2010 Cornerstone Proxy Voting Policy Summary
Where determined appropriate by the Adviser in order to comply with Federal
securities regulations and the rules promulgated thereunder, the Fund reserves
the right to shadow vote certain proxies received by it with respect to the
annual or special meetings of shareholders for companies in which the Fund is
invested.
The following is a condensed version of the proxy voting recommendations
contained in the RiskMetrics' (RMG) U.S. Proxy Voting Manual.
TABLE OF CONTENTS ......................................................... 2
1. ROUTINE/MISCELLANEOUS .................................................. 7
Adjourn Meeting ........................................................... 7
Amend Quorum Requirements ................................................. 7
Amend Minor Bylaws ........................................................ 7
Change Company Name ....................................................... 7
Change Date, Time, or Location of Annual Meeting .......................... 7
Other Business ............................................................ 7
Audit-Related ............................................................. 7
Auditor Indemnification and Limitation of Liability ....................... 7
Auditor Ratification ...................................................... 8
Shareholder Proposals Limiting Non-Audit Services ......................... 8
Shareholder Proposals on Audit Firm Rotation .............................. 8
2. BOARD OF DIRECTORS: .................................................... 10
Voting on Director Nominees in Uncontested Elections ...................... 10
Board Accountability ...................................................... 10
Problematic Takeover Defenses ............................................. 10
Problematic Audit-Related Practices ....................................... 11
Problematic Compensation Practices ........................................ 11
Other Problematic Governance Practices .................................... 12
Board Responsiveness ...................................................... 12
Director Independence ..................................................... 13
Director Competence ....................................................... 13
2010 RMG Categorization of Directors ...................................... 14
Board-Related Management Proposals ........................................ 16
Age Limits ................................................................ 16
Board Size ................................................................ 16
Classification/Declassification of the Board .............................. 16
Cumulative Voting ......................................................... 17
Director and Officer Indemnification and Liability Protection ............. 17
Establish/Amend Nominee Qualifications .................................... 17
Filling Vacancies/Removal of Directors .................................... 17
Majority Vote Threshold for Director Elections ............................ 17
Term Limits ............................................................... 18
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Board-Related Shareholder Proposals/Initiatives ........................... 18
Age Limits ................................................................ 18
Annual Election (Declassification) of the Board ........................... 18
Cumulative Voting ......................................................... 18
Establish/Amend Nominee Qualifications .................................... 18
Establishment of Board Committees Shareholder Proposals ................... 19
Establishment of Board Policy on Shareholder Engagement ................... 19
Filling Vacancies/Removal of Directors .................................... 19
Independent Chair (Separate Chair/CEO) .................................... 20
Majority of Independent Directors/Establishment of Independent Committees . 21
Majority Vote Shareholder Proposals ....................................... 21
Open Access (Proxy Access) ................................................ 21
Proxy Contests- Voting for Director Nominees in Contested Elections ....... 21
Require More Nominees than Open Seats ..................................... 21
Term Limits ............................................................... 22
Vote No Campaigns ......................................................... 22
3. SHAREHOLDER RIGHTS & DEFENSES .......................................... 23
Advance Notice Requirements for Shareholder Proposals/Nominations ......... 23
Amend Bylaws without Shareholder Consent .................................. 23
Confidential Voting ....................................................... 23
Control Share Acquisition Provisions ...................................... 23
Control Share Cash-Out Provisions ......................................... 24
Disgorgement Provisions ................................................... 24
Fair Price Provisions ..................................................... 24
Freeze-Out Provisions ..................................................... 24
Greenmail ................................................................. 24
Net Operating Loss (NOL) Protective Amendments ............................ 25
Poison Pills- Shareholder Proposals to put Pill to a Vote
and/or Adopt a Pill Policy .............................................. 25
Poison Pills- Management Proposals to Ratify Poison Pill .................. 25
Poison Pills- Management Proposals to ratify a Pill to
preserve Net Operating Losses (NOLs) .................................... 26
Reimbursing Proxy Solicitation Expenses ................................... 26
Reincorporation Proposals ................................................. 26
Shareholder Ability to Act by Written Consent ............................. 27
Shareholder Ability to Call Special Meetings .............................. 27
Stakeholder Provisions .................................................... 27
State Antitakeover Statutes ............................................... 27
Supermajority Vote Requirements ........................................... 28
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4. CAPITAL/RESTRUCTURING .................................................. 29
Capital ................................................................... 29
Adjustments to Par Value of Common Stock .................................. 29
Common Stock Authorization ................................................ 29
Issue Stock for Use with Rights Plan ...................................... 29
Preemptive
Rights .................................................................... 29
Preferred Stock ........................................................... 29
Recapitalization .......................................................... 30
Reverse Stock Splits ...................................................... 30
Share Repurchase Programs ................................................. 30
Stock Distributions: Splits and Dividends ................................. 30
Tracking Stock ............................................................ 31
Restructuring ............................................................. 31
Appraisal Rights .......................................................... 31
Asset Purchases ........................................................... 31
Asset Sales ............................................................... 31
Bundled Proposals ......................................................... 32
Conversion of Securities .................................................. 32
Corporate Reorganization/Debt Restructuring/Prepackaged
Bankruptcy Plans/Reverse Leveraged Buyouts/Wrap Plans ................... 32
Formation of Holding Company .............................................. 32
Going Private and Going Dark Transactions (LBOs and Minority Squeeze-outs) 33
Joint Ventures ............................................................ 33
Liquidations .............................................................. 34
Mergers and Acquisitions .................................................. 34
Plans of Reorganization (Bankruptcy) ...................................... 34
Private Placements/Warrants/Convertible Debentures ........................ 35
Special Purpose Acquisition Corporations (SPACs) .......................... 36
Spinoffs .................................................................. 37
Value Maximization Shareholder Proposals .................................. 37
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5. COMPENSATION ........................................................... 38
Executive Pay Evaluation .................................................. 38
Advisory Votes on Executive Compensation- Management
Proposals (Management Say-on-Pay) ....................................... 38
Pay for Performance ....................................................... 39
Problematic Pay Practices ................................................. 40
Non-Performance based Compensation Elements ............................... 40
Incentives that may Motivate Excessive Risk-Taking ........................ 41
Options Backdating ........................................................ 41
Board Communications and Responsiveness ................................... 41
Equity-Based and Other Incentive Plans .................................... 42
Cost of Equity Plans ...................................................... 42
Repricing Provisions ...................................................... 43
Three-Year Burn Rate/Burn Rate Commitment ................................. 43
Burn Rate Table for 2010 .................................................. 44
Pay-for-Performance- Impact on Equity Plans ............................... 45
Liberal Definition of Change-in-Control ................................... 45
Problematic Pay Practices ................................................. 45
Specific Treatment of Certain Award Types in Equity Plan Evaluations: ..... 45
Dividend Equivalent Rights ................................................ 45
Liberal Share Recycling Provisions ........................................ 45
Operating Partnership (OP) units in Equity Plan analysis of
Real Estate Investment Trusts (REITs) ................................... 45
