MLC Investments Limited - Proxy Voting Principles

1. Overview

1.1 Introduction

This Proxy Voting Policy (Policy) is to set out principles that are applied in relation to proxy voting and the disclosure of voting activities of MLC Investments Limited (MLCI)¹.

Shareholder voting is a means by which shareholders can influence a company's operations, its corporate governance and activities of social responsibility. Proxy Voting is where a vote is cast on behalf of a shareholder. 

MLCI represents its investors in matters of corporate governance through the proxy voting process. The  process  is  designed  to  protect  and  enhance  the  investment  value  of  our  fund’s  share investments, recognising the strong link between good corporate governance and investment value.

1.2 Policy Statement

This Policy is designed to ensure that MLCI complies with regulatory requirements and industry standards. In doing so, it is necessary to strike the appropriate balance between:

• the need to protect and enhance the value of investments by recognising the strong link between good corporate governance and investment value; and
• the practical implications and costs involved in the voting process, and the impacts these can have on the fees charged to investors.

MLCI applies the Financial Service Council (FSC) Standards and Guidelines on proxy voting to its operational processes where applicable.   

1.3 Scope and Application

This Policy applies to investments in publicly listed companies held in unregistered and registered Managed Investment Schemes and trusts (collectively Investment Structures) where MLCI is the Responsible Entity (RE) or Trustee, and has a discretion to vote in the company.  

Voting on Australian listed companies  

MLCI directs the voting of resolutions with respect to Australian listed companies and aims to vote at all the shareholder meetings for Australian listed companies where we have the voting authority to do so. However, there are some circumstances where it is either not possible or not in the best interests  of  our  investors  to  vote.  For  example,  where there  is  a  conflict  of  interest,  having participation in a share placement or due to timing issues such as late meeting notifications.   

There are some Investment Structures where MLCI has delegated proxy voting to the appointed investment managers, as this is considered important as part of their investments’ offering and value proposition. The relevant appointed investment managers are authorized to exercise voting rights in accordance with the terms of their respective investment management agreements. However, MLCI retains the right to override investment managers’ intended votes. If given a direction from MLCI, the relevant manager must use its best endeavours to implement the direction.  

Voting on International listed companies  

For International listed companies, given the number and diversity of the overseas companies MLCI invests in, the appointed international equity investment managers or their appointed representatives are considered best resourced to represent the interests of our investors. Therefore, proxy voting of international holdings has been delegated to the appointed international equity managers. The international equity managers assess and vote proxies on all international holdings within their portfolios in accordance with the terms of their respective investment management agreements. For some foreign markets, there are instances where voting rights may not be executed such as when the expected costs of voting exceed the expected benefits of voting, or voting would result in trade blocking for the Investment Structures.  

2. Proxy Voting Principles

The guiding principle when MLCI votes on a resolution is that our voting decision must be in the best interests of our investors. MLCI believes that corporate governance creates the framework within which a company can be managed in order to provide the greatest possible long-term return.  

MLC Investment’s general position with regard to corporate governance is reflected by (but not limited to) the following: 

1. Long term value

We believe that there is a strong connection between good corporate governance and the creation of long-term shareholder value. Therefore, we believe that the Board of Directors of the listed companies should be held accountable for the strategic direction and performance of the companies. 

2. Remuneration - Alignment of Management and Shareholder interests

Remuneration  paid  to  management  should  be  linked  to  company  performance  to  align  with shareholder  interests  of  seeking  increased  value  for  their  investments.  There  should  be  an appropriate balance between performance based short-term and long-term incentives in addition to base salary for management and employees.   

3.  Board size and composition  

Board size and composition is important. Board size should be reflective of the size and complexity of the listed company. There should be a sufficient number of directors to ensure that depth and breadth of experience, diverse background and skills exists amongst the directors.  

4.  Independence

Independent directorship is key in order for the Board of the listed companies to make objective decisions which protect shareholders and create value over the medium to long term. In reviewing director’s independence, there should be no familial or material business relationship with the company executives and other directors which would impact the director’s decisions or create a material conflict of interest.  

5. Effective disclosure

Information impacting operations and financial performance should be disclosed in a timely and transparent manner. This includes performance metrics used to determine executive compensation and why these metrics have been used.   

6.  Board responsiveness to Shareholder concerns

Where there has previously been a significant number of shareholder votes against a meeting proposal, the Board of the relevant listed company should take action to address shareholder’s concerns by performing an appropriate level of engagement to identify the underlying issues which will be representative in management’s recommendations. 

3. Proxy Voting Policy

MLCI will assess and vote on all proxies in which it has a discretion to vote represents a large commitment to encouraging these companies to be accountable for their actions and to uphold good corporate governance. By exerting influence on corporate policies through discussion with company management  and  the  exercise  of  proxy  voting  rights,  we  can  achieve  our  goal  to  enhance shareholder returns.   

Resolutions  for  listed  companies  are  considered  and  voted  upon  according  to  this  Policy. Resolutions that are assessed as non-contentious are voted according to standing instructions. The general rules are to vote For management proposals and Against shareholder proposals. 

