Process Owner: PO Both

Transcription

Westfield Capital Management Company, L.P.
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Proxy Voting
Introduction
Westfield will offer to vote proxies for all client accounts. Westfield believes that the voting of proxies
can be an important tool for investors to promote best practices in corporate governance and we seek to vote
all proxies in the best interests of our clients as investors. Westfield also recognizes that the voting of proxies
with respect to securities held in client accounts is an investment responsibility having economic value.
In accordance with Rule 206(4)-6 under the Investment Advisers Act of 1940 (the “Act”), Westfield has
adopted and implemented policies and procedures that we believe are reasonably designed to ensure that
proxies are voted in the best interest of our clients. Our authority to vote proxies for our clients is established in
writing, usually by the investment advisory contract. Clients can change such authority at any time with prior
written notice to Westfield. Clients can also contact their Marketing representative or the Compliance
Department ([email protected]) for a report of how their accounts’ securities were voted.
Oversight of Proxy Voting Function
Westfield has engaged a third party service provider, Institutional Shareholder Services, Inc. (the “vendor”), to
assist with proxy voting. Westfield’s Compliance team will:
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oversee the vendor; this includes performing periodic audits of the proxy votes and conducting periodic due
diligence;
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ensure required proxy records are retained according to applicable rules and regulations and internal policy;
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prepare and distribute proxy reports for internal and external requests;
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review proxy policy and voting guidelines at least annually; and
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identify material conflicts of interest that may impair our ability to vote shares in our clients’ best interest.
Proxy Voting Guidelines
Westfield utilizes the vendor’s proxy voting guidelines, which consider market-specific best practices,
transparency, and disclosure when addressing shareholder matters. Clients may choose to vote in accordance
with the vendor’s U.S. proxy voting guidelines (i.e., Standard Guidelines), Taft-Hartley guidelines which are
in full conformity with the AFL-CIO’s proxy voting guidelines, Socially Responsible Investing Guidelines
(“SRI”) or Sustainability Guidelines. With the exception of those clients invested in Westfield’s Sustainable
Growth Equity (“SGE”) Strategy, clients who do not designate a specific set of voting guidelines will be
assigned the Standard Guidelines. SGE clients vote in accordance with the Sustainability Guidelines unless
they select another policy. A copy of ISS’ voting guidelines is located at the end of this policy.
Generally, information on Westfield’s proxy voting decisions or status of votes will not be communicated or
distributed to external solicitors. On occasion, Westfield may provide such information to solicitors if we
believe a response will benefit our clients or a response is requested from the Westfield security analyst.
Proxy Voting Process
The vendor tracks proxy meetings and reconciles proxy ballots received for each meeting. Westfield will use
best efforts in obtaining any missing ballots; however, we vote only those proxy ballots our vendor has
received. For any missing ballots, the vendor will contact custodians to locate such missing ballots. Since there
can be many factors affecting proxy ballot retrieval, it is possible that Westfield will not receive a ballot in
time to place a vote. Clients who participate in securities lending programs should be aware that Westfield
will not call back any shares on loan for proxy voting purposes.
Date Approved: 03/19/2015
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Proxy Voting
For each meeting, the vendor reviews the agenda and applies a vote recommendation for each proposal
based on the written guidelines assigned to the applicable accounts. Proxies will be voted in accordance with
the guidelines, unless the Westfield analyst or por t f ol i o manager believes that following the ve ndor ’ s
guidelines would not be in the clients’ best interests. With limited exceptions, an analyst or portfolio manager
may request to override the Standard Guidelines at any time before the votes have been cast. In addition,
certain proxy ballots (e.g., contentious proposals) may necessitate further review from the analyst or manager.
Compliance will attempt to identify such ballots and bring them to the analyst’s or manager’s attention. If the
analyst or manager chooses to vote against the vendor’s stated guidelines in any instance, he/she must make the
request in writing and provide rationale for the vote against stated guidelines. No analyst or portfolio manager
overrides are permitted in either the Taft-Hartley or SRI Guidelines.
Conflicts of Interest
Compliance is responsible for identifying conflicts of interest that could arise when voting proxy ballots on
behalf of our clients. Since our business is solely focused on providing investment advisory services, it is
unlikely that a material conflict will arise in connection with proxy voting. Additionally, per Westfield’s Code
of Ethics and other internal policies, all employees should avoid situations where potential conflicts may
exist. Westfield has put in place certain reviews to ensure proxies are voted solely on the investment merits
of the proposal. In identifying potential conflicts, Compliance will review many factors, including, but not
limited to existing relationships with Westfield or an employee, and the vendor’s disclosed conflicts. If an actual
conflict of interest is identified, it is reviewed by the Compliance team, who may consult with Westfield’s
Operating & Risk Management Committee on such matters. If it is determined that the conflict is material in
nature, the analyst or portfolio manager may not override the vendor’s recommendation.
Proxy Reports
Westfield can provide account specific proxy reports to clients upon request or at scheduled time periods (e.g.,
quarterly). Client reporting requirements typically are established during the initial account set-up stage, but
clients may modify this reporting schedule at any time with prior written notice to Westfield. The reports will
contain at least the following information:
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company name
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meeting agenda
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how the account voted on each agenda item
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whether the account vote was in-line or against management recommendation
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rationale for any votes against the established guidelines (rationale is not always provided for votes that are
in-line with guidelines since these are set forth in the written guidelines)
Recordkeeping
In accordance with Rule 204-2 of the Investment Advisers Act of 1940, proxy voting records will be
maintained for at least five years. The following records will be retained by either Westfield or the proxy
vendor:
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a copy of the Proxy Voting Polices and Guidelines and amendments that were in effect for the past five
years;
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electronic or paper copies of each proxy statement received by Westfield or the vendor with respect to
securities in client accounts (Westfield may also rely on obtaining copies of proxy statements from the
SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system);
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Proxy Voting
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records of each vote cast for each client;
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documents created by Westfield that were material to making a decision on how to vote proxies or
memorializes the basis for such decision (basis for decisions voted in line with policy is provided in the
written guidelines);
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written reports to clients on proxy voting and all client requests for information and Westfield’s
response;
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disclosure documentation to clients on how they may obtain information on how we voted their
securities
United States
Concise Proxy Voting Guidelines
2015 Benchmark Policy Recommendations
Effective for Meetings on or after February 1, 2015
Published January 7, 2015
Updated February 26, 2015
www.issgovernance.com
© 2015 ISS | Institutional Shareholder Services
2015 U.S. Concise Proxy Voting Guidelines
The policies contained herein are a sampling of select, key U.S. proxy voting guidelines and are
not exhaustive. A full listing of ISS’ 2015 proxy voting guidelines can be found at:
http://www.issgovernance.com/policy-gateway/2015-policy-information/
ROUTINE/MISCELLANEOUS
Auditor Ratification
General Recommendation: Vote for proposals to ratify auditors unless any of the following apply:
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An auditor has a financial interest in or association with the company, and is therefore not independent;
There is reason to believe that the independent auditor has rendered an opinion that is neither accurate nor
indicative of the company’s financial position;
Poor accounting practices are identified that rise to a serious level of concern, such as: fraud; misapplication of
GAAP; and material weaknesses identified in Section 404 disclosures; or
Fees for non-audit services (“Other” fees) are excessive.
Non-audit fees are excessive if:
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Non-audit (“other”) fees > audit fees + audit-related fees + tax compliance/preparation fees
BOARD OF DIRECTORS:
Voting on Director Nominees in Uncontested Elections
General Recommendation: Generally vote for director nominees, except under the following circumstances:
1. Accountability
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Vote against or withhold from the entire board of directors (except new nominees , who should be considered caseby-case) for the following:
Problematic Takeover Defenses
Classified Board Structure:
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In general, companies with a plurality vote standard use “Withhold” as the contrary vote option in director elections; companies
with a majority vote standard use “Against”. However, it will vary by company and the proxy must be checked to determine the valid
contrary vote option for the particular company.
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A “new nominee” is any current nominee who has not already been elected by shareholders and who joined the board after the
problematic action in question transpired. If ISS cannot determine whether the nominee joined the board before or after the
problematic action transpired, the nominee will be considered a “new nominee” if he or she joined the board within the 12 months
prior to the upcoming shareholder meeting.
Enabling the financial community to manage governance risk for the benefit of shareholders.
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1.1.
The board is classified, and a continuing director responsible for a problematic governance issue at the
board/committee level that would warrant a withhold/against vote recommendation is not up for election.
All appropriate nominees (except new) may be held accountable.
Director Performance Evaluation:
1.2.
The board lacks accountability and oversight, coupled with sustained poor performance relative to peers.
Sustained poor performance is measured by one- and three-year total shareholder returns in the bottom
half of a company’s four-digit GICS industry group (Russell 3000 companies only). Take into consideration
the company’s five-year total shareholder return and operational metrics. Problematic provisions include
but are not limited to:
› A classified board structure;
› A supermajority vote requirement;
› Either a plurality vote standard in uncontested director elections or a majority vote standard with no
plurality carve-out for contested elections;
› The inability of shareholders to call special meetings;
› The inability of shareholders to act by written consent;
› A dual-class capital structure; and/or
› A non–shareholder-approved poison pill.
Poison Pills:
1.3.
1.4.
1.5.
The company’s poison pill has a “dead-hand” or “modified dead-hand” feature. Vote against or withhold
from nominees every year until this feature is removed;
The board adopts a poison pill with a term of more than 12 months (“long-term pill”), or renews any existing
pill, including any “short-term” pill (12 months or less), without shareholder approval. A commitment or
policy that puts a newly adopted pill to a binding shareholder vote may potentially offset an adverse vote
recommendation. Review such companies with classified boards every year, and such companies with
annually elected boards at least once every three years, and vote against or withhold votes from all nominees
if the company still maintains a non-shareholder-approved poison pill; or
The board makes a material adverse change to an existing poison pill without shareholder approval.
Vote case-by-case on all nominees if:
1.6.
The board adopts a poison pill with a term of 12 months or less (“short-term pill”) without shareholder
approval, taking into account the following factors:
› The date of the pill‘s adoption relative to the date of the next meeting of shareholders—i.e. whether the
company had time to put the pill on the ballot for shareholder ratification given the circumstances;
› The issuer’s rationale;
› The issuer’s governance structure and practices; and
› The issuer’s track record of accountability to shareholders.
Problematic Audit-Related Practices
Generally vote against or withhold from the members of the Audit Committee if:
1.7. The non-audit fees paid to the auditor are excessive (see discussion under “Auditor Ratification”);
1.8. The company receives an adverse opinion on the company’s financial statements from its auditor; or
1.9. There is persuasive evidence that the Audit Committee entered into an inappropriate indemnification
agreement with its auditor that limits the ability of the company, or its shareholders, to pursue legitimate
legal recourse against the audit firm.
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Vote case-by-case on members of the Audit Committee and potentially the full board if:
1.10. Poor accounting practices are identified that rise to a level of serious concern, such as: fraud; misapplication
of GAAP; and material weaknesses identified in Section 404 disclosures. Examine the severity, breadth,
chronological sequence, and duration, as well as the company’s efforts at remediation or corrective actions,
in determining whether withhold/against votes are warranted.
Problematic Compensation Practices/Pay for Performance Misalignment
In the absence of an Advisory Vote on Executive Compensation ballot item or in egregious situations, vote against or
withhold from the members of the Compensation Committee and potentially the full board if:
1.11.
1.12.
1.13.
1.14.
1.15.
There is a significant misalignment between CEO pay and company performance (pay for performance);
The company maintains significant problematic pay practices;
The board exhibits a significant level of poor communication and responsiveness to shareholders;
The company fails to submit one-time transfers of stock options to a shareholder vote; or
The company fails to fulfill the terms of a burn rate commitment made to shareholders.
Vote case-by-case on Compensation Committee members (or, in exceptional cases, the full board) and the
Management Say-on-Pay proposal if:
1.16. The company’s previous say-on-pay received the support of less than 70 percent of votes cast, taking into
account:
› The company's response, including:
› Disclosure of engagement efforts with major institutional investors regarding the issues that
contributed to the low level of support;
› Specific actions taken to address the issues that contributed to the low level of support;
› Other recent compensation actions taken by the company;
› Whether the issues raised are recurring or isolated;
› The company's ownership structure; and
› Whether the support level was less than 50 percent, which would warrant the highest degree of
responsiveness.
Unilateral Bylaw/Charter Amendments
1.17. Generally vote against or withhold from directors individually, committee members, or the entire board
(except new nominees, who should be considered case-by-case) if the board amends the company's bylaws
or charter without shareholder approval in a manner that materially diminishes shareholders' rights or that
could adversely impact shareholders, considering the following factors, as applicable:
› The board's rationale for adopting the bylaw/charter amendment without shareholder ratification;
› Disclosure by the company of any significant engagement with shareholders regarding the amendment;
› The level of impairment of shareholders' rights caused by the board's unilateral amendment to the
bylaws/charter;
› The board's track record with regard to unilateral board action on bylaw/charter amendments or other
entrenchment provisions;
› The company's ownership structure;
› The company's existing governance provisions;
› Whether the amendment was made prior to or in connection with the company's initial public offering;
› The timing of the board's amendment to the bylaws/charter in connection with a significant business
development;
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Other factors, as deemed appropriate, that may be relevant to determine the impact of the amendment
on shareholders.
Governance Failures
Under extraordinary circumstances, vote against or withhold from directors individually, committee members, or the
entire board, due to:
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1.18. Material failures of governance, stewardship, risk oversight , or fiduciary responsibilities at the company;
1.19. Failure to replace management as appropriate; or
1.20. Egregious actions related to a director’s service on other boards that raise substantial doubt about his or her
ability to effectively oversee management and serve the best interests of shareholders at any company.
2. Responsiveness
Vote case-by-case on individual directors, committee members, or the entire board of directors as appropriate if:
2.1.
The board failed to act on a shareholder proposal that received the support of a majority of the shares cast
in the previous year. Factors that will be considered are:
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Disclosed outreach efforts by the board to shareholders in the wake of the vote;
Rationale provided in the proxy statement for the level of implementation;
The subject matter of the proposal;
The level of support for and opposition to the resolution in past meetings;
Actions taken by the board in response to the majority vote and its engagement with shareholders;
The continuation of the underlying issue as a voting item on the ballot (as either shareholder or
management proposals); and
Other factors as appropriate.
2.2. The board failed to act on takeover offers where the majority of shares are tendered;
2.3. At the previous board election, any director received more than 50 percent withhold/against votes of the
shares cast and the company has failed to address the issue(s) that caused the high withhold/against vote;
2.4. The board implements an advisory vote on executive compensation on a less frequent basis than the
frequency that received the majority of votes cast at the most recent shareholder meeting at which
shareholders voted on the say-on-pay frequency; or
2.5. The board implements an advisory vote on executive compensation on a less frequent basis than the
frequency that received a plurality, but not a majority, of the votes cast at the most recent shareholder
meeting at which shareholders voted on the say-on-pay frequency, taking into account:
› The board's rationale for selecting a frequency that is different from the frequency that received a
plurality;
› The company's ownership structure and vote results;
› ISS' analysis of whether there are compensation concerns or a history of problematic compensation
practices; and
› The previous year's support level on the company's say-on-pay proposal.
3. Composition
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Examples of failure of risk oversight include, but are not limited to: bribery; large or serial fines or sanctions from regulatory
bodies; significant adverse legal judgments or settlements; hedging of company stock; or significant pledging of company stock.
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Attendance at Board and Committee Meetings:
3.1. Generally vote against or withhold from directors (except new nominees, who should be considered case-by4
case ) who attend less than 75 percent of the aggregate of their board and committee meetings for the period
for which they served, unless an acceptable reason for absences is disclosed in the proxy or another SEC filing.
Acceptable reasons for director absences are generally limited to the following:
› Medical issues/illness;
› Family emergencies; and
› Missing only one meeting (when the total of all meetings is three or fewer).
3.2. If the proxy disclosure is unclear and insufficient to determine whether a director attended at least 75
percent of the aggregate of his/her board and committee meetings during his/her period of service, vote
against or withhold from the director(s) in question.
Overboarded Directors:
Vote against or withhold from individual directors who:
3.3. Sit on more than six public company boards; or
3.4. Are CEOs of public companies who sit on the boards of more than two public companies besides their own —
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withhold only at their outside boards .
4. Independence
Vote against or withhold from Inside Directors and Affiliated Outside Directors (per the Categorization of Directors)
when:
4.1.
The inside or affiliated outside director serves on any of the three key committees: audit, compensation, or
nominating;
4.2. The company lacks an audit, compensation, or nominating committee so that the full board functions as that
committee;
4.3. The company lacks a formal nominating committee, even if the board attests that the independent directors
fulfill the functions of such a committee; or
4.4. Independent directors make up less than a majority of the directors.
Independent Chair (Separate Chair/CEO)
General Recommendation: Generally vote for shareholder proposals requiring that the chairman’s position be filled
by an independent director, taking into consideration the following:
› The scope of the proposal;
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For new nominees only, schedule conflicts due to commitments made prior to their appointment to the board are considered if
disclosed in the proxy or another SEC filing.
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Although all of a CEO’s subsidiary boards will be counted as separate boards, ISS will not recommend a withhold vote from the CEO
of a parent company board or any of the controlled (>50 percent ownership) subsidiaries of that parent, but may do so at
subsidiaries that are less than 50 percent controlled and boards outside the parent/subsidiary relationships.
