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Loomis, Sayles & Company, L.P.

PRI reporting framework 2020

You are in Direct - Listed Equity Active Ownership » (Proxy) voting and shareholder resolutions

(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 that your agreed-upon voting policy is adhered to, giving details of your approach when exceptions to the policy are made.

All issues presented for shareholder vote will be considered under the oversight of the Loomis Sayles Proxy Committee. All non-routine issues will be directly considered by the Proxy Committee and, when necessary, the equity analyst following the company and/or the portfolio manager of a Fund holding the security, and will be voted in the best investment interests of the Fund. All routine issues will be voted according to Loomis Sayles’ policy approved by the Proxy Committee unless special factors require that they be considered by the Proxy Committee and, when necessary, the equity analyst following the company and/or the portfolio manager of a Fund holding the security. Loomis Sayles’ Proxy Committee has established these routine policies in what it believes are the best investment interests of Loomis Sayles’ clients.

The specific responsibilities of the Proxy Committee, include, (1) developing, authorizing, implementing and updating Loomis Sayles’ proxy voting procedures (the “Procedures”), including an annual review of the Procedures, existing voting guidelines and the proxy voting process in general, (2) oversight of the proxy voting process including oversight of the vote on proposals according to the predetermined policies in the voting guidelines, directing the vote on proposals where there is reason not to vote according to the predetermined policies in the voting guidelines or where proposals require special consideration, and consultation with the portfolio managers and analysts for the Fund(s) holding the security when necessary or appropriate, (3) periodic sampling or engaging an outside party to sample proxy votes to ensure they comply with the Procedures and are cast in accordance with the clients’ best interests,and, (4) engagement and oversight of third-party vendors, including Proxy Voting Services including:

(i) determining whether a Proxy Voting Service has the capacity and competency to adequately analyze proxy issues by considering:

a. the adequacy and quality of the Proxy Voting Service’s staffing and personnel, and
b. the robustness of the Proxy Voting Service’s policies and procedures regarding its ability to ensure that its recommendations are based on current and accurate information and to identify and address any relevant conflicts of interest,

(ii) providing ongoing oversight of Proxy Voting Services to ensure that proxies continue to be voted in the best interests of clients,
(iii) receiving and reviewing updates from Proxy Voting Services regarding relevant business changes or changes to Proxy Voting Services’ conflict policies and procedures, and 
(iv) in the event that the Proxy Committee becomes aware that a Proxy Voting Service’s recommendation was based on a material factual error, investigating the error, considering the nature of the error and the related recommendation, and determining whether the Proxy Voting Service has taken reasonable steps to reduce the likelihood of similar errors in the future.

Loomis Sayles has established several policies to ensure that proxy votes are voted in its clients’ best interest and are not affected by any possible conflicts of interest. First, except in certain limited instances, Loomis Sayles votes in accordance with its pre-determined policies set forth in the Procedures. Second, where these Procedures allow for discretion, Loomis Sayles will generally consider the recommendations of Glass Lewis in making its voting decisions. However, if the Proxy Committee determines that Glass Lewis’ recommendation is not in the best interest of its clients, then the Proxy Committee may use its discretion to vote against Glass Lewis’ recommendation, but only after taking the following steps: (1) conducting a review for any material conflict of interest Loomis Sayles may have and, (2) if any material conflict is found to exist, excluding anyone at Loomis Sayles who is subject to that conflict of interest from participating in the voting decision in any way. However, if deemed necessary or appropriate by the Proxy Committee after full prior disclosure of any conflict, that person may provide information, opinions or recommendations on any proposal to the Proxy Committee. In such event the Proxy Committee will make reasonable efforts to obtain and consider, prior to directing any vote information, opinions or recommendations from or about the opposing position on any proposal.

12.3. Additional information.[Optional]

Clients may instruct Loomis Sayles to vote proxies according to a policy that differs from that of Loomis Sayles.

 


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


LEA 14. Securities lending programme

14.1. Does your organisation have a securities lending programme?

14.2. Describe why your organisation does not lend securities.

We believe that the financial benefits of securities lending are outweighed by the risks associated therewith.

