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MINUTES
Meeting of the Corporate Governance Committee
of the Board of Trustees of the
State Universities Retirement System
4:30 p.m., Thursday, September 10, 2015
State Universities Retirement System
1901 Fox Drive, Main Conference Room
Champaign, Illinois 61820
The following Trustees were present: Ms. Dorinda Miller, Chair; Ms. Lindsay Anderson, Dr. John
Engstrom, Dr. Fred Giertz, Mr. Francis Idehen Jr., Mr. Paul R.T. Johnson Jr., Mr. Craig McCrohon,
Dr. Steven Rock, Mr. Antonio Vasquez.
Others present: Mr. W. Bryan Lewis, Executive Director; Mr. Andrew Matthews, Chief Operating
Officer; Mr. Daniel Allen, Chief Investment Officer; Ms. Allison Kushner, Compliance and
Governance Officer; Ms. Lori Kern and Ms. Karen Hipskind, Executive Assistants; Ms. Mary Pat
Burns of Burke, Burns & Pinelli; Ms. Maureen O’Brien of Marco Consulting.
Corporate Governance Committee roll call attendance was taken. Trustee Ammons, absent; Trustee
Idehen, present; Trustee Miller, present.
APPROVAL OF MINUTES
Trustee Dorinda Miller presented the Minutes from the Corporate Governance Committee meeting
of June 11, 2015. Trustee Craig McCrohon made the following motion:
That the Minutes from the June 11, 2015 Corporate Governance Committee Meeting be
approved as presented.
Trustee John Engstrom seconded and the motion carried with all Trustees present voting in favor.
Trustee Paul R. T. Johnson, Jr. joined the meeting at 6:30 p.m. immediately after the approval of
Minutes.
CHAIRPERSON’S REPORT
Trustee Miller thanked former Trustee, Mitch Vogel who under his leadership the Corporate
Governance was developed and remarked that during today’s meeting, we would be receiving
education regarding the committee and what it is responsible for . No other formal chair report was
given at this time.
MID-YEAR UPDATE OF PROXY VOTING INITIATIVES
Mr. Dan Allen provided a brief history of the Corporate Governance Committee noting that the
Committee was created in 2008 and that SURS has had a proxy voting program in place since 2007
for domestic equities. Mr. Allen remarked that Marco Consulting Services has been the provider
since that time.
Mr. Allen stated that incorporated in the materials is a copy of the Proxy Voting Policy which is in
currently in effect. He reminded the Committee that this policy is brought before the board
annually for approval at the February meeting and that the policy is consistent with that of the
Council of Institutional Investors.
Mr. Allen then introduced Ms. Maureen O’Brien, Director of Corporate Governance of Marco
Consulting Group. Ms. O’Brien provided an overview of Corporate Governance initiatives and the
proxy voting process that they provide for SURS. She also updated the Committee on the 10 most
significant Corporate Governance Developments of the 2014 proxy voting season. She also
discussed the SURS Executive Summary, Proxy Voting Reports and the SURS Proxy Policy
Statement.
Trustee Paul R.T. Johnson, Jr. and Trustee John Engstrom asked if there was something in the
Proxy Policy Statement that addressed the fact that all votes are cast in a manner that is consistent
with the best interest of SURS participants/members. Ms. Burns confirmed that the policy does
have a provision in it that states that proxies will be cast in a manner that is consistent with
providing benefits with SURS participants. Ms. Burns remarked that Marco has to make an
independent determination with each vote, based on the guidelines that SURS has provided them
that they are voting in the best interest of SURS.
Copies of Staff Memorandum entitled “Marco Consulting Group 2014 Proxy Report,” “Marco
Consulting Group Memorandum entitled ”Update on 10 Most Significant Development Lists,”
“SURS Executive Summary 2014 Proxy Report,” and “SURS Proxy Policy Statement” are
incorporated as a part of these Minutes as Exhibit 1, Exhibit 2, Exhibit 3 and Exhibit 4.
INFORMATIONAL ITEMS NOT REQUIRING COMMITTEE ACTION
The following items were provided for reference and are incorporated as a part of these Minutes:
1. Exhibit 5- Staff memorandum entitled “SURS Proxy Vote Summary Report” dated
September 10, 2015.
2. Exhibit 6- Marco Consulting Group’s Proxy Vote Summary Report for Second Quarter
2015.
3. Exhibit 7 - Council of Institutional Investors Recordings.
4. Exhibit 8 - Fiscal Year 2016 Work Plan.
PUBLIC COMMENT
There were no public comments presented to the Corporate Governance Committee.
Since there was no further business before the Committee, Trustee McCrohon moved that the
meeting be adjourned. The motion was seconded by Trustee Engstrom and carried with all Trustees
present voting in favor.
Respectfully submitted,
Mr. W. Bryan Lewis
Secretary, Board of Trustees
WBL:lk
State Universities Retirement System of Illinois
Serving Illinois Community Colleges and Universities 1901 Fox Drive • Champaign, IL 61820-7333
(217) 378-8800 • (217) 378-9802 (FAX)
Investment Department
To: Corporate Governance Committee
From: Allison L. Kushner
Date: August 24, 2015
Re: Marco Consulting Group 2014 Proxy Report
At the September 10, 2015, Corporate Governance Committee meeting, Marco Consulting
Group (MCG) will present its second quarter overview of the proxy voting activity and most
recent corporate governance developments since the February 5, 2015 Corporate Governance
Committee Meeting. MCG’s Q2 2015 Proxy Report and the Update on 10 Most Significant
Developments List are provided for your review following this memorandum.
Exhibit 1
Chicago ▪ Boston ▪ Denver
Page 1 of 1
Headquarters Office ▪ 550 West Washington Blvd., Suite 900, Chicago, IL 60661 ▪ P: 312-575-9000 ▪ F: 312-575-0085 East Coast Office ▪ 25 Braintree Hill Office Park, Suite 103, Braintree, MA 02184 ▪ P: 617-298-0967 ▪ F: 781-228-5871
Western Office ▪ 1746 Cole Blvd. Suite 225, Golden, CO 80401 ▪ P: 303-645-4677 ▪ F: 312-575-0085
To: State Universities Retirement System of Illinois
From: MCG
Date: August 20, 2015
Re: Updates on 10 Most Significant Developments List
UPDATES 1. Delaware Court and Oklahoma Legislature Let Companies Shift Attorney
Fees in Litigation
On Tuesday, May 12, the Delaware Senate legislators passed a law which forbade corporations from shifting corporate legal costs to shareholders whom filed unsuccessful lawsuits. This change went into effect on August 1, 2015.
3. Proxy Access Proposals Filed at 75 Companies Per New York City Boardroom Accountability Project
A total of 120 proxy access proposal were filed for 2015 shareholder meetings. Forty-one firms have adopted proxy access, many after receiving a proposal. The firms include Bank of America, Citigroup, McKesson Corporation and Prudential Financial. Paypal Holdings recently included proxy access its initial organizing documents as part of its spinoff from eBay. Twenty-seven companies saw majority votes on the proxy access proposals and many more hovered close to the 50% threshold. A recent study by the Securities and Exchange Commission highlighted in the Wall Street Journal found that when shareholders have the right to nominate their own directors, it boosts a company’s overall return by half a percentage point.
4. AFL-CIO Equity Index Fund Seeks to Rid S&P 500 of Excise Tax Gross Ups
Of the 33 companies contacted on the issue of excise tax gross-ups, 32 have either adopted policies to eliminate the practice or agreed to better communicate a commitment reached earlier to eliminate the practice. The one remaining company is currently in discussions with the proponent.
Exhibit 2
1
URS S
XECUTIVE E S UMMARY
2014 PROXY REPORT
Exhibit 3
2
ONTENTS C
I. 2014 OVERVIEW Introduction 4 Major Initiatives on Legal Fees, Taxes, Proxy Access and Diversity 5 Majority Votes for 71 Shareholder Proposals 7
II. SHAREHOLDER PROPOSALS ON CORPORATE GOVERNANCE Independent Board Chair 10 Majority Vote Standard for Director Elections 11 Substantial Retention of Equity Awards 12 Act By Written Consent 13 No Accelerated Vesting of Equity Awards 14 Proxy Access 15 Repeal Classified Board 16 Call Special Meeting 17 Eliminate/Reduce Supermajority Votes 18 One Vote for All Stock 19
III. BOARD PROPOSALS ON CORPORATE GOVERNANCE
Election of Directors 21 Ratification of “Independent Auditors” 23 Compensation 24 Common Stock Increases 26
IV. TEN MOST SIGNIFICANT CORPORATE GOVERNANCE
DEVELOPMENTS
Exhibit 3
3
2014
VERVIEW O
Exhibit 3
4
NTRODUCTION I
Although the State Universities Retirement System (“SURS”) is not governed by the U.S. Employment Retirement Income Security Act of 1974 (“ERISA”), ERISA and the interpretation of it by the U.S. Department of Labor (“DOL”) Interpretative Bulletin 08-2 are a useful guide for how benefit funds and their individual fiduciaries should discharge their duties. The Interpretative Bulletin provides: Proxy Voting is a fiduciary act of plan asset management under ERISA. It is appropriate, although not mandatory, for benefit plans to adopt a proxy voting policy. If plan trustees delegate their proxy voting to an investment advisor, the trustees must still monitor both the voting procedures and the individual votes cast by the advisor. Actively monitoring or influencing the management of corporations in which plans own stock is consistent with, but not required by, ERISA. ERISA fiduciaries should determine if the cost of exercising their shareholder rights will have an economic value on the plan’s investment that will outweigh the cost of exercising such rights. Marco Consulting Group’s (“MCG”) policies and practices are in complete compliance with Interpretative Bulletin 08-2 issued by the Department of Labor (“DOL”) in October, 2008, on proxy voting for ERISA benefit plan trustees. This Executive Summary reviews general developments and trends in the corporate governance arena during 2014. Separate from this Executive Summary, Marco Consulting Group (“MCG”) provides SURS with a report that lists and explains every issue at every company for which MCG voted its proxies in 2014. The votes are cast pursuant to and in accordance with SURS Proxy Policy Statement.
Exhibit 3
5
.
ajor nitiatives n M I O
egal ees, axes, L F T
roxy ccess, iversity P A D
Regulators and shareholders have had momentum in the corporate governance arena in recent years, but in 2014 corporations launched two major initiatives to shift legal fees to shareholders and to reduce their U.S. taxes. The normal rule in the United States is that litigants are responsible for their own legal fees, but a Delaware Supreme Court ruling in ATP Tour Inc.v.Deutscher Tennis Bund, which involved a non-stock company, prompted 42 stock companies to adopt bylaws—without shareholder approval—or include provisions in their Initial Public Offering documents requiring a shareholder litigant to pay the companies’ legal fees unless the shareholder litigant obtains a judgment that substantially achieves, in substance and amount, the full remedy sought. None of the provisions provided that the companies would pay the shareholder litigant’s legal fees if it did achieve the full remedy sought. Opponents, led by the Council of Institutional Investors and the plaintiff’s’ bar, are lobbying the Securities and Exchange Commission (“SEC”) and the Delaware legislature for relief and are urging proxy advisory firms to recommend votes against the directors at companies that have adopted the fee shifting bylaws. The recent trend in corporate tax inversions—a U.S. company seeks to reduce its U.S. taxes by merging with a smaller, foreign company and then reincorporating to the foreign domicile—became front page news during the summer when Walgreen announced one with Alliance Boots, a Swiss corporation with operational headquarters in the UK. The Walgreen plan, which touted a $4 billion expected tax reduction ignited a firestorm of consumer and governmental resistance. A petition was signed by 300,000 people urging Walgreen to “not desert America”. There were calls for a national boycott and the federal government made it clear it was considering a long list of ways to deal with a company that received one-third of its revenues from Medicare and Medicaid payments. Walgreen abandoned the inversion, citing “potential consumer backlash and political ramifications.” The Treasury Department issued new rules in September making corporate tax inversions less attractive. The new rules were cited as the reason AbbieVie called off its merger/inversion deal with Shire. Shareholders launched major initiatives of their own to gain access to company proxy materials to nominate a limited number of directors, to eliminate the payment of excise tax gross ups and to increase gender diversity on boards of directors.