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The company's current board leadership structure;
The company's governance structure and practices;
Company performance; and
Any other relevant factors that may be applicable.
Proxy Access
General Recommendation: Generally vote for management and shareholder proposals for proxy access with the
following provisions:
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Ownership threshold: maximum requirement not more than three percent (3%) of the voting power;
Ownership duration: maximum requirement not longer than three (3) years of continuous ownership for each
member of the nominating group;
Aggregation: minimal or no limits on the number of shareholders permitted to form a nominating group;
Cap: cap on nominees of generally twenty-five percent (25%) of the board.
Review for reasonableness any other restrictions on the right of proxy access.
Generally vote against proposals that are more restrictive than these guidelines.
Proxy Contests—Voting for Director Nominees in Contested Elections
General Recommendation: Vote case-by-case on the election of directors in contested elections, considering the
following factors:
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Long-term financial performance of the target company relative to its industry;
Management’s track record;
Background to the proxy contest;
Nominee qualifications and any compensatory arrangements;
Strategic plan of dissident slate and quality of critique against management;
Likelihood that the proposed goals and objectives can be achieved (both slates);
Stock ownership positions.
When the addition of shareholder nominees to the management card (“proxy access nominees”) results in a number of
nominees on the management card which exceeds the number of seats available for election, vote case-by-case
considering the same factors listed above.
1. SHAREHOLDER RIGHTS & DEFENSES
Litigation Rights (including Exclusive Venue and Fee-Shifting Bylaw Provisions)
Bylaw provisions impacting shareholders' ability to bring suit against the company may include exclusive venue
provisions, which provide that the state of incorporation shall be the sole venue for certain types of litigation, and feeshifting provisions that require a shareholder who sues a company unsuccessfully to pay all litigation expenses of the
defendant corporation.
General Recommendation: Vote case-by-case on bylaws which impact shareholders' litigation rights, taking into
account factors such as:
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The company's stated rationale for adopting such a provision;
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Disclosure of past harm from shareholder lawsuits in which plaintiffs were unsuccessful or shareholder lawsuits
outside the jurisdiction of incorporation;
The breadth of application of the bylaw, including the types of lawsuits to which it would apply and the definition
of key terms; and
Governance features such as shareholders' ability to repeal the provision at a later date (including the vote
standard applied when shareholders attempt to amend the bylaws) and their ability to hold directors accountable
through annual director elections and a majority vote standard in uncontested elections.
Generally vote against bylaws that mandate fee-shifting whenever plaintiffs are not completely successful on the
merits (i.e., in cases where the plaintiffs are partially successful).
Unilateral adoption by the board of bylaw provisions which affect shareholders' litigation rights will be evaluated under
ISS' policy on Unilateral Bylaw/Charter Amendments.
CAPITAL/RESTRUCTURING
Common Stock Authorization
General Recommendation: Vote for proposals to increase the number of authorized common shares where the
primary purpose of the increase is to issue shares in connection with a transaction on the same ballot that warrants
support.
Vote against proposals at companies with more than one class of common stock to increase the number of authorized
shares of the class of common stock that has superior voting rights.
Vote against proposals to increase the number of authorized common shares if a vote for a reverse stock split on the
same ballot is warranted despite the fact that the authorized shares would not be reduced proportionally.
Vote case-by-case on all other proposals to increase the number of shares of common stock authorized for issuance.
Take into account company-specific factors that include, at a minimum, the following:
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Past Board Performance:
› The company's use of authorized shares during the last three years
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The Current Request:
› Disclosure in the proxy statement of the specific purposes of the proposed increase;
› Disclosure in the proxy statement of specific and severe risks to shareholders of not approving the request;
and
› The dilutive impact of the request as determined by an allowable increase calculated by ISS (typically 100
percent of existing authorized shares) that reflects the company's need for shares and total shareholder
returns.
Preferred Stock Authorization
General Recommendation: Vote for proposals to increase the number of authorized preferred shares where the
primary purpose of the increase is to issue shares in connection with a transaction on the same ballot that warrants
support.
Vote against proposals at companies with more than one class or series of preferred stock to increase the number of
authorized shares of the class or series of preferred stock that has superior voting rights.
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Vote case-by-case on all other proposals to increase the number of shares of preferred stock authorized for issuance.
Take into account company-specific factors that include, at a minimum, the following:
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Past Board Performance:
› The company's use of authorized preferred shares during the last three years;
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The Current Request:
› Disclosure in the proxy statement of the specific purposes for the proposed increase;
› Disclosure in the proxy statement of specific and severe risks to shareholders of not approving the request;
› In cases where the company has existing authorized preferred stock, the dilutive impact of the request as
determined by an allowable increase calculated by ISS (typically 100 percent of existing authorized shares)
that reflects the company's need for shares and total shareholder returns; and
› Whether the shares requested are blank check preferred shares that can be used for antitakeover purposes.
Mergers and Acquisitions
General Recommendation: Vote case-by-case on mergers and acquisitions. Review and evaluate the merits and
drawbacks of the proposed transaction, balancing various and sometimes countervailing factors including:
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Valuation - Is the value to be received by the target shareholders (or paid by the acquirer) reasonable? While the
fairness opinion may provide an initial starting point for assessing valuation reasonableness, emphasis is placed on
the offer premium, market reaction and strategic rationale.
Market reaction - How has the market responded to the proposed deal? A negative market reaction should cause
closer scrutiny of a deal.
Strategic rationale - Does the deal make sense strategically? From where is the value derived? Cost and revenue
synergies should not be overly aggressive or optimistic, but reasonably achievable. Management should also have
a favorable track record of successful integration of historical acquisitions.
Negotiations and process - Were the terms of the transaction negotiated at arm's-length? Was the process fair and
equitable? A fair process helps to ensure the best price for shareholders. Significant negotiation "wins" can also
signify the deal makers' competency. The comprehensiveness of the sales process (e.g., full auction, partial
auction, no auction) can also affect shareholder value.
Conflicts of interest - Are insiders benefiting from the transaction disproportionately and inappropriately as
compared to non-insider shareholders? As the result of potential conflicts, the directors and officers of the
company may be more likely to vote to approve a merger than if they did not hold these interests. Consider
whether these interests may have influenced these directors and officers to support or recommend the merger.
The CIC figure presented in the "ISS Transaction Summary" section of this report is an aggregate figure that can in
certain cases be a misleading indicator of the true value transfer from shareholders to insiders. Where such figure
appears to be excessive, analyze the underlying assumptions to determine whether a potential conflict exists.
Governance - Will the combined company have a better or worse governance profile than the current governance
profiles of the respective parties to the transaction? If the governance profile is to change for the worse, the burden
is on the company to prove that other issues (such as valuation) outweigh any deterioration in governance.
COMPENSATION
Executive Pay Evaluation
Underlying all evaluations are five global principles that most investors expect corporations to adhere to in designing
and administering executive and director compensation programs:
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1.
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3.
4.
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Maintain appropriate pay-for-performance alignment, with emphasis on long-term shareholder value: This
principle encompasses overall executive pay practices, which must be designed to attract, retain, and
appropriately motivate the key employees who drive shareholder value creation over the long term. It will
take into consideration, among other factors, the link between pay and performance; the mix between fixed
and variable pay; performance goals; and equity-based plan costs;
Avoid arrangements that risk “pay for failure”: This principle addresses the appropriateness of long or
indefinite contracts, excessive severance packages, and guaranteed compensation;
Maintain an independent and effective compensation committee: This principle promotes oversight of
executive pay programs by directors with appropriate skills, knowledge, experience, and a sound process for
compensation decision-making (e.g., including access to independent expertise and advice when needed);
Provide shareholders with clear, comprehensive compensation disclosures: This principle underscores the
importance of informative and timely disclosures that enable shareholders to evaluate executive pay practices
fully and fairly;
Avoid inappropriate pay to non-executive directors: This principle recognizes the interests of shareholders in
ensuring that compensation to outside directors does not compromise their independence and ability to make
appropriate judgments in overseeing managers’ pay and performance. At the market level, it may incorporate a
variety of generally accepted best practices.
Advisory Votes on Executive Compensation—Management Proposals (Management Say-onPay)
General Recommendation: Vote case-by-case on ballot items related to executive pay and practices, as well as
certain aspects of outside director compensation.
Vote against Advisory Votes on Executive Compensation (Management Say-on-Pay—MSOP) if:
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There is a significant misalignment between CEO pay and company performance (pay for performance);
The company maintains significant problematic pay practices;
The board exhibits a significant level of poor communication and responsiveness to shareholders.
Vote against or withhold from the members of the Compensation Committee and potentially the full board if:
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There is no MSOP on the ballot, and an against vote on an MSOP is warranted due to pay for performance
misalignment, problematic pay practices, or the lack of adequate responsiveness on compensation issues raised
previously, or a combination thereof;
The board fails to respond adequately to a previous MSOP proposal that received less than 70 percent support of
votes cast;
The company has recently practiced or approved problematic pay practices, including option repricing or option
backdating; or
The situation is egregious.
Primary Evaluation Factors for Executive Pay
Pay-for-Performance Evaluation
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ISS annually conducts a pay-for-performance analysis to identify strong or satisfactory alignment between pay and
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performance over a sustained period. With respect to companies in the Russell 3000 or Russell 3000E Indices , this
analysis considers the following:
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1.
Peer Group Alignment:
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The degree of alignment between the company's annualized TSR rank and the CEO's annualized total pay rank
within a peer group, each measured over a three-year period.
The multiple of the CEO's total pay relative to the peer group median.
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2.
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Absolute Alignment – the absolute alignment between the trend in CEO pay and company TSR over the prior
five fiscal years – i.e., the difference between the trend in annual pay changes and the trend in annualized TSR
during the period.
If the above analysis demonstrates significant unsatisfactory long-term pay-for-performance alignment or, in the case
of companies outside the Russell indices, misaligned pay and performance are otherwise suggested, our analysis may
include any of the following qualitative factors, as relevant to evaluating how various pay elements may work to
encourage or to undermine long-term value creation and alignment with shareholder interests:
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›
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The ratio of performance- to time-based equity awards;
The overall ratio of performance-based compensation;
The completeness of disclosure and rigor of performance goals;
The company's peer group benchmarking practices;
Actual results of financial/operational metrics, such as growth in revenue, profit, cash flow, etc., both absolute and
relative to peers;
Special circumstances related to, for example, a new CEO in the prior FY or anomalous equity grant practices (e.g.,
bi-annual awards);
9
Realizable pay compared to grant pay; and
Any other factors deemed relevant.
Problematic Pay Practices
The focus is on executive compensation practices that contravene the global pay principles, including:
›
›
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Problematic practices related to non-performance-based compensation elements;
Incentives that may motivate excessive risk-taking; and
Options Backdating.
Problematic Pay Practices related to Non-Performance-Based Compensation Elements
---------------------6
The Russell 3000E Index includes approximately 4,000 of the largest U.S. equity securities.
The revised peer group is generally comprised of 14-24 companies that are selected using market cap, revenue (or assets for
certain financial firms), GICS industry group, and company's selected peers' GICS industry group, with size constraints, via a process
designed to select peers that are comparable to the subject company in terms of revenue/assets and industry, and also within a
market cap bucket that is reflective of the company's. For Oil, Gas & Consumable Fuels companies, market cap is the only size
determinant.
8
Only Russell 3000 Index companies are subject to the Absolute Alignment analysis.
9
ISS research reports include realizable pay for S&P1500 companies.
7
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Pay elements that are not directly based on performance are generally evaluated case-by-case considering the context
of a company's overall pay program and demonstrated pay-for-performance philosophy. Please refer to ISS'
Compensation FAQ document for detail on specific pay practices that have been identified as potentially problematic
and may lead to negative recommendations if they are deemed to be inappropriate or unjustified relative to executive
pay best practices. The list below highlights the problematic practices that carry significant weight in this overall
consideration and may result in adverse vote recommendations:
›
›
›
Repricing or replacing of underwater stock options/SARS without prior shareholder approval (including cash
buyouts and voluntary surrender of underwater options);
Excessive perquisites or tax gross-ups, including any gross-up related to a secular trust or restricted stock vesting;
New or extended agreements that provide for:
› CIC payments exceeding 3 times base salary and average/target/most recent bonus;
› CIC severance payments without involuntary job loss or substantial diminution of duties ("single" or "modified
single" triggers);
› CIC payments with excise tax gross-ups (including "modified" gross-ups).
Incentives that may Motivate Excessive Risk-Taking
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Multi-year guaranteed bonuses;
A single or common performance metric used for short- and long-term plans;
Lucrative severance packages;
High pay opportunities relative to industry peers;
Disproportionate supplemental pensions; or
Mega annual equity grants that provide unlimited upside with no downside risk.
Factors that potentially mitigate the impact of risky incentives include rigorous claw-back provisions and robust stock
ownership/holding guidelines.
Options Backdating
The following factors should be examined case-by-case to allow for distinctions to be made between “sloppy” plan
administration versus deliberate action or fraud:
›
›
›
›
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Reason and motive for the options backdating issue, such as inadvertent vs. deliberate grant date changes;
Duration of options backdating;
Size of restatement due to options backdating;
Corrective actions taken by the board or compensation committee, such as canceling or re-pricing backdated
options, the recouping of option gains on backdated grants; and
Adoption of a grant policy that prohibits backdating, and creates a fixed grant schedule or window period for
equity grants in the future.
Compensation Committee Communications and Responsiveness
Consider the following factors case-by-case when evaluating ballot items related to executive pay on the board’s
responsiveness to investor input and engagement on compensation issues:
›
›
Failure to respond to majority-supported shareholder proposals on executive pay topics; or
Failure to adequately respond to the company's previous say-on-pay proposal that received the support of less
than 70 percent of votes cast, taking into account:
› The company's response, including:
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›
›
›
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Disclosure of engagement efforts with major institutional investors regarding the issues that contributed
to the low level of support;
› Specific actions taken to address the issues that contributed to the low level of support;
› Other recent compensation actions taken by the company;
Whether the issues raised are recurring or isolated;
The company's ownership structure; and
Whether the support level was less than 50 percent, which would warrant the highest degree of
responsiveness.
Equity-Based and Other Incentive Plans
10
General Recommendation: Vote case-by-case on certain equity-based compensation plans depending on a
combination of certain plan features and equity grant practices, where positive factors may counterbalance negative
factors, and vice versa, as evaluated using an "equity plan scorecard" (EPSC) approach with three pillars:
›
Plan Cost: The total estimated cost of the company’s equity plans relative to industry/market cap peers, measured
by the company's estimated Shareholder Value Transfer (SVT) in relation to peers and considering both:
› SVT based on new shares requested plus shares remaining for future grants, plus outstanding
unvested/unexercised grants; and
› SVT based only on new shares requested plus shares remaining for future grants.
›
Plan Features:
› Automatic single-triggered award vesting upon a change in control (CIC);
› Discretionary vesting authority;
› Liberal share recycling on various award types;
› Lack of minimum vesting period for grants made under the plan.
›
Grant Practices:
› The company’s three year burn rate relative to its industry/market cap peers;
› Vesting requirements in most recent CEO equity grants (3-year look-back);
› The estimated duration of the plan (based on the sum of shares remaining available and the new shares
requested, divided by the average annual shares granted in the prior three years);
› The proportion of the CEO's most recent equity grants/awards subject to performance conditions;
› Whether the company maintains a claw-back policy;
› Whether the company has established post exercise/vesting share-holding requirements.
Generally vote against the plan proposal if the combination of above factors indicates that the plan is not, overall, in
shareholders' interests, or if any of the following egregious factors apply:
›
Awards may vest in connection with a liberal change-of-control definition;
---------------------10
Proposals evaluated under the EPSC policy generally include those to approve or amend (1) stock option plans for employees
and/or employees and directors, (2) restricted stock plans for employees and/or employees and directors, and (3) omnibus stock
incentive plans for employees and/or employees and directors.
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›
›
›
The plan would permit repricing or cash buyout of underwater options without shareholder approval (either by
expressly permitting it – for NYSE and Nasdaq listed companies -- or by not prohibiting it when the company has a
history of repricing – for non-listed companies);
The plan is a vehicle for problematic pay practices or a significant pay-for-performance disconnect under certain
circumstances; or
Any other plan features are determined to have a significant negative impact on shareholder interests.
SOCIAL/ENVIRONMENTAL ISSUES
Global Approach
Issues covered under the policy include a wide range of topics, including consumer and product safety, environment
and energy, labor standards and human rights, workplace and board diversity, and corporate political issues. While a
variety of factors goes into each analysis, the overall principle guiding all vote recommendations focuses on how the
proposal may enhance or protect shareholder value in either the short or long term.
General Recommendation: Generally vote case-by-case, taking into consideration whether implementation of the
proposal is likely to enhance or protect shareholder value, and in addition the following will also be considered:
›
›
›
›
›
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If the issues presented in the proposal are more appropriately or effectively dealt with through legislation or
government regulation;
If the company has already responded in an appropriate and sufficient manner to the issue(s) raised in the
proposal;
Whether the proposal's request is unduly burdensome (scope or timeframe) or overly prescriptive;
The company's approach compared with any industry standard practices for addressing the issue(s) raised by the
proposal;
If the proposal requests increased disclosure or greater transparency, whether or not reasonable and sufficient
information is currently available to shareholders from the company or from other publicly available sources; and
If the proposal requests increased disclosure or greater transparency, whether or not implementation would
reveal proprietary or confidential information that could place the company at a competitive disadvantage.