Where resolutions are assessed as contentious, they are generally referred to the Proxy Voting Committee (PVC) whose role is to consider and decide the vote on behalf of our investors. 

Proxy Voting Committee  

The PVC reports directly to the Board of Directors of MLCI (MLCI Board) and derives its authority from the Group Executive, Chief Asset Management Officer of Insignia Financial Ltd (Insignia Financial Group) to carry out functions and responsibilities that are outlined in a Terms of Reference (ToR) in relation to voting on Australian listed companies held by the Investment Structures where MLCI is the RE and has direct discretion to vote. The PVC is made up of senior management within Insignia Financial Group. Changes to the PVC membership and /or the ToR require the approval of the Group Executive, Chief Asset Management Officer. The objectives of the PVC are to:   

(a) protect and enhance the investment value of the assets held by the Investment Structures;   

(b) ensure that the interests of investors are represented in accordance with applicable requirements of the Corporations Act; and  

(c) recognise the strong link between good corporate governance and investment value.  

The PVC must always act in the best interests of investors. This includes giving priority to the interests of investors over the interests of shareholders in the event that there is a conflict of interest. Should voting give rise to a potential conflict of interest, the ToR of the PVC and any applicable Insignia Financial Group Conflicts of Interest Policy, will apply.  

Consideration of contentious matters

The  proxy  voting  approach  places  an  emphasis  on  contentious  shareholder  resolutions.  In considering contentious proxy voting items, advice may be sought from a range of sources including (but not limited to):

• independent advisors
• appointed investment managers 
• Insignia Financial Group Portfolio Managers
• market information
• PVC members

MLCI also takes into consideration market information and reports from independent corporate governance groups such as Glass Lewis & Co. that provide comprehensive details on the following: resolution background, analysis, commentary, discussions with company representatives and voting recommendations.  

In addition, MLCI receives commentary on any nominated resolution from the appointed investment managers holding the relevant listed company in the Investment Structures that they manage. Investment managers may also speak to the PVC directly on complicated matters or where the PVC requires additional background regarding a resolution. MLCI believes that the investment managers provide highly valuable insight into contentious resolutions, as it is their responsibility to perform ongoing in-depth analysis on company decisions and speak to companies directly regarding matters of concern.  

Contentious issues can include (but are not limited to) any of the following:  

• Executive remuneration, including whether there are any performance hurdles to be met (share price or company specific), the options/shares/rights are granted at an unreasonable discount to market price, and whether retention incentives are being offered.  
• Executive  remuneration  where  egregious  failures  of  risk  oversight  are  not  adequately reflected in pay for performance outcomes.  
• Option issue resolutions where the hurdles are not relative (absolute share price only), or hurdles not clearly stipulated, or measurable.  
• Option issues for non-executive directors. 
• Changes to the voting rights of ordinary shareholders.  
• New share issues or placements if the rights or standing of existing shareholders are impacted.  
• Takeovers, schemes of arrangement and business restructures. 
• Share buy-backs, if preference is given to any shareholder or group of shareholders over others.  
• Group shareholder class action.  
• Re-election of directors and /or members of the Risk Management Committee of the listed companies. 
• Board composition where there is a lack of independence, diversity and/or appropriate experience, or Board performance such as failures of oversight or lack of attendance.

While  MLCI  can  receive  advice  from  the  above-mentioned  sources  and,  where  relevant, recommendations  provided  by  the  proxy  advisors  and  appointed  investment  managers,  we ultimately make our own voting decisions.  

4. Record Keeping and Disclosure

The appointed custodian or its appointed proxy voting provider will record details of the voting actions as instructed by MLCI and/or the appointed investment managers. Both MLCI and the investment managers shall maintain a record of how voting rights were exercised.   

On an annual basis, MLCI will publish on the MLC website in accordance with the FSC Standard No. 13: 

(1)  a Proxy Voting Summary for the votes exercised by MLCI and our appointed investment managers for Australian listed companies, and   

(2)  a Proxy Voting Summary for the votes exercised by our appointed investment managers for International listed companies.  

5. Review and Approval

This Policy will be reviewed at least annually by the Policy Owner and submitted for the MLCI Board approval by the Chair of the PVC, to ensure it remains appropriate with regard to the changing nature of legislation or changes in our business operations / environment.   

Any changes to the Policy must be approved by the MLCI Board.

Disclosure
FSC Standard 13 requires that no later than three months after the close of the financial year we publish a summary of our proxy voting activities on our website.

Important information
Where possible, MLC does not apply different voting decisions to different schemes. To maximise the influence of our vote and for practical reasons, we vote consistently across all schemes where MLC has direct voting rights.

This means that we apply the same voting decision taken on every (domestic listed company meeting) resolution to our entire shareholding across these schemes. It is for this reason that in this report we disclose voting decisions on an “Operator level” (MLC) and resolution level, rather than each individual Scheme (portfolio) and resolution level. This record covers only voting decisions taken on behalf of all schemes operated by MLC where MLC has direct voting rights for predominantly Australian listed companies only.

Notes
1. MLC constitutes: MLC Investments Limited ABN 30 002 641 661. 2. Only resolutions for which the Scheme Operator has discretion to vote are included.