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AMP Capital Investors

PRI reporting framework 2019

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(Proxy) voting and shareholder resolutions

LEA 12. Typical approach to (proxy) voting decisions

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

Approach

Based on

12.2. 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.

AMP Capital was one of the first investors to have a resource specifically dedicated to proxy voting and related shareholder engagement.

It is AMP Capital’s view that setting strict voting policies risks leading to a box-ticking mentality. Rather than being based on a range of present criteria, AMP Capital’s proxy voting is conducted on a case-by-case basis taking into account information from various sources: including our own meetings with companies, our previous voting decisions and engagement, and information provided by external parties (including proxy advisors).

As AMP Capital’s Proxy Voting is conducted by ESG investment professionals who sit within the portfolio management teams, discussions about voting can be  conducted freely, openly and at any time with any interested member of the investment team.

Voting is generally conducted by the Proxy Voting team who ensures votes are always cast in what AMP Capital considers to be the best interests of our clients and in accordance with our broad Proxy Voting policy.  Complicated or contentious resolutions may be discussed more broadly to include the knowledge and insights of our senior management and portfolio management teams.

Comprehensive records are kept of both the analysis undertaken and the decisions made.  Should any vote be queried, these records can be reviewed.  

 

12.3. Additional information.[Optional]

Where AMP Capital believes a shift in a company's approach to an ESG issue may improve business performance, we seek to engage that company. This may occur through proxy voting, or direct contact with the company's board and management.

For the benefit of our clients, AMP Capital may also seek to influence company policy, in accordance with Australian industry practice and with Financial Services Council guidelines. Through discussion with management and our shareholder vote, we may discourage corporate policies that risk long-term performance. We may also encourage effective management through endorsement and supportive voting.

AMP Capital's Manager, Corporate Governance has conducted proxy voting on behalf of AMP Capital since 2000. Votes are cast in accordance with AMP Capital's Proxy Voting Policy.

Voting decisions take into account information from various sources, publicly disclosed information, company meetings, discussions with our investment analysts, our database of research and records of past engagements and past voting decisions, and research provided by proxy advisors.


LEA 13. Percentage of voting recommendations reviewed (Not Applicable)


LEA 14. Securities lending programme

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

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

We recall most securities for voting.  On some (infrequent) occasions it may be considered to be in the best interests of clients not to recall securities for voting

14.4. Additional information.

AMP Capital considers it vital to ensure companies are well-governed of behalf of the clients whose money we have invested in those companies. While AMP Capital considers proxy voting to be very important, often it is the direct engagement with companies that contributes most to influencing company behaviour.  

 


LEA 15. Informing companies of the rationale of abstaining/voting against management

15.1. Indicate the proportion of votes where you or the service providers acting on your behalf have raised concerns with companies ahead of voting.

15.2. Indicate the reasons for raising your concerns with these companies ahead of voting.

15.3. Additional information. [Optional]

Australasia: In our home markets, AMP Capital is recognised for our rigorous company ESG and corporate governance analysis and engagement. We have annual or more frequent contact with most Australian companies held in our portfolios, more so for those companies where we have identified ESG-related concerns.

Where we vote against or abstain from company resolutions, we will generally meet, phone or write to the company to make them aware of the reasons. However, where issues of concern are identical to those of previous years and the company is aware of our concerns we may not repeat that engagement.

Given time constraints at the peak of the proxy season it is not always possible to notify companies before casting our vote. AMP Capital is more likely to do so where we hold a relatively large holding in the company, or where we have voted against (as opposed to abstained from) a resolution. We will also respond to companies' specific requests for information about our voting, before or after the meeting.

International: In foreign markets, where our holdings represent a  smaller share of the investee company’s listed capital, we do not communicate with companies to the same extent. Where AMP Capital's external mangers have voted against management on particular resolutions, we expect that the manager will communicate with the company. AMP Capital periodically reviews the proxy voting and engagement activities undertaken by our external managers as part of our multi-manager platform.


LEA 16. Informing companies of the rationale of abstaining/voting against management

16.1. Indicate the proportion of votes participated in within the reporting year in which, you and/or the service provider(s) acting on your behalf, have communicated to companies the rationale for abstaining or voting against management recommendations.

16.2. Indicate the reasons your organisation would communicate to companies, the rationale for abstaining or voting against management recommendations.

Explain

          AMP Capital considers proxy voting alone to be a fairly blunt instrument.  In our opinion it is far more constructive to also communicate our concerns directly to the company – particularly if the concerns would not already be entirely clear to the company.
        