Option Overhang Cost ...................................................... 46
Other Compensation Plans .................................................. 46
401(k) Employee Benefit Plans ............................................. 46
Employee Stock Ownership Plans (ESOPs) .................................... 46
Employee Stock Purchase Plans-- Qualified Plans ........................... 47
Employee Stock Purchase Plans-- Non-Qualified Plans ....................... 47
Incentive Bonus Plans and Tax Deductibility Proposals
(OBRA-Related Compensation Proposals) ................................... 47
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Option Exchange Programs/Repricing Options ................................ 48
Stock Plans in Lieu of Cash ............................................... 48
Transfer Stock Option (TSO) Programs ...................................... 49
Director Compensation ..................................................... 49
Equity Plans for Non-Employee Directors ................................... 49
Director Retirement Plans ................................................. 50
Shareholder Proposals on Compensation ..................................... 50
Advisory Vote on Executive Compensation (Say-on-Pay) ...................... 50
Compensation Consultants- Disclosure of Board or Company?s Utilization .... 50
Disclosure/Setting Levels or Types of Compensation for
Executives and Directors ................................................ 50
Golden Coffins/Executive Death Benefits ................................... 51
Pay for Superior Performance .............................................. 51
Performance-Based Awards .................................................. 51
Pension Plan Income Accounting ............................................ 52
Pre-Arranged Trading Plans (10b5-1 Plans) ................................. 52
Recoup Bonuses ............................................................ 52
Severance Agreements for Executives/Golden Parachutes ..................... 53
Share Buyback Holding Periods ............................................. 53
Stock Ownership or Holding Period Guidelines .............................. 53
Supplemental Executive Retirement Plans (SERPs) ........................... 54
Termination of Employment Prior to Severance Payment and
Eliminating Accelerated Vesting of Unvested Equity ...................... 54
Tax Gross-Up Proposals .................................................... 54
6. SOCIAL/ENVIRONMENTAL ISSUES ............................................ 55
Overall Approach .......................................................... 55
Animal Welfare ............................................................ 55
Animal Testing ............................................................ 55
Animal Welfare Policies ................................................... 55
Controlled Atmosphere Killing (CAK) ....................................... 56
Consumer Issues ........................................................... 56
Genetically Modified Ingredients .......................................... 56
Consumer Lending .......................................................... 56
Pharmaceutical Pricing, Access to Medicines, and Product Reimportation .... 57
Product Safety and Toxic/Hazardous Materials .............................. 57
Tobacco ................................................................... 58
Diversity ................................................................. 58
Board Diversity ........................................................... 58
Equality of Opportunity ................................................... 59
Gender Identity, Sexual Orientation, and Domestic Partner Benefits ........ 59
Climate Change and the Environment ........................................ 59
Climate Change ............................................................ 59
Concentrated Animal Feeding Operations (CAFOs) ............................ 59
Energy Efficiency ......................................................... 60
Facility and Operational Safety/Security .................................. 60
Greenhouse Gas (GHG) Emissions ............................................ 60
Operations in Protected Areas ............................................. 61
Recycling ................................................................. 61
Renewable Energy .......................................................... 61
General Corporate Issues .................................................. 61
Charitable Contributions .................................................. 61
Environmental, Social, and Governance (ESG)
Compensation-Related Proposals .......................................... 61
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Health Pandemics .......................................................... 62
Lobbying Expenditures/Initiatives ......................................... 62
Political Contributions and Trade Associations Spending ................... 62
International Issues, Labor Issues, and Human Rights ...................... 63
Community Social and Environmental Impact Assessments ..................... 63
Foreign Military Sales/Offsets ............................................ 63
Internet Privacy and Censorship ........................................... 64
Labor and Human Rights Standards .......................................... 64
MacBride Principles ....................................................... 64
Nuclear and Depleted Uranium Weapons ...................................... 65
Operations in High Risk Markets ........................................... 65
Outsourcing/Offshoring .................................................... 65
Sustainability ............................................................ 65
Sustainability Reporting .................................................. 65
7. MUTUAL FUND PROXIES .................................................... 67
Election of Directors ..................................................... 67
Converting Closed-end Fund to Open-end Fund ............................... 67
Proxy Contests ............................................................ 67
Investment Advisory Agreements ............................................ 67
Approving New Classes or Series of Shares ................................. 68
Preferred Stock Proposals ................................................. 68
1940 Act Policies ......................................................... 68
Changing a Fundamental Restriction to a Nonfundamental Restriction ........ 68
Change Fundamental Investment Objective to Nonfundamental ................. 68
Name Change Proposals ..................................................... 68
Change in Fund's Subclassification ........................................ 69
Disposition of Assets/Termination/Liquidation ............................. 69
Changes to the Charter Document ........................................... 69
Changing the Domicile of a Fund ........................................... 69
Authorizing the Board to Hire and Terminate Subadvisors
Without Shareholder Approval ............................................ 70
Distribution Agreements ................................................... 70
Master-Feeder Structure ................................................... 70
Mergers ................................................................... 70
Shareholder Proposals for Mutual Funds .................................... 70
Establish Director Ownership Requirement .................................. 70
Reimburse Shareholder for Expenses Incurred ............................... 71
Terminate the Investment Advisor .......................................... 71
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1. Routine/Miscellaneous
Adjourn Meeting
Generally vote AGAINST proposals to provide management with the authority to
adjourn an annual or special meeting absent compelling reasons to support the
proposal.
Vote FOR proposals that relate specifically to soliciting votes for a merger or
transaction if supporting that merger or transaction. Vote AGAINST proposals if
the wording is too vague or if the proposal includes "other business."
Amend Quorum Requirements
Vote AGAINST proposals to reduce quorum requirements for shareholder meetings
below a majority of the shares outstanding unless there are compelling reasons
to support the proposal.
Amend Minor Bylaws
Vote FOR bylaw or charter changes that are of a housekeeping nature (updates or
corrections).
Change Company Name
Vote FOR proposals to change the corporate name.
Change Date, Time, or Location of Annual Meeting
Vote FOR management proposals to change the date, time, and/or location of the
annual meeting unless the proposed change is unreasonable.
Vote AGAINST shareholder proposals to change the date, time, and/or location of
the annual meeting unless the current scheduling or location is unreasonable.
Other Business
Vote AGAINST proposals to approve other business when it appears as voting item.
Audit-Related
Auditor Indemnification and Limitation of Liability
Consider the issue of auditor indemnification and limitation of liability on a
CASE-BY-CASE basis. Factors to be assessed include, but are not limited to: The
terms of the auditor agreement- the degree to which these agreements impact
shareholders' rights;
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Motivation and rationale for establishing the agreements; Quality of disclosure;
and Historical practices in the audit area.
WTHHOLD or vote AGAINST members of an audit committee in situations where there
is persuasive evidence that the audit committee entered into an inappropriate
indemnification agreement with its auditor that limits the ability of the
company, or its shareholders, to pursue legitimate legal recourse against the
audit firm.
Auditor Ratification
Vote FOR proposals to ratify auditors, unless any of the following apply: An
auditor has a financial interest in or association with the company, and is
therefore not independent; There is reason to believe that the independent
auditor has rendered an opinion which is neither accurate nor indicative of the
company?s financial position; Poor accounting practices are identified that rise
to a serious level of concern, such as: fraud; misapplication of GAAP; and
material weaknesses identified in Section 404 disclosures; or Fees for non-audit
services ("Other" fees) are excessive.