Accordingly, the firm's investment policy is not to engage in securities lending absent client direction.  While the firm does not have a securities lending program, certain of our clients may.  Where appropriate, we monitor for significant events (mergers, acquisitions, etc.) and work with the client's custodian to recall any shares on loan in order to vote proxies associated therewith. 

 

14.4. Additional information. [Optional]

As discussed more fully in our Proxy Voting Policies and Procedures, our policy is to vote rather than abstain from voting on issues presented.


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

15.1. Indicate the proportion of votes participated in within the reporting year in which where you or the service providers acting on your behalf 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]

We often receive calls or participate in meetings with management teams ahead of a proxy vote, where the management will discuss their proposal.


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

16.1. Indicate the proportion of votes where you, and/or the service provider(s) acting on your behalf, communicated the rationale to companies for abstaining or voting against management recommendations. Indicate this as a percentage out of all eligible votes.

16.2. Indicate the reasons why 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 abstaining or voting against management recommendations, indicate whether this rationale is made public.

16.4. Additional information. [Optional]


LEA 17. Percentage of (proxy) votes cast

17.1. For listed equities in which you 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]

Our policy is to vote all ballots received rather than abstain from voting, unless the client's best interest requires abstention.


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

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

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

Voting instructions
Breakdown as percentage of votes cast
For (supporting) management recommendations
84 %
Against (opposing) management recommendations
16 %
Abstentions
0 %
100%

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

45

18.4. Additional information. [Optional]

For the response to LEA 18.3:  In order to answer the question, we identified the tickers where we voted ballot items against management in 2019 in our proxy voting system, and compared that with our list of tickers in our ESG engagement database.  The number of 'matches' amounted to 45% of the number of tickers where we voted against management.  

We would also like to highlight that in many cases, a vote for management proposals does not necessarily mean that we are voting against an ESG-friendly proposal.  Voting for or against management cannot be viewed in an absolute manner. For example, our proxy voting policy provides for a NO vote where the CEO and Chairman of the Board are not separate individuals.  If a proposal is presented that echoes that principle, we will vote with management. 


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.

19.3. Additional information. [Optional]


LEA 20. Shareholder resolutions

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

20.7. Additional information. [Optional]

Shareholder resolutions that involve involving social and environmental issues frequently will be voted as recommended by the Proxy Voting Service but may, in the judgment of the Loomis Sayles Proxy Voting Committee, be reviewed on a case-by-case basis if the Committee believes that a particular proposal (i) could have a significant impact on an industry or issuer (ii) is appropriate for the issuer and the cost to implement would not be excessive, (iii) is appropriate for the issuer in light of various factors such as reputational damage or litigation risk or (iv) is otherwise appropriate for the issuer.


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
Other governance
Conducted by
Objectives

During 2019, this investment team owned four banking companies, and each proposed an equity-funded acquisition:

We engaged the companies because financial mergers can be very dependent on the terms of the deal (dilution, change of control etc) and which management team will be leading the new entity (these decisions will impact credit/loan underwriting standards, balance sheet management, employee staffing etc). These elements are critical to understand in order to provide a proxy vote for the merger proposal and to decide if the new combination remains an attractive investment for the portfolio, and is being managed in a way that is aligned with our clients' best interests.

Scope and Process

For each of the mergers, we engaged with the companies both after the proposed merger agreement announcement and before the proxy vote. Our engagement objectives focused on understanding how the deal came together, and the rationale for the combinations; will the combination of the two companies result in a better investment for shareholders? We also engage to understand and track the management team's execution plan; the time frame for changes/integration, proposed cost savings, surviving culture, compensation plans, balance sheet and business plan. We speak directly to the company's senior management team, and they are aware of our concerns about merger risks and governance challenges. 