Exhibit 3
6
The New York City Boardroom Accountability Project filed proxy access proposals at 75 companies that were targeted because of excess CEO pay, lack of board diversity and climate change concerns. The proposals are based on the SEC proxy access rule that was invalidated by a federal appellate court on procedural grounds—shareholders who have continuously owned three per cent of the company’s shares for three years can use companies’ own proxy materials to nominate candidates for up to 25% of the seats available. The effort is being led by the New York City Pension Funds and includes as participants the New York State Common Retirement Fund, CalPERS, CalSTERS, the Illinois State Board of Investments, the Philadelphia Board of Pensions and Retirement, the Firefighters’ Pension System of Kansas City, Missouri, and the Miami Firefighters’ Relief and Pension Fund. The AFL-CIO Equity Index Fund identified 33 companies in the S&P 500 who had agreements in place to gross up excise taxes for key executives and had not yet adopted policies to not enter into such agreements in the future. In the 1980s, Congress imposed a 20% non-deductible excise tax in addition to the 35% regular tax on the payment of golden parachutes (more than 2.99 times average salary and bonus) triggered by change in controls. Companies responded by agreeing to “gross up” the excise tax—giving the executive an additional amount to pay the excise tax. Since the additional amount is also taxable, the amount necessary to implement the gross up is subject to an upward spiral—it can take an additional $700,000-$900,000 to gross up a $1 million excise tax. The Fund sent letters to the 33 companies in October urging them to adopt such policies and to advise the Fund of their position the week before the deadline for filing 2015 shareholder proposals. As 2014 ended, the Fund learned that 17 of the companies agreed to adopt such policies after the Fund’s request and six firms already had a policy in place and simply needed to better communicate it. The Fund has or will file shareholder proposals at the remaining 10 firms. A group of 89 senior business executives, government officials, national women's organizations, institutional investors, professional services firms, non-profit organizations and corporate governance experts called the 30% Coalition sent letters in October to 100 companies in the Russell 1000 that have no women on their boards urging them to embrace gender diversity. The Coalition believes that a substantial number of qualified female candidates exist and that the research to date is conclusive of the merits of gender diversity in the boardroom but the problem has been a lack of interest in female candidates from companies. The Coalition’s goal is that females attain at least 30% representation across public company boards by the end of 2015. In other significant 2014 developments: activist funds recorded at least partial wins more than 70% of the time according to Factset Sharkwatch; the entire Commonwealth REIT board was ousted by a written consent maneuver fueled by consistent underperformance and a flawed management structure; investor resistance forced Carl Icahn to drop his proposal for an Apple share buyback that was criticized as being too large, too risky and too short-sighted; 40 out of 41 zombie directors (those who failed to get a majority of votes while running uncontested) still retained their seats; and the SEC ruled that proxy advisory firms must disclose significant relationships and material interests. Further details on these significant developments in corporate governance in 2014 can be found behind Tab IV.
Exhibit 3
7
Majority Votes F or
hareholder 71 S
P roposals
In 2014, 71 shareholder proposals received support from a majority of the votes cast “for” and “against,” a slight increase from the 68 proposals that received majority votes in 2013, which was the lowest total since the 66 in 2001. The all-time high was 167 in 2003. MCG believes the decline in the number of proposals receiving majority votes is actually evidence of increased, not decreased shareholder influence. Productive negotiations between shareholders and companies result in many proposals that would have received majority votes in the past being withdrawn or never even filed. For example, in 2014 the Shareholder Rights Project withdrew 23 out of 31 proposals to repeal classified boards due to the companies’ responsiveness. According to Institutional Shareholders Services (“ISS), five categories accounted for 74% of the 71 proposals that received majority votes in 2014—20 proposals for a majority vote to elect uncontested directors, 15 proposals to repeal classified boards, eight proposals to eliminate/reduce supermajority vote provisions, and five proposals each for proxy access and shareholder approval of poison pills. Other categories with multiple proposals receiving majority support were: shareholders being able to call special meetings (4); requiring double triggers (a change in control and a loss of employment) for accelerated vesting of awards (4); and an independent board chair (4). ISS reported that in 2014 there were 28 proposals that received over 80% of the votes cast for and against as compared to 25 in 2013. 99.7% Ensign Group Majority Vote for Uncontested Directors 99.5% Ferro Corporation Reduce Supermajority Vote Requirement 99.2% QEP Resources Declassify Board 97.2% Huntington Ingalls Declassify Board 97.0% Hospitality Properties Remove Antitakeover Provisions 96.3% Oclaro Majority Vote for Uncontested Directors 95.7% Insight Enterprises Declassify Board 95.3% Akamai Technologies Declassify Board 94.9% WPX Energy Declassify Board 94.2% DST Systems Declassify Board 92.7% Navistar International Shareholder Approval of Poison Pill
Exhibit 3
8
91.8% Alexion Pharmaceuticals Shareholder Approval of Poison Pill 86.8% Wausau Paper Shareholder Approval of Poison Pill 86.3% NeuStar Declassify Board 85.1% Vornado Realty Trust Majority Vote for Uncontested Directors 85.0% Bristol-Myers Squibb Reduce Supermajority Vote Requirement 84.4% Vornado Realty Trust Declassify Board 84.1% Kirland’s Majority Vote for Uncontested Directors 83.9% Dendreon Declassify Board 83.4% Unit Majority Vote for Uncontested Directors 82.5% BIOLASE Elect Shareholder Nominee to Board 82.4% Netflix Majority Vote for Uncontested Directors 82.3% Netflix Declassify Board 82.0% iRobot Reduce Supermajority Vote 81.2% Texas Roadhouse Declassify Board 80.7% Kraft Foods Support Company’s Animal Welfare Acts 80.3% Service Declassify Board 80.2% Netflix Shareholder Approval of Poison Pill The most frequently voted corporate governance shareholder proposals by MCG during 2014 were: independent board chair; require a majority vote for uncontested directors; substantial retention of equity awards; shareholder right to act by written consent; no accelerated vesting of equity awards; proxy access; shareholders to call a special meeting; eliminate/reduce supermajority provisions; and recapitalize for all stock having one vote.
Exhibit 3
9
HAREHOLDER S
ROPOSALS N P O
ORPORATE C
OVERNANCE G
Exhibit 3
10
Independent
oard hair B C
Although having an independent chairman of the board (instead of the CEO or another insider serving as chairman) would be a dramatic change in the U.S., it is common in other countries, particularly in the UK. The rationale for this proposal is simple and logical. One of the prime responsibilities of the board of directors is to supervise and monitor on behalf of shareholders the executives that run the company. How effective is that supervision/monitoring going to be if the chairman of the board is also the CEO or some other company insider? Since many of the companies that were embroiled in the 2008 financial crisis did not have an independent Chairman of the Board of Directors, this proposal received a new impetus in 2009. A record 27 proposals came to a vote then and the number reached a record high of 65 in 2013. ISS reported that in 2014, proposals seeking an independent chair averaged 31%, the same as in 2013. Four of the 2014 proposals received majority votes as compared to five in 2013. MCG supported all 63 such proposals it voted on in 2014 for SURS.
Exhibit 3
11
Majority Vote
Standard For
Director Elections
Corporate governance activists started filing shareholder proposals seeking a majority vote standard for uncontested director elections in 2005 when the SEC abandoned its initial effort to grant shareholders access to companies’ proxies to nominate directors. Georgeson reports that 77% of S&P 500 companies have now voluntarily adopted a majority vote standard for uncontested elections. For years, most boards of directors were elected by a plurality vote standard—nominees who get the most votes win. In a non-contested election (which most are) the only vote options are “for” and “withhold authority.” That means a nominee could have only one share cast “for” him/her and still be elected, regardless of how many shareholders withheld their votes for that nominee. According to ISS, the average support for such resolutions that went to a vote in 2014 was 58% of votes cast for and against (compared to 59% in 2013). MCG supported all 31 such proposals it voted on in 2014 for SURS.
Exhibit 3
12
Substantial R etention of
Equity A wards
These proposals request that senior executives be required to retain a significant portion (typically 75%) of shares obtained through compensation plans until their employment is terminated. The rationale for this proposal is that retention of shares past employment will better align the interests of the executives with shareholders and focus the executives on the companies’ long term success by discouraging excessive risk-taking and promoting long-term, sustained value creation. Although a number of companies have adopted guidelines that require senior executives own a minimum number of company shares that is a multiple of the executives’ base salary, these executives are frequently granted awards of shares far above that multiple and are free to sell them. Activist shareholders have expressed concern that minimum stock ownership guidelines based on a multiple of salary do not go far enough to ensure that equity compensation builds executive ownership and that a retention requirement approach is superior to a stock ownership guideline because a guideline loses effectiveness once it has been satisfied. According to ISS, the average vote on these proposals in 2014 was 21% (as compared to 24% in 2013). MCG supported 28 of 29 such proposals it voted on in 2014 for SURS. The one proposal MCG opposed was at General Electric which sought to require retention until death.
Exhibit 3
13
ct y A B
ritten onsent W C The proponents of the resolution, which first began appearing with regularity in the 2010 season, state that the right to act by written consent gives shareholders the opportunity to raise important matters outside the normal annual meeting cycle. An action by written consent gives shareholders the right to approve certain corporate matters without having to call a meeting of shareholders or to give notice to all shareholders about the matters being approved. In some instances, an action by written consent could be more efficient and cost-effective than holding a special meeting. Shareholders could also use the written consent process to try and effectuate change, including using the right to call a special meeting and, in some cases, to remove directors. According to ISS, this proposal averaged 38% in 2014 (compared to 40% in 2013). The average vote has been trending downward since 2010 when it was 54%, which can be attributed to ISS switching from across-the-board support to a case-by-case analysis that factored in the rest of a company’s governance structure. MCG supported all 28 such proposals it voted on in 2014 for SURS.
Exhibit 3
14
No A ccelerated
Vesting of Equity
A wards
This is a relatively new proposal, but such major corporations as Apple, Chevron, ExxonMobil, IBM, Intel, Microsoft and Occidental Petroleum have changed their equity compensation plans to provide for pro rata vesting or simply a forfeiture of unearned awards. The equity compensation plans at many corporations provide that if there is a change in control, the vesting of all outstanding equity awards to senior executives is accelerated even if time or performance conditions attached to the awards have not been satisfied. Corporate governance activists view such total acceleration as an undeserved windfall for the executives. To correct the situation, while avoiding a forfeiture of all outstanding equity awards, a proposal has been crafted that allows for pro rata vesting. For example, if an equity award was supposed to vest after the passage of three years and only one year has passed when there is a change in control, then one-third of the award would vest. For awards that are performance vesting, the pro rata details are to be determined by the Compensation Committee. According to ISS, the average support for such proposals in 2014 was 35%, up from 33% in 2013. MCG voted in favor of all 24 such proposals it voted on in 2014 for SURS.
Exhibit 3
15
roxy ccess P A In 2010, after seven years of deliberation, the SEC approved a proxy access rule, which granted long-term major investors (holders of at least three per cent of the shares outstanding for three years) access to a company’s own proxy materials and ballot to nominate a limited number of dissident directors. But the rule was invalidated in 2011 by a federal appellate court on the grounds that the SEC had acted arbitrarily and capriciously in not weighing the costs and benefits of the rule. The court ruling opened the door in 2012 to shareholders to file proposals on a company by company basis—13 that year and 17 in 2013. The proposals varied widely in their terms, ranging from a reflection of the three per cent for three years in the SEC rule to 100 or more shareholders who only held $2,000 of stock for one year. In 2014, MCG voted on 18 proxy access proposals for SURS. According to ISS, the average vote in favor of them was 33% (the same as in 2013). MCG voted SURS proxies in favor of 11 of the proposals that reflected the SEC three per cent for three years rule and against the seven proposals that had less stringent provisions.
Exhibit 3
16
epeal R
lassified C
oards B
In a classified board, the directors are typically divided into three staggered classes with each class elected for a three-year term. For example, Class A is elected in 2015 and is not up for reelection until 2018. Class B is elected in 2016 and is not up for reelection until 2019. Class C is elected in 2017 and is not up for reelection until 2020. MCG believes that the classified board structure is not in the best interests of shareholders because it does not allow them to hold board members accountable on an annual basis and makes it virtually impossible to challenge their actions as board members except in the year they stand for reelection. A 2004 Harvard study found that classified boards are correlated with an economically significant reduction in firm value. Classified boards are also a takeover defense because an acquirer cannot replace all of the members at the same time. In 2014, according to ISS, proposals to declassify boards of directors averaged 82% of the vote (as compared to 80% in 2013). MCG supported all 17 such proposals it voted on in 2014 for SURS.
Exhibit 3
17
Call
S pecial
M eetings
Giving investors the right to call special meetings is often seen as a sign of good corporate governance, because it gives shareholders more of a voice in running the company. Australia, Canada and the UK have corporate laws that allow shareholders to call special meetings.
The corporate laws of some states (although not Delaware where most companies are incorporated) provide that the holders of 10% of the shares outstanding of a company may call a special meeting of shareholders, absent a contrary provision in the company’s charter or bylaws. Most companies’ charters or bylaws only grant the board of directors the ability to call a special meeting of shareholders—typically to consider a merger or acquisition. In the past in the United States, a few such proposals were filed sporadically. But, starting in 2007, proposals were filed by a coalition of individual shareholders which asked companies to amend their bylaws to establish a process by which the holders of 10% to 25% of outstanding shares may call a special meeting. According to ISS, the average vote on these proposals in 2014 was 41% as compared to 44% in 2013. MCG supported all 14 of such proposals it voted on in 2014 for SURS.
Exhibit 3
18
liminate/ educe E R
upermajority S
otes V
The by-laws at some companies provide that on certain issues—such as amending by-laws—a simple majority vote of the shareholders (i.e., one more than 50%) will not suffice and a supermajority vote (e.g., 66.6% or 75%) is required. Supermajority requirements have become a more important issue recently because most shareholder proposals are “precatory” in nature, which means advisory. When some companies ignore majority votes on precatory proposals, shareholders have reacted by filing binding proposals, many times as an amendment to the company’s by-laws. Shareholders can address the supermajority issue head on by filing proposals asking companies to voluntarily eliminate supermajority vote provisions. MCG’s position is that a majority vote by shareholders should be sufficient for all matters. In 2014, according to ISS, proposals to eliminate or reduce supermajority votes received an average vote of 67% (compared to 72% in 2013). MCG supported all 12 of such proposals it voted on in 2014 for SURS.