Non-audit fees are excessive if: Non-audit ("other") fees >audit fees +
audit-related fees + tax compliance/preparation fees
Tax compliance and preparation include the preparation of original and amended
tax returns, refund claims and tax payment planning. All other services in the
tax category, such as tax advice, planning or consulting should be added to
"Other" fees. If the breakout of tax fees cannot be determined, add all tax fees
to "Other" fees.
In circumstances where "Other" fees include fees related to significant one-time
capital structure events: initial public offerings, bankruptcy emergence, and
spin-offs; and the company makes public disclosure of the amount and nature of
those fees which are an exception to the standard "non-audit fee" category, then
such fees may be excluded from the non-audit fees considered in determining the
ratio of non-audit to audit/audit-related fees/tax compliance and preparation
for purposes of determining whether non-audit fees are excessive.
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Shareholder Proposals Limiting Non-Audit Services
Vote CASE-BY-CASE on shareholder proposals asking companies to prohibit or limit
their auditors from engaging in non-audit services.
Shareholder Proposals on Audit Firm Rotation
Vote CASE-BY-CASE on shareholder proposals asking for audit firm rotation,
taking into account: The tenure of the audit firm; The length of rotation
specified in the proposal;
Any significant audit-related issues at the company; The number of Audit
Committee meetings held each year; The number of financial experts serving on
the committee; and Whether the company has a periodic renewal process where the
auditor is evaluated for both audit quality and competitive price.
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2. Board of Directors:
Voting on Director Nominees in Uncontested Elections
Votes on director nominees should be determined on a CASE-BY-CASE basis.
Four fundamental principles apply when determining votes on director nominees:
Board Accountability: Practices that promote accountability include:
transparency into a company?s governance practices; annual board elections; and
providing shareholders the ability to remove problematic directors and to vote
on takeover defenses or other charter/bylaw amendments. These practices help
reduce the opportunity for management entrenchment. Board Responsiveness:
Directors should be responsive to shareholders, particularly in regard to
shareholder proposals that receive a majority vote and to tender offers where a
majority of shares are tendered. Furthermore, shareholders should expect
directors to devote sufficient time and resources to oversight of the company.
Director Independence: Without independence from management, the board may be
unwilling or unable to effectively set company strategy and scrutinize
performance or executive compensation. Director Competence: Companies should
seek directors who can add value to the board through specific skills or
expertise and who can devote sufficient time and commitment to serve
effectively. While directors should not be constrained by arbitrary limits such
as age or term limits, directors who are unable to attend board and committee
meetings and/or who are overextended (i.e. serving on too many boards) raise
concern on the director?s ability to effectively serve in shareholders? best
interests.
Board Accountability
Problematic Takeover Defenses
VOTE WITHHOLD/AGAINST1 the entire board of directors (except new nominees2, who
should be considered on a CASE-by-CASE basis), if: The board is classified, and
a continuing director responsible for a problematic governance issue at the
board/committee level that would warrant a withhold/against vote recommendation
is not up for election -- any or all appropriate nominees (except new) may be
held accountable; The company?s poison pill has a "dead-hand" or "modified
dead-hand" feature. Vote withhold/against every year until this feature is
removed;
1 In general, companies with a plurality vote standard use "Withhold" as the
valid contrary vote option in director elections; companies with a majority vote
standard use "Against". However, it will vary by company and the proxy must be
checked to determine the valid contrary vote option for the particular company.
2 A "new nominee" is any current nominee who has not already been elected by
shareholders and who joined the board after the problematic action in question
transpired. If RMG cannot determine whether the nominee joined the board before
or after the problematic action transpired, the nominee will be considered a
"new nominee" if he or she joined the board within the 12 months prior to the
upcoming shareholder meeting.
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The board adopts a poison pill with a term of more than 12 months ("long-term
pill"), or renews any existing pill, including any "short-term" pill (12 months
or less), without shareholder approval. A commitment or policy that puts a
newly-adopted pill to a binding shareholder vote may potentially offset an
adverse vote recommendation. Review such companies with classified boards every
year, and such companies with annually-elected boards at least once every three
years, and vote AGAINST or WITHHOLD votes from all nominees if the company still
maintains a non-shareholder-approved poison pill. This policy applies to all
companies adopting or renewing pills after the announcement of this policy (Nov
19, 2009); The board makes a material adverse change to an existing poison pill
without shareholder approval.
Vote CASE-By-CASE on all nominees if the board adopts a poison pill with a term
of 12 months or less ("short-term pill") without shareholder approval, taking
into account the following factors: The date of the pill,,s adoption relative to
the date of the next meeting of shareholders- i.e. whether the company had time
to put the pill on ballot for shareholder ratification given the circumstances;
The issuer,,s rationale; The issuer's governance structure and practices; and
The issuer's track record of accountability to shareholders.
Problematic Audit-Related Practices
Generally, vote AGAINST or WITHHOLD from the members of the Audit Committee if:
The non-audit fees paid to the auditor are excessive (see discussion under
"Auditor Ratification"); The company receives an adverse opinion on the
company?s financial statements from its auditor; or There is persuasive evidence
that the audit committee entered into an inappropriate indemnification agreement
with its auditor that limits the ability of the company, or its shareholders, to
pursue legitimate legal recourse against the audit firm.
Vote CASE-by-CASE on members of the Audit Committee and/or the full board if:
Poor accounting practices are identified that rise to a level of serious
concern, such as: fraud; misapplication of GAAP; and material weaknesses
identified in Section 404 disclosures. Examine the severity, breadth,
chronological sequence and duration, as well as the company?s efforts at
remediation or corrective actions, in determining whether WITHHOLD/AGAINST votes
are warranted.
Problematic Compensation Practices
VOTE WITHHOLD/AGAINST the members of the Compensation Committee and potentially
the full board if: There is a negative correlation between chief executive pay
and company performance (see Pay for Performance Policy); The company reprices
underwater options for stock, cash, or other consideration without prior
shareholder approval, even if allowed in the firm's equity plan; The company
fails to submit one-time transfers of stock options to a shareholder vote;
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The company fails to fulfill the terms of a burn rate commitment made to
shareholders; The company has problematic pay practices. Problematic pay
practices may warrant withholding votes from the CEO and potentially the entire
board as well.
Other Problematic Governance Practices
VOTE WITHHOLD/AGAINST the entire board of directors (except new nominees, who
should be considered on a CASE-by-CASE basis), if: The company?s proxy indicates
that not all directors attended 75 percent of the aggregate board and committee
meetings, but fails to provide the required disclosure of the names of the
director(s) involved. If this information cannot be obtained, withhold from all
incumbent directors; The board lacks accountability and oversight, coupled with
sustained poor performance relative to peers. Sustained poor performance is
measured by one- and three-year total shareholder returns in the bottom half of
a company?s four-digit GICS industry group (Russell 3000 companies only). Take
into consideration the company?s five-year total shareholder return and
five-year operational metrics. Problematic provisions include but are not
limited to:
- - A classified board structure;
- - A supermajority vote requirement;
- - Majority vote standard for director elections with no carve out for contested
elections;
- - The inability for shareholders to call special meetings;
- - The inability for shareholders to act by written consent;
- - A dual-class structure; and/or
- - A non-shareholder approved poison pill.
Under extraordinary circumstances, vote AGAINST or WITHHOLD from directors
individually, committee members, or the entire board, due to: Material failures
of governance, stewardship, or fiduciary responsibilities at the company;
Failure to replace management as appropriate; or Egregious actions related to
the director(s)? service on other boards that raise substantial doubt about his
or her ability to effectively oversee management and serve the best interests of
shareholders at any company.