Climate Change/Greenhouse Gas (GHG) Emissions
General Recommendation: Generally vote for resolutions requesting that a company disclose information on the
impact of climate change on its operations and investments, considering:
›
›
›
Whether the company already provides current, publicly-available information on the impacts that climate change
may have on the company as well as associated company policies and procedures to address related risks and/or
opportunities;
The company’s level of disclosure is at least comparable to that of industry peers; and
There are no significant controversies, fines, penalties, or litigation associated with the company’s environmental
performance.
Generally vote for proposals requesting a report on greenhouse gas (GHG) emissions from company operations and/or
products and operations, unless:
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›
›
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The company already discloses current, publicly-available information on the impacts that GHG emissions may
have on the company as well as associated company policies and procedures to address related risks and/or
opportunities;
The company's level of disclosure is comparable to that of industry peers; and
There are no significant, controversies, fines, penalties, or litigation associated with the company's GHG emissions.
Vote case-by-case on proposals that call for the adoption of GHG reduction goals from products and operations, taking
into account:
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Whether the company provides disclosure of year-over-year GHG emissions performance data;
Whether company disclosure lags behind industry peers;
The company's actual GHG emissions performance;
The company's current GHG emission policies, oversight mechanisms, and related initiatives; and
Whether the company has been the subject of recent, significant violations, fines, litigation, or controversy related
to GHG emissions.
Political Activities
Lobbying
General Recommendation: Vote case-by-case on proposals requesting information on a company’s lobbying
(including direct, indirect, and grassroots lobbying) activities, policies, or procedures, considering:
›
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The company’s current disclosure of relevant lobbying policies, and management and board oversight;
The company’s disclosure regarding trade associations or other groups that it supports, or is a member of, that
engage in lobbying activities; and
Recent significant controversies, fines, or litigation regarding the company’s lobbying-related activities.
Political Contributions
General Recommendation: Generally vote for proposals requesting greater disclosure of a company's political
contributions and trade association spending policies and activities, considering:
›
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The company's policies, and management and board oversight related to its direct political contributions and
payments to trade associations or other groups that may be used for political purposes;
The company's disclosure regarding its support of, and participation in, trade associations or other groups that
may make political contributions; and
Recent significant controversies, fines, or litigation related to the company's political contributions or political
activities.
Vote against proposals barring a company from making political contributions. Businesses are affected by legislation at
the federal, state, and local level; barring political contributions can put the company at a competitive disadvantage.
Vote against proposals to publish in newspapers and other media a company's political contributions. Such publications
could present significant cost to the company without providing commensurate value to shareholders.
Political Ties
General Recommendation: Generally vote against proposals asking a company to affirm political nonpartisanship in
the workplace, so long as:
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›
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There are no recent, significant controversies, fines, or litigation regarding the company’s political contributions or
trade association spending; and
The company has procedures in place to ensure that employee contributions to company-sponsored political
action committees (PACs) are strictly voluntary and prohibit coercion.
Vote against proposals asking for a list of company executives, directors, consultants, legal counsels, lobbyists, or
investment bankers that have prior government service and whether such service had a bearing on the business of the
company. Such a list would be burdensome to prepare without providing any meaningful information to shareholders.
This document and all of the information contained in it, including without limitation all text, data, graphs, and charts
(collectively, the "Information") is the property of Institutional Shareholder Services Inc. (ISS), its subsidiaries, or, in
some cases third party suppliers.
The Information has not been submitted to, nor received approval from, the United States Securities and Exchange
Commission or any other regulatory body. None of the Information constitutes an offer to sell (or a solicitation of an
offer to buy), or a promotion or recommendation of, any security, financial product or other investment vehicle or any
trading strategy, and ISS does not endorse, approve, or otherwise express any opinion regarding any issuer, securities,
financial products or instruments or trading strategies.
The user of the Information assumes the entire risk of any use it may make or permit to be made of the Information.
ISS MAKES NO EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS WITH RESPECT TO THE INFORMATION AND
EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES (INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF
ORIGINALITY, ACCURACY, TIMELINESS, NON-INFRINGEMENT, COMPLETENESS, MERCHANTABILITY, AND FITNESS for A
PARTICULAR PURPOSE) WITH RESPECT TO ANY OF THE INFORMATION.
Without limiting any of the foregoing and to the maximum extent permitted by law, in no event shall ISS have any
liability regarding any of the Information for any direct, indirect, special, punitive, consequential (including lost profits),
or any other damages even if notified of the possibility of such damages. The foregoing shall not exclude or limit any
liability that may not by applicable law be excluded or limited.
The Global Leader In Corporate Governance
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United States
Taft-Hartley Proxy Voting Guidelines Summary
2015 Policy R ecommendations
www.i ssgovern ance.com
© 2015 I SS | I n stitutional Shareh older Servi ces
2015 Taft-Hartley U.S. Proxy Voting Guidelines Summary
TABLE OF CONTENTS
INTRODUCTION .......................................................................................................................................... 4
1. BOARD OF DIRECTORS PROPOSALS....................................................................................................... 5
Boa rd Independence ..................................................................................................................................................................................5
Boa rd Competence .....................................................................................................................................................................................5
Boa rd Accounta bili ty..................................................................................................................................................................................5
Boa rd Res ponsi venes s ...............................................................................................................................................................................6
Independen t Di rectors...............................................................................................................................................................................6
Non-i ndepend ent Cha i rpers on ................................................................................................................................................................6
Boa rd Structure...........................................................................................................................................................................................6
Boa rd a nd Commi ttee Si ze ....................................................................................................................................................................... 7
Di rector Performa nce Eva l ua ti on............................................................................................................................................................7
Proposal s on Boa rd Incl usi venes s............................................................................................................................................................7
Ma j ori ty Thres hol d Voti ng Requi remen t for Di rector El ecti ons ........................................................................................................7
Cumul a ti ve Voti ng ......................................................................................................................................................................................8
Pois on Pill s ................................................................................................................................................................................................... 8
Ma j ori ty Supported Sha rehol der Propos als ..........................................................................................................................................8
2. CAPITAL STRUCTURE .............................................................................................................................. 9
Increas e Authori zed Common S tock .......................................................................................................................................................9
Dua l Clas s Structures .................................................................................................................................................................................9
Preemp ti ve Ri ghts ......................................................................................................................................................................................9
Preferred Stock Authori za ti on.................................................................................................................................................................. 9
3. AUDITOR RATIFICATION....................................................................................................................... 10
Audi tor Independenc e .............................................................................................................................................................................10
Dis cl os ures Under Secti on 404 of Sarba nes -Oxl ey Act ......................................................................................................................10
4. MERGERS, ACQUISITIONS, AND TRANSACTIONS................................................................................ 11
Rei ncorpora ti on........................................................................................................................................................................................11
5. EXECUTIVE COMPENSATION................................................................................................................ 12
Stock Opti on Pla ns....................................................................................................................................................................................12
Probl ema ti c Compens a ti on Pra cti ces ...................................................................................................................................................12
Proposal s to Li mi t Executi ve a nd Di rector Pa y....................................................................................................................................12
Gol den Pa rachutes ...................................................................................................................................................................................12
Opti ons Ba ckda ti ng ..................................................................................................................................................................................13
Empl oyee Stock Own ers hi p Pla ns (ESOPs )...........................................................................................................................................13
Advi s ory Votes on Executi ve Comp ens a ti on – Ma na gemen t Sa y-on-Pa y Proposals ...................................................................13
Frequency of Advi s ory Vote on Executi ve Co mp ens a ti on – Ma na gement Sa y on Pa y................................................................13
6. SOCIAL AND ENVIRONMENTAL ISSUES ............................................................................................... 14
CERES Pri nci pl es........................................................................................................................................................................................14
Corpora te a nd Suppli er Codes of Conduct...........................................................................................................................................14
Poli tical Contri buti ons , Lobbyi ng Reporti ng & Dis cl os ure.................................................................................................................15
Greenhous e Ga s Emi ssi ons .....................................................................................................................................................................15
Sus tai na bili ty Reporti ng a nd Pl a nni ng..................................................................................................................................................15
Ta ft Ha rtley Advisory Services ’ Guidelines ba sed on AFL-CIO Proxy Voting Policy
© 2015 ISS | Institutional Shar eholder Ser vices
2
Hydra ul ic Fra cturi ng.................................................................................................................................................................................16
Wa ter Us e ..................................................................................................................................................................................................16
Workpla ce Sa fety......................................................................................................................................................................................16
DISCLOSURE/DISCLAIMER........................................................................................................................ 17
3
INTRODUCTION
The proxy voti ng pol i cy of ISS’ Ta ft-Ha rtl ey Advi s ory Servi ces i s ba s ed upon the AFL-CIO Proxy Voti ng Gui del i nes , whi ch
compl y wi th a l l the fi duci a ry s ta nda rds del inea ted by the U.S. Depa rtment of La bor.
Ta ft-Ha rtl ey cl i ent a ccounts a re governed by the Empl oyee Reti rement Income Securi ty Act (ERISA). ERISA s ets forth the
tenets under whi ch pens i on fund a s s ets mus t be ma na ged a nd i nves ted. Proxy voti ng ri ghts ha ve been decl a red by the
Depa rtment of La bor to be va l ua bl e pl a n a s sets a nd therefore mus t be exerci s ed i n a ccorda nce wi th the fi duci a ry duti es of l
oya l ty a nd prudence. The duty of l oya l ty requi res tha t the voti ng fi duci a ry exerci se proxy voti ng a uthori ty s ol el y i n the
economi c i nteres t of pa rti ci pa nts a nd pl a n benefi ci a ri es. The duty of prudence requi res tha t deci s i ons be ma de ba s ed on
fi na nci a l criteri a a nd tha t a cl ea r proces s exi s ts for eva l ua ti ng proxy i s s ues .
The Ta ft-Ha rtl ey Advi s ory Servi ces voti ng pol i cy wa s ca reful ly cra fted to meet thos e requi rements by promoti ng l ong-term s
ha rehol der va l ue, empha s i zi ng the “economi c bes t i nteres ts ” of pl a n pa rti ci pants a nd benefi ci a ries . Ta ft -Ha rtl ey Advi s ory
Servi ces wi l l a s s ess the s hort-term a nd l ong-term i mpa ct of a vote a nd wi l l promote a pos i ti on tha t i s cons i s tent wi th the
l ong-term economi c bes t i nteres ts of pl a n members embodi ed i n the pri nci ple of a “worker -owner vi ew of va l ue.”
Our gui del i nes a ddres s a broa d ra nge of i s s ues , i ncl uding el ecti on of di rectors , executi ve compens a ti on, proxy contes ts ,
a udi tor ra ti fi cati on, a nd tender offer defens es – a l l s i gnificant voti ng i tems tha t a ffect l ong-term s ha rehol der va l ue. In
a ddi ti on, thes e gui del i nes del ve deeper i nto workpl a ce i s s ues tha t ma y ha ve a n i mpa ct on corpora te perf orma nce, i
ncl udi ng:
•
Corpora te pol i ci es tha t a ffect j ob s ecuri ty a nd wa ge l evel s ;
•
Corpora te pol i ci es tha t a ffect l oca l economi c devel opment a nd s ta bi l ity;
•
Corpora te res pons i bi lity to empl oyees , communi ti es a nd the envi ronment; a nd
•
Workpl a ce s a fety a nd hea l th i s s ues .
Ta ft-Ha rtl ey Advi s ory Servi ces s ha l l a nalyze ea ch proxy on a ca s e-by-ca s e ba s i s, i nformed by the gui del i nes outl i ned i n the fol
l owi ng pa ges . Ta ft-Ha rtl ey Advi s ory Servi ces does not i ntend for thes e gui del i nes to be exha us ti ve. It i s nei ther pra c ti ca l nor
producti ve to fa s hi on voti ng gui del i nes a nd pol i cies whi ch a ttempt to a ddres s every eventua l i ty. Ra ther, Ta ft -Ha rtl ey Advi s
ory Servi ces ’ gui del i nes a re i ntended to cover the mos t s i gni ficant a nd frequent proxy i s s ues tha t a ri s e. Is s ues not covered by
the gui del i nes s ha l l be voted i n the i nteres t of pl a n pa rti ci pants a nd benefi ci a ries of the pl a n ba s ed on a worker - owner vi ew
of l ong-term corpora te va l ue. Ta ft-Ha rtl ey Advi s ory Servi ces s ha l l revi se i ts gui del i nes a s events wa rra nt a nd
wi l l rema i n i n ful l conformi ty wi th the AFL-CIO proxy voti ng pol i cy.
4
1. BOARD OF DIRECTORS PROPOSALS
El ecti ng di rectors i s the s i ngl e mos t i mporta nt s tock owners hi p ri ght tha t s ha rehol ders ca n exerci s e. The boa rd of di rectors i
s res pons i ble for hol di ng ma na gement a ccounta bl e to performa nce s ta nda rds on beha l f of the s ha rehol ders . Ta ft -Ha rtl ey
Advi s ory Servi ces hol ds di rectors to a hi gh s ta nda rd when voti ng on thei r el ecti on, qua l i fi ca tions, a nd compens a ti on.
Votes concerni ng the enti re boa rd of di rectors a nd members of key boa rd commi ttees a re exa mi ned us i ng the fol l owi ng
fa ctors :
Board Independence
Wi thout i ndependence from ma na gement, the boa rd a nd/or i ts commi ttees ma y be unwi l l ing or una bl e to effecti vel y s et
compa ny s tra tegy a nd s cruti ni ze performa nce or executi ve compens a ti on.
•
La ck of boa rd a nd key boa rd commi ttee i ndependence (ful l y i ndependen t a udi t, compens a ti on, a nd nomi na ti ng
commi ttees );
•
La ck of a boa rd tha t i s a t l ea s t two-thi rds (67 percent) i ndependent – i .e. where the compos i ti on of non- i
ndependent boa rd members i s i n exces s of 33 percent of the enti re boa rd;
•
•
La ck of a n i ndependent boa rd cha i r;
La ck of i ndependence on key boa rd commi ttees (i .e. a udi t, compens a ti on, a nd nomi na ti ng commi ttees ); or
•
Fa i l ure to es ta bl i s h a ny key boa rd commi ttees (i .e. a udi t, compens a ti on, or nomi na ti ng).
Board Competence
Compa ni es s houl d s eek a di vers e boa rd of di rectors who ca n a dd va l ue to the boa rd through s peci fi c s kil ls or experti s e a nd
who ca n devote s uffi ci ent ti me a nd commi tment to s erve effecti vel y. Whi l e di rectors s houl d not be cons tra i ned by a rbi trary l
i mi ts s uch a s a ge or term l i mi ts , di rectors who a re una bl e to a ttend boa rd a nd commi ttee meeti ngs a nd/or who a re
overextended (i .e. s ervi ng on too ma ny boa rds ) ra i se concern on the di rector’s a bi l ity to effecti vel y s erve i n s ha rehol ders ’
bes t i nteres ts .
•
Attenda nce of di rector nomi nees a t boa rd meeti ngs of l es s tha n 75 percent i n one yea r wi thout va l i d rea s on or
expl a na ti on; or
•
Di rectors s ervi ng on a n exces s i ve number of other boa rds whi ch coul d compromi s e thei r pri ma ry duti es of ca re
a nd l oya l ty.
Board Accountability
Pra cti ces tha t promote a ccounta bi l ity i ncl ude; tra ns pa rency i nto a compa ny’s governa nce pra cti ces , a nnua l boa rd el ecti ons,
a nd provi di ng s ha rehol ders the a bi l i ty to remove probl ema ti c di rectors a nd to vote on ta keover defens es or other
cha rter/byl a w a mendments . Thes e pra cti ces hel p reduce the opportuni ty for ma na gement entrenchment.
•
Probl ema ti c Ta keover Defens es ;
•
Governa nce Fa i l ures ;
•
•
Probl ema ti c Compens a ti on Pra cti ces ; a nd
Probl ema ti c Audi t-Rel a ted Pra cti ces .
5
Board Responsiveness
Di rectors s houl d be res pons i ve to s ha rehol ders , pa rti cularly i n rega rd to s ha rehol der propos a l s tha t recei ve a ma j ori ty vote
a nd to tender offers where a ma j ori ty of s ha res a re tendered. Boa rds s houl d a l so be s uffi ci entl y res pons ive to hi gh
a ga i ns t/wi thhol d votes on di rectors . Furthermore, s ha rehol ders s houl d expect di rectors to devote s uffi ci ent ti me a nd
res ources to overs i ght of the compa ny. Vote AGAINST/WITHHOLD from i ndi vi dual di rectors , commi ttee members , or the
enti re boa rd a s a ppropri ate i f:
•
At the previ ous boa rd el ecti on, a ny di rector recei ved more tha n 50 percent AGAINST/WITHHOLD votes of the
s ha res ca s t a nd the compa ny ha s fa i l ed to a ddres s the underl yi ng i s s ue(s ) tha t ca us ed the hi gh
AGAINST/WITHHOLD vote; or
•
The boa rd fa i l ed to a ct on ta keover offers where the ma j ori ty of the s ha rehol ders tendered thei r s ha res .