Exhibit 3
19
ne ote or O V F
ll tock A S Some companies create two classes of stock with different voting rights—a common example is one class will have one vote per share while another class will have 10 votes per share. The class with the extra votes is normally reserved for company insiders or a small group of preferred shareholders. MCG’s position is to examine the purpose that is being used to justify the two classes as well as to whom the preferred class of stock is being offered. Plans that are designed to entrench company management or a small group of shareholders at the expense of the majority of shareholders will not be supported. Plans that seek to enhance the voting rights of long-term shareholders will be given careful consideration. In 2014, according to ISS, proposals seeking recapitalizations that will give one vote to all classes of stock averaged 25% (as compared to 30% in 2013). MCG supported all 8 such proposals it voted on for SURS.
Exhibit 3
20
OARD B
ROPOSALS P
N ORPORATE O C
OVERNANCE G
Exhibit 3
21
lection E
f irectors O D MCG analyzes nominees for boards of directors on a case-by-case basis, focusing primarily on the following factors: The financial performance of the company during the tenure of incumbent nominees. If the company has consistently under performed a broad market index and/or its peer group over an extended time, MCG will generally vote to withhold authority for all nominees to the board, unless the board has taken firm, positive steps to improve the company’s performance. Whether nominees serve as independent, outside directors or as insiders (senior executive employee, former employee, relative of a senior executive employee, or contractor with the company). Since the board is supposed to represent shareholders by monitoring and directing key executives, common sense dictates that the interests of shareholders will not be given priority over the key executives if a majority of the board consists of insiders who are directly tied to the interests
of the company’s key executives. Stock Exchange listing requirements call for a majority of independent outsiders on boards, but the Enron, Tyco and WorldCom scandals showed that a mere majority of independent outsiders on the board is not sufficient to protect shareholder interests. Therefore, in 2004 MCG began withholding on all insider nominees when the board has less than a two-thirds majority of independent outsiders.
Whether the board has taken any action that is egregiously adverse to shareholder interests, such as repricing underwater stock options. In such cases, MCG will vote to withhold authority for all nominees to the board. Whether any nominees failed to attend 75% of their board and committee meetings without a valid excuse, such as illness or being away on company business. If they have attendance problems and no valid excuse, MCG will vote to withhold authority for them. In 2014, MCG voted on 18,227 nominees for boards of directors for SURS, compared to 17,732 nominees in 2013. In 2014, MCG voted in favor of 13,568 nominees (74% compared to 67% in 2013), against 4,656 nominees (26% compared to 33% in 2013), and abstained on 3
Exhibit 3
22
(compared to 24 in 2013) because overseas companies did not provide adequate background information.
Exhibit 3
23
atification R
f “Independent” O
uditors A
Up until 2001, votes to ratify a company’s independent auditors were the most routine of issues and even the most diligent of proxy voting agents rubberstamped the company’s choice. Then the SEC required companies to disclose how much they paid their accountants for “other” work and how much they paid them for their “independent” audit work in the prior year. Shareholders were startled to learn that, on the average, companies were paying their accountants three times more for “other” work than for their “independent” audit work. MCG reacted immediately by voting against the ratification of auditors who were being paid substantial amounts from the company for “other” services, which resulted in it voting against Arthur Andersen as Enron’s auditors in 2001—months before the scandal surfaced. MCG also began to abstain on the ratification of auditors in countries that do not require disclosure of auditor compensation. In 2002, Congress passed the Sarbanes-Oxley Act (“SOX”), which limited the auditor conflict issue, although it still allowed auditors to perform tax and other non-audit related services for companies they audit. In 2003, when the disclosures were for pre-SOX 2002 audit fees, MCG only voted in favor of 13% of all auditors. Although auditors continue to receive substantial amounts of money for non-audit services in the post-Sarbanes-Oxley era, the amount has dropped significantly. In 2005 MCG voted for a majority of auditors for the first time since the disclosures began. In 2014, MCG cast votes on 2,880 “independent” auditors for SURS compared to 2,786 in 2013. MCG voted for 2,032 (71% compared to 70% in 2013) of the auditors, against 1846 (29% compared to 30% in 2013) of the auditors and abstained on 2 (compared to 4 in 2013) of the auditors. The abstentions reflect the failure of overseas companies to sufficiently disclose auditor fees, which prevents an evaluation of potential auditor conflicts.
Exhibit 3
24
ompensation C
Cash and stock bonus plans are used by companies to award their key executives, outside directors and rank-and-file employees. Cash plans are analyzed by MCG by studying if the plans have specific and challenging performance standards. If they do, the next question is whether the standards for calculating bonuses produce results that are not excessive. Stock plans can take many forms. The most common are: stock option plans, which give the option holder the right to exercise the option to buy stock at a set price in the future; restricted stock plans, which grant stock to a person at no cost, but the person has no right to the stock until certain conditions are met (sometimes the mere passage of time); and employee stock ownership plans, which allow stock to be purchased by all full-time and some part-time employees through payroll deductions and are subject to federal guidelines. MCG weighs the following questions when it reviews stock plans on a case-by-case basis: Are performance standards specified for the grant of stock that serve as a true reward for past superior performance and an incentive for future performance? Is the amount of dilution to current shareholder equity excessive? Any amount in excess of 5% dilution is suspect.
Do change-in-control provisions allow for the vesting of options or restricted stock to accelerate?
Can underwater options (i.e., their fair market value has dropped below their exercise price) be repriced?
Is participation in the plan widespread? Are the number of shares any individual can receive reasonably limited? In 2014, MCG voted on 1,322 compensation plans for SURS as compared to 1,316 in 2013. MCG voted in favor of 229 (17% compared to 13% in 2013) of the plans in 2014, against 1,091 (83% compared to 87% in 2013) of the plans and abstained on 2 (compared to 3 in 2013) because overseas companies did not provide adequate background information.
Exhibit 3
25
2014 was the fourth year of advisory say-on-pay shareholder votes (“SOP) at nearly all publicly-traded U.S. companies. The threshold query for MCG in analyzing such votes is whether a company’s compensation reflected its performance. In resolving that issue, MCG relied on research data that showed how the company had performed versus its peers in total return to shareholders and how it had paid its CEO and other top executives versus its peers. MCG also checked whether restricted stock awards were performance vesting or time vesting.
The next queries were to determine the amount of dilution in stock compensation plans, if the company had given its executives golden parachutes and, if it did, whether golden parachutes included excise tax gross-up payments? MCG would then weigh all the factors. Decisions to (a) vote against compensation at companies that substantially underperformed their peers but substantially overcompensated their executives and (b) vote for compensation at companies that substantially outperformed their peers and substantially undercompensated their executives were relatively easy to reach. (NOTE: MCG’s analysis at overseas companies is hampered by the lack of data for peer group comparisons on compensation and performance.) When the performance/compensation peer group analysis was less black-and-white, the dilution/golden parachute/tax gross-ups analysis became more significant. For SURS in 2014, MCG voted on 2,684 management proposals for an advisory vote on compensation as compared to 2,435 in 2013. It voted in favor of 1,301 (47% compared to 44% in 2013) and against 1,380 (53% compared to 56% in 2013) and abstained on 3 (same as in 2013) companies for which it did not have adequate background information. The Dodd-Frank legislation also enables shareholders to decide if they want to vote on a company's executive compensation annually, every two years or every three years. MCG believes that annual approval is in the best interests of shareholders. In 2014 it voted that way at 108 meetings for SURS.
Exhibit 3
26
ommon C
tock S
ncreases I
Increases in common stock authorizations can negatively affect shareholder value because once the increases are approved by shareholders, the board of directors can issue the additional shares at its discretion, without seeking shareholder approval. This could include issuance of shares for financial recapitalization plans or for acquisitions or to thwart hostile (but desirable from a shareholder view) takeovers. And, whenever such shares are issued, they also dilute current shareholders’ proportion of earnings and control of the company. MCG carefully scrutinizes attempts to increase common stock authorizations. In scrutinizing such proposals, MCG studies whether an excessive amount of stock is being sought, such as more than 50% of the amount currently available, or, if there is very little stock currently available, more than 50% of the amount currently authorized. MCG also studies whether there is a specific purpose for increasing the stock authorization—such as an acquisition or a stock split. In 2014, MCG voted on increases in common stock authorization at 118 companies for SURS as compared to 107 in 2013. MCG voted in favor of 58 (49% compared to 36% in 2013) of the increases in 2014, against 59 (51% compared to 64% in 2013) of the increases and abstained on 1 (compared to none in 2013).
Exhibit 3
27
FOR IMMEDIATE RELEASE January 6, 2015
MCG LISTS 10 MOST SIGNIFICANT CORPORATE
GOVERNANCE DEVELOPMENTS IN 2014
Corporate attempts to shift paying their attorney’s fees to shareholders and to
reduce their U.S. taxes and sweeping shareholder engagements on proxy access,
eliminating excise tax gross ups and increasing board diversity dominate the Marco
Consulting Group’s (“MCG”) list of the 10 Most Significant Corporate Governance
Developments of 2014.
MCG is the largest investment consultant to multiemployer benefit plans in the
United States. It provides investment consulting, fiduciary and corporate governance
services to more than 330 benefit plans whose combined assets exceed $146 billion.
“Regulators and shareholders have had momentum in the corporate governance
arena in recent years, but in 2014 corporations took the initiative,” said MCG Chairman
Jack Marco. “Aggressive tactics to chill shareholder litigation by having shareholders
pay the company’s attorney’s fees unless the shareholders are substantially successful
and to reduce U.S. taxes by merging with smaller foreign companies and reincorporating
overseas surfaced unexpectedly, but by the end of the year regulators and shareholders
were mounting responses.”
“On a more encouraging note, in 2014 institutional investors coordinated efforts
to target 75 companies to attain the ability to use the companies own proxy materials to
nominate candidates to boards of directors, to convince 33 companies in the S&P 500
that pay excise tax gross ups to adopt a policy not to do so in the future, and to get 100
Exhibit 3
28
companies in the Russell 1000 that have no women on their boards to increase gender
diversity,” Marco concluded.
MCG’s list of the 10 most significant developments in corporate governance in 2014 is:
1. Delaware Court and Oklahoma Legislature Let Companies Shift Attorney
Fees in Litigation. The general rule in the United States is that litigants pay their own
attorney fees regardless of the outcome of the litigation. But in May the Delaware
Supreme Court ruled in ATP Tour Inc.v.Deutscher Tennis Bund that a non-stock
company may adopt bylaws, without approval by its members, that require members
who file lawsuits against the company be responsible for the legal fees of the company,
its officers and directors unless the members obtain a judgment that “substantially
achieves, in substance and amount, the full remedy sought.” The ruling will have an
obvious chilling effect on shareholders and is likely to encourage settlements. Although
ATP involved a non-stock company, at least 42 stock companies quickly adopted bylaws
or included them in their Initial Public Offering documents requiring a shareholder (never
the company) to pay the company’s legal fees unless the shareholder achieves the high
level of success in the ATP decision. A bill was introduced in the Delaware legislature to
limit the ruling to non-stock companies but it was not acted upon. Instead, the Delaware
Senate adopted a resolution that calls for continued consideration of the issue with draft
legislation expected in early 2015. The U.S. Chamber of Commerce has claimed there
will be a corporate migration out of Delaware if ATP is legislatively overruled.
Opponents, led by the Council of Institutional Investors and the plaintiff’s bar, are
lobbying the SEC as well as the Delaware legislature for relief and have urged proxy
advisors ISS and Glass Lewis to recommend votes against directors at companies who
have adopted fee shifting bylaws. The Oklahoma legislature has already acted by
passing a law effective in November mandating a less dramatic, but still chilling, form of
Exhibit 3
29
fee shifting. In Oklahoma, the non-prevailing party in a shareholder “derivative” suit (the
shareholder sues a third party—usually an officer or director of the company--on behalf
of the company) has to pay the prevailing party’s legal expenses, which at least enables
shareholders to benefit if they do prevail.
2. Public Concerns and Government Action Put Brakes on Corporate Tax
Inversions. A corporate tax inversion is when a U.S. company seeks to reduce its U.S.
taxes by reincorporating overseas through a merger with a smaller foreign-domiciled
company. Inversions started becoming a popular tactic in 2010 and by 2014 a
nonpartisan Congressional research panel reported that the U.S. would lose nearly $20
billion in tax revenue in a decade from proposed inversions. The inversion issue
became front page news during the summer when Walgreen announced one with
Alliance Boots, a Swiss corporation. Walgreen’s candor in touting $4 billion in expected
in tax savings ignited a consumer and governmental firestorm—300,000 people signed a
petition demanding that Walgreen not “desert America”, there were calls for a national
boycott and the federal government made it clear it was considering a long list of ways to
deal with a company that got one-third of its revenues from Medicare and Medicaid
payments. Walgreen called the inversion off, citing “potential consumer backlash and
political ramifications.” The Treasury Department issued new rules in September by
revising five sections of the tax code to reduce the economic benefits of inversions by
closing loopholes that allowed loans, transfers of cash or property, shifting and
classifying assets to avoid U.S. taxes. The new rules were cited as the reason AbbVie
called off its inversion/merger deal in October with Shire, a UK entity. Burger King’s
inversion/merger with Tim Horton’s will be voted on in 2015. Unlike the Walgreen optics,
Burger King has stressed that the impact of tax benefits from the merger are minimal
and that the deal is really being driven by strategic considerations.
Exhibit 3
30
3. Proxy Access Proposals Filed at 75 Companies Per New York City
Boardroom Accountability Project. There had been a limited, although fairly
successful, number of shareholder proposals seeking proxy access (being able to use a
company’s own proxy materials to run dissident director candidates for a non-controlling
share of the board) since an SEC rule mandating it for holders of 3% of the shares
outstanding for three years was invalidated by a Federal court on procedural grounds.
