NAPF Stewardship Accountability Forum

Ian Barnes & Ian PitfieldUBS Global Asset Management

NAPF Stewardship Disclosure Framework and UBS

• Firm governance, including manager pay

• Investment approach, including ESG

• Engagement and voting

Engagement

• Natural fit with our investment business:

• Significant passive assets under management

• Long-term value oriented active manager

What we do to enhance and protect value for clients• Vote globally• Engage, mainly with Chairmen• Contribute to public policy debates•Work with other shareholders• Review portfolio holdings• Report to client on voting and engagement

Our credentials• Global voting experience – 7,075 meetings voted in 2013• Company knowledge – 7,000 company meetings per year• 20 years of engaging with the Board – focus on key long-term issues• Active involvement in shareholder groups such as:

• Asian Corporate Governance Association• IMA Governance & Engagement Committee• International Corporate Governance Network• Conference Board Governance Council

• Published our 11th annual review for clients

Our voting for clientsYear to 31 December 2013• Voted at 7,075 company meetings• In 50 markets• On 69,024 separate resolutions• Through 25 custodians• Not supported 4,171 resolutions (6% of total)

• Intelligent application of our policy by the governance team•Working closely with our investment teams

Key participants in proxy voting chain

Issuer/Investee company

Registrar / Transfer Agency / Tabulator

Registered shareholder / Nominee / Local Sub-custodian

Global Custodian

Proxy Voting Agency or Vendor(eg: ISS/Broadridge)

Investment Manager

Asset Owner

Issuer will announce time, date and location of meeting

Registrar / Transfer Agency will issue voting papers (where applicable) and meeting information (in some countries this is issued by issuer direct to the registered shareholder)

Registrar / Transfer Agency will issue voting papers (where applicable) and meeting information (in some countries this is issued by issuer direct to the registered shareholder

Global custodian retains the local sub-custodian to be the registered holder of all securities, but may actually outsource the process of managing voting instructions received from clients to a third party agency or vendor

Proxy Voting Agencies can act in a dual capacity, ether as an outsourced vendor for the global custodian to handle instructions from beneficial owners, or on behalf of investment managers or beneficial owners to carry voting instructions to custodians

Some investors retain voting rights themselves, others allow discretionary investment managers or third party voting agencies to act on their behalf

The most important governance factors for usStrategy is key – governance needs to focus on improving the long term performance of the companyAlso:• The Chairman & the quality of the Board• Operational performance• Succession planning• Risk Management• Reputation• RemunerationEngagement is very important and works best as a constructive dialogue rather than confrontation

Example of UBS Global Asset Management acting as a responsible shareholderVodafoneSep-13 Vodafone announces sale of its 45% stake in Verizon Wireless for £84bn Jun-12 – Jun-13 Meetings with Chairman Jul-11 At the shareholder meeting we voted against the re-election of the Senior

Independent Director given our concerns about the process to appoint a new Chairman

Apr-11 £6.8bn disposal of holding in French mobile operator Oct-10 We wrote to the Senior Independent Director with our expectations of the

qualities required of the new Chairman – now that process is in place for the Board to choose a new Chairman

Sep-10 £4.3bn disposal of China Mobil holding Jul-10 At the shareholder meeting we voted against the re-election of the Chairman

since no undertaking to replace him Jul-10 Meeting of shareholders representing 19% of the equity with the Senior

Independent Director to express concerns Jun-10 Hosted meeting of shareholders to discuss our concerns Feb-10 – Jun-10 Exchange of letters Feb-10 We met the Chairman and Senior Independent Director to express our concerns

about the poor operational performance and value-destroying acquisitions Feb-07 – Feb-10 We had six meetings with Board members Feb-07 We wrote to the Chairman to express our concerns about a potential

acquisition

Source: Datastream, 04 November 2013.

2010 2011 2012 201390

95

100

105

110

115

120

125

130

135

140

Vodafone vs. FTSE All Share

Regional variations in Corporate GovernanceThe building blocks

UK Europe US Japan

Checks and balances on the BoardAre the roles of Chairman and CEO usually split? Yes Varies No Yes

Oversight of the ExecutivesIs there a large proportion of independent non executives on the Board Yes Yes Yes No

Shareholder oversight of major transactionsDo shareholders have a vote on major transactions Yes No No No

Final thoughts• Governance + Investment = Better outcomes for clients• Boards need to be very effective and behaviour is very important• Good governance is trying to benefit company performance –

so look at the governance 'outputs' as well as 'inputs'• Less groupthink from shareholders• Constant vigilance required