16.3. In cases where your organisation does communicate the rationale for the abstention or the vote against management recommendations, indicate whether this rationale is made public.

16.4. Additional information. [Optional]

For over 15 years AMP Capital has provided detailed reporting of our voting activity.  Our regular Corporate Governance Report lists each Australian company by name under separate categories of concern.  For example, the report details the concerns we generally have in relation to renumeration in Australia and then lists the name of companies where a decision was taken either to vote against a remuneration-related resolution, or where we decided instead to specifically abstain from voting and to communicate our concern directly to the company.


LEA 17. Percentage of (proxy) votes cast

17.1. 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%)

100 %

Specify the basis on which this percentage is calculated

17.3. Additional information. [Optional]

Voting instructions were lodged on all resolutions where AMP Capital have the authority to vote.  (Note: Due to a legal ruling relating to conflicts of interest, a ‘take no action’ instruction is lodged on voting for all AMP Limited shares held in portfolios managed by AMP Capital’s internal portfolio management teams. Similarly, there are often share placements and capital raisings where AMP Capital is not authorised to vote (due to the conflict of interest that arise as a result of AMP Capital having participated in that particular capital raising.

On a small proportion of resolutions AMP Capital was excluded from voting. This occurs, for example, when we have participated in a share issue and are therefore excluded from ratifying the issue.

 


LEA 18. Proportion of ballot items that were for/against/abstentions

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

18.2. 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
91 %
Against (opposing) management recommendations
9 %
Abstentions
0 %
100%

18.3. In cases where your organisation voted against management recommendations, indicate the percentage of companies you have engaged.

90

18.4. Additional information. [Optional]

AMP Capital considers engagement with companies to be an important component of our stewardship function.  It is our view that communication with companies is a far more effective way to encourage positive change rather than simply voting.

On the occasions where AMP Capital does not engage with companies, we will have assessed the situation and consider that further engagement would be ineffective. This situation can occur where we are certain that companies are fully aware of our concerns and the options available to them to resolve them.  

Board Related

Board composition continues to be one of the most important corporate governance issues for shareholders. Despite the significance of this issue, AMP Capital acknowledges it is difficult for shareholders to determine whether they have the right boards governing their companies. The short biographies available in annual reports provide little detail, and without being present in the boardroom, shareholders cannot observe the dynamics of the board nor its overall effectiveness.

AMP Capital uses a range of criteria to assess both the effectiveness of individual directors, and the board as a whole. Votes cast against the election of directors generally reflects concerns related to:

  • performance issues and a lack of accountability,
  • too few independent directors to represent public shareholders,
  • evidence the board has taken actions contrary to shareholder interests,
  • poor gender and/or skills diversity,
  • poor board attendance, and
  • broader issues related to poor governance.

Once again in 2017, AMP Capital supported the majority of directors seeking re-election. Those not supported were predominantly self-nominated, non-board-endorsed candidates, who we considered not ideal candidates.

On some occasions AMP Capital decided to abstain from voting, rather than vote against the election of a director. This may be where there was better representation of independent directors, albeit still a minority, and/or this was the first time the issue of board composition had been raised with the particular company. This action is taken to signal concerns in relation to board composition and is almost always accompanied by direct communication with the company involved.

Compensation: Remuneration Reports

Since the introduction of non-binding votes on remuneration reports in 2005, Australian investors have had a mechanism by which to review and comment on the approach to remuneration used by the companies in which they invest.

The impact of a vote against a remuneration report increased with the introduction of the two-strikes rule, which gives shareholders the ability to vote on whether to 'spill' an entire board of directors (that is, remove the board of directors) over remuneration concerns. (Note: Two strikes occur when 25 percent or more of shareholders vote against the adoption of the remuneration report in two consecutive years.)

In AMP Capital's view remuneration reports should facilitate a clear understanding of the company's remuneration policy, providing evidence that the policy is both fair and reasonable, and is aligned with shareholder interests. In particular we look for clarity of disclosure, satisfactory incentive and termination arrangements, as well as appropriate non-executive director remuneration.