Independent Directors
Ta ft-Ha rtl ey Advi s ory Servi ces bel i eves tha t a boa rd i ndependent of ma na gement i s of cri ti ca l va l ue to s a fegua rd a compa ny
a nd i ts s ha rehol ders . Boa rd i ndependence hel ps ens ure tha t di rectors ca rry out thei r duti es i n a n obj ecti ve ma nner a nd
wi thout ma na ger i nterference to s el ect, moni tor, a nd compens a te ma na gement. We wi l l ca s t votes i n a ma nner cons i s tent
wi th s upporti ng a nd rei nforci ng thi s phi l os ophy. Independenc e i s eva l ua ted upon fa ctors i ncl uding: pa s t or current
empl oyment wi th the compa ny or i ts s ubs i dia ries ; the provi s i on of cons ul ti ng s ervi ces ; fa mi l ial rel a ti onships; boa rd
i nterl ocks ; a nd s ervi ce wi th a non-profi t tha t recei ves contri buti ons from the compa ny. We vote FOR propos a l s tha t reques t
tha t the boa rd compri s e of a two-thi rds ma j ori ty of i ndependent di rectors , a nd/or i ts a udi t, compens a ti on, a nd nomi na ti ng
commi ttees be compri s ed whol l y of i ndependent di rectors . We vote AGAINST or WITHHOLD from non -i ndependent
di rector nomi nees on boa rds tha t a re not a t l ea s t two -thi rds (67 percent) i ndependent.
Non-independent Chairperson
A pri nci pa l functi on of the boa rd i s to moni tor ma na gement, a nd a funda menta l res pons i bi lity of the cha i rpers on i s to
moni tor the compa ny’s CEO. Thi s duty i s obvi ous ly compromi s ed when the cha i rpers on i s the CEO. Ma ny i nves tors ,
i ncl udi ng Ta ft-Ha rtl ey fi duci aries , bel i eve tha t a CEO s houl d not run the boa rd. As executi ve compens a ti on i s hea vi l y
correl a ted to the ma na geri a l power rel a ti ons hi p i n the boa rdroom, the s epa ra ti on of the CEO a nd boa rd cha i r pos i ti ons also
repres ents a cri ti cal s tep i n curta i ling exces s i ve pa y. Indeed, a number of a ca demi c s tudi es ha ve demons tra ted tha t
executi ve compens a ti on i s hi gher i f the CEO i s a l s o the boa rd cha i r. We vote AGAINST or WITHHOLD from non -i ndependent
di rectors who s erve a s boa rd cha i rs , a nd vote FOR propos a l s ca lling for non -executi ve di rectors who a re not former CEOs or
s eni or-l evel executi ves to s erve a s cha i rpers ons.
Board Structure
Ta ft-Ha rtl ey Advi s ory Servi ces s upports the pri nci ple tha t a l l di rectors s hould be a ccounta bl e to s ha rehol der vote on a n
a nnua l ba s i s. A cl a s sifi ed boa rd i s a boa rd di vided i nto s epa ra te cl a s s es (typi ca lly three), wi th onl y one cl a s s of nomi nees
comi ng up to vote a t the a nnua l meeti ng ea ch yea r. As a res ul t, s ha rehol ders a re onl y a bl e to vote a s i ngl e di rector
a pproxi ma tel y once every three yea rs . A cl a s s ified boa rd ma kes i t di ffi cul t to cha nge control of the boa rd through a proxy
contes t beca us e typi ca l l y onl y one-thi rd of the s ea ts wi l l be a t s ta ke. Cl a s s ified boa rds ca n a ls o reduce di rector
a ccounta bi l ity by i ns ul ati ng di rectors, a t l ea s t for a certa i n peri od of ti me, from the cons equences of thei r a cti ons .
Conti nui ng di rectors who a re res pons i bl e for a prob l ema ti c governa nce i s s ue a t the boa rd/commi ttee l evel woul d a voi d
s ha rehol ders ’ rea cti ons to thei r a cti ons beca us e they woul d not be up for el ecti on i n tha t yea r. In thes e ca s es , the ful l boa rd
s houl d be res pons i bl e for the a cti ons of i ts di rectors .
6
The ul ti ma te res ul t i s tha t cl a s sified boa rds ca n entrench ma na gement a nd precl ude mos t ta keover bi ds or proxy contes ts ,
a s wel l a s s hi el d di rectors from bei ng a ccounta bl e to s ha rehol ders on a n a nnua l ba s i s. Good corpora te governa nce pra cti ce
s upports a nnua l l y el ected boa rds . We vote AGAINST cl a s sified boa rds when the i s s ue comes up for vote. W i th the excepti on
of new nomi nees , we wi l l a l s o vote AGAINST or WITHHOLD from a l l of the nomi nees up for el ecti on i f the compa ny ha s a
cl a s s ified boa rd a nd a conti nui ng di rector i s res pons ible for a probl ema ti c governa nce i s s ue a t the boa rd/commi ttee l evel
tha t woul d wa rra nt a n a ga i ns t/wi thhol d vote - i n a ddi ti on to potenti a l future oppos i ti on the el ecti on of tha t di rector.
Board and Committee Size
Whi l e there i s no ha rd a nd fa s t rul e a mong i ns ti tuti ona l i nves tors a s to wha t ma y be a n opti ma l s i ze boa rd, Ta ft -Ha rtl ey
Advi s ory Servi ces bel i eves there i s a n a ccepta bl e ra nge whi ch compa ni es s houl d s tri ve to meet a nd not exceed. A boa rd
tha t i s too l a rge ma y functi on i neffi ci entl y. Convers el y, a boa rd tha t i s too s ma l l ma y a l l ow the CEO to exert
di s proporti ona te i nfl uence or ma y s tretch the ti me requi rements of i ndi vi dual di rectors too thi n. Gi ven tha t the
prepondera nce of boa rds i n the U.S. ra nge between fi ve a nd fi fteen di rectors , we bel i eve thi s i s a us eful benchma rk for
eva l ua ti ng s uch propos a l s. We vote AGAINST a ny propos a l s eeki ng to a mend the compa ny’s boa rd s i ze to fewer tha n fi ve
s ea ts or more tha n fi fteen s ea ts . On a CASE-BY-CASE ba s i s , we cons i der votes AGAINST, WITHHO LDS or other a cti on a t
compa ni es tha t ha ve fewer tha n fi ve di rectors a nd more tha n 15 di rectors on thei r boa rd.
Director Performance Evaluation
Ta ft-Ha rtl ey Advi s ory Servi ces bel i eves tha t l ong-term fi na nci a l performa nce a nd the a ppropri a tenes s of governa nce
pra cti ces s houl d be ta ken i nto cons i dera ti on when determi ni ng votes wi th rega rd to di rectors i n uncontes ted el ecti ons .
When eva l ua ti ng the el ecti on of di rectors , we wi l l eva l ua te underperformi ng compa ni es tha t exhi bi t s us ta i ned poor
performa nce a s mea s ured by one- a nd three-yea r tota l s ha rehol der returns i n the bottom ha l f of a compa ny’s four -di gi t
GICS i ndus try group (Rus s el l 3000 compa ni es on l y). Sus ta i ned poor performa nce for compa ni es outs i de the Rus s el l 3000
uni vers e i s defi ned a s underperformi ng peers or i ndex on the ba s i s of both one-yea r a nd three-yea r tota l s ha rehol der
returns .
Ta ft-Ha rtl ey Advi s ory Servi ces wi l l a s ses s the compa ny’s res pons e to the ongoi ng performa nce i s s ues , a nd cons i der recent
boa rd a nd ma na gement cha nges , boa rd i ndependence, overa l l governa nce pra cti ces , a nd other fa ctors tha t ma y ha ve a n
i mpa ct on s ha rehol ders .
Proposals on Board Inclusiveness
Ta ft-Ha rtl ey Advi s ory Servi ces votes FOR s ha rehol der propos a l s a s king a compa ny to ma ke efforts to s eek more women a nd
mi nori ty group members for s ervi ce on the boa rd. A more di vers e group of di rectors benefi ts s ha rehol ders a nd the
compa ny.
Majority Threshold Voting Requirement for Director Elections
Ta ft-Ha rtl ey fi duci a ries bel i eve s ha rehol ders s hould ha ve a grea ter voi ce i n rega rd to the el ecti on of di rectors a nd vi ew
ma j ori ty thres hol d voti ng a s a vi a bl e a l terna ti ve to the current defi ci enci es of the pl ura l ity s ys tem i n t he U.S. Sha rehol ders
ha ve expres s ed s trong s upport for res ol uti ons on ma j ori ty thres hol d voti ng. Ta ft -Ha rtl ey Advi s ory Servi ces s upports
propos a l s ca lling for di rectors to be el ected wi th a n a ffi rma ti ve ma j ori ty of votes ca s t a nd/or the el i mi na ti on of the pl ura l i ty
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s ta nda rd for el ecti ng di rectors , provi ded the propos a l i ncludes a ca rve-out for a pl ura l ity voti ng s ta nda rd i n contes ted
di rector el ecti ons .
Cumulative Voting
Under a cumul a ti ve voti ng s cheme, s ha rehol ders a re permi tted to ha ve one vote per s ha r e for ea ch di rector to be el ected
a nd ma y a pporti on thes e votes a mong the di rector ca ndi da tes i n a ny ma nner they wi s h. Thi s voti ng method a l l ows mi nority
s ha rehol ders to i nfl uence the outcome of di rector contes ts by “cumul a ti ng” thei r votes for one nomi nee , thereby crea ti ng a
mea s ure of i ndependence from ma na gement control .
Wi th the a dvent a nd preva l ence of ma j ori ty voti ng for di rector el ecti ons , s ha rehol ders now ha ve grea ter fl exi bi li ty i n
s upporti ng ca ndi da tes for a compa ny’s boa rd of di rectors . Cumul a ti ve voti ng a nd ma j ori ty voti ng ca n work together
opera ti ona l l y, wi th compa ni es el ecti ng to us e ma j ori ty voti ng for uncontes ted el ecti ons a nd cumul a ti ve voti ng for
contes ted el ecti ons to i ncrea s e a ccounta bi lity a nd ens ure mi nori ty repres enta ti on on the boa rd . In contes ted el ecti ons ,
s i mi l ar to cumul a ti ve voti ng, proxy a cces s a l l ows s ha reholder a cces s to the ba l l ot wi thout a veto from the nomi na ti ng
commi ttee, but unl i ke cumul a ti ve voti ng, i t a l s o requi res ma j ority s upport to el ect s uch di rectors .
Ta ft-Ha rtl ey Advi s ory Servi ces votes AGAINST propos a l s to el i mi na te cumul a ti ve voti ng, a nd votes FOR propos a l s to a l l ow
cumul a ti ve voti ng unl es s : 1) The compa ny ha s a dopted a ma j ori ty vote s ta nda rd, wi th a ca rve -out for pl ura l i ty voti ng i n
contes ted boa rd el ecti ons , a nd a di rector res i gna ti on pol i cy to a ddres s fa i led el ecti ons ; and 2) compa ny ha s proxy a cces s
thereby a l l owi ng s ha rehol ders to nomi na te di rectors to the compa ny’s ba l l ot.
Poison Pills
Sha rehol der ri ghts pl a ns , more commonl y known a s poi s on pi l ls, a re wa r ra nts i s sued to s ha rehol ders a l lowi ng them to
purcha s e s ha res from the compa ny a t a pri ce fa r bel ow ma rket va l ue when a certa i n owners hi p thres hol d ha s been
rea ched, thereby effecti vel y preventi ng a ta keover. Poi s on pi l ls ca n entrench ma na gement a nd gi ve t he boa rd veto power
over ta keover bi ds , thereby a l teri ng the ba l a nce of power between s ha rehol ders a nd ma na gement. Whi l e we eva l ua te
poi s on pi l l s on a ca s e-by-ca s e ba s is dependi ng on a compa ny’s pa rti cul ar s et of ci rcums ta nces , Ta ft-Ha rtl ey Advi s ory
Servi ces genera l l y votes FOR propos a l s to s ubmi t a compa ny’s poi s on pi l l to s ha rehol der vote a nd/or el i mi na te or redeem
poi s on pi l l s. We vote AGAINST or WITHHOLD from boa rds where a dea d -ha nd poi s on pi l l provi sion i s i n pl a ce. From a
s ha rehol der pers pecti ve, there i s no j us ti fi ca tion for a dea d-ha nd provi s i on.
Majority Supported Shareholder Proposals
Ta ft-Ha rtl ey Advi s ory Servi ces genera l l y votes AGAINST or WITHHOLDS from a l l di rector nomi nees a t a compa ny tha t ha s i
gnored a s ha rehol der propos a l tha t wa s a pprov ed by a ma j ori ty of the votes ca s t a t the l a s t a nnua l meeti ng.
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2. CAPITAL STRUCTURE
Increase Authorized Common Stock
Corpora ti ons s eek s ha rehol der a pprova l to i ncrea s e thei r s uppl y of common s tock for a va ri ety of bus i nes s rea s ons . We
vote FOR propos a l s to i ncrea s e a uthori zed common s tock when ma na gement ha s provi ded a s peci fi c j usti ficati on for the
i ncrea s e, eva l ua ti ng propos a ls on a ca s e-by-ca se ba s i s. We bel i eve tha t a n i ncrea s e of up to 50 percent i s enough to a l l ow a
compa ny to meet i ts ca pi ta l needs . We vote AGAINST propos a l s to i ncrea s e a n a uthori za ti on by more tha n 50 percent
unl es s ma na gement provi des compel l i ng rea s ons for the i ncrea s e.
Dual Class Structures
Ta ft-Ha rtl ey Advi s ory Servi ces does not s upport dua l s ha re cl a ss s tructures . Incumbent m a na gement ca n us e a dua l cl a s s
s tructure to ga i n unequa l voti ng ri ghts . A s epa ra te cl a s s of s ha res wi th s uperi or voti ng ri ghts ca n a l l ow ma na gement to
concentra te i ts power a nd i ns ul ate i ts el f from the ma j ori ty of i ts s ha rehol ders . An a ddi ti ona l dra wba ck i s the a dded cos t
a nd compl i ca ti on of ma i nta i ni ng the two cl a s s s ystem. We wi l l vote FOR a one s ha re, one vote ca pi ta l s tructure, a nd vote
AGAINST the crea ti on or conti nua ti on of dua l cl a ss s tructures .
Preemptive Rights
Preempti ve ri ghts permi t s ha rehol der s to s ha re proporti ona tel y i n a ny new i s s ues of s tock of the s a me cl a s s . Thes e ri ghts gua
ra ntee exi s ti ng s ha rehol ders the fi rs t opportuni ty to purcha s e s ha res of new i s s ues of s tock i n the s a me cl a s s a s thei r own a
nd i n the s a me proporti on. The a bs ence of thes e ri ghts coul d ca us e s tockhol ders ’ i nteres t i n a compa ny to be reduced by the
s a l e of a ddi ti ona l s ha res wi thout thei r knowl edge a nd a t pri ces unfa vora bl e to them. Preempti ve ri ghts , however,
ca n ma ke i t di ffi cul t for corpora ti ons to i s s ue l a rge bl ocks of s tock for genera l corpora te purpos es . Ta ft-Ha rtl ey Advi s ory
Servi ces revi ews propos a l s to crea te or a bol i s h preempti ve ri ghts on a ca s e-by-ca s e ba s i s.
Preferred Stock Authorization
Preferred s tock i s a n equi ty s ecuri ty whi ch ha s certa i n fea tures s i mi l ar to debt i ns truments - s uch a s fi xed di vi dend
pa yments a nd s eni ori ty of cl a i ms to common s tock - a nd us ua l ly ca rries l ittl e to no voti ng ri ghts . The terms of bl a nk check
preferred s tock gi ve the boa rd of di rectors the power to i s s ue s ha res of preferred s tock a t thei r di s creti on wi th voti ng,
convers i on, di s tri buti on, a nd other ri ghts to be determi ned by the boa rd a t ti me of i s s ue. Ta ft -Ha rtl ey Advi s ory Servi ces wi l l
genera l l y vote FOR propos a l s to a uthori ze preferred s tock i n ca s es where the compa ny s peci fi es the voti ng, di vi dend,
convers i on, a nd other ri ghts of s uch s tock a nd the terms of the preferred s tock a ppea r rea s ona bl e. We wi l l a l so cons ider
compa ny-s peci fi c fa ctors i ncludi ng pa st boa rd performa nce, di s cl osure on s peci fi c rea s ons/rati onale for the propos ed
i ncrea s e, the di l uti ve i mpa ct of the reques t, di s cl osure of s peci fi c r i sks to s ha rehol ders of not a pprovi ng the reques t, a nd
whether the s ha res reques ted a re bl a nk check preferred s ha res tha t ca n be us ed for a nti ta keover purpos es .