Board Responsiveness
Vote WITHHOLD/AGAINST the entire board of directors (except new nominees, who
should be considered on a CASE-by-CASE basis), if: The board failed to act on a
shareholder proposal that received approval by a majority of the shares
outstanding the previous year (a management proposal with other than a FOR
recommendation by management will not be considered as sufficient action taken);
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The board failed to act on a shareholder proposal that received approval of the
majority of shares cast for the previous two consecutive years (a management
proposal with other than a FOR recommendation by management will not be
considered as sufficient action taken); The board failed to act on takeover
offers where the majority of the shareholders tendered their shares; or At the
previous board election, any director received more than 50 percent
withhold/against votes of the shares cast and the company has failed to address
the issue(s) that caused the high withhold/against vote.
Director Independence
Vote WITHHOLD/AGAINST Inside Directors and Affiliated Outside Directors (per the
Categorization of Directors) when: The inside or affiliated outside director
serves on any of the three key committees: audit, compensation, or nominating;
The company lacks an audit, compensation, or nominating committee so that the
full board functions as that committee; The company lacks a formal nominating
committee, even if the board attests that the independent directors fulfill the
functions of such a committee; or The full board is less than majority
independent.
Director Competence
Vote AGAINST or WITHHOLD from individual directors who: Attend less than 75
percent of the board and committee meetings without a valid excuse, such as
illness, service to the nation, work on behalf of the company, or funeral
obligations. If the company provides meaningful public or private disclosure
explaining the director?s absences, evaluate the information on a CASE-BY-CASE
basis taking into account the following factors:
- - Degree to which absences were due to an unavoidable conflict;
- - Pattern of absenteeism; and
- - Other extraordinary circumstances underlying the director?s absence; Sit on
more than six public company boards; Are CEOs of public companies who sit on the
boards of more than two public companies besides their own-- withhold only at
their outside boards.
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2010 RMG Categorization of Directors 1. Inside Director (I) 1.1. Employee of the
company or one of its affiliatesi. 1.2. Among the five most highly paid
individuals (excluding interim CEO). 1.3. Listed as an officer as defined under
Section 16 of the Securities and Exchange Act of 1934 ("Section 16 officer")ii.
1.4. Current interim CEO. 1.5. Beneficial owner of more than 50 percent of the
company's voting power (this may be aggregated if voting power is distributed
among more than one member of a defined group). 2. Affiliated Outside Director
(AO) Board Attestation 2.1. Board attestation that an outside director is not
independent. Former CEO 2.2. Former CEO of the companyiii,iv. 2.3. Former CEO of
an acquired company within the past five yearsiv. 2.4. Former interim CEO if the
service was longer than 18 months. If the service was between twelve and
eighteen months an assessment of the interim CEO?s employment agreement will be
madev. Non-CEO Executives 2.5. Former Section 16 officerii of the company, an
affiliatei or an acquired firm within the past five years. 2.6. Section 16
officerii of a former parent or predecessor firm at the time the company was
sold or split off from the parent/predecessor within the past five years. 2.7.
Section 16 officerii, former Section 16 officer, or general or limited partner
of a joint venture or partnership with the company. Family Members 2.8.
Immediate family membervi of a current or former Section 16 officerii of the
company or its affiliatesi within the last five years. 2.9. Immediate family
membervi of a current employee of company or its affiliatesi where additional
factors raise concern (which may include, but are not limited to, the following:
a director related to numerous employees; the company or its affiliates employ
relatives of numerous board members; or a non-Section 16 officer in a key
strategic role). Transactional, Professional, Financial, and Charitable
Relationships 2.10. Currently provides (or an immediate family membervi
provides) professional servicesvii to the company, to an affiliatei of the
company or an individual officer of the company or one of its affiliates in
excess of $10,000 per year. 2.11. Is (or an immediate family membervi is) a
partner in, or a controlling shareholder or an employee of, an organization
which provides professional servicesvii to the company, to an affiliatei of the
company, or an individual officer of the company or one of its affiliates in
excess of $10,000 per year. 2.12. Has (or an immediate family membervi has) any
material transactional relationshipviii with the company or its affiliatesi
(excluding investments in the company through a private placement). 2.13. Is (or
an immediate family membervi is) a partner in, or a controlling shareholder or
an executive officer of, an organization which has any material transactional
relationshipviii with the company or its affiliatesi (excluding investments in
the company through a private placement). 2.14. Is (or an immediate family
membervi is) a trustee, director, or employee of a charitable or non-profit
organization that receives material grants or endowmentsviii from the company or
its affiliatesi. Other Relationships 2.15. Party to a voting agreementix to vote
in line with management on proposals being brought to shareholder vote. 2.16.
Has (or an immediate family membervi has) an interlocking relationship as
defined by the SEC involving members of the board of directors or its
Compensation Committeex. 2.17. Founderxi of the company but not currently an
employee. 2.18. Any materialxii relationship with the company. 3. Independent
Outside Director (IO) 3.1. No materialxii connection to the company other than a
board seat.
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Footnotes: i "Affiliate" includes a subsidiary, sibling company, or parent
company. RMG uses 50 percent control ownership by the parent company as the
standard for applying its affiliate designation. ii "Section 16 officer"
(officers subject to Section 16 of the Securities and Exchange Act of 1934)
includes the chief executive, operating, financial, legal, technology, and
accounting officers of a company (including the president, treasurer, secretary,
controller, or any vice president in charge of a principal business unit,
division, or policy function). A non-employee director serving as an officer due
to statutory requirements (e.g. corporate secretary) will be classified as an
Affiliated Outsider. If the company provides explicit disclosure that the
director is not receiving additional compensation in excess of $10,000 per year
for serving in that capacity, then the director will be classified as an
Independent Outsider. iii Includes any former CEO of the company prior to the
company?s initial public offering (IPO). iv When there is a former CEO of a
special purpose acquisition company (SPAC) serving on the board of an acquired
company, RMG will generally classify such directors as independent unless
determined otherwise taking into account the following factors: the applicable
listing standards determination of such director?s independence; any operating
ties to the firm; and the existence of any other conflicting relationships or
related party transactions. v RMG will look at the terms of the interim CEO?s
employment contract to determine if it contains severance pay, long-term health
and pension benefits, or other such standard provisions typically contained in
contracts of permanent, non-temporary CEOs. RMG will also consider if a formal
search process was underway for a full-time CEO at the time. vi "Immediate
family member" follows the SEC?s definition of such and covers spouses, parents,
children, step-parents, step-children, siblings, in-laws, and any person (other
than a tenant or employee) sharing the household of any director, nominee for
director, executive officer, or significant shareholder of the company. vii
Professional services can be characterized as advisory in nature, generally
involve access to sensitive company information or to strategic decision-making,
and typically have a commission- or fee-based payment structure. Professional
services generally include, but are not limited to the following: investment
banking/financial advisory services; commercial banking (beyond deposit
services); investment services; insurance services; accounting/audit services;
consulting services; marketing services; legal services; property management
services; realtor services; lobbying services; executive search services; and IT
consulting services. The following would generally be considered transactional
relationships and not professional services: deposit services; IT tech support
services; educational services; and construction services. The case of
participation in a banking syndicate by a non-lead bank should be considered a
transactional (and hence subject to the associated materiality test) rather than
a professional relationship. "Of Counsel" relationships are only considered
immaterial if the individual does not receive any form of compensation (in
excess of $10,000 per year) from, or is a retired partner of, the firm providing
the professional service. The case of a company providing a professional service
to one of its directors or to an entity with which one of its directors is
affiliated, will be considered a transactional rather than a professional
relationship. Insurance services and marketing services are assumed to be
professional services unless the company explains why such services are not
advisory. viii A material transactional relationship, including grants to
non-profit organizations, exists if the company makes annual payments to, or
receives annual payments from, another entity exceeding the greater of $200,000
or 5 percent of the recipient?s gross revenues, in the case of a company which
follows NASDAQ listing standards; or the greater of $1,000,000 or 2 percent of
the recipient?s gross revenues, in the case of a company which follows
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NYSE/Amex listing standards. In the case of a company which follows neither of
the preceding standards, RMG will apply the NASDAQ-based materiality test. (The
recipient is the party receiving the financial proceeds from the transaction).