Outcomes
ESG Topic
Executive Remuneration
Conducted by
Objectives

During 2019, this investment team supported the proposed compensation for the Executive Officers:

Our rationale was to recognize the excellent risk control and shareholder returns from this management team, and to ensure they continue to align their own interests with shareholders. This company is the only home builder with a predominantly low risk land option strategy. Management has demonstrated a solid capital allocation policy, and efficiently uses its balance sheet to buy back shares. Additionally, management has a strong track record of generating returns to shareholders.

Scope and Process

The investment team continues to hold the stock of this company, and it has outperformed significantly over the holding period, supporting the team's belief that the management incentives are aligned with shareholders.

Outcomes
ESG Topic
Other governance
Conducted by
Objectives

During 2019, this investment team voted to support a proposed merger:

The proposed acquisition was announced on August 2019, and members of the investment team visited the company's London headquarters later that month to discuss the rationale for the acquisition with its investor relations team. After their conversation with the management team, they concluded that the acquisition would provide further growth opportunities, and will also increase its proportion of high-value financial data revenues and improve regional diversification, all of which should result in meaningful valuation expansion and benefits to shareholders.

Scope and Process

As a result, we voted to approve the transaction.

Outcomes
ESG Topic
General ESG|Diversity|Labour practices and supply chain management|Other

specify

          
        
Conducted by
Objectives

In addition to the moral implications, businesses that allow sexual harassment, hate speech, and inequitable workplaces would have difficulty competing and therefore may cause the business to fail to meet our quality standards.  We believe a diverse workforce andequitable workplace allows companies to evolve and thrive in a competitive environment.  Building and sustaining brand strength is tied not only to effective marketing and responsiveness to changing consumer product preferences.  It is also tied a company’s overall reputation - the sum total of all customer perceptions and the public’s opinion of all corporate actions.  More and more consumers want to understand the culture of the companies and brands they support.  Eventually, it can affect cash flows and long-term shareholder value creation.

Scope and Process

We voted to support 5 shareholder resolutions on this topic in 2019 on the proxies of three companies in which we are an investor.  Each of the ballot items failed.  Our process is ongoing.

Outcomes
ESG Topic
General ESG|Other governance
Conducted by
Objectives

In addition to the moral implications, online platforms with poor content governance would have difficulty competing and therefore may cause the business to fail to meet our quality standards.  We believe structures and policies around content governance are necessary for online platforms to operate efficiently and effectively.  For online platforms, a virtuous cycle between users and partners can create and strengthen a difficult-to-replicate network advantage and powerful ecosystem.  User profile data drives the development of relevant content, which in turn drives increased user engagement.  Without good content governance, this integrity of this relationship can be compromised and broken.  If content is not properly managed, it can eventually affect cash flows and long-term shareholder value creation.

Scope and Process

We voted to support 2 shareholder resolutions on this topic in 2019 on the proxies of two companies in which we are an investor.  Each of the ballot items failed.  Our process is ongoing.

Outcomes
ESG Topic
Executive Remuneration|General ESG|Other governance
Conducted by
Objectives

Understand the company strategy related to options and board membershi

Scope and Process

As fiduciaries, we have the responsibility to vote proxies in the best interest of our clients. At a shareholder meeting for a stock this team owns, shareholders were asked to vote on an option vesting program as well as a slate of board members. The portfolio manager spoke with the CEO to understand the company’s perspective on the issues. The team also read the research provided by our proxy voting vendor, who disagreed with the company's recommendation. Ultimately, after this analysis, the portfolio manager decided to vote along with the proxy research vendor recommendation and against management's recommendation. However, management of Cogent was successful. While this may be deemed unsuccessful from an engagement perspective, after the vote was completed, the portfolio manager continued to discuss the issues with the CEO, who discussed the company’s strategy related to future board changes. We believe this continued governance-related engagement will help to ensure that we are able to have a positive impact over the long term.

 

Outcomes

21.2. Additional information. [Optional]

Our equity investment teams believe that proxy voting is a critical part of their fiduciary duty, and vote proxies based on what they believe to be the best outcome for their client portfolios.  The examples above come from several of our equity teams.

 

 


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