In general, AMP Capital will vote against remuneration reports where they exhibit one or more of the following criteria: poor disclosure, poor alignment with shareholder interests, inclusion of non-executive directors in executive incentive plans, excessive quantum and poorly structured performance hurdles (for example, absolute rather than relative, not sufficiently challenging, too short-term, purely accounting-based, allowing too many opportunities for re-testing etc.). During this period, the specific reasons for voting against Remuneration Reports included:

  • Overly generous retention benefits, coupled with generous new grants.
  • Low performance hurdles, e.g. vesting well below earnings guidance.
  • Retrospectively changing performance hurdles and/or start dates, or using board discretion to vest incentives when hurdles were not met.
  • Overly-generous quantum.
  • Poor alignment.
  • Structural concerns, especially where they potentially incentivise behaviour that is contrary to the best interests of shareholders (for example, making acquisitions, beating budget etc. - with no reference to the longer term benefit to shareholders of meeting these targets).
  • Boards unlimited discretion to allow incentives to vest upon a CEO's termination.
  • Overly complex incentive structures that would potentially fail to motivate or retain key management personnel.
  • Poor disclosure.

 


LEA 19. Proportion of ballot items that were for/against/abstentions

19.1. Indicate whether your organisation has a formal escalation strategy following unsuccessful voting.

19.2. Indicate the escalation strategies used at your organisation following abstentions and/or votes against management.

Specify

          The most likely outcome is a reduction in exposure.
        

19.3. Additional information. [Optional]

ESG factors form a significant component of AMP Capital’s investment assessment process.  Non-responsive companies will generally receive lower corporate governance scores.  While we have no formal process in place to contact company boards, issue statements, or engage with companies following unsuccessful voting, any or all these options may happen from time to time.  It is most likely that we will reduce our ESG rating of the company.  Depending on the specific mandate of the client or portfolio, a lower ESG score can either result in divestment or in a reduction in exposure to the company in question.

Over the last two years a company’s ESG ratings has had an increasingly significant impact on portfolio weightings.


LEA 20. Shareholder resolutions

20.1. Indicate if your organisation directly or through a service provider filed or co-filed any ESG shareholder resolutions during the reporting year.

20.6. Describe whether your organisation reviews ESG shareholder resolutions filed by other investors.

20.7. Additional information. [Optional]

AMP Capital has preferred not to file resolutions, but rather to raise our concerns via direct engagement with company boards and senior management.


LEA 21. Examples of (proxy) voting activities

21.1. Provide examples of the (proxy) voting activities that your organisation and/or service provider carried out during the reporting year.

ESG Topic
Executive Remuneration
Conducted by
Objectives

Compensation: Remuneration Reports 

Since the introduction of non-binding votes on remuneration reports in 2005, Australian investors have had a mechanism by which to review and comment on the approach to remuneration used by the companies in which they invest.

The impact of a vote against a remuneration report increased with the introduction of the two-strikes rule, which gives shareholders the ability to vote on whether to ‘spill’ an entire board of directors (that is, remove the board of directors) over remuneration concerns. (Note: Two strikes occur when 25 percent or more of shareholders vote against the adoption of the remuneration report in two consecutive years.)

In AMP Capital’s view remuneration reports should facilitate a clear understanding of the company’s remuneration policy, providing evidence that the policy is both fair and reasonable, and is aligned with shareholder interests. In particular we look for clarity of disclosure, satisfactory incentive and termination arrangements, as well as appropriate non-executive director remuneration.

Scope and Process

In general, AMP Capital will vote against remuneration reports where they exhibit one or more of the following criteria: poor disclosure, poor alignment with shareholder interests, inclusion of non-executive directors in executive incentive plans, excessive quantum and poorly structured performance hurdles (for example, absolute rather than relative, not sufficiently challenging, too short-term, purely accounting-based, allowing too many opportunities for re-testing etc.). During this period, the specific reasons for voting against Remuneration Reports included:

  • Overly generous retention benefits, coupled with generous new grants.
  • Low performance hurdles, e.g. vesting well below earnings guidance.
  • Retrospectively changing performance hurdles and/or start dates, or using board discretion to vest incentives when hurdles were not met.
  • Overly-generous quantum.
  • Poor alignment/disclosure.
  • Structural concerns, especially where they potentially incentivise behaviour that is contrary to the best interests of shareholders (for example, making acquisitions, beating budget etc. – with no reference to the longer term benefit to shareholders of meeting these targets).
  • Boards unlimited discretion to allow incentives to vest upon a CEO’s termination.
  • Overly complex incentive structures that would potentially fail to motivate or retain key management personnel.

Outcomes

Over 2018, AMP Capital submitted 524 votes relating to compensation. In total, 83% supported, 14% against, 4% were abstained.