In 2014, 18 proposals reflecting the SEC’s 3%/three years went to a vote, with five
receiving majority support. The median vote for proxy access that year was 44.8%.
That’s going to change dramatically in 2015 because in November the New York City
Pension Funds launched the Boardroom Accountability Project in which its benefit funds
and the New York State Common Retirement Fund, CalPERS, CalSTERS, the Illinois
State Board of Investments, the Philadelphia Board of Pensions and Retirement, the
Firefighters’ Pension System of Kansas City, Missouri, and the Miami Firefighters’ Relief
and Pension Fund announced they were filing proxy access shareholder proposals at 75
companies to give shareowners a choice in the election of directors. The 75 companies
were chosen on three priority issues: climate change, board diversity and CEO pay.
“Systemic change requires higher impact, board-level engagement and shareowner
access to the proxy to nominate directors is a prerequisite to that discussion,” said
Howard M. Stringer, the New York City Comptroller. “Stronger board oversight leads to
better long term performance.” Some companies have responded by filing management
proposals with 5% ownership for five years and seeking to exclude the shareholder
proposals, citing an SEC ruling at Whole Foods Market, which was not a company
targeted by the Boardroom Accountability Project . The Whole Foods Market decision
was appealed as 2014 ended.
4. AFL-CIO Equity Index Fund Seeks to Rid S&P 500 of Excise Tax Gross
Ups. To discourage the payment of golden parachutes (more than 2.99 times average
Exhibit 3
31
salary and bonus) triggered by change in controls that became popular in the merger-
frenzied 1980s, Congress imposed a 20% non-deductible excise tax in addition to the
regular tax (typically 35%) on the amount over the average. Companies responded by
agreeing to “gross up” the excise tax—giving the executive an additional amount to pay
the excise tax. Since the additional amount is also taxable, the amount necessary to
implement the gross up is subject to an upward spiral. An Equilar study in 2005
estimated that grossing up a $1 million tax can require an additional $700,000-$900,000.
A Tower Perrins study of roughly 1,000 large U.S. companies in 2007 found 77% had
excise tax gross up agreements. The widespread use of excise tax gross up
agreements was revealed in the Equilar study and subsequent disclosure requirements
by the SEC enabled corporate governance reformers to challenge the reasonableness
and fairness of them, which most companies did not resist. The AFL-CIO Equity Index
Fund reviewed ISS research reports of its S&P 500 holdings and identified only 33
companies that had such agreements and had not adopted a policy to no longer enter
into them. The Fund sent letters to the 33 companies in October urging them to adopt
such policies and to advise the Fund of their position the week before the deadline for
filing 2015 shareholder proposals. As 2014 ended, the Fund learned that 17 of the
companies agreed to adopt such policies after the Fund’s request and six firms already
had a policy in place and simply needed to better communicate it. The Fund has or will
file shareholder proposals at the remaining 10 firms and is hopeful that some will decide
to adopt a policy before their annual shareholder meeting.
5. The 30% Coalition Seeks to Increase Gender Diversity on Corporate
Boards. A group of 89 senior business executives, government officials, national
women's organizations, institutional investors, professional services firms, non-profit
organizations and corporate governance experts called the 30% Coalition sent letters in
October to 100 companies in the Russell 1000 that have no women on their boards
Exhibit 3
32
urging them to embrace gender diversity. The Coalition’s goal is attaining at least 30%
female representation across public company boards by the end of 2015. The Coalition
believes that a substantial number of qualified female candidates exist and that the
research to date is conclusive of the merits of gender diversity in the boardroom but the
problem has been a lack of interest in female candidates from companies. According to
Catalyst’s 2013 census of Fortune 500 companies: women held only 16.9 percent of
board seats in 2013—no change from 2012 (16.6 percent); and in both 2012 and 2013,
less than one-fifth of companies had 25 percent or more women directors, while one-
tenth had no women serving on their boards. Some progress though is afoot with
women holding 19% of all directorships among the S&P 500 as of Nov. 2014, according
to MSCI’s Women on Boards report. When the Coalition engages U.S. companies in
meetings and with proposals, it can point out that gender-diverse boards are much more
common overseas, in large part because many markets have legal requirements
(Norway, Spain, Iceland, France, the Netherlands, Malaysia, Italy and Belgium) or
reporting requirements (Australia, Hong Kong, UK) for women’s representation. All eyes
are on Germany as the latest market to embolden this trend. Chancellor Angela
Merkel’s government adopted a bill in December that requires large listed companies to
fill 30% of their supervisory board seats with female nonexecutive directors and force
thousands of large and midsize businesses to set binding targets for women top
managers.
6. Activist Funds Record At Least Partial Wins More Than 70% Of Time.
Proxy contests used to be a rarity but the financial crisis in 2008 and the rise of activist
funds have made challenges to corporate management more commonplace and
appealing to institutional investors. Their initial strategy often was to push to sell a
company quickly, and while that often remains a goal, they have now expanded their
tactics to press for strategic and financial changes they think will drive a stock higher.
Exhibit 3
33
According to Factset Sharkwatch, in the first nine months of 2014, activist funds
launched 238 campaigns seeking changes at companies, the most since the same of
2008, and they scored at least a partial victory, either by a vote or by a settlement, in
72% of all shareholder votes, far exceeding 2013’s record 63%. As the Wall Street
Journal noted in November, activists have on average boosted stock prices, which
increases their appeal, which in turn has attracted a flood of investor money to fuel even
more campaigns.
7. Entire Commonwealth REIT Board Ousted by Written Consent. One of
the more dramatic activist fund victories was at Commonwealth REIT (since renamed
Equity Commonwealth) where two dissidents--Corvex and Related--with close to a 10%
stake in the Company were able to throw out the entire board of directors with a written
consent. The dissidents started their campaign in 2013 and delivered written consents
from 70% of outstanding shares who agreed with them that the incumbent directors
should be removed due to the cumulative weight of long-standing underperformance, a
flawed management structure, poor corporate governance (classified board, plurality
voting, adopting a poison pill without shareholder approval), and indifference to
shareholder concerns. The board attempted to nullify the vote through bylaw changes
and the parties went to binding arbitration to settle the matters. The arbitration panel did
not certify the results of the written consent and required the dissidents to start the
process over in 2014. On March 18, 81% of the shares outstanding submitted written
consents to cast out the entire board of CommonWealth REIT.
8. Icahn Forced To Drop Apple Share Buyback. Carl Icahn’s failed attempt to
force Apple to dip into its $159 billion chest of cash to finance a $50 billion share
buyback by September 27 was an instance where an activist fell short of its goal. Icahn
had been urging the share buyback for six months and had filed a precatory shareholder
proposal seeking it that was on the ballot for Apple’s annual meeting in February. Apple
Exhibit 3
34
opposed the buyback and received public backing from CalPERS and the New York City
Pension Funds and other institutional investors who argued that the plan was too large,
too risky and too short-sighted for long term investors. Since most of Apple’s cash was
stored outside the United States, it would either need to pay an estimated 30%
repatriation tax to use it or borrow money in the United States to implement the buyback.
A few weeks before the annual meeting, right after ISS came out with a recommendation
against his proposal, Icahn announced he was withdrawing it.
9. Zombie Directors Still Thriving—40 out of 41 Lose Uncontested Elections
But Still Serving. CII coined the phrase “Zombie Directors” in 2012 for those who failed
to get majority support from shareholders even though they were running unopposed
and remained on the board either because the companies’ bylaws only required that
nominees receive a plurality of votes—a certainty if there is no opposition--or the
companies refused to accept a resignation of a director. In 2014 a total of 41 directors
failed to receive majority shareholder support at 27 companies in the Russell 3000. To
date, only one of these has stepped down. Most companies now have a majority vote
standard for electing directors which eliminates the Zombie dilemma. Unfortunately, the
few remaining companies that retain a plurality vote standard seem to be the type of
companies that have problematic directors. A total of six directors at four companies
failed to receive majority support for multiple consecutive years in 2014. The companies
with multi-year zombie directors are Healthcare Services Group, Impax Laboratories,
Nabors Industries and Vornado Realty Trust. Only one director holds the distinction in
2014 of being rejected by the shareowners of multiple companies in the same year.
Barry Portnoy received only 38 percent support at Five Star Quality Care and 49 percent
support at Government Properties Income Trust. In addition, he was one of the directors
voted off the board of CommonWealth REIT in the written consent campaign discussed
above.
Exhibit 3
35
10. SEC Rules Proxy Advisors Must Disclose Significant Relationships,
Material Interests. The Business Roundtable, the U.S. Chamber of Commerce, and the
Society of Corporate Secretaries and Governance Professionals, as well as members of
Congress and even several SEC Commissioners have expressed concern about the
growing influence of proxy advisory firms on shareholder voting, executive compensation
and corporate governance practices. In response, the SEC issued a relatively mild legal
bulletin stating that proxy advisory firms must provide the recipient of the advice with
disclosure that provides notice of the presence of a significant relationship (such as a
contract with a company or shareholder proponent) or a material interest (5% of its
revenue is received from a company or shareholder proponent) regarding a voting
recommendation. The legal bulletin stressed that boilerplate language that such a
relationship or interest may or may not exist would not be satisfactory. It is unlikely that
any changes to conform to the guidance will have a significant impact on the current
proxy voting system. The SEC would need to revise or adopt rules — which it has not
indicated it intends to do — to make the more significant changes to the system that the
critics had urged.
………………………………………………
FOR MORE INFORMATION CONTACT: Maureen O’Brien, 312-612-8446,
Exhibit 3
STATE UNIVERSITIES RETIREMENT SYSTEM
PROXY POLICY STATEMENT
Adopted by the Board of Trustees February 5, 2015
Exhibit 4
Proxy Policy Statement
This statement sets forth the customized guidelines for the voting of domestic proxies for the State Universities Retirement System (SURS) by the Marco Consulting Group (MCG).
This policy is designed to reflect the fiduciary duty to vote proxies in
favor of shareholder interests. In determining proxy votes, the economic interest of the plan participants will not be subordinated to any other entity or interested party.
SURS’ domestic proxies will be cast in a timely manner solely in the
interests of the participants and beneficiaries of the SURS Plan for the exclusive purpose of providing benefits to participants and their beneficiaries and defraying the reasonable expenses of administering the Plan with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in like capacity familiar with such matters would use in the conduct of an enterprise of like character and with like aims in accordance with the documents and instruments governing the Plan.
The U.S. Department of Labor Interpretative Bulletin 08-2, October,
2008, directs fiduciaries to determine if the cost of exercising their shareholder rights—including but not limited to expenditures related to development of proxy resolutions, proxy voting services and the analysis of the likely net effect of a particular issue on the economic value of the plan’s investment—will have an effect on the economic value of the plan’s investment that will outweigh the cost of exercising such rights.
In this regard, MCG has affirmed to the SURS Board of Trustees that
the exercise of shareowner rights pursuant to MCG’s business model will have a positive economic value on SURS’ investments that outweighs the cost of exercising such rights and that MCG’s proxy voting fee, which includes developing and presenting shareholder proposals or attending
Exhibit 4
formal annual meetings or informal meetings with corporations if SURS so requests, will be a fraction of the value of SURS’ equity valuation.
Based on the above referenced affirmation, the SURS Board of Trustees has determined that the cost of exercising its shareholder rights—including but not limited to expenditures related to developing proxy resolutions, proxy voting services and the analysis of the likely net effect of a particular issue on the economic value of the plan’s investment—will have a positive effect on the economic value of the plan’s investment that will outweigh the cost of exercising such rights.
Each proxy will be reviewed on a case-by-case basis with final
decisions based on the merits of each case. In reviewing the proxy issues, the following Issue Guidelines will be used for each of the categories of issues listed below. When proposals fall outside of these categories, they will be voted according to the Council of Institutional Investors’ Corporate Governance Policies, per section XV(A)(1) of the SURS Investment Policy. If any conflicts of interest should arise, they will be resolved pursuant to the steps prescribed in MCG’s administrative procedures.
Issue Guidelines
Election of Directors
The members of the boards of directors are elected by shareholders to represent the shareholders’ interests. This representation is most likely to occur if two-thirds of the members are independent outsiders as opposed to insider directors (such as senior management employees, former employees, relatives of management or contractors with the company). If two-thirds of the board is not represented by independent outsiders, a vote will usually be cast to withhold authority on the inside directors.
Other factors that will be considered when reviewing candidates will be the number of corporate boards on which they already serve (ideally directors with full-time jobs should serve on no more than three other boards and no individual should serve on more than five other boards), whether they have pledged a substantial amount of company stock, their performance on committees and other boards, the company’s short-term and long-term
Exhibit 4
financial performance under the incumbent candidates, the company’s responsiveness to shareholder concerns (particularly the responsiveness to shareholder proposals that were approved by a majority of shareholders in the past 12 months) and other important corporate constituents, the overall conduct of the company (e.g., excessive executive compensation, adopting anti-takeover provisions without shareholder approval) and not attending at least 75% of Board and Committee meetings unless there is a valid excuse.
The independence of key Board committees, such as audit,
compensation and nominating committees, should be maintained. It is in the best interests of shareholders for only independent directors to serve on these committees and votes will be withheld from any insider nominee who serves on these committees.
In contested elections of directors, the competing slates will be
evaluated upon the personal qualifications of the candidates, the quality of the strategic plan they advance to enhance long-term corporate value, management’s historical track record, the background to the proxy contest and the equity ownership positions of individual directors. Ratification of Auditors
A series of audit scandals at publicly-traded companies and SEC-mandated disclosures that revealed auditors were being paid much more for “other” work at companies in addition to their “audit” work have demonstrated that the ratification of auditors must be scrutinized as much as the election of directors.
