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Pendal

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.

Pendal Australia's policies and processes in relation to proxy voting can be found in our firm's "Proxy Voting Policy" and "Principles of Internal Governance and Asset Stewardship" both documents are available on our website:

https://www.pendalgroup.com/wp-content/uploads/2018/09/Proxy-Voting-Policy-September-2018-5.pdf.

https://www.pendalgroup.com/wp-content/uploads/2018/09/Principles-of-Internal-Governance-and-Asset-Stewardship.pdf

These provide an overview of our policies and procedures in relation to proxy voting, including our approach to ESG issues. Pendal Australia's overarching principle is that voting on resolutions should be cast in a way designed to ensure that proxies are voted in the best interests of clients. Our belief is that ESG matters are best dealt with through ensuring appropriate board structures are in place, incorporating a broad level of experience and range of backgrounds, thereby ensuring proper oversight and improved transparency for investors to better assess performance.

As an active investment manager, Pendal Australia's investment framework includes conducting extensive research and analysis on companies in addition to actively engaging with management. Our team of experienced investment
professionals are involved in the review of the proxy votes we make. This includes sector specialists and Portfolio Managers as well as ESG specialists, Head of RI and Regnan - a dedicated ESG Research and Engagement provider (50% owned by Pendal in 2018 and 100% as of February 2019). As such we believe our collaborative process enables us to formulate well-informed voting decisions.

​Voting decisions are made on a case-by-case basis by an assessment of the matter at hand and after taking into consideration the likely effect on the performance on the portfolio or fund. In all cases, we consider all of the
relevant information and, where appropriate, the Analyst or Portfolio Manager responsible may consult with other sources internally, such as the Head of RI, on issues relating to ESG matters, or externally, such as by engaging with the relevant company to obtain further details or clarification on the matter or an external corporate governance advisor, before making a final recommendation. In cases where we have concerns on a resolution our policy is to initially engage directly with the company and advocate for change privately

An external proxy voting system is used to support the administration of Pendal Australia's proxy voting-related requirements, including functions such as vote notification and record keeping. Once a corporate action is identified by the provider, the portfolio management team reviews and advises on how it should be voted and proxy voting is performed within the deadlines and in accordance with mandate requirements where reasonably possible. The performance of the outsourced administrator is reviewed and monitored by Pendal through a number of key reporting and meeting structures.

The Governance and Risk Management Frameworks within Pendal include various mechanisms to identify and escalate incidents which include the breakdown of controls or breach of policies, including the Proxy Voting Policy. Where exceptions to the Policy arise these would be reported, assessed and escalated in line with relevant policies and procedures and rectifications / remediation actions taken.  

 

 

 

12.3. Additional information.[Optional]

Pendal Australia considers corporate governance and the exercise of voting rights as another aspect of the investment decision-making process.

Pendal Australia recognises that it has the potential to influence investee company policy on matters of corporate governance by virtue of significant holdings in those investee companies, which are held on behalf of our clients.

Pendal Australia’s policy is based on the following principles:

  • Any votes cast will be cast in the best interests of clients.
  • Pendal Australia’s preference is to vote in favour of a Board or management recommendation. However, where Pendal Australia believes that a recommendation is not in the best interests of our clients, the recommendation will not be supported.
  • Pendal Australia opposes different voting right share classes and any poison pill takeover defences.
  • Resolutions involving contentious issues will be dealt with thoroughly and thoughtfully and in the best interests of clients. Contentious issues may be defined as:
    • Any issue where there is the likelihood of Pendal Australia voting against a Board sponsored resolution.
    • Any issue where there is a likelihood of Pendal Australia voting against a current Director standing for re-election.
    • Any issue involving a resolution that is not in line with ASX Corporate Governance Principles and Recommendations.
    • Any other issue or resolution which may be contentious, taking into account industry conventions, relevant laws and media coverage.

There may be circumstances where Pendal Australia does not exercise a proxy vote. Circumstances surrounding the non-exercising of proxy votes are carefully considered by Pendal Australia. Such circumstances may include:

  • Where exclusions may arise from the Corporations Act or any conflict of interest; and
  • Where Pendal Australia has already made a decision to dispose of the securities.

Where a resolution is deemed to be contentious, the Analyst or Portfolio Manager responsible will consider all the relevant information, including external reports received from corporate governance advisers, and may contact the relevant company to obtain further details or clarification on the matter prior to making a final decision.