Outcomes
ESG Topic
Other governance
Conducted by
Objectives

Board related (composition) 

Board composition continues to be one of the most important corporate governance issues for shareholders. Despite the significance of this issue, AMP Capital acknowledges it is difficult for shareholders to determine whether they have the right boards governing their companies. The short biographies available in annual reports provide little detail, and without being present in the boardroom, shareholders cannot observe the dynamics of the board nor its overall effectiveness.

On some occasions director-election is not supported due to the board lacking diversity, independence, or the appropriate level of skill/experience.  

Scope and Process

AMP Capital uses a range of criteria to assess both the effectiveness of individual directors, and the board as a whole. Votes cast against the election of directors generally reflects concerns related to:

  • performance issues and a lack of accountability,
  • too few independent directors to represent public shareholders,
  • evidence the board has taken actions contrary to shareholder interests,
  • poor gender and/or skills diversity,
  • poor board attendance, and
  • broader issues related to poor governance.

Outcomes

Once again in 2018, AMP Capital supported the majority of directors seeking re-election. In previous years most directors whose nomination AMP Capital did not support tended to be self-nominated, non-board-endorsed candidates who we considered not ideal candidates. This year however, a greater number of directors were opposed due to accountability issues, or due to their board being dominated by directors who represented a specific interest group and/or lacked sufficient independence.

On some occasions AMP Capital decided to abstain from voting, rather than vote against the election of a director. This may be where there was better representation of independent directors, albeit still a minority, and/or this was the first time the issue of board composition had been raised with the company.

Outcomes
ESG Topic
Executive Remuneration
Conducted by
Objectives

Compensation: Stock option grants 

AMP Capital seeks to invest in companies that will provide our clients with the best relative share market performance over the long-term. As such we like to see a significant portion of the CEO’s remuneration also aligned with that goal.

Shareholders have a general expectation that company funds will be used wisely to create value.

As pay can be both a significant expense and a tool for creating value, it makes sense for shareholders, who have contributed a portion of these funds, to take an interest in pay. Not only does pay go a long way to contributing to a workplace that is fair and cooperative, it also provides shareholders with insights around corporate priorities and accountability. Even the way pay is disclosed can provide interesting insights into a company’s openness, honesty and what it considers to be important.

As the ultimate owners of companies, shareholders can exert influence through the directors that represent them, by asking the right questions, lodging considered votes, and by holding directors and management to account for their performance.

Scope and Process

The underlying reasons for not supporting long-term incentive related resolutions include: 

  • Poor disclosure of the terms of the incentive plans.
  • Plans are shorter than the desired three-year minimum.
  • Plans had no performance hurdles or hurdles that lacked sufficient alignment with the interests of shareholders.
  • Proposed plan amendments would increase the value to employees without any corresponding benefit to shareholders.
  • Participation of NEDs in executive schemes.
  • Plans showed no improvement, despite the company having received comments/input and the matter being not supported previously.

Outcomes

AMP Capital voted against some incentive-related resolutions and abstained from voting against others.

AMP Capital also continues to consider how incentive grants should respond upon a change of control at the company. We became interested in this feature several years ago after seeing instances where company executives and directors engaged in behaviour that could potentially destroy shareholder value while themselves reaping significant personal gains.

 

Outcomes
ESG Topic
Shareholder rights
Conducted by
Objectives

Mergers and acquisitions 

Shareholders are generally given the opportunity to vote on major transactions undertaken by the companies they invest in. These corporate actions might include everything from takeovers, the sale of major assets, and significant related party transactions to simple issues like a change in the company name.

Scope and Process

During this period AMP Capital voted in support of various resolutions relating to mergers and acquisitions.

Outcomes

The only resolutions not supported under this category were at the shareholder meeting of Service Stream Limited. On this occasion the company was purchasing a business from the CEO and his family, it was not clear if the price paid was in the best interests of shareholders.

 

Outcomes
ESG Topic
Executive Remuneration
Conducted by
Objectives

Compensation: Termination payments 

As a result of amendments made to the Corporations Act 2001, any employment contracts entered into (or varied) on or after 24 November 2009 require shareholder approval for termination benefits (paid to directors or certain executives) in excess of one year's base salary. Before 2009, termination benefits could reach up to seven times a recipient's total annual remuneration before shareholder approval was required.

Scope and Process

During this period several companies sought approval for termination benefits. Where AMP Capital had concerns, these generally related to potential windfall payments upon change of control, the length of time the approval would remain in force (in perpetuity) and the level of discretion some boards had sought in relation to the vesting of payments.