Although the Sarbanes-Oxley Act of 2002 attempted to address the
issue of auditor conflicts of interest, it still allows auditors to do substantial “other” work (primarily in the area of taxes) for companies that they audit. Therefore, the amount of the non-audit work will be evaluated, and if it is so substantial as to give rise to a conflict of interest, a vote will be cast against the ratification of auditors. Concern will be raised if the non-audit work is more than 20% of the total fees paid to the auditors. Attestation services provided by audit firms will not be considered as non-audit work. Other factors weighed will be the reasons for any change in prior auditors by the company and whether the same firm has audited the company for more than seven years.
Exhibit 4
Routine Proposals Routine proposals are most commonly defined as those which do not
change the structure, bylaws, or operation of the company to the detriment of the shareholders. Traditionally, these issues include:
-Indemnification provisions for directors; -Liability limitations of directors; -Stock splits/reverse stock splits; -Name changes.
Given the routine nature of these proposals, proxies will usually be voted with management; however, each will be examined carefully. For example, limitations on directors’ liability will be analyzed to ensure that the provisions conform with the law and do not affect their liability for such actions as the receipt of improper personal benefits or the breach of their duty of loyalty. The analysis of a proposal to limit directors’ liability would also take into consideration whether any litigation is pending against current board members. Non-Routine Proposals
Issues in this category are more likely to affect the structure and operation of the company and, therefore, to have a greater impact on the value of a shareholder’s investment. Issues in this category will be reviewed on case-by-case basis with voting decisions made based on the financial interest of the plan beneficiaries. Non-routine matters include:
Mergers/Acquisitions and Restructuring (See also Reincorporating/Inversions)
The analysis will focus on the strategic justifications for the transaction and the fairness of any costs incurred. If the analysis supports a transaction, a vote will be cast in favor of proposals seeking an adjournment of the meeting to allow the company more time to gather additional votes.
Advisory Votes on Compensation Policies and Practices
To evaluate compensation policies and practices, the threshold query is “Does a company’s compensation reflect its performance?” This will be determined by how a company has performed for shareholders compared to its peer group as well as by how a company has compensated its executives compared to its peer group. Whether restricted stock awards are time vesting or performance vesting will also be taken into consideration. Additional queries will be made to
Exhibit 4
determine the level of dilution in stock compensation plans and to ascertain if golden parachutes have been awarded to executives, and if they have, whether they pay tax gross-ups. The threshold query will carry the most weight, but the additional queries can be persuasive in the event that the answer to the threshold query is not evident.
In connection with the advisory vote on compensation policies and practices, known as “Say on Pay”, the option to hold the vote on an annual basis or every two or three years will also be presented. An annual basis will be supported since it is in the best interests of shareholders.
Advisory votes are also cast on severance packages in connection with mergers/acquisitions. The factors that will be weighed are whether the total payment is in excess of 2.99 times salary and bonus, whether excise taxes are grossed-up, if there is a double trigger for cash payments and whether the accelerated vesting of stock awards is excessive. Fair-Price Provisions
These provisions attempt to guard against two-tiered tender offers in which some shareholders receive less value for their stock than other shareholders from a bidder who seeks to take a controlling interest in the company. There can be an impact on the long-term value of holdings in the event that shareholders do not tender. Such provisions will be analyzed on a case-by-case basis.
Reincorporating/Inversions
A company usually changes the state or country of its incorporation to take advantage of tax and corporate laws in the new state or country. These advantages should be clear and convincing and be supported by specific, legitimate business justifications that will enhance the company’s long-term value to shareholders and will be weighed along with any loss in shareholder rights and protections (e.g., dilution of management accountability and liability, anti-takeover devices), reputational risk and damage to governmental relationships. We may also consider any adverse impact on the company’s employees and erosion of the local/state/Federal tax base.
Exhibit 4
Changes in Capitalization An inquiry will be made to study whether the change is necessary and
beneficial in the long run to shareholders. Creation of blank check preferred stock, which gives the board broad powers to establish voting, dividend and other rights without shareholder review, will be opposed.
Increase in Preferred and Common Stock
Such increases can cause significant dilution to current shareholder equity and can be used to deter acquisitions that would be beneficial to shareholders. It will be determined whether such increases have a specific, justified purpose, and if the amount of the increase is excessive.
Stock/Executive Compensation Plans
The purpose of such plans should be to reward employees or directors for superior performance in carrying out their responsibilities and to encourage the same performance in the future. Consequently, the plan should specify that awards are based on the executive’s/director’s and the company’s performance. In the case of directors, their attendance at meetings should also be a requirement. In evaluating such plans, it will be considered whether the amount of the shares cause significant dilution (5% or more) to current shareholder equity, how broad-based and concentrated the grant rates are, if there are holding periods, if the shares are sold at less than fair market value, if the plan contains change-in-control provisions that deter acquisitions, if the plan has a reload feature, and if the plan allows the re-pricing of “underwater” options.
Employee Stock Purchase Plans
These are broad-based, federally regulated plans which allow almost all full-time and some part-time workers to purchase limited amounts of company stock at a slight discount. Such proposals will be evaluated on a case-by-case basis.
Creation of Tracking Stock
Tracking stock is designed to reflect the performance of a particular business segment; however, it can create substantial conflicts of interest between shareholders, board members and management. Such proposals will be evaluated on a case-by-case basis.
Exhibit 4
Approving Other Business Some companies seek shareholder approval of management being
given broad authority to take action at a meeting without shareholder consent. Such proposals are not in the best interests of shareholders and will be opposed.
Corporate Governance Proposals
A vote will generally be cast against any management proposal that is designed to limit shareholder democracy and has the effect of restricting the ability of shareholders to realize the value of their investment. Proposals in this category would include:
Golden Parachutes.
These are special severance agreements that take effect after an executive is terminated following a merger or takeover. In evaluating such proposals, the salaries, bonuses, stock option plans and other forms of compensation already available to these executives will be taken into account to determine if the additional compensation in the golden parachutes is excessive. Factors that will be considered are whether the total payment is in excess of 2.99 times salary and bonus, whether excise taxes are grossed-up, if there is a double trigger for cash payments and whether the accelerated vesting of stock awards is excessive. Shareholder proposals requesting that golden parachutes be subject to shareholder approval will be supported.
Greenmail Payments.
Greenmail is when a company agrees to buy back a corporate raider’s shares at a premium in exchange for an agreement by the raider to cease takeover activity. Since such payments can have a negative impact on shareholder value, there should be a shareholder vote to approve such payments, and there must be solid economic justification to grant approval.
Super Majority Voting.
Some companies specify that a super majority (e.g., 66%) vote is required for certain issues. A simple majority is generally in the best interest of shareholders and will normally be supported unless there is strong evidence to the contrary.
Exhibit 4
Dual Class Voting. Some companies desire to create two classes of stock with different
voting rights and dividend preferences. When evaluating these proposals, both the purpose that is being used to justify the two classes as well as the offerees of the preferred class of stock will be examined. Proposals that are designed to entrench company management or a small group of shareholders at the expense of the majority of shareholders will not be supported. Proposals that seek to enhance the voting rights of long-term shareholders will be given careful consideration.
Fair Price Proposals. Proposals of this type require a bidder in a takeover situation to pay a defined “fair price” for stock. These will be analyzed based on how fairly “fair price” is defined and on what other anti-takeover measures are already in place that might discourage potential bids that would be beneficial in the long term to shareholders. Classified Boards.
These are boards where the members are elected for staggered terms. The most common method is to elect one-third of the board each year for a three-year term. As the accountability afforded by the annual election of the entire board is very beneficial to stockholders, it would take an extraordinary set of circumstances to develop to support classified boards.
Shareholders’ Right To Call Special Meetings and Act By Written
Consent. These are important rights for shareholders and attempts to limit or
eliminate them should be resisted. Proposals to restore them will be supported.
Shareholder Proposals
Proposals submitted by shareholders for vote usually include issues of corporate governance and other non-routine matters. Each issue will be reviewed on a case-by-case basis in order to determine the position that best represents the financial interest of the plan beneficiaries. Shareholders matters include:
Exhibit 4
Poison Pill Plans These plans are designed to discourage takeovers of a company, which
can deny shareholders the opportunity to benefit from a change in ownership of the company. Shareholders have responded with proposals to vote on the plans or to redeem them. In reviewing such plans, it will be considered whether the poison pill plans were initially approved by shareholders and what anti-takeover devices are already in place at the company.
Independence of Boards and Auditors
The wave of corporate/audit scandals at the start of the 21st Century provided compelling evidence that it is in the best interests of shareholders to support proposals seeking increased independence of boards (e.g., requiring supermajority of independents on boards, completely independent nominating, compensation and audit committees, stricter definitions of “independence”, disclosures of conflicts of interest) and auditors (e.g., eliminate or limit “other” services auditors perform, rotation of audit firms). A related issue is the independence of analysts at investment banking firms. Proposals seeking to separate the investment banking business from the sell-side analyst research and initial public offering (IPO) allocation process will be supported.
Cumulative Voting
This system allows each shareholder votes equal to the number of shares held multiplied by the number of directors to be elected to the board. Shareholders can target all their votes for one of a few candidates or allocate them equally among all candidates. It is one of the few ways that shareholders can attempt to elect board members. In studying cumulative voting proposals, the company’s election procedures and the type of access that shareholders have to the nominating and voting process will be reviewed. Confidential Voting
The concept of confidential voting is so fundamental to the democratic process and so much in the best interest of shareholders that it will be opposed only in the most extraordinary circumstances.
Exhibit 4
Shareholder Access To the Proxy For Director Nominations Proposals to provide shareholders access to the company proxy
statement to advance non-management board candidates will generally be supported if they are reasonably designed to enhance the ability of substantial shareholders to nominate directors and are not being used to promote hostile takeovers.
Separate Chairperson and Chief Executive Officer
The primary purpose of the board of directors is to protect shareholder interests by providing independent oversight of management. If the Chair of the Board is also the Chief Executive Officer of the company, the quality of oversight is potentially hindered. Therefore, proposals seeking to require that an independent director serve as Chair of the Board will be supported. An alternative would be the establishment of a lead independent director, who would preside at meetings of the board’s independent directors and coordinate the activities of the independent directors.
Term Limit For Directors
Proposals seeking to limit the term for directors will normally not be supported because they can deny shareholders the service of well-qualified directors who have effectively represented shareholder interests.
Broader Participation On Boards
A more diverse board of qualified directors is in the best interests of shareholders. Therefore, proposals requesting companies to make efforts to seek more qualified women and minority group members will be supported.
Greater Transparency and Oversight
Shareholders benefit from full disclosure of board practices and procedures, company operating practices and policies, business strategy, and the methods companies use to calculate executive compensation. Proposals seeking greater disclosure on these matters will generally be supported.
Executive/Director Compensation
Proposals seeking to tie executive and director compensation to specific performance standards, to impose reasonable limits on it, or
Exhibit 4
to require greater disclosure of it are in the best interests of shareholders and will be supported. While financial performance is the traditional measurement for executive compensation, other performance measures can be a useful supplement and are worthy of consideration. Examples are regulatory compliance, international labor standards, high performance workplace standards and measures of employee satisfaction.
High Performance Workplaces
Proposals encouraging the high performance workplace practices identified in the Department of Labor’s report that contribute to a company’s productivity and long-term financial performance will be supported. Codes of Conduct
Proposals seeking reports on commonly accepted principles of conduct are in the best interests of shareholders because they provide useful information and will be supported. Pension Choice
There has been a recent trend by companies to convert traditional defined benefit pension plans into cash-balance plans. Cash-balance plans often hurt older workers and may be motivated by a company’s desire to inflate its book profits by boosting surpluses in its pension trust funds. Proposals that give employees a choice between maintaining their defined benefit or converting to a cash-balance will generally be supported.
Majority Vote Standard for Director Elections
For years, most boards of directors were elected by a plurality vote standard—nominees who receive the most votes win. In a non-contested election (which most are) the only vote options are “for” and “withhold authority.” Thus a nominee could have only one share cast “for” him/her and still be elected, regardless of how many shareholders withheld their votes for that nominee. Therefore, proposals requesting that nominees in non-contested elections receive a majority of the votes cast will be supported.
As customized for SURS April 26, 2007 and revised March 13, 2009; February 4, 2010; February 10, 2011, February 2, 2012, February 14, 2013, March 14, 2013, February 6, 2014, February 5, 2015.
Exhibit 4
State Universities Retirement System of Illinois
Serving Illinois Community Colleges and Universities 1901 Fox Drive • Champaign, IL 61820-7333
(217) 378-8800 • (217) 378-9802 (FAX)
Investment Department
To: Corporate Governance Committee
From: Allison L. Kushner
Date: September 10, 2015
Re: SURS Proxy Vote Summary Report
For your review, SURS Proxy Vote Summary Report for the second quarter of 2015 is
attached to this memorandum. Marco Consulting Group (MCG) cast 21,979 individual proxy
votes for SURS during the first quarter, approximately 65% of which were cast in favor of
management’s recommendations. MCG’s executive summary provides further detail on the
quarter’s activity and the report contains a summary of the votes cast which are organized
according to issue topic.