To assist in decision-making, Pendal Australia may conduct research internally and/or use the resources of an independent external proxy advisory service. Pendal Australia may also consider studies of corporate governance and other proxy voting issues and/or analyses of shareholder and management proposals from a number of different sources.

Pendal Australia publishes a summary of all Australian proxy voting records for the previous year on an annual basis in accordance with the Financial Service Council Standard No. 13 Voting Policy, Voting Record and Disclosure (26 March 2013). The record is published on Pendal Australia’s website: www.pendalgroup.com. Copies of this Proxy Voting Policy are also available on the website.


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


LEA 14. Securities lending programme (Private)


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]


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.

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]

In cases where Pendal Australia communicates the rationale for the abstention or the vote against management recommendations we will share the rationale with clients, though this will not necessarily be available publicly.


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%)

99 %

Specify the basis on which this percentage is calculated

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

17.3. Additional information. [Optional]

Pendal Australia considers corporate governance and the exercise of voting rights as another aspect of the investment decision-making process.

Pendal Australia recognises that it has the potential to influence investee company policy on matters of corporate governance by virtue of significant holdings in those investee companies, which are held on behalf of our clients.

Pendal Australia’s policy is based on the following principles:

  • Any votes cast will be cast in the best interests of clients.
  • Pendal Australia’s preference is to vote in favour of a Board or management recommendation. However, where Pendal Australia believes that a recommendation is not in the best interests of our clients, the recommendation will not be supported.
  • Pendal Australia opposes different voting right share classes and any poison pill takeover defences.

Resolutions involving contentious issues will be dealt with thoroughly and thoughtfully and in the best interests of clients. Contentious issues may be defined as:

  • Any issue where there is the likelihood of Pendal Australia voting against a Board sponsored resolution.
  • Any issue where there is a likelihood of Pendal Australia voting against a current Director standing for re-election.
  • Any issue involving a resolution that is not in line with ASX Corporate Governance Principles and Recommendations.
  • Any other issue or resolution which may be contentious, taking into account industry conventions, relevant laws and media coverage.

There may be circumstances where Pendal Australia does not exercise a proxy vote. Circumstances surrounding the non-exercising of proxy votes are carefully considered by Pendal Australia. Such circumstances may include:

  • Where exclusions may arise from the Corporations Act or any conflict of interest; and
  • Where Pendal Australia has already made a decision to dispose of the securities.

Where a resolution is deemed to be contentious, the Analyst or Portfolio Manager responsible will consider all the relevant information, including external reports received from corporate governance advisers, and may contact the relevant company to obtain further details or clarification on the matter prior to making a final decision.

To assist in decision-making, Pendal Australia may conduct research internally and/or use the resources of an independent external proxy advisory service. Pendal Australia may also consider studies of corporate governance and other proxy voting issues and/or analyses of shareholder and management proposals from a number of different sources.

Pendal Australia publishes a summary of all Australian proxy voting records for the previous year on an annual basis in accordance with the Financial Service Council Standard No. 13 Voting Policy, Voting Record and Disclosure (26 March 2013). The record is published on Pendal Australia’s website: www.pendalgroup.com. Copies of this Proxy Voting Policy are also available on the website.


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
86 %
Against (opposing) management recommendations
12 %
Abstentions
2 %
100%

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

60

18.4. Additional information. [Optional]


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.

19.3. Additional information. [Optional]

Pendal Australia considers corporate governance and the exercise of voting rights as another aspect of the investment decision-making process.

Pendal Australia’s policy is based on the following principles:

  • Any votes cast will be cast in the best interests of clients.
  • Pendal Australia’s preference is to vote in favour of a Board or management recommendation. However, where Pendal Australia believes that a recommendation is not in the best interests of our clients, the recommendation will not be supported.
  • Pendal Australia opposes different voting right share classes and any poison pill takeover defences.
  • Resolutions involving contentious issues will be dealt with thoroughly and thoughtfully and in the best interests of clients. Contentious issues may be defined as:
  • Any issue where there is the likelihood of Pendal Australia voting against a Board sponsored resolution.
    • Any issue where there is a likelihood of Pendal Australia voting against a current Director standing for re-election.
    • Any issue involving a resolution that is not in line with ASX Corporate Governance Principles and Recommendations.
    • Any other issue or resolution which may be contentious taking into account industry conventions, relevant laws and media coverage.