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3. AUDITOR RATIFICATION
Auditor Independence
Ra ti fyi ng a udi tors i s no l onger a routi ne procedure. The wa ve of a ccounti ng s ca nda l s a t compa ni es i n the over the pa s t
deca de unders core the need to ens ure a udi tor i ndependence i n the fa ce of s el l i ng cons ulti ng s ervi ces to a udi t cl i ents . The
ra ti o of non-a udi t s ervi ces to tota l revenues a t the l a rge a ccounti ng fi rms grew s i gni fi cantly l ea di ng up to the a ccounti ng
s ca nda l s. We bel i eve the ra ti o of non-a udi t fees s houl d ma ke up no more tha n one-qua rter of a l l fees pa i d to the a udi tor s o
a s to properl y di s coura ge even the a ppea ra nce of a ny undue i nfl uence upon a n a udi tor’s obj ecti vi ty
Audi tors a re the ba ckbone upon whi ch a compa ny’s fi na nci a l hea l th i s mea s ured, a nd a udi tor i ndependence i s es s enti a l for
renderi ng obj ecti ve opi ni ons upon whi ch i nves tors then rel y. When a n a udi tor i s pa i d more i n cons ul ti ng fees tha n for
a udi ti ng, i ts rel a ti ons hip wi th the compa ny i s l eft open to confl i cts of i nteres t. Beca us e a ccounti ng s ca nda l s eva pora te
s ha rehol der va l ue, a ny propos a l to ra ti fy a udi tors i s exa mi ned for potenti a l confl i cts of i nteres t, wi th pa rti cul a r a ttenti on to
the fees pa i d to the a udi tor, a s wel l a s whether the ra ti fi ca ti on of a udi tors ha s been put up f or s ha rehol der vote. Fa i l ure by a
compa ny to pres ent i ts s el ecti on of a udi tors for s ha rehol der ra ti fi ca tion s houl d be di s couraged a s i t undermi nes good
governa nce a nd di s enfra nchi ses s harehol ders.
We vote AGAINST ra ti fi ca tion of a compa ny’s a udi tor i f i t recei ves more tha n one-qua rter of i ts tota l fees for cons ul ti ng a nd
vote AGAINST or WITHHOLD from Audi t Commi ttee members when a udi tor ra ti fi ca tion i s not i ncl uded on the proxy ba l l ot
a nd/or when cons ul ti ng fees exceed a udi t fees . We s upport s ha rehol der pr opos a l s to ens ure a udi tor i ndependence a nd
effect ma nda tory a udi tor ra ti fi ca tion.
Disclosures Under Section 404 of Sarbanes-Oxley Act
Secti on 404 of the Sa rba nes -Oxl ey Act requi res tha t compa ni es document a nd a s s es s the effecti venes s of thei r i nterna l
fi na nci a l control s. Compa ni es wi th s i gni ficant ma teri a l wea knes s es i denti fi ed i n the Secti on 404 di s cl osures potenti a l ly ha ve i
neffecti ve i nterna l fi na nci al reporti ng control s . Thi s ma y l ea d to i na ccura te fi na ncia l s ta tements , whi ch ha mpers
s ha rehol ders ’ a bi lity to ma ke i nformed i nves tment deci s i ons, a nd ma y l ea d to des tructi on of publ i c confi dence a nd
s ha rehol der va l ue. Ta ft-Ha rtl ey Advi s ory Servi ces wi l l vote AGAINST ma na gement propos a l s to ra ti fy a udi tors i f there i s
rea s on to bel i eve tha t the i ndependent a udi tor ha s rendered a n opi ni on whi ch i s nei ther a ccura te nor i ndi ca ti ve of the
compa ny’s fi na nci a l pos iti on.
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4. MERGERS, ACQUISITIONS, AND TRANSACTIONS
Ta ft-Ha rtl ey Advi s ory Servi ces votes for corpora te tra ns a cti ons tha t ta ke the hi gh roa d to competi ti venes s a nd compa ny
growth. Ta ft-Ha rtl ey Advi s ory Servi ces bel i eves tha t s tructuri ng mergi ng compa ni es to bui l d l ong -term rel a ti ons hi ps wi th a
s ta bl e a nd qua l i ty work force a nd pres ervi ng good j obs crea tes l ong -term compa ny va l ue. We oppos e corpora te
tra ns a cti ons whi ch i ndiscri mina tel y l ayoff workers a nd s hed va l ua bl e competi ti ve res ources .
Votes on mergers a nd a cqui s i tions a re cons i dered on a CASE-BY-CASE ba s i s , ta ki ng i nto a ccount the fol l owi ng fa ctors :
•
Impa ct on s ha rehol der va l ue;
•
Cha nges i n corpora te governa nce a nd thei r i mpa ct on s ha rehol der ri ghts ;
•
Fa i rnes s opi ni on (or l a ck thereof);
•
Offer pri ce (cos t vs . premi um);
•
Form a nd mi x of pa yment (i .e. s tock, ca s h, debt, etc.);
•
Cha nge-in-control pa yments to executi ve offi cers ;
•
Pers pecti ve of owners hi p (ta rget vs . a cqui rer) i n the dea l ;
•
Funda menta l va l ue dri vers behi nd the dea l ;
•
Anti ci pa ted fi na nci a l a nd opera ti ng benefi ts rea l i za bl e thr ough combi ned s ynergi es ;
•
Fi na nci a l vi ability of the combi ned compa ni es a s a s i ngl e enti ty;
•
Wha t a re the potenti a l l ega l or envi ronmenta l l i a bility ri s ks a s soci ated wi th the ta rget fi rm?;
•
Impa ct on communi ty s ta kehol ders a nd empl oyees i n both workforces ;
•
How wi l l the merger a dvers el y a ffect empl oyee benefi ts l i ke pens i ons a nd hea l th ca re?
Reincorporation
Ta ft-Ha rtl ey Advi s ory Servi ces revi ews propos a l s to cha nge a compa ny’s s ta te of i ncorpora ti on on a ca s e -by-ca s e ba s is. We
vote FOR propos a l s to rei ncorpora te i n a nother s ta te when the compa ny ha s provi ded s a ti s fa ctory bus ines s rea s ons a nd
there i s no s i gni fi ca nt reducti on i n s ha rehol der ri ghts . We vote AGAINST propos a l s to rei ncorpora te tha t reduce
s ha rehol der ri ghts . In ca s es of offs hore rei ncorpora ti ons to ta x ha vens , a mong other fa ctors , we eva l ua te the effect upon
a ny a nd a l l l ega l recours e of s ha rehol ders i n a new j uri s diction, potenti a l ha rm to compa ny bra nds a nd i ma ge, a nd a ny
a ctua l , qua l i fied economi c benefi t.
Whi l e a fi rm’s country of i ncorpora ti on wi l l rema i n the pri ma ry ba s i s for eva l ua ti ng compa ni es , Ta ft-Ha rtl ey Advi s ory
Servi ces wi l l genera l l y a ppl y U.S. pol i ci es to the extent pos s i bl e wi th res pect to i s s uers tha t fi l e DEF 14As , 10 -K a nnua l
reports , a nd 10-Q qua rterl y reports , a nd a re thus cons i dered domes ti c i s s uers by the U.S. Securi ti es a nd Excha nge
Commi s s i on (SEC). Corpora ti ons tha t ha ve rei ncorpora ted outs i de the U.S. ha ve found thems el ves s ubj ect to a combi na ti on
of governa nce regul a ti ons a nd bes t pra cti ce s ta nda rds tha t ma y not be enti rel y compa ti bl e wi th a n eva l ua ti on fra mework ba
s ed s ol el y on country of i ncorpora ti on.
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5. EXECUTIVE COMPENSATION
Stock Option Plans
Ta ft-Ha rtl ey Advi s ory Servi ces s upports compens a ti ng executi ves a t a rea s ona bl e ra te a nd bel i eves tha t executi ve
compens a ti on s houl d be s trongl y correl a ted to s us ta i ned performa nce. Stock opti ons a nd other forms of equi ty
compens a ti on s houl d be performa nce-ba s ed wi th a n eye towa rd i mprovi ng s ha rehol der va l ue. Wel l -des i gned s tock opti on
pl a ns a l ign the i nteres ts of executi ves a nd s ha rehol ders by provi di ng tha t executi ves benefi t when s tock pri ces ri s e a s the
compa ny— a nd s ha rehol ders — pros per together. Poorl y des i gned equi ty a wa rd progra ms ca n encoura ge exces s i ve ri s k ta ki ng beha vi or a nd i ncenti vi ze executi ves to purs ue corpora te s tra tegi es tha t promote s hort -term s tock pri ce to the
ul ti ma te detri ment of l ong-term s ha rehol der va l ue.
Ma ny pl a ns s pons ored by ma na gement provi de goa l s s o ea s i l y a tta i ned tha t executi ves ca n rea l i ze ma s s i ve rewa rds even
though s ha rehol der va l ue i s not neces s a ri l y crea ted. Stock opti ons tha t a re a wa rded s el ecti vel y a nd exces s i vel y ca n di l ute
s ha rehol ders ’ s ha re va l ue a nd voti ng power. In genera l , Ta ft-Ha rtl ey Advi s ory Servi ces s upports pl a ns tha t a re offered a t fair
terms to executi ves who s a ti s fy wel l -defi ned performa nce goa l s . We eva l ua te opti on pl a ns on a CASE-BY-CASE ba s i s , ta ki ng
i nto cons i dera ti on fa ctors i ncluding: offer pri ce, di l uti on to outs ta ndi ng s ha re va l ue, di l uti on to s ha re voti ng power, a nnua l
burn ra te, executi ve concentra ti on ra ti os , pa y -for-performa nce a nd the pres ence of a ny repri ci ng provi s ions. We s upport
pl a ns tha t reta i n ta x deducti bi l i ty through the us e of per forma nce goa l s a nd oppos e pl a ns whos e a wa rd s i ze exceeds the ta x
deducti on l i mi t.
Ta ft-Ha rtl ey Advi s ory Servi ces votes FOR opti on pl a ns tha t provi de l egi ti ma tel y cha l l engi ng performa nce ta rgets tha t trul y
moti va te executi ves i n the purs ui t of excel l ent performa nce. Li kewi s e, we vote AGAINST pl a ns tha t offer unrea s ona bl e
benefi ts to executi ves tha t a re not a va i l a ble to other empl oyees .
Problematic Compensation Practices
Poor di s cl osure, the a bs ence or non-tra ns pa rency of di s cl os ure a nd poor pl a n des i gn of compens a ti on pa youts l ea d to
exces s i ve executi ve compens a ti on pra cti ces tha t a re detri menta l to s ha rehol ders . Poorl y des i gned pl a ns or thos e l a cki ng i n
tra ns pa rency ca n be refl ecti ve of a poorl y performi ng compens a ti on commi ttee or boa rd. Ta ft -Ha rtl ey Advi s ory Servi ces will
genera l l y vote AGAINST ma na gement "Sa y on Pa y" (MSOP) propos a l s a nd cons i der voti ng AGAINST or WITHHOLDING from
compens a ti on commi ttee members a nd/or the CEO on a CASE-BY-CASE ba s i s i f the compa ny ha s probl ema ti c compens a ti on
pra cti ces . In a ddi ti on, we ma y cons i der a vote AGAINST or WITHHOLD from the enti re boa rd i f the whol e boa rd wa s
i nvol ved i n a nd contri buted to egregi ous compens a ti on pra cti ces .
Proposals to Limit Executive and Director Pay
Ta ft-Ha rtl ey Advi s ory Servi ces votes FOR s ha rehol der propos a l s tha t s eek a ddi ti ona l di sclosure of executi ve a nd di rector
pa y i nforma ti on. We vote FOR s ha rehol der propos a l s tha t s eek to el i mi na te outs i de di rectors ’ reti rement benefi ts . We
revi ew on a CASE-BY-CASE ba s i s a ll other s ha rehol der propos a l s tha t s eek to l i mi t executi ve a nd di rector pa y. Thi s i ncl udes
s ha rehol der propos a l s tha t s eek to l i nk executi ve compens a ti on to cus tomer, empl oyee, or s ta kehol der s a ti s fa cti on.
Golden Parachutes
Gol den pa ra chutes a re des i gned to protect the s eni or l evel empl oyees of a corpora ti on i n the event of a cha nge-in-control .
Under mos t gol den pa ra chute a greements , s eni or l evel ma na gement empl oyees recei ve a l ump s um pa y -out tri ggered by a
cha nge-in-control a t us ua l l y two to three ti mes ba s e s a l a ry. Thes e s ev era nce a greements ca n gra nt extremel y generous
benefi ts to wel l -pa i d executi ves a nd mos t often offer no va l ue to s ha rehol ders . Ta ft-Ha rtl ey Advi s ory Servi ces votes FOR
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s ha rehol der propos a l s to ha ve a l l gol den pa ra chute a greements s ubmi tted for s ha rehol der ra ti fi cati on, a nd genera l l y
oppos es propos a l s to ra ti fy gol den pa ra chutes i f certa i n cons i dera ti ons a re not met.
Options Backdating
Opti ons ba ckda ti ng ha s s eri ous i mpl icati ons a nd ha s res ul ted i n fi na ncia l res ta tements , del i s ti ng of compa ni es , a nd/or the
termi na ti on of executi ves or di rectors . When opti ons ba ckda ti ng ha s ta ken pl a ce, Ta ft -Ha rtl ey Advi s ory Servi ces ma y
cons i der voti ng AGAINST or WITHHOLDING votes from the compens a ti on commi ttee, dependi ng on the s everi ty of the
pra cti ces a nd the s ubs equent correcti ve a cti ons ta ken by the boa rd. We a dopt a CASE-BY-CASE a pproa ch to the opti ons ba
ckda ti ng i s s ue to di fferenti a te compa ni es tha t ha d s l oppy a dmi ni stra tion vs . thos e tha t ha d commi tted fra ud, a s wel l a s
thos e compa ni es tha t ha ve s i nce ta ken correcti v e a cti on. Ins ta nces i n whi ch compa ni es ha ve commi tted fra ud a re more
di s concerti ng, a nd Ta ft-Ha rtl ey Advi s ory Servi ces wi l l l ook to them to a dopt forma l pol i ci es to ens ure tha t s uch pra cti ces will
not re-occur i n the future.
Employee Stock Ownership Plans (ESOPs)
Ta ft-Ha rtl ey Advi s ory Servi ces genera l l y votes FOR ESOPs whi ch a l l ow a compa ny’s empl oyees to a cqui re s tock i n the
compa ny a t a s l i ght di s count. Such pl a ns hel p l i nk empl oyees ’ s el f -i nteres t to the i nteres ts of the s ha rehol ders , thereby
benefi ti ng the compa ny, i ts cus tomers , a nd s ha rehol ders a nd crea ti ng l ong -term compa ny va l ue.
Advisory Votes on Executive Compensation – Management Say-on-Pay Proposals
Ta ft-Ha rtl ey Advi s ory Servi ces eva l ua tes executi ve pa y a nd pra cti ces , a s wel l a s certa i n a s pects of outs i de di rector
compens a ti on on a CASE-BY-CASE ba s i s.
Vote AGAINST ma na gement s a y on pa y (MSOP) propos a l s i f there i s a mi s a l ignment between CEO pa y a nd compa ny
performa nce, the compa ny ma i nta i ns probl ema ti c pa y pra ctices , a nd the boa rd exhi bi ts a s i gni ficant l evel of poor
communi ca ti on a nd res pons i venes s to s ha rehol ders .
Vote AGAINST or WITHHOLD from the members of the Compens a ti on Commi ttee a nd potenti a l l y the ful l boa rd i f:
•
There i s no MSOP on the ba l l ot, a nd a n AGAINST vote on a n MSOP i s wa rra nted due to pa y for performa nce
mi s a l ignment, probl ema ti c pa y pra cti ces , or the l a ck of a dequa te res pons i venes s on compens a ti on i s s ues ra ised
previ ous l y, or a combi na ti on thereof;
•
The boa rd fa i l s to res pond a dequa tel y to a previ ous MSOP propos a l tha t recei ved l es s tha n 70 percent s upport of votes
ca s t;
•
The compa ny ha s recentl y pra cti ced or a pproved probl ema ti c pa y pra cti ces , i ncl uding opti on repri cing or opti on
ba ckda ti ng; or
•
The s i tua ti on i s egregi ous .
Vote AGAINST a n equi ty pl a n on the ba l l ot i f:
•
A pa y for performa nce mi s a l i gnment exi s ts , a nd a s i gni fi cant porti on of the CEO’s mi s a l i gned pa y i s a ttri buted to non performa nce-ba s ed equi ty a wa rds , ta ki ng i nto cons i dera ti on: a ) ma gni tude of pa y mi s a l ignment; b) contri buti on of
non-performa nce-ba s ed equi ty gra nts to overa l l pa y; a nd c) the proporti on of equi ty a wa rds gra nted i n the l a s t three fi
s ca l yea rs concentra ted a t the na med executi ve offi cer (NEO) l evel .
Frequency of Advisory Vote on Executive Compensation – Management Say on Pay
Ta ft-Ha rtl ey Advi s ory Servi ces s upports a nnua l a dvi sory votes on compens a ti on, whi ch provi de the mos t cons i s tent a nd
cl ea r communi ca ti on cha nnel for s ha rehol der concerns a bout compa ni es ' executi ve pa y progra ms .