Exhibit 5
Proxy Vote Summary Report
Votes in Meetings Held Between April 1, 2015 and June 30, 2015
Number Voted
1
2015 Quarterly SURS Statistical Report Proposals For Against Abstain Withhold DNV 1
YR 2
YRS 3
YRS With Mngt
Against Mngt
Antitakeover Related "Adopt, Renew or Amend NOL Rights Plan (NOL Pill)" 13 13 0 0 0 0 0 0 0 13 0 "Adopt,Renew or Amend Shareholder Rights Plan (Poison Pill)" 7 1 5 0 0 1 0 0 0 1 5 Add Antitakeover Provision(s) 2 0 1 0 0 1 0 0 0 1 0 Adjourn Meeting 42 33 8 0 0 1 0 0 0 33 8 Adopt/Increase Supermajority Vote Requirement for Amendments 2 0 2 0 0 0 0 0 0 0 2 Amend Right to Call Special Meeting 4 4 0 0 0 0 0 0 0 4 0 Approve Control Share Acquisition 1 0 1 0 0 0 0 0 0 0 1 Approve/Amend Stock Ownership Limitations 6 6 0 0 0 0 0 0 0 6 0 Authorize the Company to Call EGM with Two Weeks Notice 3 3 0 0 0 0 0 0 0 3 0 Permit Board to Amend Bylaws W/O Shareholder Consent 2 1 1 0 0 0 0 0 0 1 1 Provide Right to Act by Written Consent 2 2 0 0 0 0 0 0 0 2 0 Provide Right to Call Special Meeting 11 10 1 0 0 0 0 0 0 10 1 Reduce Supermajority Vote Requirement 30 28 1 1 0 0 0 0 0 28 2 Require Advance Notice for Shareholder Proposals/Nominations 3 2 1 0 0 0 0 0 0 2 1 Rescind Fair Price Provision 1 1 0 0 0 0 0 0 0 1 0 Totals for Antitakeover Related : 129 104 21 1 0 3 0 0 0 105 (81.4%) 21 (16.3%) Capitalization Amend Articles/Charter Equity-Related 1 1 0 0 0 0 0 0 0 1 0 Amend Articles/Charter to Reflect Changes in Capital 3 3 0 0 0 0 0 0 0 3 0 Amend Votes Per Share of Existing Stock 1 0 1 0 0 0 0 0 0 0 1 Approve Issuance of Equity with or without Preemptive Rights 5 4 1 0 0 0 0 0 0 4 1 Approve Issuance of Equity without Preemptive Rights 25 18 7 0 0 0 0 0 0 18 7 Approve Issuance of Shares Below Net Asset Value (NAV) 1 1 0 0 0 0 0 0 0 1 0 Approve Issuance of Shares for a Private Placement 6 4 2 0 0 0 0 0 0 4 2 Approve Issuance of Warrants/Bonds without Preemptive Rights 1 1 0 0 0 0 0 0 0 1 0 Approve Issuance of Warrants/Convertible Debentures 3 2 1 0 0 0 0 0 0 2 1 Approve Reduction in Share Capital 9 9 0 0 0 0 0 0 0 9 0 Approve Reverse Stock Split 15 12 3 0 0 0 0 0 0 12 3 Approve Stock Split 2 1 1 0 0 0 0 0 0 1 1 Approve/Amend Conversion of Securities 10 6 4 0 0 0 0 0 0 6 4 Approve/Amend Securities Transfer Restrictions 2 2 0 0 0 0 0 0 0 2 0 Authorize Board to Increase Capital 2 1 1 0 0 0 0 0 0 1 1 Authorize Capital Increase for Future Share Exchange Offers 1 0 1 0 0 0 0 0 0 0 1 Authorize Capital Increase of up to 10 Percent 2 1 0 1 0 0 0 0 0 1 1 Authorize Issuance of Equity (Subsidiary's Securities) 1 0 1 0 0 0 0 0 0 0 1 Authorize Issuance of Equity with Preemptive Rights 14 9 4 1 0 0 0 0 0 9 5
Exhibit 6
Proxy Vote Summary Report
Votes in Meetings Held Between April 1, 2015 and June 30, 2015
Number Voted
2
2015 Quarterly SURS Statistical Report Proposals For Against Abstain Withhold DNV 1
YR 2
YRS 3
YRS With Mngt
Against Mngt
Authorize Management Board to Set Issue Price for 10 Percent 1 0 1 0 0 0 0 0 0 0 1 Authorize New Class of Preferred Stock 1 0 1 0 0 0 0 0 0 0 1 Authorize Reissuance of Repurchased Shares 3 1 1 1 0 0 0 0 0 1 2 Authorize Share Repurchase Program 34 12 5 17 0 0 0 0 0 12 22 Authorize Share Repurchase Program/Cancellation of Shares 2 2 0 0 0 0 0 0 0 2 0 Authorize Share Repurchase Program/Reissuance of Shares 4 0 2 2 0 0 0 0 0 0 4 Authorize a New Class of Common Stock 2 1 1 0 0 0 0 0 0 1 1 Capitalize Reserves for Bonus Issue/Increase in Par Value 3 2 0 1 0 0 0 0 0 2 1 Company Specific - Equity Related 8 7 1 0 0 0 0 0 0 7 1 Eliminate Class of Common Stock 1 1 0 0 0 0 0 0 0 1 0 Eliminate Preemptive Rights 11 6 5 0 0 0 0 0 0 5 6 Eliminate/Adjust Par Value of Stock 2 2 0 0 0 0 0 0 0 2 0 Increase Authorized Common Stock 86 32 53 0 0 1 0 0 0 32 53 Increase Authorized Preferred Stock 3 0 3 0 0 0 0 0 0 0 3 Increase Authorized Preferred and Common Stock 1 0 1 0 0 0 0 0 0 0 1 Ratify Past Issuance of Shares 1 1 0 0 0 0 0 0 0 1 0 Reduce Authorized Common and/or Preferred Stock 5 5 0 0 0 0 0 0 0 5 0 Totals for Capitalization : 272 147 101 23 0 1 0 0 0 146 (53.7%) 125 (46.0%) Directors Related Adopt Majority Voting for Uncontested Election of Directors 25 23 0 1 0 1 0 0 0 23 1 Allow Directors to Engage in Commercial Transactions 1 0 0 1 0 0 0 0 0 0 1 Amend Articles Board-Related 1 1 0 0 0 0 0 0 0 1 0 Amend Quorum Requirements 1 1 0 0 0 0 0 0 0 1 0 Appoint Alternate Internal Statutory Auditor(s) 1 1 0 0 0 0 0 0 0 1 0 Appoint Internal Statutory Auditors 13 4 9 0 0 0 0 0 0 4 9 Approve Decrease in Size of Board 2 2 0 0 0 0 0 0 0 2 0 Approve Director/Officer Liability and Indemnification 3 3 0 0 0 0 0 0 0 3 0 Approve Discharge of Auditors 2 2 0 0 0 0 0 0 0 2 0 Approve Discharge of Board and President 12 10 1 1 0 0 0 0 0 10 2 Approve Discharge of Management Board 16 12 1 3 0 0 0 0 0 12 4 Approve Discharge of Supervisory Board 10 9 0 1 0 0 0 0 0 9 1 Approve Executive Appointment 3 3 0 0 0 0 0 0 0 3 0 Approve Increase in Size of Board 1 1 0 0 0 0 0 0 0 1 0 Approve Remuneration of Directors and/or Committee Members 22 14 3 5 0 0 0 0 0 14 8 Authorize Board Chairman to Serve as CEO 1 0 1 0 0 0 0 0 0 0 1 Authorize Board to Fill Vacancies 1 1 0 0 0 0 0 0 0 1 0 Authorize Board to Fix Remuneration (Statutory Auditor) 1 0 0 1 0 0 0 0 0 0 1 Change Company Name 1 1 0 0 0 0 0 0 0 1 0 Classify the Board of Directors 1 0 1 0 0 0 0 0 0 0 1 Company Specific--Board-Related 6 4 2 0 0 0 0 0 0 4 2
Exhibit 6
Proxy Vote Summary Report
Votes in Meetings Held Between April 1, 2015 and June 30, 2015
Number Voted
3
2015 Quarterly SURS Statistical Report Proposals For Against Abstain Withhold DNV 1
YR 2
YRS 3
YRS With Mngt
Against Mngt
Declassify the Board of Directors 34 34 0 0 0 0 0 0 0 34 0 Dismiss/Remove Director(s)/Auditor(s) (Non- contentious) 2 2 0 0 0 0 0 0 0 2 0 Elect Alternate/Deputy Directors 1 1 0 0 0 0 0 0 0 1 0 Elect Board Chairman/Vice-Chairman 7 0 7 0 0 0 0 0 0 0 7 Elect Director 14802 10552 1504 20 2726 0 0 0 0 10553 4249 Elect Director (Cumulative Voting) 2 2 0 0 0 0 0 0 0 2 0 Elect Directors (Bundled) 5 1 3 0 0 1 0 0 0 1 3 Elect Directors (Bundled) and Approve Their Remuneration 1 0 0 1 0 0 0 0 0 0 1 Elect Directors (Management Slate) 118 34 11 0 8 65 0 0 0 34 19 Elect Subsidiary Director 130 124 5 1 0 0 0 0 0 124 6 Elect Supervisory Board Member 12 11 1 0 0 0 0 0 0 11 1 Elect Supervisory Board Members (Bundled) 1 0 1 0 0 0 0 0 0 0 1 Eliminate Cumulative Voting 3 0 3 0 0 0 0 0 0 0 3 Establish Range for Board Size 1 0 1 0 0 0 0 0 0 0 1 Establish/Alter Mandatory Retirement Policy for Directors 1 1 0 0 0 0 0 0 0 1 0 Fix Board Terms for Directors 1 0 1 0 0 0 0 0 0 0 1 Fix Number of Directors and/or Auditors 4 4 0 0 0 0 0 0 0 4 0 Indicate Personal Interest in Proposed Agenda Item 1 0 1 0 0 0 0 0 0 1 0 Provide Proxy Access Right 11 4 6 1 0 0 0 0 0 4 7 Totals for Directors Related : 15261 10862 1562 36 2734 67 0 0 0 10864 (71.2%) 4330 (28.4%) Non-Salary Comp. Advisory Vote on Golden Parachutes 22 9 13 0 0 0 0 0 0 9 13 Advisory Vote on Say on Pay Frequency 84 0 0 0 0 0 84 0 0 62 22 Amend Articles/Charter Compensation-Related 2 0 1 1 0 0 0 0 0 0 2 Amend Executive Share Option Plan 7 1 6 0 0 0 0 0 0 1 6 Amend Non-Employee Director Omnibus Stock Plan 15 2 13 0 0 0 0 0 0 2 13 Amend Non-Employee Director Restricted Stock Plan 7 3 4 0 0 0 0 0 0 3 4 Amend Non-Employee Director Stock Option Plan 1 0 1 0 0 0 0 0 0 0 1 Amend Omnibus Stock Plan 427 5 417 2 0 3 0 0 0 7 417 Amend Qualified Employee Stock Purchase Plan 52 51 1 0 0 0 0 0 0 51 1 Amend Restricted Stock Plan 6 2 4 0 0 0 0 0 0 2 4 Approve Equity Plan Financing 2 0 2 0 0 0 0 0 0 0 2 Approve Executive Share Option Plan 5 1 4 0 0 0 0 0 0 1 4 Approve Increase Compensation Ceiling for Directors 1 0 1 0 0 0 0 0 0 0 1 Approve Issuance of Warrants Reserved for Founders 1 0 1 0 0 0 0 0 0 0 1 Approve Non-Employee Director Omnibus Stock Plan 7 0 7 0 0 0 0 0 0 0 7 Approve Non-Employee Director Restricted Stock Plan 3 0 3 0 0 0 0 0 0 0 3 Approve Non-Employee Director Stock Option Plan 1 0 1 0 0 0 0 0 0 0 1 Approve Non-Qualified Employee Stock Purchase Plan 4 4 0 0 0 0 0 0 0 4 0 Approve Omnibus Stock Plan 202 0 201 0 0 1 0 0 0 1 200 Approve Outside Director Stock/Options in Lieu of Cash 5 2 3 0 0 0 0 0 0 2 3
Exhibit 6
Proxy Vote Summary Report
Votes in Meetings Held Between April 1, 2015 and June 30, 2015
Number Voted
4
2015 Quarterly SURS Statistical Report Proposals For Against Abstain Withhold DNV 1
YR 2
YRS 3
YRS With Mngt
Against Mngt
Approve Qualified Employee Stock Purchase Plan 53 52 1 0 0 0 0 0 0 51 2 Approve Remuneration Policy 6 2 4 0 0 0 0 0 0 2 4 Approve Remuneration Report 1859 900 935 7 0 17 0 0 0 905 937 Approve Remuneration of Directors 5 1 3 1 0 0 0 0 0 1 4 Approve Repricing of Options 1 0 1 0 0 0 0 0 0 0 1 Approve Restricted Stock Plan 15 1 14 0 0 0 0 0 0 1 14 Approve Share Plan Grant 1 0 1 0 0 0 0 0 0 0 1 Approve Stock Option Plan Grants 6 0 6 0 0 0 0 0 0 0 6 Approve or Amend Severance/Change-in-Control Agreements 4 1 2 1 0 0 0 0 0 1 3 Approve/Amend All Employee Share Schemes 2 1 1 0 0 0 0 0 0 1 1 Approve/Amend Bonus Matching Plan 1 0 1 0 0 0 0 0 0 0 1 Approve/Amend Deferred Share Bonus Plan 3 3 0 0 0 0 0 0 0 3 0 Approve/Amend Employment Agreements 2 1 1 0 0 0 0 0 0 1 1 Approve/Amend Executive Incentive Bonus Plan 152 2 149 0 0 1 0 0 0 2 149 Company-Specific Compensation-Related 6 1 3 2 0 0 0 0 0 1 5 Fix Maximum Variable Compensation Ratio 2 2 0 0 0 0 0 0 0 2 0 Totals for Non-Salary Comp. : 2972 1047 1805 14 0 22 84 0 0 1116 (37.6%) 1834 (61.7%) Reorg. and Mergers Amend Articles to: (Japan) 3 3 0 0 0 0 0 0 0 3 0 Approve Formation of Holding Company 1 1 0 0 0 0 0 0 0 1 0 Approve Merger Agreement 21 20 1 0 0 0 0 0 0 20 1 Approve Multi-Manager Structure 1 1 0 0 0 0 0 0 0 1 0 Approve Reorganization/Restructuring Plan 2 1 0 1 0 0 0 0 0 1 1 Approve Sale of Company Assets 3 3 0 0 0 0 0 0 0 3 0 Approve Transaction with a Related Party 3 2 0 1 0 0 0 0 0 2 1 Change Jurisdiction of Incorporation 10 4 5 0 0 1 0 0 0 4 5 Company Specific Organization Related 1 1 0 0 0 0 0 0 0 1 0 Issue Shares in Connection with Acquisition 9 9 0 0 0 0 0 0 0 9 0 Totals for Reorg. and Mergers : 54 45 6 2 0 1 0 0 0 45 (83.3%) 8 (14.8%) Routine/Business Accept Consolidated Financial 12 12 0 0 0 0 0 0 0 12 0 Statements/Statutory Reports Accept Financial Statements and Statutory Reports 46 44 1 1 0 0 0 0 0 44 2 Acknowledge Proper Convening of Meeting 1 1 0 0 0 0 0 0 0 1 0 Adopt Fee Shifting Bylaws 1 0 1 0 0 0 0 0 0 0 1 Adopt Jurisdiction of Incorporation as Exclusive Forum 19 1 18 0 0 0 0 0 0 1 18 Amend Articles/Bylaws/Charter -- Non-Routine 49 35 11 1 0 2 0 0 0 36 11 Appoint Appraiser/Special Auditor/Liquidator 2 2 0 0 0 0 0 0 0 2 0 Appoint Auditors and Deputy Auditors 1 1 0 0 0 0 0 0 0 1 0 Approve Allocation of Income and Dividends 26 26 0 0 0 0 0 0 0 26 0