Outcomes

 AMP Capital voted against two companies on this particular issue.

Outcomes
ESG Topic
Company leadership issues
Conducted by
Objectives

Board composition continues to be one of the most important corporate governance issues for shareholders. Despite the significance of this issue, AMP Capital acknowledges it is difficult for shareholders to determine whether they have the right boards governing their companies. The short biographies available in annual reports provide little detail, and without being present in the boardroom, shareholders cannot observe the dynamics of the board nor its overall effectiveness.

Scope and Process

AMP Capital uses a range of criteria to assess both the effectiveness of individual directorsby AMP Capital, and the board as a whole. Votes cast against the election of directors generally reflects concerns related to:
> performance issues and a lack of accountability,
> too few independent directors to represent public shareholders,
> evidence the board has taken actions contrary to shareholder interests,
> poor gender and/or skills diversity,
> poor board attendance, and
>broader issues related to poor governance.

Outcomes

Once again in 2018, AMP Capital supported the majority of directors seeking re-election. In previous years most directors whose nomination AMP Capital did not support tended to be self-nominated, non-board-endorsed candidates who we considered not ideal candidates. This year however, a greater number of directors were opposed due to accountability issues, or due to their board being dominated by directors who represented a specific interest group and/or lacked sufficient independence.

Outcomes
ESG Topic
Executive Remuneration
Conducted by
Objectives

Vote engagement 

AMP Capital continues to be actively committed to encouraging good corporate governance at the companies held in portfolios we manage.

While our lodgement of proxy votes has an impact on governance, we believe that communication, either via letters or our meetings with company directors, is a far more constructive and effective form of shareholder activism. Since the introduction of the two-strike rule on executive pay, there has been a significant increase in the number of companies seeking to engage with shareholders.

On occasions some boards will take it upon themselves to exercise discretion and allow unvested options to vest to the executives, despite poor performance and performance hurdles having not been met.

Scope and Process

AMP Capital prides itself on its strong culture of engagement with company boards. In 2018, our Sydney-based ESG Investment Research Team to Sustainable Investment Team held 86 direct interactions with the boards and/or management of Australian companies. Discussions of ESG-related issues are however not limited to these meetings, increasingly AMP Capital’s global team of portfolio managers and analysts will also raise these matters with company management.

Outcomes

One-on-one meetings with company management now cover an increasingly broad agenda. Topics discussed vary greatly from company to company, depending on what is most relevant at the time – though the recurring themes were once again: environmental and social responsibility; executive pay; gender diversity; and the management of ESG risks, such as safety, cyber security, conduct and compliance.

Outcomes
ESG Topic
Climate Change
Conducted by
Objectives

AMP Capital is committed to addressing climate change risks, including through the investments we make on behalf of our clients.

When deemed to be in the best interests of shareholders, AMP Capital voted in support of shareholder-proposed environmental resolutions.  

Scope and Process

Shareholder resolutions are supported where the production of the requested report would help all shareholders gain a better understanding of the climate change-related risks facing the Company.

Outcomes
ESG Topic
Executive Remuneration
Conducted by
Objectives

Compensation: Non-Executive Director Remuneration 

Over the period, several companies held in the Australian portfolios managed by AMP Capital sought approval for an increase in the maximum aggregate level of fees that could be paid to the company’s non-executive directors.

 

Scope and Process

In line with generally accepted principles of good governance, AMP Capital is not in favour of option grants being made to nonexecutive directors. It is preferred that non-executive directors’ interests be aligned with the shareholders they represent rather than potentially being influenced by incentive structures that may not reflect the experience of the shareholders who hold listed securities. Preferably, non-executive directors should be encouraged to invest their own capital in the company or to acquire shares from the allocation of a portion of their fees.

 

Outcomes

Most increases sought were considered reasonable after taking into account various factors including the size of the company, the company’s complexity, performance, board composition (including the number of directors and the balance of independent directors), whether options or retirement benefits are paid to directors and the factors put forward by the company to explain the need for the increase being sought. Most increases were approved.

Outcomes

21.2. Additional information. [Optional]

Depending on the industry sector to which a company belongs, and the activities they are involved in, any or all of the above topics will be raised when engaging with them.

 

Further detail on AMP Capital's voting and associated governance activities can be found in AMP Capital's Corporate Governance Reports at www.ampcapital.com.au/esg .

Coporate Governance Report: https://www.ampcapital.com/content/dam/capital/02-global-files-only/02-esg-resources/2019_ESG_Corporate_Governance_Report.pdf


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