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6. SOCIAL AND ENVIRONMENTAL ISSUES
Increa s i ngly, s ha rehol ders a r e pres enti ng propos a l s rel ated to compa ny envi ronmenta l pra cti ces , workpl a ce pra cti ces ,
s oci a l i s sues a nd s us ta inability goa l s . Ta ft-Ha rtl ey Advi s ory Servi ces provi des s peci fic na rrati ve expl a na tions for votes on
thes e types of s ha rehol der propos a l s. Ta ft-Ha rtl ey Advi s ory Servi ces eva l ua tes s ha rehol der propos a ls on a ca s e-by-ca se
ba s i s to determi ne i f they a re i n the bes t economi c i nteres ts of the pl a n pa rti ci pants a nd benefi ci a ries . Ta ft -Ha rtl ey Advi s ory
Servi ces ’ cl i ents s el ect i nves tment s tra tegi es a nd c ri teri a for thei r portfol i os . Ta ft-Ha rtl ey Advi s ory Servi ces vi ews i ts
res pons i bi lity to protect pl a n benefi ci a ry economi c i nteres ts through the us e of the proxy. To meet thi s obl i ga ti on, Ta ft - Ha
rtl ey Advi s ory Servi ces votes cons i s tent wi th the economi c bes t i nteres ts of the pa rti ci pa nts a nd benefi ci a ri es to crea te “hi
gh roa d” s ha rehol der a nd economi c va l ue.
In mos t ca s es , Ta ft-Ha rtl ey Advi s ory Servi ces s upports propos a l s tha t reques t ma na gement to report to s ha rehol ders
i nforma ti on a nd pra cti ces tha t woul d hel p i n eva l ua ti ng the compa ny’s opera ti ons a nd ri s k expos ures . In order to be a bl e to
i ntel l i gentl y moni tor thei r i nves tments , s ha rehol ders often need i nforma ti on bes t provi ded by the compa ny i ts el f. Ta ft Ha rtl ey Advi s ory Servi ces s upports propos a ls tha t s eek ma na gement compl i a nce wi th s ha rehol der i nteres ts to ens ure tha t
s ha rehol ders a re ful l y i nformed a bout a cti ons ha rmful to s oci ety wi th s peci a l a ttenti on to the compa ny’s l ega l a nd ethi ca l
obl i ga ti ons , i mpa ct on compa ny profi ta bi l ity, a nd the potenti a l nega ti ve publ i ci ty for di s reputa bl e pra cti ces .
CERES Principles
The CERES Pri nci ples , formul a ted by the Coa l i ti on of Envi ronmenta l l y Res pons i bl e Economi es , requi re s i gni ng compa ni es to
a ddres s envi ronmenta l i s s ues , i ncluding protecti on of the bi os ph ere, s us ta i nable us e of na tura l res ources , reducti on a nd
di s pos a l of wa s tes , energy cons erva ti on, a nd empl oyee a nd communi ty ri s k reducti on. Evi dence s ugges ts tha t
envi ronmenta l l y cons ci ous compa nies ma y rea l i ze l ong-term s a vi ngs by i mpl ementi ng progra ms to pol l ute l es s a nd
cons erve res ources whi l e rea l i zi ng good publ i c rel a ti ons a nd new ma rketi ng opportuni ti es . Moreover, the reports tha t a re
requi red of s i gni ng compa ni es provi de s ha rehol ders wi th more i nforma ti on concerni ng topi cs they ma y deem rel eva nt to
thei r compa ny’s fi na nci a l wel l -bei ng.
Ma ny compa ni es ha ve vol unta ri ly a dopted thes e pri nci ples a nd proven tha t envi ronmenta l s ens i ti vi ty ma kes good bus i nes s s
ens e. Ta ft-Ha rtl ey Advi s ory Servi ces s upports propos a l s tha t i mprove a compa ny’s publ i c i ma ge, r educe expos ure to
l i a bi lities , a nd es ta bl i sh s ta ndards s o tha t envi ronmenta l l y res pons i bl e compa ni es a nd ma rkets a re not a t a competi ti ve
fi na nci a l di sadva nta ge. Ta ft-Ha rtl ey Advi s ory Servi ces votes FOR the a dopti on of the CERES Pri nci pl es a nd FOR reporti n g to
s ha rehol ders on envi ronmenta l i s s ues .
Corporate and Supplier Codes of Conduct
Ta ft-Ha rtl ey Advi s ory Servi ces genera l l y s upports propos a l s tha t ca l l for the a dopti on a nd/or enforcement of cl ea r pri nciples
or codes of conduct rel a ti ng to countri es i n whi ch there a re s ys tema ti c vi ol a tions of huma n ri ghts . Thes e condi ti ons i nclude
the us e of s l a ve, chi l d, or pri s on l a bor, undemocra ti ca lly el ected governments , wi des prea d reports by huma n ri ghts
a dvoca tes , fervent pro-democra cy protes ts , or economi c s a ncti o ns a nd boycotts .
Ma ny propos a l s refer to the s even core conventi ons , commonl y referred to a s the “Decl a ra ti on on Funda menta l Pri nci pl es
a nd Ri ghts At Work,” ra ti fi ed by the Interna ti ona l La bor Orga ni za ti on (ILO). The s even conventi ons fa l l under four broa d
ca tegori es : i ) ri ght to orga ni ze a nd ba rga i n col l ecti vel y; i i) non -di s crimi nati on i n empl oyment; i i i ) a bol ition of forced l a bor; a
nd i v) end of chi l d l a bor. Ea ch member na ti on of the ILO body i s bound to res pect a nd promote thes e ri ghts to the bes t of
thei r a bi l iti es .
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•
Support the pri nci pl es a nd codes of conduct rel a ti ng to compa ny i nves tment a nd/or opera ti ons i n countri es wi th
pa tterns of huma n ri ghts a bus es or perta i ni ng to geogra phi c regi ons experi enci ng pol i ti ca l turmoi l (Northern
Irel a nd, Col umbi a , Burma , former Sovi et Uni on, a nd Chi na ).
•
Support the i mpl ementa ti on a nd reporti ng on ILO codes of conduct.
•
Support i ndependent moni tori ng progra ms i n conj uncti on wi th l oca l a nd res pected rel i gi ous a nd huma n ri ghts
groups to moni tor s uppl i er a nd l i censee compl i a nce wi th Codes .
•
Support reques ts tha t a compa ny conduct a n a s s es s ment of the huma n ri ghts ri s ks i n i ts opera ti on or i n i ts s uppl y
cha i n, or report on i ts huma n ri ghts ri s k a s ses sment proces s .
Political Contributions, Lobbying Reporting & Disclosure
Cha nges i n l egi s l ati on tha t govern corpora te pol i ti cal gi vi ng ha ve, ra ther tha n l i mi ti ng s uch contri buti ons, i ncrea sed the
compl exi ty of tra cki ng how much money corpora ti ons contri bute to the pol i ti ca l proces s a nd where tha t money ul ti ma tel y
ends up. A compa ny’s i nvol vement i n the pol i ti ca l proces s coul d i mpa ct s ha reholder va l ue i f s uch a cti vi ties a re not properl y
overs een a nd ma na ged.
•
Support reporti ng of pol i ti ca l a nd pol i tical a cti on commi ttee (PAC) contri buti ons .
•
Support es ta bl i s hment of corpora te pol i ti c a l contri butions gui del ines a nd i nterna l reporti ng provi s ions or control s .
•
Genera l l y s upport s ha rehol der propos a l s reques ti ng compa ni es to revi ew a nd report on thei r pol i ti ca l l obbying
a cti vi ti es i ncluding efforts to i nfl uence governmenta l l egi s l a tion.
•
Vote AGAINST s ha rehol der propos a l s a s king to publ i s h i n news pa pers a nd publ i c medi a the compa ny’s pol i ti ca l
contri buti ons a s s uch publ icati ons coul d pres ent s i gni ficant cos t to the compa ny wi thout provi di ng commens ura te
va l ue to s ha rehol ders .
Greenhouse Gas Emissions
Sha rehol der propos a l s a ski ng a compa ny to i s s ue a report to s ha rehol ders – a t rea s ona bl e cos t a nd omi tti ng propri eta ry
i nforma ti on – on greenhous e ga s emi s s i ons a s k tha t the report i ncl ude des cri pti ons of efforts wi thi n compa ni es to reduce
emi s s i ons , thei r fi na nci al expos ure a nd potenti a l l i a bility from opera ti ons tha t contri bute to gl oba l wa rmi ng, a nd thei r di rect
or i ndi rect efforts to promote the vi ew tha t gl oba l wa rmi ng i s not a threa t. Proponents a rgue tha t there i s s ci enti fic proof tha
t the burni ng of fos s i l fuel s ca us es gl oba l wa rmi ng, tha t future l egi s l a ti on ma y ma ke compa ni es fi na nci ally l ia ble for thei r
contri buti ons to gl oba l wa rmi ng, a nd tha t a report on the compa ny’s rol e i n gl oba l wa rmi ng ca n be a s s embl ed a t
rea s ona bl e cos t. Ta ft-Ha rtl ey Advi s ory Servi ces genera l l y s upports grea ter di s cl osure on cl i ma te cha nge-rel a ted propos a l s .
Sustainability Reporting and Planning
The concept of s us ta i na bility i s commonl y unders tood a s meeti ng the needs of the pres ent genera ti on wi thout compromi s
i ng the a bi l i ty of future genera ti ons to meet thei r own needs . Indeed, the term s us ta i na bility i s compl ex a nd pos es s i gni fi
cant cha l lenges for compa ni es on ma ny l evel s . Ma ny i n the i nves tment communi ty ha ve termed thi s broa der res pons i bi
lity the “tri pl e bottom l i ne,” referri ng to the tri a d of performa nce goa l s rel a ted to economi c pros peri ty, s oci a l
res pons i bi lity a nd envi ronmenta l qua l i ty. In es s ence, the concept requi res compa ni es to ba l a nce the needs a nd i nteres ts of
thei r va ri ous s ta kehol ders whi le opera ti ng i n a ma nner tha t s us ta i ns bus i nes s growth for the l ong -term, s upports l oca l
communi ti es a nd protects the envi ronment a nd na tura l ca pi ta l for future genera ti ons .
Ta ft-Ha rtl ey Advi s ory Servi ces genera l l y s upports s ha rehol der propos a ls s eeki ng grea ter di s cl osure on the compa ny’s
envi ronmenta l a nd s oci a l pra cti ces , a nd/or a s s ocia ted ri s ks a nd l i abiliti es .
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Hydraulic Fracturing
Sha rehol der proponents ha ve el eva ted concerns on the us e of hydra ul i c fra cturing, a n i ncrea s ingly controvers i al proces s i n
whi ch wa ter, s a nd, a nd a mi x of chemi ca l s i s bl a sted hori zonta l ly i nto ti ght l a yers of s ha l e rock to extra ct na tura l ga s . As thi s
pra cti ce ha s ga i ned more wi des prea d us e, envi ronmenta l i s ts ha ve ra i s ed concerns tha t the chemi ca l s mi xed wi th s a nd a nd
wa ter to a i d the fra cturi ng proces s ca n conta mi na te ground wa ter s uppl i es . Proponents of res ol uti ons a t compa ni es tha t
empl oy hydra ul i c fra cturing a re a l s o concerned tha t wa s tewa ter produced by the proces s coul d overl oa d the wa s te
trea tment pl a nts to whi ch i t i s s hi pped. Sha rehol ders ha ve a s ked compa ni es tha t uti l i ze hydra ul i c fra cturing to report on the
envi ronmenta l i mpa ct of the pra cti ce a nd to di s cl ose pol i cies a i med a t reduci ng ha za rds from the proces s .
Ta ft-Ha rtl ey Advi s ory Servi ces genera l l y s upports s ha rehol der reques ts s eeki ng grea ter tra ns pa rency on the pra cti ce of
hydra ul i c fra cturing a nd i ts a s sociated ri s ks .
Water Use
Sha rehol ders ma y a s k for a compa ny to prepa re a report eva l ua ti ng the bus i nes s ri sks l inked to wa ter us e a nd i mpa cts on
the compa ny’s s uppl y cha i n, i ncl uding s ubs idiaries a nd bottl i ng pa rtners . Such propos a l s a lso a s k compa ni es to di s clos e
current pol i ci es a nd procedures for mi ti ga ti ng the i mpa ct of opera ti ons on l oca l communi ti es i n a rea s of wa ter s ca rci ty.
Ta ft-Ha rtl ey Advi s ory Servi ces genera l l y s upports s ha rehol der propos a ls s eeki ng the prepa ra ti on of a report on a compa ny’s
ri s ks l inked to wa ter us e.
Workplace Safety
In l i ght of recent fa ta l a cci dents a t oi l refi neri es (Tes oro – Ana cortes refi nery, Apri l 2010; a nd BP – Texa s Ci ty refi nery,
Ma rch 2005), the 2010 BP Deepwa ter Hori zon i nci dent i n the Gul f of Mexi co, a nd the expl os i on a t Ma s s ey Energy's Upper Bi
g Bra nch mi ne i n 2010, s ha rehol ders ha ve s ought grea ter tra ns pa rency a nd a ccounta bi lity rega rdi ng workpl a ce s a fety by fi l i
ng res ol uti ons a t a number of corpora ti ons .
Ta ft-Ha rtl ey Advi s ory Servi ces s upports s ha rehol der propos a ls reques ti ng reques ts for workpl a ce s a fety reports , i ncl udi ng
reports on a cci dent ri s k reducti on effort.
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DISCLOSURE/DISCLAIMER
Thi s document a nd a l l of the i nforma ti on conta i ned i n i t, i ncl udi ng wi thout l i mi ta ti on a l l text, da ta , gra phs , a nd cha rts
(col l ecti vel y, the "Informa ti on") i s the property of Ins ti tuti ona l Sha rehol der Servi ces Inc. (ISS), i ts s ubs i dia ries , or, i n s ome
ca s es thi rd pa rty s uppl i ers .
The Informa ti on ha s not been s ubmi tted to, nor recei ved a pprova l from, the Uni ted Sta tes Securi ti es a nd Excha nge
Commi s s i on or a ny other regul a tory body. None of the Informa ti on cons ti tutes a n offer to s el l (or a s ol i cita tion of a n offer
to buy), or a promoti on or recommenda ti on of, a ny s ecuri ty, fi na nci al product or other i nves tment vehi cl e or a ny tra di ng
s tra tegy, a nd ISS does not endors e, a pprove, or otherwi s e expres s a ny opi ni on rega rdi ng a ny i s s uer, s ecuri ti es , fi nancia l
products or i ns truments or tra di ng s tra tegi es .
The us er of the Informa ti on a s s umes the enti re ri s k of a ny us e i t ma y ma ke or permi t to be ma de of the Informa ti on.
ORIGINALITY, ACCURACY, TIMELINESS, NON-INFRINGEMENT, COMPLETENESS, MERCHANTABILITY, AND FI TNESS FOR A
PARTICULAR PURPOSE) WITH RESPECT TO ANY OF THE I NFORMATION.
Wi thout l i mi ti ng a ny of the foregoi ng a nd to the ma xi mum extent permi tted by l a w, i n no event s ha l l ISS ha ve a ny l i a bility
rega rdi ng a ny of the Informa ti on for a ny di rect, i ndi rect, s peci a l , puni ti ve, cons equenti a l (i ncluding l os t profi ts ), o r a ny
other da ma ges even i f noti fi ed of the pos s i bility of s uch da ma ges . The foregoi ng s ha l l not excl ude or l i mi t a ny l i a bility tha t
ma y not by a ppl i cable l a w be excl uded or l i mi ted.
www.i s s governa nce.com
17
United States
2015 SRI Proxy Voting Guidelines
Executive Summary
Published February, 2015
www.i ssgovern ance.com
© 2015 I SS | I n stitutional Shareh older Servi ces
2015 SRI U.S. Proxy Voting Guidelines
TABLE OF CONTENTS
INTRO D UCTION ............................................................................................................................................................................... 3
MANAGEMENT P ROPOSALS ......................................................................................................................................................... 4
1. Boa rd of Di rectors ............................................................................................................................................................. 4
2. Boa rd Res ponsi venes s ...................................................................................................................................................... 4
3. Audi tors ............................................................................................................................................................................... 4
4. Ta keover D ef ens es / Sha rehol der Ri ghts ...................................................................................................................... 5
5. Mi scell a neous Governa nce Provisi ons .......................................................................................................................... 5
6. Ca pi tal Structures .............................................................................................................................................................. 5
7. Executi ve a nd Di rector Compens a ti on .......................................................................................................................... 5
8. Merg ers a nd Corpora te Res tructuri ngs......................................................................................................................... 6
9. Mutua l Fund Proxi es ......................................................................................................................................................... 6
SHAREHOLD ER P ROPOSAL S .......................................................................................................................................................... 7
10. Sha rehol der Proposal s on Corpora te Governa nce a nd Executi ve Comp ens a ti on .............................................. 7
11. Sha rehol der Proposal s on Social a nd Envi ronmenta l Topi cs................................................................................... 7
DISCLOS URE/D ISCLAIMER ............................................................................................................................................................. 8
En abling the financial community to man age governance risk for th e benefit of sh areholders.
© 2015 ISS | In stitutional Shareholder Services
2 of 8
INTRODUCTION
ISS’ Soci a l Advi s ory Servi ces di visi on recogni zes tha t s oci a lly res pons ible i nves tors ha ve dua l obj ecti ves : fi na ncial a nd
s oci a l. Soci a lly res pons ible i nves tors i nves t for economi c ga i n, a s do a l l i nves tors , but they a l s o requi re tha t compa ni es i
n whi ch they i nves t conduct thei r bus i nes s i n a s ocia lly a nd envi ronmenta l l y res pons ible ma nner.