ix Dissident directors who are parties to a voting agreement pursuant to a
settlement arrangement, will generally be classified as independent unless
determined otherwise taking into account the following factors: the terms of the
agreement; the duration of the standstill provision in the agreement; the
limitations and requirements of actions that are agreed upon; if the dissident
director nominee(s) is subject to the standstill; and if there any conflicting
relationships or related party transactions. x Interlocks include: executive
officers serving as directors on each other?s compensation or similar committees
(or, in the absence of such a committee, on the board); or executive officers
sitting on each other?s boards and at least one serves on the other?s
compensation or similar committees (or, in the absence of such a committee, on
the board). xi The operating involvement of the founder with the company will be
considered. Little to no operating involvement may cause RMG to deem the founder
as an independent outsider. xii For purposes of RMG?s director independence
classification, "material" will be defined as a standard of relationship
(financial, personal or otherwise) that a reasonable person might conclude could
potentially influence one?s objectivity in the boardroom in a manner that would
have a meaningful impact on an individual's ability to satisfy requisite
fiduciary standards on behalf of shareholders.
Board-Related Management Proposals
Age Limits
Vote AGAINST management proposal to limit the tenure of outside directors
through mandatory retirement ages.
Board Size
Vote FOR proposals seeking to fix the board size or designate a range for the
board size.
Vote AGAINST proposals that give management the ability to alter the size of the
board outside of a specified range without shareholder approval.
Classification/Declassification of the Board
Vote AGAINST proposals to classify (stagger) the board.
Vote FOR proposals to repeal classified boards and to elect all directors
annually.
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Cumulative Voting
Generally vote AGAINST proposals to eliminate cumulative voting.
Director and Officer Indemnification and Liability Protection
Vote CASE-BY-CASE on proposals on director and officer indemnification and
liability protection using Delaware law as the standard.
Vote AGAINST proposals to eliminate entirely directors? and officers? liability
for monetary damages for violating the duty of care.
Vote AGAINST indemnification proposals that would expand coverage beyond just
legal expenses to liability for acts, such as negligence, that are more serious
violations of fiduciary obligation than mere carelessness.
Vote AGAINST proposals that would expand the scope of indemnification to provide
for mandatory indemnification of company officials in connection with acts that
previously the company was permitted to provide indemnification for at the
discretion of the company's board (i.e., "permissive indemnification") but that
previously the company was not required to indemnify.
Vote FOR only those proposals providing such expanded coverage in cases when a
director?s or officer?s legal defense was unsuccessful if both of the following
apply: If the director was found to have acted in good faith and in a manner
that he reasonably believed was in the best interests of the company; and If
only the director?s legal expenses would be covered.
Establish/Amend Nominee Qualifications
Vote CASE-BY-CASE on proposals that establish or amend director qualifications.
Votes should be based on how reasonable the criteria are and to what degree they
may preclude dissident nominees from joining the board.
Filling Vacancies/Removal of Directors
Vote AGAINST proposals that provide that directors may be removed only for
cause.
Vote FOR proposals to restore shareholders? ability to remove directors with or
without cause.
Vote AGAINST proposals that provide that only continuing directors may elect
replacements to fill board vacancies.
Vote FOR proposals that permit shareholders to elect directors to fill board
vacancies.
Majority Vote Threshold for Director Elections
Generally vote FOR management proposals to adopt a majority of votes cast
standard for directors in uncontested elections. Vote AGAINST if no carve-out
for plurality in contested elections is included.
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Term Limits
Vote AGAINST management proposals to limit the tenure of outside directors
through term limits. However, scrutinize boards where the average tenure of all
directors exceeds 15 years for independence from management and for sufficient
turnover to ensure that new perspectives are being added to the board.
Board-Related Shareholder Proposals/Initiatives
Age Limits
Vote AGAINST shareholder proposals to limit the tenure of outside directors
through mandatory retirement ages.
Annual Election (Declassification) of the Board
Vote FOR shareholder proposals to repeal classified (staggered) boards and to
elect all directors annually.
Cumulative Voting
Generally vote FOR shareholder proposals to restore or provide for cumulative
voting unless: The company has proxy access or a similar structure3 to allow
shareholders to nominate directors to the company?s ballot; and The company has
adopted a majority vote standard, with a carve-out for plurality voting in
situations where there are more nominees than seats, and a director resignation
policy to address failed elections.
Vote FOR proposals for cumulative voting at controlled companies (insider voting
power > 50%).
Establish/Amend Nominee Qualifications
Vote CASE-BY-CASE on proposals that establish or amend director qualifications.
Votes should be based on the reasonableness of the criteria and to what degree
they may preclude dissident nominees from joining the board.
Vote CASE-BY-CASE on shareholder resolutions seeking a director nominee
candidate who possesses a particular subject matter expertise, considering: The
company?s board committee structure, existing subject matter expertise, and
board nomination provisions relative to that of its peers;
3 Similar structure" would be a structure that allows shareholders to nominate
candidates who the company will include on the management ballot IN ADDITION TO
management?s nominees, and their bios are included in management?s proxy.
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The company?s existing board and management oversight mechanisms regarding the
issue for which board oversight is sought; The company disclosure and
performance relating to the issue for which board oversight is sought and any
significant related controversies; and The scope and structure of the proposal.
Establishment of Board Committees Shareholder Proposals
Generally vote AGAINST shareholder proposals to establish a new board committee,
as such proposals seek a specific oversight mechanism/structure that potentially
limits a company?s flexibility to determine an appropriate oversight mechanism
for itself. However, the following factors will be considered: Existing
oversight mechanisms (including current committee structure) regarding the issue
for which board oversight is sought; Level of disclosure regarding the issue for
which board oversight is sought; Company performance related to the issue for
which board oversight is sought; Board committee structure compared to that of
other companies in its industry sector; and/or The scope and structure of the
proposal.
Establishment of Board Policy on Shareholder Engagement
Generally vote FOR shareholders proposals requesting that the board establish an
internal mechanism/process, which may include a committee, in order to improve
communications between directors and shareholders, unless the company has the
following features, as appropriate: Established a communication structure that
goes beyond the exchange requirements to facilitate the exchange of information
between shareholders and members of the board; Effectively disclosed information
with respect to this structure to its shareholders; Company has not ignored
majority-supported shareholder proposals or a majority withhold vote on a
director nominee; and The company has an independent chairman or a lead
director, according to RMG?s definition. This individual must be made available
for periodic consultation and direct communication with major shareholders.