Exhibit 6
Proxy Vote Summary Report
Votes in Meetings Held Between April 1, 2015 and June 30, 2015
Number Voted
5
2015 Quarterly SURS Statistical Report Proposals For Against Abstain Withhold DNV 1
YR 2
YRS 3
YRS With Mngt
Against Mngt
Approve Auditors and their Remuneration 43 20 18 1 4 0 0 0 0 20 23 Approve Change of Fundamental Investment Policy 1 1 0 0 0 0 0 0 0 1 0 Approve Delisting of Shares from Stock Exchange 1 1 0 0 0 0 0 0 0 1 0 Approve Dividends 15 15 0 0 0 0 0 0 0 15 0 Approve Financials/Income Allocation/Director Discharge 7 7 0 0 0 0 0 0 0 7 0 Approve Minutes of Previous Meeting 3 3 0 0 0 0 0 0 0 3 0 Approve Political Donations 2 2 0 0 0 0 0 0 0 2 0 Approve Provisionary Budget and Strategy for Fiscal Year 1 1 0 0 0 0 0 0 0 1 0 Approve Remuneration of Directors and Auditors 1 1 0 0 0 0 0 0 0 1 0 Approve Special Auditors Report 2 0 2 0 0 0 0 0 0 0 2 Approve Special/Interim Dividends 1 1 0 0 0 0 0 0 0 1 0 Approve Standard Accounting Transfers 1 1 0 0 0 0 0 0 0 1 0 Approve Stock Dividend Program 1 1 0 0 0 0 0 0 0 1 0 Authorize Board to Fix Remuneration of External Auditor(s) 13 8 5 0 0 0 0 0 0 8 5 Authorize Board to Ratify and Execute Approved Resolutions 2 2 0 0 0 0 0 0 0 2 0 Authorize Filing of Required Documents/Other Formalities 3 3 0 0 0 0 0 0 0 3 0 Change Company Name 6 6 0 0 0 0 0 0 0 6 0 Change Date/Location of Annual Meeting 4 4 0 0 0 0 0 0 0 4 0 Change Location of Registered Office/Headquarters 2 2 0 0 0 0 0 0 0 2 0 Designate Inspector of Mtg Minutes 2 2 0 0 0 0 0 0 0 2 0 Designate Newspaper to Publish Meeting Announcements 1 1 0 0 0 0 0 0 0 1 0 Designate X as Independent Proxy 5 5 0 0 0 0 0 0 0 5 0 Discussion on Company's Corporate Governance Structure 1 1 0 0 0 0 0 0 0 1 0 Elect Chairman of Meeting 3 3 0 0 0 0 0 0 0 3 0 Elect Members of Audit Committee 1 1 0 0 0 0 0 0 0 1 0 Elect Members of Nominating Committee 3 3 0 0 0 0 0 0 0 3 0 Elect Members of Remuneration Committee 22 18 4 0 0 0 0 0 0 18 4 Miscellaneous Proposal: Company-Specific 2 2 0 0 0 0 0 0 0 2 0 Other Business 37 0 36 1 0 0 0 0 0 3 34 Prepare and Approve List of Shareholders 1 1 0 0 0 0 0 0 0 1 0 Ratify Alternate Auditor 1 1 0 0 0 0 0 0 0 1 0 Ratify Auditors 2264 1604 633 5 3 19 0 0 0 1606 639 Receive/Approve Report/Announcement 3 3 0 0 0 0 0 0 0 3 0 Receive/Approve Special Report 1 1 0 0 0 0 0 0 0 1 0 Totals for Routine/Business : 2613 1847 729 9 7 21 0 0 0 1853 (70.9%) 739 (28.3%)
Exhibit 6
Proxy Vote Summary Report
Votes in Meetings Held Between April 1, 2015 and June 30, 2015
Number Voted
6
2015 Quarterly SURS Statistical Report Proposals For Against Abstain Withhold DNV 1
YR 2
YRS 3
YRS With Mngt
Against Mngt
SH-Compensation Adopt Anti Gross-up Policy 1 1 0 0 0 0 0 0 0 0 1 Claw-back Compensation in Specified Circumstances 15 15 0 0 0 0 0 0 0 0 15 Company-Specific--Compensation-Related 9 7 1 1 0 0 0 0 0 1 8 Limit/Prohibit Accelerated Vesting of Awards 28 27 0 1 0 0 0 0 0 0 28 Link Executive Pay to Social Criteria 5 4 1 0 0 0 0 0 0 1 4 Performance-Based and/or Time-Based Equity Awards 2 2 0 0 0 0 0 0 0 0 2 Stock Retention/Holding Period 13 12 0 1 0 0 0 0 0 0 13 Submit SERP to Shareholder Vote 1 1 0 0 0 0 0 0 0 0 1 Totals for SH-Compensation : 74 69 2 3 0 0 0 0 0 2 (2.7%) 72 (97.3%) SH-Corp Governance Approve Recapitalization Plan for all Stock to Have One-vote 10 10 0 0 0 0 0 0 0 1 9 Company-Specific--Governance-Related 11 7 1 0 0 3 0 0 0 8 0 Eliminate/Restrict Severance Agreements (Change-in-Control) 5 3 0 0 0 2 0 0 0 2 1 Provide for Confidential Vote Tally 7 0 7 0 0 0 0 0 0 7 0 Reduce Supermajority Vote Requirement 11 10 1 0 0 0 0 0 0 2 9 Reincorporate in Another State 1 0 1 0 0 0 0 0 0 1 0 Remove Antitakeover Provisions 4 4 0 0 0 0 0 0 0 1 3 Submit Severance Agreement to Shareholder Vote 4 4 0 0 0 0 0 0 0 0 4 Submit Shareholder Rights Plan to Shareholder Vote 6 4 0 0 0 2 0 0 0 3 1 Totals for SH-Corp Governance : 59 42 10 0 0 7 0 0 0 25 (42.4%) 27 (45.8%) SH-Dirs' Related Adopt Proxy Access Right 82 81 0 1 0 0 0 0 0 3 79 Amend Articles/Bylaws/Charter - Call Special Meetings 23 22 0 0 0 1 0 0 0 3 19 Amend Vote Requirements to Amend Articles/Bylaws/Charter 6 5 0 0 0 1 0 0 0 2 3 Appoint Alternate Internal Statutory Auditor(s) 4 2 0 1 0 1 0 0 0 3 0 Appoint Preferred Stock Internal Statutory Auditor(s) [and A 1 1 0 0 0 0 0 0 0 1 0 Board Diversity 6 5 1 0 0 0 0 0 0 2 4 Company-Specific Board-Related 6 2 3 0 0 1 0 0 0 5 0 Declassify the Board of Directors 11 11 0 0 0 0 0 0 0 2 9 Elect Directors (Opposition Slate) 98 44 9 0 4 41 0 0 0 53 4 Elect Preferred Stock Director 1 1 0 0 0 0 0 0 0 1 0 Elect Supervisory Board Members (Bundled) 2 0 1 0 0 1 0 0 0 1 0 Establish Environmental/Social Issue Board Committee 6 6 0 0 0 0 0 0 0 0 6 Establish Other Board Committee 2 1 1 0 0 0 0 0 0 1 1 Provide Right to Act by Written Consent 33 33 0 0 0 0 0 0 0 0 33 Require Environmental/Social Issue Qualifications for Direct 4 3 1 0 0 0 0 0 0 1 3 Require a Majority Vote for the Election of Directors 11 10 0 0 0 1 0 0 0 3 7 Restore or Provide for Cumulative Voting 2 2 0 0 0 0 0 0 0 0 2 Totals for SH-Dirs' Related : 298 229 16 2 4 47 0 0 0 81 (27.2%) 170 (57.0%)
Exhibit 6
Proxy Vote Summary Report
Votes in Meetings Held Between April 1, 2015 and June 30, 2015
Number Voted
7
2015 Quarterly SURS Statistical Report Proposals For Against Abstain Withhold DNV 1
YR 2
YRS 3
YRS With Mngt
Against Mngt
SH-Gen Econ Issues Seek Sale of Company/Assets 2 0 1 0 0 1 0 0 0 0 1 Totals for SH-Gen Econ Issues : 2 0 1 0 0 1 0 0 0 0 (0.0%) 1 (50.0%) SH-Health/Environ. Climate Change 15 13 0 2 0 0 0 0 0 2 13 Community -Environmental Impact 5 4 1 0 0 0 0 0 0 1 4 GHG Emissions 23 21 2 0 0 0 0 0 0 2 21 Genetically Modified Organisms (GMO) 4 3 0 0 0 1 0 0 0 1 2 Hydraulic Fracturing 4 4 0 0 0 0 0 0 0 0 4 Phase Out Nuclear Facilities 1 0 1 0 0 0 0 0 0 1 0 Product Toxicity and Safety 1 1 0 0 0 0 0 0 0 0 1 Recycling 4 4 0 0 0 0 0 0 0 0 4 Reduce Tobacco Harm to Health 1 1 0 0 0 0 0 0 0 0 1 Renewable Energy 2 2 0 0 0 0 0 0 0 0 2 Review Drug Pricing or Distribution 3 3 0 0 0 0 0 0 0 0 3 Sustainability Report 15 14 0 1 0 0 0 0 0 0 15 Totals for SH-Health/Environ. : 78 70 4 3 0 1 0 0 0 7 (9.0%) 70 (89.7%) SH-Other/misc. Animal Testing 1 1 0 0 0 0 0 0 0 0 1 Animal Welfare 6 2 4 0 0 0 0 0 0 4 2 Anti-Discrimination Miscellaneous 5 5 0 0 0 0 0 0 0 0 5 Company-Specific -- Shareholder Miscellaneous 3 1 1 0 0 1 0 0 0 2 0 Political Activities and Action 8 4 4 0 0 0 0 0 0 4 4 Political Contributions and Lobbying 26 25 0 0 0 1 0 0 0 0 25 Political Lobbying Disclosure 30 29 0 0 0 1 0 0 0 1 28 Report on EEO 3 3 0 0 0 0 0 0 0 0 3 Totals for SH-Other/misc. : 82 70 9 0 0 3 0 0 0 11 (13.4%) 68 (82.9%) SH-Routine/Business Amend Articles/Bylaws/Charter -- Non-Routine 2 1 0 0 0 1 0 0 0 1 0 Approve Allocation of Income/Distribution Policy 1 0 1 0 0 0 0 0 0 1 0 Require Independent Board Chairman 59 59 0 0 0 0 0 0 0 0 59 Totals for SH-Routine/Business : 62 60 1 0 0 1 0 0 0 2 (3.2%) 59 (95.2%) SH-Soc./Human Rights Human Rights Risk Assessment 5 5 0 0 0 0 0 0 0 0 5 Improve Human Rights Standards or Policies 9 9 0 0 0 0 0 0 0 0 9 Internet Censorship 2 2 0 0 0 0 0 0 0 0 2 Plant Closures and Outsourcing 2 1 0 0 0 1 0 0 0 1 0 Totals for SH-Soc./Human Rights : 18 17 0 0 0 1 0 0 0 1 (5.6%) 16 (88.9%)
Exhibit 6
Proxy Vote Summary Report
Votes in Meetings Held Between April 1, 2015 and June 30, 2015
Number Voted
8
2015 Quarterly SURS Statistical Report Proposals For Against Abstain Withhold DNV 1
YR 2
YRS 3
YRS With Mngt
Against Mngt
Social Proposal Anti-Social Proposal 4 0 4 0 0 0 0 0 0 4 0 Social Proposal 1 0 1 0 0 0 0 0 0 1 0 Totals for Social Proposal : 5 0 5 0 0 0 0 0 0 5 (100.0%) 0 (0.0%)
Totals for the report : 21979 14609 4272 93 2745 176 84 0 0 14263
(64.9%) 7540
(34.3%)
Exhibit 6
Headquarters Office ▪ 550 West Washington Blvd., Suite 900, Chicago, IL 60661 ▪ P: 312-575-9000 ▪ F: 312-575-0085 East Coast Office ▪ 25 Braintree Hill Office Park, Suite 103, Braintree, MA 02184 ▪ P: 617-298-0967 ▪ F: 781-228-5871
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TO: State Universities Retirement System (“SURS”) FROM: Maureen O’Brien, Director of Corporate Governance DATE: August 13, 2015 RE: Review of Vote Summary Report for Second Quarter 2015 The Vote Summary Report for the Second Quarter, 2015, summarizes Marco Consulting Group’s (“MCG”) votes for the State Universities Retirement System of Illinois (SURS), which are organized in the 15 major categories listed below. The report provides summaries for each major category of management and shareholder-sponsored proposals. The shareholder proposals are identified as such in the title; all other categories are management proposals. The report covers votes at US and Canadian firms as well as global companies where SURS’ investment was pursuant to American Depository Receipts.
