four months before the AGM; we therefore took the circumstances into account and decided to support the re-election of the Board Chair.

In addition, LGIM has strict monitoring controls to ensure our votes fully and effectively executed in accordance with our voting policies by our service provider. This includes a regular manual check of the votes input into the platform, and an electronic alert service to inform us of rejected votes which require further action.

We hold quarterly diligence meetings with our voting service provider. Representatives from a range of departments attend these meetings, including the client relationship manager, research manager and custom voting manager. The meetings have a standing agenda, which includes setting out our expectations, an analysis of any issues we have experienced when voting during the previous quarter, and a review of the effectiveness of the monitoring process and voting statistics. The meetings will also review any action points arising from the previous quarterly meeting.

Additionally, on an annual basis the Director of Corporate Governance must certify on LGIM’s internal risk management system that our voting service provider have the capacity and competency to analyse proxy issues and make impartial recommendations.

Our voting process is internally audited and additionally, LGIM obtains a biannual independent assurance of its stewardship and voting processes, in-line with the AAF01/06 framework.

16.3. Additional information.[Optional]

As mentioned in question LEA 15.4, all voting and engagement decisions are made by LGIM and we do not outsource any part of strategic decisions. Our overriding policy is that our voting decisions are based on an independent house view. We cast proxy votes in a manner consistent with the best interests of all our clients. Our use of service provider recommendations is purely to augment our own research and proprietary ESG tools. Note that we use other third-party research to inform our vote decisions  such as broker research and ESG reports. Final decision is made by the corporate governance team.

The corporate governance team operates independently from the investment teams, allowing us to take a long-term view in the interests of all clients. We believe we will achieve our mutual goals most efficiently and effectively by having one strong voice, that represents the interests of all our end clients' assets.

Each member of the team is allocated a specific sector and/or region so that the voting is undertaken by the same individuals who engage with the company. This ensures our stewardship approach flows smoothly throughout the engagement and voting process and engagement is fully integrated into the vote decision process and that we send consistent messaging to companies. Contentious voting issues are overseen at a weekly team meeting, chaired by the Director of Corporate Governance. This provides an opportunity to discuss contentious, non-standard resolutions and potential conflicts.

The corporate governance team works in coordination with investment and client teams. Where different views arise, our conflicts of interests policy may be activated so we can operate independently from portfolio managers. Where necessary, matters arising from this meeting can be escalated to the LGIM CEO and, under the Conflicts of Interest policy (http://www.lgim.com/library/capabilities/Conflicts-of-Interest.pdf), to LGIM’s non-executive directors. It is important to note that it is extremely rare for the active portfolio managers to disagree with the decisions of the corporate governance team. In over 20 years of experience, it has only occurred in a handful of cases.


LEA 17. Percentage of voting recommendations reviewed (Not Applicable)


LEA 18. Confirmation of votes (Private)


LEA 19. Securities lending programme

New selection options have been added to this indicator. Please review your prefilled responses carefully.

19.1. Indicate if your organisation has a securities lending programme.

19.3. Indicate how voting is addressed in your securities lending programme.


LEA 20. Informing companies of the rationale of abstaining/voting against management

New selection options have been added to this indicator. Please review your prefilled responses carefully.

20.1. Indicate whether you or the service providers acting on your behalf raise any concerns with companies ahead of voting

20.2. Indicate whether you and/or the service provider(s) acting on your behalf, communicate the rationale to companies, when , you abstain or vote against management recommendations.

20.3. Additional information. [Optional]

We communicate our votes in advance of shareholder meetings in the following cases only:

  • Escalation of engagement

Where engagement does not produce satisfactory results, we escalate our position and may decide to make our voting decision public prior to the shareholder meeting. We find this is an efficient way for us to draw public attention to our concerns.

  • As part of a specific engagement programme

LGIM’s Climate Impact Pledge is a public engagement programme on climate change. After one year of engagement, if companies fail to meet LGIM’s minimum expectations, for all funds LGIM manages where we are unable to contractually divest, we will vote against the chair of the board of the same companies. We are aiming to make the list of companies public. This will involve disclosing our vote intention for some, if not all of them, prior to their shareholder meeting.

After shareholder meetings, we publicly disclose all our votes for the major markets on our website in our monthly voting reports. These reports also now include our vote rationales for all our votes against management.  This allows companies and other stakeholders to be informed of our voting decisions and the reasons for our votes against.