Filling Vacancies/Removal of Directors
Vote AGAINST proposals that provide that directors may be removed only for
cause.
Vote FOR proposals to restore shareholders? ability to remove directors with or
without cause.
Vote AGAINST proposals that provide that only continuing directors may elect
replacements to fill board vacancies.
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Vote FOR proposals that permit shareholders to elect directors to fill board
vacancies.
Independent Chair (Separate Chair/CEO)
Generally vote FOR shareholder proposals requiring that the chairman?s position
be filled by an independent director, unless the company satisfies all of the
following criteria:
The company maintains the following counterbalancing governance structure:
Designated lead director, elected by and from the independent board members with
clearly delineated and comprehensive duties. (The role may alternatively reside
with a presiding director, vice chairman, or rotating lead director; however the
director must serve a minimum of one year in order to qualify as a lead
director.) The duties should include, but are not limited to, the following:
- - presides at all meetings of the board at which the chairman is not present,
including executive sessions of the independent directors;
- - serves as liaison between the chairman and the independent directors;
- - approves information sent to the board;
- - approves meeting agendas for the board;
- - approves meeting schedules to assure that there is sufficient time for
discussion of all agenda items;
- - has the authority to call meetings of the independent directors;
- - if requested by major shareholders, ensures that he is available for
consultation and direct communication; Two-thirds independent board; All
independent key committees; Established governance guidelines; A company in the
Russell 3000 universe must not have exhibited sustained poor total shareholder
return (TSR) performance, defined as one- and three-year TSR in the bottom half
of the company?s four-digit GICS industry group (using Russell 3000 companies
only), unless there has been a change in the Chairman/CEO position within that
time. For companies not in the Russell 3000 universe, the company must not have
underperformed both its peers and index on the basis of both one-year and
three-year total shareholder returns, unless there has been a change in the
Chairman/CEO position within that time; The company does not have any
problematic governance or management issues, examples of which include, but are
not limited to:
- - Egregious compensation practices;
- - Multiple related-party transactions or other issues putting director
independence at risk;
- - Corporate and/or management scandals;
- - Excessive problematic corporate governance provisions; or
- - Flagrant actions by management or the board with potential or realized
negative impacts on shareholders.
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Majority of Independent Directors/Establishment of Independent Committees
Vote FOR shareholder proposals asking that a majority or more of directors be
independent unless the board composition already meets the proposed threshold by
RMG?s definition of independent outsider. (See Categorization of Directors.)
Vote FOR shareholder proposals asking that board audit, compensation, and/or
nominating committees be composed exclusively of independent directors if they
currently do not meet that standard.
Majority Vote Shareholder Proposals
Generally vote FOR precatory and binding resolutions requesting that the board
change the company?s bylaws to stipulate that directors need to be elected with
an affirmative majority of votes cast, provided it does not conflict with the
state law where the company is incorporated. Binding resolutions need to allow
for a carve-out for a plurality vote standard when there are more nominees than
board seats.
Companies are strongly encouraged to also adopt a post-election policy (also
know as a director resignation policy) that will provide guidelines so that the
company will promptly address the situation of a holdover director.
Open Access (Proxy Access)
Vote CASE-BY-CASE on shareholder proposals asking for open or proxy access,
taking into account: The ownership threshold proposed in the resolution; The
proponent?s rationale for the proposal at the targeted company in terms of board
and director conduct.
Proxy Contests- Voting for Director Nominees in Contested Elections
Vote CASE-BY-CASE on the election of directors in contested elections,
considering the following factors: Long-term financial performance of the target
company relative to its industry; Management?s track record; Background to the
proxy contest; Qualifications of director nominees (both slates); Strategic plan
of dissident slate and quality of critique against management; Likelihood that
the proposed goals and objectives can be achieved (both slates); Stock ownership
positions.
Require More Nominees than Open Seats
Vote AGAINST shareholder proposals that would require a company to nominate more
candidates than the number of open board seats.
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Term Limits
Vote AGAINST shareholder proposals to limit the tenure of outside directors
through term limits. However, scrutinize boards where the average tenure of all
directors exceeds 15 years for independence from management and for sufficient
turnover to ensure that new perspectives are being added to the board.
Vote No Campaigns
In cases where companies are targeted in connection with public "vote no"
campaigns, evaluate director nominees under the existing governance policies for
voting on director nominees in uncontested elections. Take into consideration
the arguments submitted by shareholders and other publicly-available
information.
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3. Shareholder Rights & Defenses
Advance Notice Requirements for Shareholder Proposals/Nominations
Vote CASE-BY-CASE basis on advance notice proposals, giving support to those
proposals which allow shareholders to submit proposals/nominations as close to
the meeting date as reasonably possible and within the broadest window possible,
recognizing the need to allow sufficient notice for company, regulatory and
shareholder review.
To be reasonable, the company?s deadline for shareholder notice of a proposal/
nominations must not be more than 60 days prior to the meeting, with a submittal
window of at least 30 days prior to the deadline. The submittal window is the
period under which a shareholder must file his proposal/nominations prior to the
deadline.
In general, support additional efforts by companies to ensure full disclosure in
regard to a proponent?s economic and voting position in the company so long as
the informational requirements are reasonable and aimed at providing
shareholders with the necessary information to review such proposals.
Amend Bylaws without Shareholder Consent
Vote AGAINST proposals giving the board exclusive authority to amend the bylaws.
Vote FOR proposals giving the board the ability to amend the bylaws in addition
to shareholders.
Confidential Voting
Vote FOR shareholder proposals requesting that corporations adopt confidential
voting, use independent vote tabulators, and use independent inspectors of
election, as long as the proposal includes a provision for proxy contests as
follows: In the case of a contested election, management should be permitted to
request that the dissident group honor its confidential voting policy. If the
dissidents agree, the policy remains in place. If the dissidents will not agree,
the confidential voting policy is waived.
Vote FOR management proposals to adopt confidential voting.
Control Share Acquisition Provisions
Control share acquisition statutes function by denying shares their voting
rights when they contribute to ownership in excess of certain thresholds. Voting
rights for those shares exceeding ownership limits may only be restored by
approval of either a majority or supermajority of disinterested shares. Thus,
control share acquisition statutes effectively require a hostile bidder to put
its offer to a shareholder vote or risk voting disenfranchisement if the bidder
continues buying up a large block of shares.
Vote FOR proposals to opt out of control share acquisition statutes unless doing
so would enable the completion of a takeover that would be detrimental to
shareholders.
Vote AGAINST proposals to amend the charter to include control share acquisition
provisions.
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Vote FOR proposals to restore voting rights to the control shares.
Control Share Cash-Out Provisions
Control share cash-out statutes give dissident shareholders the right to
"cash-out" of their position in a company at the expense of the shareholder who
has taken a control position. In other words, when an investor crosses a preset
threshold level, remaining shareholders are given the right to sell their shares
to the acquirer, who must buy them at the highest acquiring price.
Vote FOR proposals to opt out of control share cash-out statutes.