The dua l obj ecti ves ca rry through to the proxy voti ng a cti vi ty, a fter the s ecuri t y s el ecti on proces s i s compl eted. In
voti ng thei r s ha res , s oci a lly res ponsi ble i ns tituti ona l s harehol ders a re concerned not onl y wi th economi c returns to
s ha rehol ders a nd good corpora te governa nce, but a l s o wi th the ethi ca l beha vi or of corpora ti ons a nd the s oci a l a nd
envi ronmenta l i mpa ct of thei r a cti ons .
Soci a l Advi s ory Servi ces ha s , therefore, devel oped SRI proxy voti ng gui del i nes tha t a re cons i s tent wi th the dua l
obj ecti ves of s oci a ll y res ponsible s ha rehol ders . On ma tters of s oci a l a nd envi ronmenta l i mp ort, the gui del i nes s eek to
refl ect a broa d cons ens us of the s oci a lly res pons ible i nves ti ng communi ty. Genera l l y, we ta ke a s our fra me of reference
pol i ci es tha t ha ve been devel oped by groups s uch a s the Interfa i th Center on Corpora te Res pons i bi l ity, the G enera l
Boa rd of Pens i on a nd Hea l th Benefi ts of the Uni ted Methodi s t Church, Domi ni Soci a l Inves tments , a nd other l ea di ng
church s ha rehol ders a nd s oci ally res pons ible mutua l funds . Addi ti ona l l y, we i ncorpora te the a cti ve owners hi p a nd
i nves tment phi l os ophi es of l ea di ng gl oba lly recogni zed i ni ti ati ves s uch a s the Uni ted Na ti ons Envi ronment Progra mme
Fi na nce Ini ti a ti ve (UNEP FI ), the Uni ted Na ti ons Pri nci ples for Res pons i ble Inves tment (UNPRI), the Uni ted Na ti ons
Gl oba l Compa ct, a nd envi ronmenta l a nd s oci a l Eu ropea n Uni on Di recti ves .
On ma tters of corpora te governa nce, executi ve compens a ti on, a nd corpora te s tructure, the SRI gui del i nes a re ba s ed on
a commi tment to crea te a nd pres erve economi c va l ue a nd to a dva nce pri nci pl es of corpora te governa nce bes t pra cti c e
cons i s tent wi th res pons i bi lities to s oci ety a s a whol e.
The gui del i nes provi de a n overvi ew of how Soci a l Advi s ory Servi ces recommends tha t i ts cl i ents vote. We note there ma
y be ca s es i n whi ch the fi na l vote recommenda ti on on a pa rti cul ar compa ny va ri es from the vote gui del i ne due to the fa
ct tha t we cl os el y exa mi ne the meri ts of ea ch propos a l a nd cons i der recent a nd compa ny -s peci fi c i nforma ti on i n a rri vi
ng a t our deci s i ons . Where Soci a l Advi s ory Servi ces a cts a s a voti ng a gent for cl i ents , i t fol l ows ea ch cl i ent’s voti ng pol i
cy, whi ch ma y di ffer i n s ome ca s es from the pol i ci es outl i ned i n thi s document. Soci a l Advi s ory Servi ces upda tes i ts gui
del i nes on a n a nnua l ba s i s to ta ke i nto a ccount new s oci a l a nd envi ronmenta l i s sues a nd the l a tes t trends a nd
devel opments i n corpora te governa nce.
The gui del i nes eva l ua te ma na gement a nd s ha rehol der propos a l s a s fol lows :
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MANAGEMENT PROPOSALS
1. Board of Directors
Soci a l Advi s ory Servi ces cons iders di rector el ecti ons to be one of the mos t i mporta nt voti ng deci s i ons tha t s ha rehol ders
ma ke. Boa rds s houl d be compri s ed of a ma j ori ty of i ndependent di rectors a nd key boa rd commi ttees s houl d be
compri s ed enti rel y of i ndependent di rectors . The i ndependent di rectors a re expected to orga ni ze much of the boa rd’s
work, even i f the chi ef executi ve offi cer a l s o s erves a s Cha i rma n of the boa rd. It i s expected tha t boa rds wi l l enga ge i n
cri ti ca l s el f-eva lua tion of thems el ves a nd of i ndi vi dua l members . Di rectors a re ul ti ma tel y res pons i bl e to the
corpora ti on’s s ha rehol ders. The mos t di rect expres s i on of thi s res pons i bi lity i s the requi rement tha t di rectors be
el ected to thei r pos i ti ons by the s ha rehol ders .
Soci a l Advi s ory Servi ces wi l l genera l l y oppos e s l ates of di rector nomi nees tha t a re not compri s ed of a ma j ori ty of
i ndependent di rectors a nd wi l l vote a ga i ns t/wi thhol d votes from non -i ndependent di rectors who s i t on key boa rd
commi ttees . In a ddi ti on, Soci a l Advi s ory Servi ces wi ll genera l l y vote a ga i ns t/wi thhol d votes from di rectors i ndi vi dual ly,
commi ttee members , or potenti a l l y the enti re boa rd, for fa i l ure to fa i l ure to a dequa tel y gua rd a ga i ns t or ma na ge ESG
ri s ks , a nd from members of the nomi na ti ng commi ttee, wi th the excepti on of n ew nomi nees , where the boa rd l a cks
gender or ra ci a l di vers ity. The el ecti on of di rectors who ha ve fa i l ed to a ttend a mi ni mum of 75 percent of boa rd meeti
ngs hel d duri ng the yea r wi l l be oppos ed.
Soci a l Advi s ory Servi ces s upports reques ts a s king for the s epa ra ti on of the pos i ti ons of c ha i rma n a nd CEO a nd reques ts
to a dopt cumul a ti ve voti ng, oppos es the crea ti on of cl a s s ified boa rds , a nd revi ews propos a l s to cha nge boa rd s i ze on a
ca s e-by-ca s e ba s i s. Soci a l Advi s ory Servi ces a l so s upports s harehol der propos a ls ca lling for grea ter a cces s to the boa rd,
a ffordi ng s ha rehol ders the a bi l i ty to nomi na te di rectors to corpora te boa rds . Soci a l Advi s ory Servi ces ma y vote
a ga i ns t/wi thhol d from di rectors a t compa ni es where probl ema ti c pa y pra cti ces exi s t, a nd where boa rds ha ve not been
a ccounta bl e or res pons i ve to thei r s ha rehol ders .
2. Board Responsiveness
Soci a l Advi s ory Servi ces wi l l vote ca s e-by-ca s e on i ndi vi dua l di rectors, commi ttee members , or the enti re boa rd of
di rectors a s a ppropri ate i f the boa rd fa i l s to a ct on a s ha rehol der propos a l the recei ved the s upport of a ma j ori ty of the
s ha res i n the previ ous yea r. Other fa ctors we ta ke i nto a ccount when eva l ua ti ng boa rd res pons i venes s i ss ues i nclude:
the boa rd's fa i l ure to a ct on ta keover offers where the ma j ori ty of s ha res a re tendered; a t the previ ous boa rd el ecti on,
a ny di rector recei ved more tha n 50 percent wi thhol d/a ga i ns t votes of the s ha res ca s t a nd the compa ny ha s fa i l ed to
a ddres s the i s s ue(s ) tha t ca us ed the hi gh wi thhol d/a ga i nst vote; or i f the boa rd i mpl em ents a n a dvi s ory vote on
executi ve compens a ti on on a l es s frequent ba s i s tha n the frequency tha t recei ved the ma j ori ty or a pl ura l i ty of votes
ca s t a t the mos t recent s ha rehol der meeti ng a t whi ch s ha rehol ders voted on the s a y -on-pa y frequency.
3. Auditors
Whi l e i t i s recogni zed tha t the compa ny i s i n the bes t pos i ti on to eva l ua te the competence of the outs i de a ccounta nts ,
we bel i eve tha t outs i de a ccounta nts mus t ul ti ma tel y be a ccounta bl e to s ha rehol ders . Gi ven the ra s h of a ccounti ng
i rregul a riti es tha t wer e not detected by a udi t pa nel s or a udi tors , s ha rehol der ra ti ficati on i s a n es s enti a l s tep i n
res tori ng i nves tor confi dence. A Bl ue Ri bbon Commi s s i on concl uded tha t a udi t commi ttees mus t i mprove thei r current l
evel of overs i ght of i ndependent a ccounta nts . S oci a l Advi s ory Servi ces wi l l vote a ga i ns t the ra ti fi ca ti on of the a udi tor
i n ca s es where non-a udi t fees repres ent more tha n 25 percent of the tota l fees pa i d to the a udi tor i n the previ ous yea r.
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Soci a l Advi s ory Servi ces s upports reques ts a s king for the rota ti on of the a udi t fi rm, i f the reques t i ncl udes a ti meta bl e
of fi ve yea rs or more.
4. Takeover Defenses / Shareholder Rights
Topi cs eva l ua ted i n thi s ca tegory i ncl ude s ha rehol ders ' a bi lity to ca l l a s peci al meeti ng or a ct by wri tten cons ent, the
a dopti on or redempti on of poi s on pi l l s, unequa l voti ng ri ghts , fa i r pri ce provi si ons, greenma i l , s uperma j ority vote
requi rements , a nd confi denti a l voti ng.
Soci a l Advi s ory Servi ces genera l l y oppos es ta keover defens es , a s they l i mi t s ha rehol der va l ue by el i mi na ti n g the
ta keover or control premi um for the compa ny. As owners of the compa ny, s ha rehol ders s houl d be gi ven the
opportuni ty to deci de on the meri ts of ta keover offers . Further, ta keover devi ces ca n be us ed to entrench a boa rd tha t i
s unres pons i ve to s ha rehol ders on both governa nce a nd corpora te s oci a l res pons ibility i s sues .
5. Miscellaneous Governance Provisions
Soci a l Advi s ory Servi ces eva l ua tes propos als tha t concern governa nce i s s ues s uch a s s harehol der meeti ng
a dj ournments , quorum requi rements , corpora te na me cha nges , a nd bundl ed or condi ti ona l propos a ls on a ca s e-byca s e ba s i s , ta ki ng i nto a ccount the i mpa ct on s ha rehol der ri ghts .
6. Capital Structures
Ca pi ta l s tructure rel a ted topi cs i ncl ude reques ts for i ncrea s es i n a uthori zed s tock, s tock s pl i ts a n d revers e s tock s pl i ts , i
s s ua nces of bl a nk check preferred s tock, debt res tructuri ngs , a nd s ha re repurcha s e pl a ns .
Soci a l Advi s ory Servi ces s upports a one-s ha re, one-vote pol i cy a nd oppos es mecha ni s ms tha t s kew voti ng ri ghts . Soci a l
Advi s ory Servi ces s upports ca pi ta l reques ts tha t provi de compa ni es wi th a dequa te fi na nci ng fl exi bi lity whi l e protecti ng s
ha rehol ders from exces s i ve di l uti on of thei r economi c a nd voti ng i nteres ts . Propos a l s to i ncrea s e common s tock a re eva l
ua ted on a ca s e-by-ca s e ba s i s, ta ki ng i nto a ccount the compa ny’s pa s t us e of s ha re a uthori za ti ons a nd el ements of the
current reques t.
7. Executive and Director Compensation
The gl oba l fi na ncia l crisis ha s res ul ted i n s i gni fica nt eros i on of s ha rehol der va l ue a nd hi ghl ighted the need for grea ter
a s s ura nce tha t executi ve compens a ti on i s pri ncipa lly performa nce-ba s ed, fa i r, rea s ona ble, a nd not des i gned i n a
ma nner tha t woul d i ncenti vi ze exces s i ve ri s k-ta ki ng by ma na gement. The cri s i s ha s ra ised ques ti ons a bout the rol e of
pa y i ncenti ves i n i nfl uenci ng executi ve beha vi or a nd moti va ti ng i na ppropri ate or exces s i ve ri s k -ta ki ng a nd other
uns us ta i na ble pra cti ces tha t coul d threa ten a corpora ti on‘s l ong -term vi a bi l ity. The s a fety l a ps es tha t l ed to the
di s a s trous expl os ions a t BP’s Deepwa ter Hori zon oi l ri g a nd Ma s s ey Energy’s Upper Bi g Bra nch mi ne, a nd the res ul ti ng
unprecedented l os s es i n s ha rehol der va l ue; a ) unders core the i mporta nce of i ncorpora ti ng mea ni ngful economi c
i ncenti ves a round s oci a l a nd envi ronmenta l cons i dera ti ons i n compens a ti on progra m des i gn, a nd; b) exempl i fy the
cos tl y l i a biliti es of fa i ling to do s o.
Soci a l Advi s ory Servi ces eva l ua tes executi ve a nd di rector compens a ti on by cons i deri ng the pres ence of a ppropri a te
pa y-for-performa nce a l i gnment wi th l ong-term s ha rehol der va l ue, compens a ti on a rra ngements tha t ri s k “pa y for
fa i l ure,” a nd a n a s s es s ment of the cl a rity a nd comprehens i venes s of compens a ti on di s cl osures . Equi ty pl a n propos a ls
a re cons i dered on a ca s e-by-ca s e ba s i s us ing a bi nomi a l pri cing model tha t es ti ma tes the cos t of a co mpa ny’s s tockba s ed i ncenti ve progra ms . Pl a n fea tures a nd a ny recent controvers i es s urrounding a compa ny’s pa y pra cti ces a re a l s o
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fa ctored i nto the a na l ys is of compens a ti on propos a l s. Sha rehol der propos a ls ca lling for a ddi ti ona l di sclosure on
compens a ti on i s s ues or the a l i gnment of executi ve compens a ti on wi th s oci a l or envi ronmenta l performa nce cri teri a
a re s upported, whi l e s ha rehol der propos a l s ca ll ing for other cha nges to a compa ny’s compens a ti on progra ms a re
revi ewed on a ca s e-by-ca s e ba s is .
The Dodd-Fra nk Wa l l Street Reform a nd Cons umer Protecti on Act requi res a dvi s ory s ha reholder votes on executi ve
compens a ti on (ma na gement “s a y on pa y” or MSOP), a n a dvi s ory vote on the frequency of s a y on pa y, a s wel l a s a
s ha rehol der a dvi s ory vote on gol den pa ra chute compens a ti on. Soci a l Advi s ory Servi ces wi l l vote AGAINST ma na gement
s a y on pa y (MSOP) propos a l s i f there i s a mi s a l ignment between CEO pa y a nd compa ny performa nce, the compa ny
ma i nta i ns probl ema ti c pa y pra cti ces , a nd the boa rd exhi bi ts a s i gni fi ca nt l evel of poor communi ca ti on a nd
res pons i venes s to s ha rehol ders .
Soci a l Advi s ory Servi ces wi l l eva l uate whether pa y qua ntum i s i n a l i gnment wi th compa ny performa nce, a nd
cons i dera ti on wi l l a ls o be gi ven to whether the proporti on of performa nce-conti ngent pa y el ements i s s uffi cient i n l i ght
of concerns wi th a mi s a l i gnment between executi ve pa y a nd compa ny performa nce.
Soci a l Advi s ory Servi ces wi l l vote ca s e-by-ca s e on certa i n equi ty-ba s ed compens a ti on pl a ns dependi ng on a
combi na ti on of certa i n pl a n fea tures a nd equi ty gra nt pra cti ces , where pos i ti ve fa ctors ma y counterba l a nce nega ti ve
fa ctors , a nd vi ce vers a , a s eva l ua ted us i ng a n "equi ty pl a n s coreca rd" (EPSC) a pproa ch.
8. Mergers and Corporate Restructurings
Mergers , a cqui s iti ons, s pi noffs, rei ncorporati ons, a nd other corpora te res tructuri ng pl a ns a re eva l ua ted on a ca s e-byca s e ba s i s , gi ven the potenti a l for s i gni fi cant i mpa ct on s ha rehol der va l ue a nd on s ha rehol ders ’ economi c i nteres ts . In
a ddi ti on, thes e corpora te a cti ons ca n ha ve a s i gni fi cant i mpa ct on communi ty s ta kehol ders a nd the workforce, a nd
ma y a ffect the l evel s of empl oyment, communi ty l endi ng, equa l opportuni ty, a nd i mpa ct on the envi ronment.
9. Mutual Fund Proxies
There a re a number of propos a l s tha t a re s peci fi c to mutua l fund proxi es , i ncl u di ng the el ecti on of trus tees , i nves tment
a dvi s ory a greements , a nd di s tri buti on a greements . Soci a l Advi s ory Servi ces eva l uates thes e propos a l s on a ca s e -byca s e ba s i s ta ki ng i nto cons i derati on recent trends a nd bes t pra cti ces a t mutua l funds .
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SHAREHOLDER PROPOSALS
10. Shareholder Proposals on Corporate Governance and Executive Compensation
Sha rehol der propos a l s topi cs i nclude boa rd -rel a ted i s sues , s ha rehol der ri ghts a nd boa rd a ccounta bility i s sues , a s wel l
a s compens a ti on ma tters . Ea ch yea r, s ha rehol d ers fi l e numerous propos a l s tha t a ddres s key i s s ues rega rdi ng corpora te
governa nce a nd executi ve compens a ti on. Soci a l Advi s ory Servi ces eva l ua tes thes e propos a l s from the pers pecti ve tha t
good corpora te governa nce pra cti ces ca n ha ve pos i ti ve i mpl i ca tions f or a compa ny a nd i ts a bi l ity to ma xi mi ze
s ha rehol der va l ue. Propos a l s tha t s eek to i mprove a boa rd’s a ccounta bi l ity to i ts s ha rehol ders a nd other s ta kehol ders
a re s upported. Soci a l Advi s ory Servi ces s upports i niti atives tha t s eek to s trengthen the l i nk bet ween executi ve pa y a nd
performa nce, i ncl udi ng performa nce el ements rel a ted to corpora te s oci a l res pons ibility.