These reports are available at: http://documentlibrary.lgim.com/documentlibrary/library_55458.html


Outputs and outcomes

LEA 21. Percentage of (proxy) votes cast

21.1. For listed equities where you and/or your service provider have the mandate to issue (proxy) voting instructions, indicate the percentage of votes cast during the reporting year.

Votes cast (to the nearest 1%)

97 %

Specify the basis on which this percentage is calculated

21.2. Explain your reason(s) for not voting certain holdings

21.3. Additional information. [Optional]

At LGIM, we vote in all major developed markets and the main emerging markets, covering c.97% of the FTSE All-World Index constituents by market capitalisation.

However, there are certain circumstances which cause us not to vote all of our holdings. This includes:

  • stock lending (in the countries where we lend stock between 5 - 15% of shares held back will be voted unless we recall the stock). We do not lend stock in the UK.
  • Non-voting shares held
  • Restrictions on voting by foreign nationals
  • Changes to power of attorney requirements.

In the US and Canada in proxy contests (which are rare and different to the normal filing of shareholder resolutions), shareholders have a choice between two proxy cards - one proposed by the management of the company and one proposed by a shareholder. Therefore, whichever one we choose not to vote on, a "Do Not Vote" is instructed. This is an active decision, since we would have chosen to vote (support) the other proxy card.

We also aim to minimise abstentions to make proper use of our voting powers. We have not abstained in any market in over 6 years, unless it was technically not possible to vote. In fact those rare cases only amount to 0.15% of total votes (73 out of 46,446) in 2017 and 0.09% of votes in 2016.


LEA 22. Proportion of ballot items that were for/against/abstentions

22.1. Indicate if you track the voting instructions that you and/or your service provider on your behalf have issued.

22.2. Of the voting instructions that you and/or third parties on your behalf issued, indicate the proportion of ballot items that were:

Voting instructions
Breakdown as percentage of votes cast
For (supporting) management recommendations
86.97 %
Against (opposing) management recommendations
12.89 %
Abstentions
0.14 %
100%

22.3. Describe the actions you take in relation to voting against management recommendations.

          A decision to vote against management may be the consequence of unsuccessful engagement as part of our escalation strategy described in question LEA 01.4. However, given the scale of our holdings, we do not have the capacity to engage with all the companies we hold. We therefore may cast votes against management where companies do not  align with our voting policies which take into account market best practice and our clients’ expectations.
Voting forms a key part of the corporate governance team’s monitoring process. All our votes are recorded and are easily accessible by the team, including the rationale. Before a voting decision is made the team can consult LGIM’s past votes which helps us in monitoring change. LGIM’s proprietary ESG tool incorporates voting decisions. This helps us in flagging the laggards for which we have already undertaken action, and for which we would consider escalating further our engagement. 
Communicating our votes to companies
As explained in question LEA 20.3 we communicate our votes to companies in advance of shareholder meetings in the following cases only:
•	Escalation of engagement
Where engagement does not produce satisfactory results, we escalate our position and may decide to make our voting decision public prior to the shareholder meeting. We find this is an efficient way for us to draw public attention to our concerns.
•	As part of a specific engagement programme
LGIM’s Climate Impact Pledge is a public engagement programme on climate change. After one year of engagement, if companies fail to meet LGIM’s minimum expectations, for all funds LGIM manages where we are unable to contractually divest, we will vote against the chair of the board of the same companies. We are aiming to make the list of companies public. This will involve disclosing our vote intention for some, if not all of them, prior to their shareholder meeting.

After shareholder meetings, we publicly disclose all our votes for the major markets on our website in our monthly voting reports. These reports also now include our vote rationales for all our votes against management.  This allows companies to be informed of our voting decisions and the reasons for our votes against.
These reports are available at: http://documentlibrary.lgim.com/documentlibrary/library_55458.html
Communicating our votes internally
Final voting decisions on index assets are always made by the corporate governance team in coordination with and  independently from investment and client teams.  As explained in question LEA 04.4 and 9.2, LGIM’s corporate governance and investment teams regularly exchange information and specific company insights regularly including votes when of interest for the investment teams. Note that, as mentioned above, voting decisions are incorporated into our proprietary ESG tool and that this tool is available to share amongst all investment professionals within LGIM by having direct access to them on an LGIM-wide, custom Bloomberg sharing platform.
        

22.4. Additional information. [Optional]


LEA 23. Shareholder resolutions (Private)


LEA 24. Examples of (proxy) voting activities (Private)


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