Disgorgement Provisions
Disgorgement provisions require an acquirer or potential acquirer of more than a
certain percentage of a company's stock to disgorge, or pay back, to the company
any profits realized from the sale of that company's stock purchased 24 months
before achieving control status. All sales of company stock by the acquirer
occurring within a certain period of time (between 18 months and 24 months)
prior to the investor's gaining control status are subject to these
recapture-of-profits provisions.
Vote FOR proposals to opt out of state disgorgement provisions.
Fair Price Provisions
Vote CASE-BY-CASE on proposals to adopt fair price provisions (provisions that
stipulate that an acquirer must pay the same price to acquire all shares as it
paid to acquire the control shares), evaluating factors such as the vote
required to approve the proposed acquisition, the vote required to repeal the
fair price provision, and the mechanism for determining the fair price.
Generally, vote AGAINST fair price provisions with shareholder vote requirements
greater than a majority of disinterested shares.
Freeze-Out Provisions
Vote FOR proposals to opt out of state freeze-out provisions. Freeze-out
provisions force an investor who surpasses a certain ownership threshold in a
company to wait a specified period of time before gaining control of the
company.
Greenmail
Greenmail payments are targeted share repurchases by management of company stock
from individuals or groups seeking control of the company. Since only the
hostile party receives payment, usually at a substantial premium over the market
value of its shares, the practice discriminates against all other shareholders.
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Vote FOR proposals to adopt anti-greenmail charter or bylaw amendments or
otherwise restrict a company?s ability to make greenmail payments.
Vote CASE-BY-CASE on anti-greenmail proposals when they are bundled with other
charter or bylaw amendments.
Net Operating Loss (NOL) Protective Amendments
For management proposals to adopt a protective amendment for the stated purpose
of protecting a company?s net operating losses ("NOLs"), the following factors
should be considered on a CASE-BY-CASE basis: The ownership threshold (NOL
protective amendments generally prohibit stock ownership transfers that would
result in a new 5-percent holder or increase the stock ownership percentage of
an existing five-percent holder); The value of the NOLs; Shareholder protection
mechanisms (sunset provision or commitment to cause expiration of the protective
amendment upon exhaustion or expiration of the NOL); The company?s existing
governance structure including: board independence, existing takeover defenses,
track record of responsiveness to shareholders, and any other problematic
governance concerns; and Any other factors that may be applicable.
Poison Pills- Shareholder Proposals to put Pill to a Vote and/or Adopt a Pill
Policy
Vote FOR shareholder proposals requesting that the company submit its poison
pill to a shareholder vote or redeem it UNLESS the company has: (1) A
shareholder approved poison pill in place; or (2) The company has adopted a
policy concerning the adoption of a pill in the future specifying that the board
will only adopt a shareholder rights plan if either: Shareholders have approved
the adoption of the plan; or The board, in its exercise of its fiduciary
responsibilities, determines that it is in the best interest of shareholders
under the circumstances to adopt a pill without the delay in adoption that would
result from seeking stockholder approval (i.e., the "fiduciary out" provision).
A poison pill adopted under this fiduciary out will be put to a shareholder
ratification vote within 12 months of adoption or expire. If the pill is not
approved by a majority of the votes cast on this issue, the plan will
immediately terminate.
If the shareholder proposal calls for a time period of less than 12 months for
shareholder ratification after adoption, vote FOR the proposal, but add the
caveat that a vote within 12 months would be considered sufficient
implementation.
Poison Pills- Management Proposals to Ratify Poison Pill
Vote CASE-by-CASE on management proposals on poison pill ratification, focusing
on the features of the shareholder rights plan. Rights plans should contain the
following attributes: No lower than a 20% trigger, flip-in or flip-over;
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A term of no more than three years; No dead-hand, slow-hand, no-hand or similar
feature that limits the ability of a future board to redeem the pill;
Shareholder redemption feature (qualifying offer clause); if the board refuses
to redeem the pill 90 days after a qualifying offer is announced, 10 percent of
the shares may call a special meeting or seek a written consent to vote on
rescinding the pill.
In addition, the rationale for adopting the pill should be thoroughly explained
by the company. In examining the request for the pill, take into consideration
the company?s existing governance structure, including: board independence,
existing takeover defenses, and any problematic governance concerns.
Poison Pills- Management Proposals to ratify a Pill to preserve Net Operating
Losses (NOLs)
Vote CASE-BY-CASE on management proposals for poison pill ratification. For
management proposals to adopt a poison pill for the stated purpose of preserving
a company?s net operating losses ("NOLs"), the following factors are considered
on a CASE-BY-CASE basis: The ownership threshold to transfer (NOL pills
generally have a trigger slightly below 5%); The value of the NOLs; The term;
Shareholder protection mechanisms (sunset provision, or commitment to cause
expiration of the pill upon exhaustion or expiration of NOLs); The company?s
existing governance structure including: board independence, existing takeover
defenses, track record of responsiveness to shareholders, and any other
problematic governance concerns; and Any other factors that may be applicable.
Reimbursing Proxy Solicitation Expenses
Vote CASE-BY-CASE on proposals to reimburse proxy solicitation expenses. When
voting in conjunction with support of a dissident slate, vote FOR the
reimbursement of all appropriate proxy solicitation expenses associated with the
election.
Generally vote FOR shareholder proposals calling for the reimbursement of
reasonable costs incurred in connection with nominating one or more candidates
in a contested election where the following apply: The election of fewer than
50% of the directors to be elected is contested in the election; One or more of
the dissident?s candidates is elected; Shareholders are not permitted to
cumulate their votes for directors; and The election occurred, and the expenses
were incurred, after the adoption of this bylaw.
Reincorporation Proposals
Management or shareholder proposals to change a company's state of incorporation
should be evaluated on a CASE-BY-CASE basis, giving consideration to both
financial and corporate governance concerns including the following: Reasons for
reincorporation;
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Comparison of company's governance practices and provisions prior to and
following the reincorporation; and Comparison of corporation laws of original
state and destination state
Vote FOR reincorporation when the economic factors outweigh any neutral or
negative governance changes.
Shareholder Ability to Act by Written Consent
Vote AGAINST management and shareholder proposals to restrict or prohibit
shareholders? ability to act by written consent.
Generally vote FOR management and shareholder proposals that provide
shareholders with the ability to act by written consent taking into account the
following factors: Shareholders? current right to act by written consent;
Consent threshold; The inclusion of exclusionary or prohibitive language;
Investor ownership structure; and Shareholder support of and management?s
response to previous shareholder proposals.
Shareholder Ability to Call Special Meetings
Vote AGAINST management or shareholder proposals to restrict or prohibit
shareholders? ability to call special meetings.
Generally vote FOR management or shareholder proposals that provide shareholders
with the ability to call special meetings taking into account the following
factors:
Shareholders? current right to call special meetings; Minimum ownership
threshold necessary to call special meetings (10% preferred); The inclusion of
exclusionary or prohibitive language; Investor ownership structure; and
Shareholder support of and management?s response to previous shareholder
proposals.
Stakeholder Provisions
Vote AGAINST proposals that ask the board to consider non-shareholder
constituencies or other non-financial effects when evaluating a merger or
business combination.
State Antitakeover Statutes
Vote CASE-BY-CASE on proposals to opt in or out of state takeover statutes
(including control share acquisition statutes, control share cash-out statutes,
freeze-out provisions, fair price provisions, stakeholder laws, poison
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pill endorsements, severance pay and labor contract provisions, anti-greenmail
provisions, and disgorgement provisions).