There may be circumstances where Pendal Australia does not exercise a proxy vote. Circumstances surrounding the non-exercising of proxy votes are carefully considered by Pendal Australia. Such circumstances may include:

  • Where exclusions may arise from the Corporations Act or any conflict of interest; and
  • Where Pendal Australia has already made a decision to dispose of the securities.

Where a resolution is deemed to be contentious, the Analyst or Portfolio Manager responsible will consider all the relevant information, including external reports received from corporate governance advisers, and may contact the relevant company to obtain further details or clarification on the matter prior to making a final decision.

To assist in decision-making, Pendal Australia may conduct research internally and/or use the resources of an independent external proxy advisory service. Pendal Australia may also consider studies of corporate governance and other proxy voting issues and/or analyses of shareholder and management proposals from a number of different sources.

Pendal Australia publishes a summary of all Australian proxy voting records for the previous year on an annual basis in accordance with the Financial Service Council Standard No. 13 Voting Policy, Voting Record and Disclosure (26 March 2013). The record is published on Pendal Australia’s website: www.pendalgroup.com. Copies of this Proxy Voting Policy are also available on the website.


LEA 20. Shareholder resolutions (Private)


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

To test the impacts of the company's proposed remuneration changes on internal and external stakeholders given the high levels of discretion assigned to the board. This came at a time when community trust in the sector was low and as a result so too was employee engagement.

Scope and Process

We met with the company as part of our ongoing engagement on human capital and conduct matters. It was against this context that we questioned the board and the head of remuneration as to the potential for the plan to disincentivise management given multiple gateways for board discretion. In our view, the plan relied on strong stakeholder relationships/high trust which evidence suggested it did not have.

Outcomes
ESG Topic
Other governance
Conducted by
Objectives

To probe the internalisation rationale and transition provided by the company given its previous reticence and to understand why it now believes that this change is in shareholders’ best interests.

Scope and Process

Prior to a shareholder vote, we engaged with the board chairs of this company (one from each legal entity given its dual corporate stapled structure). The meeting was established after we wrote to the company questioning aspects of the structure and provided a copy of Regnan's position paper on the topic. At the time the company noted the legacy nature of the arrangements and difficulty in unwinding. As such, we sought assurances that the board actively reviews whether the arrangements remain in the best interests of shareholders.

Outcomes
ESG Topic
Executive Remuneration|Diversity
Conducted by
Objectives

Increased female representation on the board (the company did not have any female directors despite being in an industry with a predominantly female workforce).

Scope and Process

We met with the company chairman well ahead of its AGM to express our concerns about a lack of female representation on the board and signalled our intention to vote against the company's remuneration report if this was not rectified. We called the chairman again in the lead up to the AGM to confirm, as there had been no changes to the make up of the board, we would vote against the remuneration plan and the CEO's LTI. Of the shares voted against the plan, 95% of them were Pendal owned.

In a further meeting post the AGM, this time with the chair and one other director we were informed that an executive search was underway to find a suitable female director although to date no appointment has been made.

Outcomes
ESG Topic
Executive Remuneration|Health and Safety
Conducted by
Objectives

To ensure that health and safety measures included in STI reflect the performance of the company and are sufficiently adjusted in the event of major incidences.

Scope and Process

We met with a resources company to express our concerns that the health and safety component of its STI measures paid out close to in full despite two fatalities in its operations during the reporting year. We communicated our concerns regarding the remuneration repercussions and that the remuneration report failed to provide an adequate explanation of the incidents, in addition to signalling our intention to vote against the plan on this basis (which we subsequently did).

Outcomes
ESG Topic
Executive Remuneration|Company leadership issues
Conducted by
Objectives

To encourage a refresh of the company's leadership team and to reassess the remuneration plan to ensure it is supportive of the changes required.

Scope and Process

We met with the new CEO of this financial services company to encourage the establishment of a new management team to provide the freedom for the new CEO to be the change agent required, in our view, to turn around the company after a protracted period of underperformance. 

In addition, we noted with the board the failure of the company's remuneration plan to deliver shareholder and business outcomes and the need to address this issue in the short to medium term.

Outcomes

21.2. Additional information. [Optional]


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