1. Anti-Takeover Related 2. Capitalization 3. Directors Related 4. Non-Salary Compensation 5. Reorganization and Mergers 6. Routine/Business 7. Shareholder Proposals: Compensation 8. Shareholder Proposals: Corporate Governance 9. Shareholder Proposals: Directors’ Related 10. Shareholder Proposals: General Economic Issues 11. Shareholder Proposals: Health/Environment 12. Shareholder Proposals: Other/Miscellaneous 13. Shareholder Proposals: Routine/Business 14. Shareholder Proposals: Soc./Human Rights 15. Shareholder Proposals: Social Proposal
Overview MCG voted 21,979 proposals on behalf of SURS for the Second Quarter of 2015. Overall, the votes followed management’s recommendations on 14,263 proposals (65%). We supported a majority of management-sponsored proposals in all categories except non-salary compensation.
Exhibit 6
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Summaries by Issue Category Management Proposals
1. Anti-Takeover Related MCG voted with management on 105 of 129 proposals (81%) in this category. Most proposals in this category (42) requested approval to adjourn a meeting. Companies trying to assure passage of important votes sometimes seek approval to adjourn the meeting to solicit more votes if needed. MCG votes in favor of these proposals when the connected proposal is supported and likewise votes against when the associated proposal is opposed. This quarter, MCG voted in favor of adjourning on 33 proposals (79%). We supported all 13 proposals that sought approval for a special type of poison pill that was designed to protect a tax benefit. The net operating loss poison pill ("NOL pill") preserves the Company's ability to use certain tax assets, such as NOLs, to offset future income and thereby reduce potential future federal income tax obligations. MCG also supported 28 of 30 proposals (93%) to reduce supermajority voting requirements because a simple majority is sufficient to convey shareholders’ preferences. We supported several other good corporate governance measures, such as giving shareholders the right to call a special meeting and to act by written consent. 2. Capitalization MCG voted with management on 146 of 272 proposals (54%) dealing with how companies capitalize their operations. These proposals seek shareholder approval to authorize and issue stock as well as related matters. MCG supported 32 of 86 proposals (37%) to increase authorized common stock where the amount sought was not excessive (i.e., not more than 50% of the current authorizations) or was necessary for a specific purpose. On issuing shares, MCG voted for 37 of 55 proposals (67%) to issue shares with or without pre-emptive rights. The remaining proposals concern stock splits, warrants, bonds, preferred stock, share repurchases and other capitalizing issues. 3. Directors Related MCG voted with management on 10,864 of 15,261 proposals (71%) related to directors this quarter. The vast majority of these proposals dealt with the election of the directors to the board; we voted in favor of 10,589 of 14,928 proposals (71%). Other proposals deal with electing directors of subsidiaries as well as to elect a Chairman/Vice Chairman. Nominees are opposed if a company significantly underperformed its peers for five years or directors had poor attendance records, served as insider nominees on boards that lacked independence, or sat on too many other boards, which threatens effectiveness. Proposals in this category also deal with the standard by which directors are elected, the discharging of company leaders and term limits.
Exhibit 6
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4. Non-Salary Compensation MCG voted with management on 1,116 of 2,972 proposals (38%) in this category. MCG voted in favor of 900 of 1,859 proposals (48%) on executive compensation, known in the United States as “say-on-pay” proposals. We evaluate compensation by assessing whether pay aligns with performance and examining other practices to identify red flags for potential misuses of shareholders’ funds. The future timing of say-on-pay proposals accounted for another 84 resolutions and MCG elected for an annual vote in all cases, as opposed to voting on the issue every two or three years. We voted on other items related to compensation, including nine of 22 advisory votes on golden parachutes (41%). We oppose severance arrangements where the recipients receive payments even if they do not lose their job. We also oppose in cases where the severance pay-out exceeds 2.99 times salary and bonus or provides for the gross-ups on excise taxes. The other major items in this category seek approval to create or amend individual compensation plans for employees, executives and directors. MCG generally opposes equity or cash compensation plans that are exclusive to top-tier management and lack rigorous performance standards. We also oppose stock plans that cause excessive dilution to current shareholder equity. 5. Reorganizations and Mergers MCG voted with management on 45 of 54 proposals (83%) in this category. MCG supported 20 of 21 merger proposals (95%) and all nine to issue shares to fund an acquisition. We opposed a merger at Integrated Silicon Solution, Inc. because the emergence of another credible bidder with a higher cash offer and potentially less regulatory risk suggested the terms of the merger transaction did not maximize value for shareholders. Other items covered in the category deal with changing the jurisdiction of incorporation, reorganizing, selling company assets and other related transactions. 6. Routine/Business MCG voted with management on 1,853 of 2,613 proposals (71%) in this category. The ratification of auditors accounts for more than 87% of the routine matters voted on at companies this quarter. MCG supported 1,604 of 2,264 (71%) of these proposals. We also voted for 20 of 43 proposals (47%) to approve auditors and their remuneration. Votes are cast in favor unless auditors receive excessive amounts for non-audit services because auditors that receive hefty fees for non-audit work may be conflicted when conducting audit work. We abstained in cases where the company did not disclose the fees. MCG voted on several other routine matters including: adopting financial statements and related reports; issuing dividends; electing audit committee members and changing the date/location of the annual meeting.
Exhibit 6
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Shareholder Proposals 7. Shareholder Proposals: Compensation MCG voted for 69 of 74 shareholder proposals (93%) related to compensation. We supported proposals that tighten the link between executive pay and performance and eliminate excessive perquisites. Such proposals include measures to limit change in control agreements that allow time or performance hurdles on outstanding equity awards to lapse when the company faces an ownership change. They also include policies to require executives hold a significant amount of stock until they retire and that eliminate companies paying the personal taxes of executives. 8. Shareholder Proposals: Corporate Governance MCG supported 42 of 59 shareholder proposals (71%) on corporate governance. We vote in favor of proposals that improve corporate governance, such as recapitalizing the company to provide equal voting rights for shareholders, reducing supermajority voting requirements and providing shareholders with votes on severance agreements and poison pills. 9. Shareholder Proposals: Directors’ Related MCG supported 229 of 298 proposals (77%) in this category. Most of the proposals in this subcategory center on how the board is structured. MCG supports proposals to give shareholders more options to engage firms, such as the right to call a special meeting or to act by written consent. This quarter MCG supported 44 dissident candidates in proxy contests. We support items to enhance accountability at the board level, including majority voting standards and cumulative voting. 10. Shareholder Proposals: General Economic Issues The only item in this category this quarter appeared on the two ballots in a proxy contest at Myers Industries. On the supported ballot we opposed this item because it requested the Company halt all future acquisitions because it would have interfered with the Company's strategy. 11. Shareholder Proposals: Health/Environment MCG supported 70 of 78 proposals (90%) in this category. The majority of proposals in this category ask for reporting on health and environmental issues. We oppose where proposals ask for action that does not appear warranted or would be adverse to shareholders, such as requiring a nuclear energy provider eliminate its nuclear energy operations. 12. Shareholder Proposals: Other/Miscellaneous MCG supported 70 of 82 proposals (85%) in this category. Reporting on political spending comprises the majority of these items and we support companies’ voluntary disclosure of corporate political spending.
Exhibit 6
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13. Shareholder Proposals: Routine/Business MCG supported 60 of 62 proposals (97%) in this category, all but three of which requested the companies appoint an independent chairman to the board of directors. MCG supports an independent board chair. 14. Shareholder Proposals: Soc./Human Rights MCG voted 17 of 18 proposals (94%) in this category. The issues addressed here concern companies reporting on their impacts on human rights as well as internet censorship and plant closures. 15. Shareholder Proposals: Social MCG voted against all five proposals in this category. These proposals disingenuously seek reporting on charitable giving, renewable energy investments and anti-discriminatory principles as a tool to criticize company support of gay rights, environmental efforts and diversity efforts.
Exhibit 6
Council of Institutional Investors Online Educational Programs Sign in to www.cii.org and click Events –Event Calendar – Monthly View or Search View
(You may listen and/view these recordings after their original air date)
6/11/15 Teleconference: SEC Proposed Rules for Pay-for-Performance Disclosure
The teleconference focused on the SEC’s recently released rule proposal on pay-versus-
performance disclosure.
Speakers: Mark Borges, Principal, Compensia; Tracy Stewart, Senior Corporate Governance
Analyst, Florida SBA; Susan Wolf, CEO, Global Governance Consulting.
6/18/15 Teleconference: Income Inequality: An Investor Issue?
The teleconference focused on whether or not income inequality is an investor or shareholder
issue.
Speakers: Arthur Kohn, Partner, Cleary Gottlieb Steen & Hamilton; Nidhi Mirani, research
director, SEIU; Damon Silvers, Director of Policy and Special Counsel, AFL-CIO.
6/23/2015: Teleconference: CII Activism Committee’s Proxy Season Wrap-Up
The teleconference focused on how members’ initiatives fared during the 2015 proxy season.
Speakers: Mike Garland, Office of New York City Comptroller; Meredith Miller, UAW Retiree
Medical Benefits Trust; Con Hitchcock, Amalgamated Bank; Aeisha Mastagni, CalSTRS;
Jennifer O’Dell LIUNA; Laura Jordan, Connecticut Retirement Plans and Trust Funds; Brandon
Rees, AFL-CIO; Pat Doherty, New York State Common
7/23/2015: Teleconference: PCAOB Request for Comment on Rulemakings
The teleconference focused on an overview of the PCAOB’s request for comment on two
rulemakings of interest to investors; 1) disclosure of the name of the audit partner and, 2) content
and use of audit quality indicators.
Speakers: Gregory J. Jonas, director, Office of Research and Analysis, PCAOB; Martin
Baumann, Chief Auditor, PCAOB
7/30/2015: Webinar: Managing Delegated Proxy Voting
This webinar focused on proxy voting and the CII recommendations for straight forward
approaches to proxy voting both internally and externally.
Speakers: Beth Young, Attorney, CII; Amy Borus, CII Interim Executive Director
Exhibit 7
Council of Institutional Investors Online Educational Programs Sign in to www.cii.org and click Events –Event Calendar – Monthly View or Search View
(You may listen and/view these recordings after their original air date)
8/24/2015: Teleconference: SEC Seeks Comment on Audit Committee Disclosures and
Concept Release
This teleconference provided an overview of the SEC’s concept release and detailed how CII
members may respond to their request for comments.
Speakers: Brian Croteau, Deputy Chief Accountant, Professional Practice Group, U.S. Securities
and Exchange Commission; James Schnurr, Chief Accountant Securities and Exchange
Commission
8/13/2015 Teleconference: Clawbacks & SEC-Proposed Listing Standards for Recovery of
Erroneously Awarded Compensation Awarded Compensation
This teleconference focused on the SEC’s proposed rule on Listing Standards for Recovery of
Erroneously Awarded Compensation
Speakers: Anne Krauskopf, Senior Special Counsel, Office of Chief Counsel, SEC
8/19/2015 Teleconference: MLP’s – What to Know Before Your Fund Invests
This teleconference focused on the special risks to investors surrounding Limited Partnerships in
the energy sector.
Speakers: Adam Downs, Fund Administrator, LIUNA
Exhibit 7
Fiscal Year 2016 Work Plan Corporate Governance Committee Schedule
State Universities Retirement System Denotes recurring items
- Denotes non-recurring items
FISCAL YEAR 2016 September 2015 - Corporate Governance Update Mid-Year Review of Proxy Voting Initiatives
December 2015 Corporate Governance Update
February 2016 Annual Review of 2015 Proxy Season (Marco Consulting Group)
Annual Approval of SURS Proxy Policy Statement
March 2016 Corporate Governance Update
Annual Review of the Principles for Responsible Investment (PRI)
June 2016 Corporate Governance Update
Annual Review of the Council of Institutional Investors (CII)
Exhibit 8