Corporate governance and proxy voting policy
Introduction
Good corporate governance creates the framework within which a company can be managed in the long-term interests of shareholders and should be seen as a driver of shareholder value. Institutions are in a critical position to ensure that companies remain directly accountable to their shareholders.
The exercise of voting rights is an important aspect of the investment management process and the fund manager’s ability to influence corporate management and ultimately manage the performance of the portfolios.
Paradice’s overriding principle is to cast votes in the best interests of our clients. We take our responsibilities seriously and acknowledge the importance of our right to vote as shareholders of Australian companies.
Disciplined and consistent exercise of voting rights is at the core of good corporate governance.
We support the Investment & Financial Services Association Ltd (IFSA) aim of advancing the integrity and efficiency of the Australian capital markets for the benefit of all investors playing an active role in corporate governance.
Paradice considers “corporate governance” to be concerned with the way companies are governed, as distinct from the way the businesses within them are managed. Such issues include a governance structure and selection of Directors. Whilst we believe it is difficult to put in place a set of prescriptive rules that will be appropriate for every situation we nonetheless agree that some principles are appropriate.
Policy on Corporate Governance and proxy voting
Paradice’s objective is to maximise investment returns in line with clients’ objectives, subject to an acceptable level of risk. This policy, including the advancement of corporate governance, will be applied in the context of this overriding objective. The exercise of voting rights is only one aspect of Paradice’s investment management process. Paradice also participates in, and seeks to influence, corporate decision-making by regularly communicating with senior management of companies to discuss matters influencing investment performance.
As a general proposition Paradice will find in favour of a resolution which it expects to enhance shareholder value. Conversely it will vote against resolutions which it believes may damage shareholder rights or economic interest. In these situations Paradice may raise its concerns with management in advance of casting its vote.
Paradice considers the following principles to be good corporate practice.
- Directors and management are responsible for building and/or preserving long term shareholder value, which we define as the future value of cash flows plus surplus assets net of all liabilities;
- Accountability, transparency (where it does not negatively impact the commercial position of the company) and responsibility;
- A vote has an economic value and one share should get one vote;
- The Board should facilitate good communication with, and make relevant information available to, shareholders;
- The Board has a responsibility to represent all shareholders;
- Independent Directors should form the majority on the Board, the Remuneration Committee, the Audit Committee and the Nomination Committee;
- Independent Directors are non-executive with no commercial links to the company; and
- The role of Chairperson and Chief Executive should be separated
Paradice’s aim is to review shareholder resolutions on a case by case basis when exercising voting rights, and will review all voting ballots received and to vote on all resolutions which it feels are material, where it has the authority and responsibility to do so.
In exercising its voting discretion, Paradice may take into account the following:-
- Paradice tends not to become involved in the day to day management issues of the companies, but rather exercises voting rights to ensure that companies act in the best interest of their shareholders;
- The size of the holding and the likelihood that exercising voting rights will influence the outcome of the resolution;
- The nature of the issue;
- The advantage which may result from exercising the voting rights including whether it will advance investment objectives;
- Any client instructions as to exercising voting rights, whether for particular companies or particular issues; and
- Other legal or ethical considerations, such as whether there may be any actual or potential conflict of interest in exercising voting rights.
Paradice’s Portfolio Managers review any proposed action.
Advantages
By delegating voting power to Paradice, a client can achieve the following benefits:
- Contribute to higher standards or corporate governance by the disciplined and consistent implementation of Paradice’s voting policy;
- Benefit from Paradice’s expertise in determining whether issues being voted on may affect investment returns and are consistent with other investment objectives; and
- Consistency in the exercise of voting power with other investment objectives;
Clients Instructions and Consultation
The implementation of Paradice’s voting policy is always subject to any instructions from its clients.
Where Paradice has discretion under its agreement with the Client, as a general rule Paradice will not seek direction from the Client prior to it exercising a vote or initiating shareholder action as to individual issues. This is due to time constraints usually experienced in exercising proxy votes. This may arise from the number of resolutions to be considered across a diverse portfolio and the number of clients.
Where possible Paradice will endeavour to liaise with any client that has a substantial investment in an entity where an issue has become contentious.
Some clients from time to time will direct Paradice on specific issues and Paradice will implement that direction to the extent it is able to.
Reporting to Clients
Paradice keeps a register of how proxy votes are exercised and the reason supporting the way in which its vote was cast. Information on how Paradice has voted is reported to clients (including investors in unregistered managed investment schemes which Paradice is the Manager) in accordance with their requirements. Any non-compliance with a client voting instruction is automatically reported.
Implementation
Clients need to ensure that their custody arrangements require the custodian to inform Paradice of resolutions on a timely basis and to implement Paradice’s directions as to the exercise of the voting rights. If necessary these arrangements will need to deal with how the custodian will exercise voting rights when it receives directions to vote differently on different issues from the different clients. Clients also need to be aware that when they request the custodian to vote, the cost of voting in this instance will be borne by the client.
Voting by Unregistered Schemes managed by Paradice
Investors in unregistered managed investment schemes managed by Paradice do not have a direct interest in the particular securities held by the vehicles. Voting rights are exercise by the Manager for such securities, subject to any restrictions in the documentation. Accordingly, such investors do no have the right to direct how these voting rights are exercised.
Conflicts of interest
All Paradice employees are under an obligation to be aware of the potential for conflicts of interest with respect to proxy votes on behalf of clients.
Paradice acknowledges that conflicts of interest can arise and where a conflict of interest is considered material, Paradice will not vote until a resolution has been agreed upon and implemented.
Environmental, Social and Governance (ESG) Issues
As a large institutional Investment Manager, Paradice has a duty to consider, in its investment decision-making, the potential financial impact of companies’ exposure to, and management of, environmental, social and governance (ESG) issues. Paradice also believes that it is in our clients’ best interest that it encourages high standards of corporate governance and corporate responsibility in the companies in which it invests.
Paradice believes that ESG issues can be key drivers of investment value. Companies that fail to manage their environmental and social impacts effectively, or that fail to adopt robust ethical policies and governance practices, risk suffering direct financial harm or damage to their reputations. Paradice therefore considers, as an important part investment decision processes, the social and environmental trends that can influence companies’ long-term success and the effectiveness of companies’ management of these issues.
Paradice will actively vote on proposals concerning ESG issues by focusing on those matters likely to impact shareholder value.
Paradice is a member of ESG Research Australia Board.