11. Shareholder Proposals on Social and Environmental Topics
Sha rehol der res ol uti ons on s oci a l a nd envi ronmenta l topi cs i nclude workpl a ce di ver s i ty a nd s a fety topi cs , codes of
conduct, l a bor s ta nda rds a nd huma n ri ghts , the envi ronment a nd energy, wea pons , cons umer wel fa re, a nd publ i c
s a fety.
Soci a l ly res pons ible s ha rehol der res ol utions a re recei vi ng a grea t dea l more a ttenti on from i ns ti tuti ona l s harehol ders
toda y tha n i n the pa s t. In a ddi ti on to the mora l a nd ethi ca l cons i dera tions i ntrinsic to ma ny of thes e propos a l s, there i s
a growi ng recogni ti on of the potenti a l l y s i gni ficant i mpa ct of s oci a l a nd envi ronmenta l topi cs on the fi na nci a l
performa nce of the compa ny. In genera l , Soci a l Advi s ory Servi ces s upports s ha rehol der propos a ls on s oci al, workforce,
or envi ronmenta l topi cs tha t s eek to promote res pons i bl e corpora te ci ti zens hip whi l e enha nci ng l ong -term s ha rehol der
va l ue. Soci a l Advi s ory Servi ces wi ll vote for reports tha t s eek a ddi ti ona l di s clos ure pa rti cula rly when i t a ppea rs
compa ni es ha ve not a dequa tel y a ddres s ed s ha rehol der concerns on s oci a l, workpl a ce, or envi ronmenta l concerns .
We wi l l cl osel y eva l uate propos a l s tha t a s k the compa ny to cea s e certa i n a cti ons tha t the proponent bel i eves a re
ha rmful to s oci ety or s ome s egment of s oci ety wi th s peci a l a ttenti on to the compa ny’s l ega l a nd ethi ca l obl i ga tions, i ts
a bi l i ty to rema i n profi ta bl e, a nd potenti a l nega ti ve publ i ci ty i f the compa ny fa i l s to honor the reques t. Soci a l Advi s ory
Servi ces s upports s ha rehol der propos a ls tha t s eek to i mprove a compa ny’s publ i c i ma ge, or reduce i ts expos ure to
l i a bi lities a nd ri sks .
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s ome ca s es thi rd pa rty s uppl i ers .
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Commi s s i on or a ny other regul a tory body. None of the Informa ti on cons ti tutes a n offer to s el l (or a s ol i ci ta ti on of a n
offer to buy), or a promoti on or recommenda ti on of, a ny s ecuri ty, fi na nci a l product or other i nves tment vehi cl e or a ny
tra di ng s tra tegy, a nd ISS does not endors e, a pprove, or otherwi s e expres s a ny opi ni on rega rdi ng a ny i s s uer, s ecuri ti es ,
fi na nci a l products or i ns truments or tra di ng s tra tegi es .
The us er of the Informa ti on a s s umes the enti re ri s k of a ny us e i t ma y ma ke or permi t to be ma de of the Informa ti on.
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United States
2015 Sustainability Proxy Voting Guidelines
Executive Summary
2015 Sustainability U.S. Proxy Voting Guidelines
TABLE OF CONTENTS
INTRODUCTION ..................................................................................................................................................... 3
MANAGEMENT PROPOSALS .................................................................................................................................. 4
1. Board of Directors ............................................................................................................................................. 4
2. Board Responsiveness ...................................................................................................................................... 4
3. Auditors ............................................................................................................................................................4
4. Takeover Defenses / Shareholder Rights .......................................................................................................... 5
5. Miscellaneous Governance Provisions ............................................................................................................. 5
6. Capital Structures.............................................................................................................................................. 5
7. Executive and Director Compensation ............................................................................................................. 5
8. Mergers and Corporate Restructurings ............................................................................................................ 6
9. Mutual Fund Proxies ......................................................................................................................................... 6
SHAREHOLDER PROPOSALS ................................................................................................................................... 7
10. Shareholder Proposals on Corporate Governance and Executive Compensation .......................................... 7
11. Shareholder Proposals on Social and Environmental Topics .......................................................................... 7
DISCLOSURE/DISCLAIMER...................................................................................................................................... 8
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INTRODUCTION
ISS recognizes the growing view among investment professionals that sustainability or environmental, social, and
corporate governance (ESG) factors could present material risks to portfolio investments. Whereas investment
managers have traditionally analyzed topics such as board accountability and executive compensation to mitigate risk,
greater numbers are incorporating ESG performance into their investment making decisions in order have a more
comprehensive understanding of the overall risk profile of the companies in which they invest to ensure sustainable
long-term profitability for their beneficiaries.
Investors concerned with portfolio value preservation and enhancement through the incorporation of sustainability
factors can also carry out this active ownership approach through their proxy voting activity. In voting their shares,
sustainability-minded investors are concerned not only with economic returns to shareholders and good corporate
governance, but also with ensuring corporate activities and practices are aligned with the broader objectives of society.
These investors seek standardized reporting on ESG issues, request information regarding an issuer’s adoption of, or
adherence to, relevant norms, standards, codes of conduct or universally recognized international initiatives including
affirmative support for related shareholder resolutions advocating enhanced disclosure and transparency.
ISS has, therefore, developed proxy voting guidelines that are consistent with the objectives of sustainability-minded
investors and fiduciaries. On matters of ESG import, ISS' Sustainability Policy seeks to promote support for recognized
global governing bodies promoting sustainable business practices advocating for stewardship of environment, fair labor
practices, non-discrimination, and the protection of human rights. Generally, ISS' Sustainability Policy will take as its
frame of reference internationally recognized sustainability-related initiatives such as the United Nations Environment
Programme Finance Initiative (UNEP FI), United Nations Principles for Responsible Investment (UNPRI), United Nations
Global Compact, Global Reporting Initiative (GRI), Carbon Principles, International Labour Organization Conventions
(ILO), CERES Principles, Global Sullivan Principles, MacBride Principles, and environmental and social European Union
Directives. Each of these efforts promote a fair, unified and productive reporting and compliance environment which
advances positive corporate ESG actions that promote practices that present new opportunities or that mitigate
related financial and reputational risks.
On matters of corporate governance, executive compensation, and corporate structure, the Sustainability Policy
guidelines are based on a commitment to create and preserve economic value and to advance principles of good
corporate governance.
These guidelines provide an overview of how ISS approaches proxy voting issues for subscribers of the Sustainability
Policy. We note there may be cases in which the final vote recommendation at a particular company varies from the
voting guidelines due to the fact that we closely examine the merits of each proposal and consider relevant
information and company-specific circumstances in arriving at our decisions. To that end, ISS engages with both
interested shareholders as well as issuers to gain further insight into contentious issues facing the company. Where ISS
acts as voting agent for clients, it follows each client’s voting policy, which may differ in some cases from the policies
outlined in this document. ISS updates its guidelines on an annual basis to take into account emerging issues and
trends on environmental, social and corporate governance topics, as well as the evolution of market standards,
regulatory changes and client feedback.
The guidelines evaluate management and shareholder proposals as follows:
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MANAGEMENT PROPOSALS
1. Board of Directors
The Sustainability Policy considers director elections to be one of the most important voting decisions that
shareholders make. Boards should be comprised of a majority of independent directors and key board committees
should be comprised entirely of independent directors. The independent directors are expected to organize much of
the board’s work, even if the chief executive officer also serves as Chairman of the board. It is expected that boards will
engage in critical self-evaluation of themselves and of individual members. Directors are ultimately responsible to the
corporation’s shareholders. The most direct expression of this responsibility is the requirement that directors be
elected to their positions by the shareholders.
The Sustainability Policy will generally oppose slates of director nominees that are not comprised of a majority of
independent directors and will vote against/withhold votes from non-independent directors who sit on key board
committees. In addition, the Sustainability Policy will generally vote against/withhold votes from directors individually,
committee members, or potentially the entire board, for failure to failure to adequately guard against or manage ESG
risks. The election of directors who have failed to attend a minimum of 75 percent of board meetings held during the
year will be opposed.
The Sustainability Policy supports requests asking for the separation of the positions of chairman and CEO and requests
to adopt cumulative voting, opposes the creation of classified boards, and reviews proposals to change board size on a
case-by-case basis. The Sustainability Policy also supports shareholder proposals calling for greater access to the board,
affording shareholders the ability to nominate directors to corporate boards. The Sustainability Policy may vote
against/withhold from directors at companies where problematic pay practices exist, and where boards have not been
accountable or responsive to their shareholders.
2. Board Responsiveness
The Sustainability Policy will vote case-by-case on individual directors, committee members, or the entire board of
directors as appropriate if the board fails to act on a shareholder proposal the received the support of a majority of the
shares in the previous year. Other factors we take into account when evaluating board responsiveness issues include:
the board's failure to act on takeover offers where the majority of shares are tendered; at the previous board election,
any director received more than 50 percent withhold/against votes of the shares cast and the company has failed to
address the issue(s) that caused the high withhold/against vote; or if the board implements an advisory vote on
executive compensation on a less frequent basis than the frequency that received the majority or a plurality of votes
cast at the most recent shareholder meeting at which shareholders voted on the say-on-pay frequency.
3. Auditors
While it is recognized that the company is in the best position to evaluate the competence of the outside accountants,
we believe that outside accountants must ultimately be accountable to shareholders. Given the rash of accounting
irregularities that were not detected by audit panels or auditors, shareholder ratification is an essential step in
restoring investor confidence. The Sustainability Policy will vote against the ratification of the auditor in cases where
non-audit fees represent more than 50 percent of the total fees paid to the auditor in the previous year. The
Sustainability Policy supports requests asking for the rotation of the audit firm, if the request includes a timetable of
five years or more.
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4. Takeover Defenses / Shareholder Rights
Topics evaluated in this category include shareholders' ability to call a special meeting or act by written consent, the
adoption or redemption of poison pills, unequal voting rights, fair price provisions, greenmail, supermajority vote
requirements, and confidential voting.
The Sustainability Policy generally opposes takeover defenses, as they limit shareholder value by eliminating the
takeover or control premium for the company. As owners of the company, shareholders should be given the
opportunity to decide on the merits of takeover offers. Further, takeover devices can be used to entrench a board that
is unresponsive to shareholders on both governance and corporate social responsibility issues.
5. Miscellaneous Governance Provisions
The Sustainability Policy evaluates proposals that concern governance issues such as shareholder meeting
adjournments, quorum requirements, corporate name changes, and bundled or conditional proposals on a case -bycase basis, taking into account the impact on shareholder rights.
6. Capital Structures
Capital structure related topics include requests for increases in authorized stock, stock splits and reverse stock splits,
issuances of blank check preferred stock, debt restructurings, and share repurchase plans.
The Sustainability Policy supports a one-share, one-vote policy and opposes mechanisms that skew voting rights. The
Sustainability Policy supports capital requests that provide companies with adequate financing flexibility while
protecting shareholders from excessive dilution of their economic and voting interests. Proposals to increase common
stock are evaluated on a case-by-case basis, taking into account the company’s past use of share authorizations and
elements of the current request.
7. Executive and Director Compensation
The global financial crisis has resulted in significant erosion of shareholder value and highlighted the need for greater
assurance that executive compensation is principally performance-based, fair, reasonable, and not designed in a
manner that would incentivize excessive risk-taking by management. The crisis has raised questions about the role of
pay incentives in influencing executive behavior and motivating inappropriate or excessive risk-taking and other
unsustainable practices that could threaten a corporation‘s long-term viability. The safety lapses that led to the
disastrous explosions at BP’s Deepwater Horizon oil rig and Massey Energy’s Upper Big Branch mine, and the resulting
unprecedented losses in shareholder value; a) underscore the importance of incorporating meaningful economic
incentives around social and environmental considerations in compensation program design, and; b) exemplify the
costly liabilities of failing to do so.
The Sustainability Policy evaluates executive and director compensation by considering the presence of appropriate
pay-for-performance alignment with long-term shareholder value, compensation arrangements that risk “pay for
failure,” and an assessment of the clarity and comprehensiveness of compensation disclosures... Plan features and any
recent controversies surrounding a company’s pay practices are also factored into the analysis of compensation
proposals. Shareholder proposals calling for additional disclosure on compensation issues are supported, while
shareholder proposals calling for other changes to a company’s compensation programs are reviewed on a case -bycase basis.
5 of 8
The Dodd-Frank Wall Street Reform and Consumer Protection Act requires advisory shareholder votes on executive
compensation (management “say on pay” or MSOP), an advisory vote on the frequency of say on pay, as well as a
shareholder advisory vote on golden parachute compensation. The Sustainability Policy will vote AGAINST
management say on pay (MSOP) proposals if there is a misalignment between CEO pay and company performance, the
company maintains problematic pay practices, and the board exhibits a significant level of poor communication and
responsiveness to shareholders.
The Sustainability Policy will evaluate whether pay quantum is in alignment with company performance, and
consideration will also be given to whether the proportion of performance-contingent pay elements is sufficient in light
of concerns with a misalignment between executive pay and company performance.
The Sustainability Policy will vote case-by-case on certain equity-based compensation plans depending on a
combination of certain plan features and equity grant practices, where positive factors may counterbalance negative
factors, and vice versa, as evaluated using an "equity plan scorecard" (EPSC) approach.
8. Mergers and Corporate Restructurings
Mergers, acquisitions, spinoffs, reincorporations, and other corporate restructuring plans are evaluated on a case-bycase basis, given the potential for significant impact on shareholder value and on shareholders’ economic interests. In
addition, these corporate actions can have a significant impact on community stakeholders and the workforce, and
may affect the levels of employment, community lending, equal opportunity, and impact on the environment.
9. Mutual Fund Proxies
There are a number of proposals that are specific to mutual fund proxies, including the election of trustees, investment
advisory agreements, and distribution agreements. The Sustainability Policy evaluates these proposals on a case-bycase basis taking into consideration recent trends and best practices at mutual funds.
6 of 8
SHAREHOLDER PROPOSALS
10. Shareholder Proposals on Corporate Governance and Executive Compensation
Shareholder proposals topics include board-related issues, shareholder rights and board accountability issues, as well
as compensation matters. Each year, shareholders file numerous proposals that address key issues regarding corporate
governance and executive compensation. The Sustainability Policy evaluates these proposals from the perspective that
good corporate governance practices can have positive implications for a company and its ability to maximize
shareholder value. Proposals that seek to improve a board’s accountability to its shareholders and other stakeholders
are supported. The Sustainability Policy generally supports initiatives that seek to strengthen the link between executive
pay and performance, including performance elements related to corporate social responsibility.
11. Shareholder Proposals on Social and Environmental Topics
Shareholder resolutions on social and environmental topics include workplace diversity and safety topics, codes of
conduct, labor standards and human rights, the environment and energy, weapons, consumer welfare, and public
safety.
Socially responsible shareholder resolutions are receiving a great deal more attention from institutional shareholders
today than in the past. In addition to the moral and ethical considerations intrinsic to many of these proposals, there is
a growing recognition of the potentially significant impact of social and environmental topics on the financial
performance of the company. In general, the Sustainability Policy supports shareholder proposals seeking enhanced
transparency on social, workforce, or environmental topics and will generally recommend in favor of shareholder
resolutions that seek additional disclosure particularly when it appears companies have not adequately addressed
shareholder concerns on social, workplace, or environmental concerns.
Proposals that ask a company to cease certain actions or operations or resolutions that request the adoption of
particular policies, practices or oversight mechanisms could be overly prescriptive and unduly burdensome and are
generally not supported under the Sustainability policy.
7 of 8
This document and all of the information contained in it, including without limitation all text, data, graphs, and charts
(collectively, the "Information") is the property of Institutional Shareholder Services Inc. (ISS), its subsidiaries, or, in
some cases third party suppliers.
The Information has not been submitted to, nor received approval from, the United States Securities and Exchange
Commission or any other regulatory body. None of the Information constitutes an offer to sell (or a solicitation of an
offer to buy), or a promotion or recommendation of, any security, financial product or other in vestment vehicle or any
trading strategy, and ISS does not endorse, approve, or otherwise express any opinion regarding any issuer, securities,
financial products or instruments or trading strategies.
The user of the Information assumes the entire risk of any use it may make or permit to be made of the Information.
ORIGINALITY, ACCURACY, TIMELINESS, NON-INFRINGEMENT, COMPLETENESS, MERCHANTABILITY, AND FITNESS for A
PARTICULAR PURPOSE) WITH RESPECT TO ANY OF THE INFORMATION.
Without limiting any of the foregoing and to the maximum extent permitted by law, in no event shall ISS have any
liability regarding any of the Information for any direct, indirect, special, punitive, consequential (including lost profits ),
or any other damages even if notified of the possibility of such damages. The foregoing shall not exclude or limit any
liability that may not by applicable law be excluded or limited.
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Process Owner: PO Both

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