Supermajority Vote Requirements
Vote AGAINST proposals to require a supermajority shareholder vote.
Vote FOR management or shareholder proposals to reduce supermajority vote
requirements. However, for companies with shareholder(s) who have significant
ownership levels, vote CASE-BY-CASE, taking into account: Ownership structure;
Quorum requirements; and Supermajority vote requirements.
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4. CAPITAL/RESTRUCTURING
Capital
Adjustments to Par Value of Common Stock
Vote FOR management proposals to reduce the par value of common stock.
Common Stock Authorization
Vote CASE-BY-CASE on proposals to increase the number of shares of common stock
authorized for issuance. Take into account company-specific factors which
include, at a minimum, the following: Past Board Performance:
o The company?s use of authorized shares during the last three years;
o One- and three-year total shareholder return; and
o The board?s governance structure and practices; The Current Request:
o Disclosure in the proxy statement of the specific reasons for the proposed
increase;
o The dilutive impact of the request as determined through an allowable cap
generated by RiskMetrics' quantitative model, which examines the company?s need
for shares and its three-year total shareholder return; and
o Risks to shareholders of not approving the request.
Vote AGAINST proposals at companies with more than one class of common stock to
increase the number of authorized shares of the class that has superior voting
rights.
Issue Stock for Use with Rights Plan
Vote AGAINST proposals that increase authorized common stock for the explicit
purpose of implementing a non-shareholder approved shareholder rights plan
(poison pill).
Preemptive Rights
Vote CASE-BY-CASE on shareholder proposals that seek preemptive rights, taking
into consideration: the size of a company, the characteristics of its
shareholder base, and the liquidity of the stock.
Preferred Stock
Vote CASE-BY-CASE on proposals to increase the number of shares of preferred
stock authorized for issuance. Take into account company-specific factors that
include, at a minimum, the following: Past Board Performance:
o The company?s use of authorized preferred shares during the last three years;
o One- and three-year total shareholder return; and
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o The board?s governance structure and practices; The Current Request:
o Disclosure in the proxy statement of specific reasons for the proposed
increase;
o In cases where the company has existing authorized preferred stock, the
dilutive impact of the request as determined through an allowable cap generated
by RiskMetrics' quantitative model, which examines the company?s need for shares
and three-year total shareholder return; and
o Whether the shares requested are blank check preferred shares, and whether
they are declawed.
Vote AGAINST proposals at companies with more than one class or series of
preferred stock to increase the number of authorized shares of the class or
series that has superior voting rights.
Recapitalization
Vote CASE-BY-CASE on recapitalizations (reclassifications of securities), taking
into account the following: More simplified capital structure; Enhanced
liquidity; Fairness of conversion terms; Impact on voting power and dividends;
Reasons for the reclassification; Conflicts of interest; and Other alternatives
considered.
Reverse Stock Splits
Vote FOR management proposals to implement a reverse stock split when the number
of authorized shares will be proportionately reduced.
Vote FOR management proposals to implement a reverse stock split to avoid
delisting.
Vote CASE-BY-CASE on proposals to implement a reverse stock split that do not
proportionately reduce the number of shares authorized for issue based on the
allowable increased calculated using the Capital Structure model.
Share Repurchase Programs
Vote FOR management proposals to institute open-market share repurchase plans in
which all shareholders may participate on equal terms.
Stock Distributions: Splits and Dividends
Vote FOR management proposals to increase the common share authorization for a
stock split or share dividend, provided that the increase in authorized shares
would not result in an excessive number of shares available for issuance as
determined using a model developed by RMG.
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Tracking Stock
Vote CASE-BY-CASE on the creation of tracking stock, weighing the strategic
value of the transaction against such factors as: Adverse governance changes;
Excessive increases in authorized capital stock; Unfair method of distribution;
Diminution of voting rights; Adverse conversion features; Negative impact on
stock option plans; and Alternatives such as spin-off.
Restructuring
Appraisal Rights
Vote FOR proposals to restore, or provide shareholders with rights of appraisal.
Asset Purchases
Vote CASE-BY-CASE on asset purchase proposals, considering the following
factors: Purchase price; Fairness opinion; Financial and strategic benefits; How
the deal was negotiated; Conflicts of interest; Other alternatives for the
business; Non-completion risk.
Asset Sales
Vote CASE-BY-CASE on asset sales, considering the following factors: Impact on
the balance sheet/working capital; Potential elimination of diseconomies;
Anticipated financial and operating benefits; Anticipated use of funds; Value
received for the asset; Fairness opinion;
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How the deal was negotiated; Conflicts of interest.
Bundled Proposals
Vote CASE-BY-CASE on bundled or "conditional" proxy proposals. In the case of
items that are conditioned upon each other, examine the benefits and costs of
the packaged items. In instances when the joint effect of the conditioned items
is not in shareholders? best interests, vote AGAINST the proposals. If the
combined effect is positive, support such proposals.
Conversion of Securities
Vote CASE-BY-CASE on proposals regarding conversion of securities. When
evaluating these proposals the investor should review the dilution to existing
shareholders, the conversion price relative to market value, financial issues,
control issues, termination penalties, and conflicts of interest.
Vote FOR the conversion if it is expected that the company will be subject to
onerous penalties or will be forced to file for bankruptcy if the transaction is
not approved.
Corporate Reorganization/Debt Restructuring/Prepackaged Bankruptcy Plans/Reverse
Leveraged Buyouts/Wrap Plans
Vote CASE-BY-CASE on proposals to increase common and/or preferred shares and to
issue shares as part of a debt restructuring plan, taking into consideration the
following: Dilution to existing shareholders' position; Terms of the offer;
Financial issues; Management's efforts to pursue other alternatives; Control
issues; Conflicts of interest.
Vote FOR the debt restructuring if it is expected that the company will file for
bankruptcy if the transaction is not approved.
Formation of Holding Company
Vote CASE-BY-CASE on proposals regarding the formation of a holding company,
taking into consideration the following: The reasons for the change; Any
financial or tax benefits; Regulatory benefits;
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Increases in capital structure; Changes to the articles of incorporation or
bylaws of the company.
Absent compelling financial reasons to recommend the transaction, vote AGAINST
the formation of a holding company if the transaction would include either of
the following: Increases in common or preferred stock in excess of the allowable
maximum (see discussion under "Capital Structure"); Adverse changes in
shareholder rights.
Going Private and Going Dark Transactions (LBOs and Minority Squeeze-outs)
Vote CASE-BY-CASE on going private transactions, taking into account the
following: Offer price/premium; Fairness opinion; How the deal was negotiated;
Conflicts of interest; Other alternatives/offers considered; and Non-completion
risk.
Vote CASE-BY-CASE on "going dark" transactions, determining whether the
transaction enhances shareholder value by taking into consideration: Whether the
company has attained benefits from being publicly-traded (examination of trading
volume, liquidity, and market research of the stock); Balanced interests of
continuing vs. cashed-out shareholders, taking into account the following:
- - Are all shareholders able to participate in the transaction?
- - Will there be a liquid market for remaining shareholders following the
transaction?
- - Does the company have strong corporate governance?
- - Will insiders reap the gains of control following the proposed transaction?
- - Does the state of incorporation have laws requiring continued reporting that
may benefit shareholders?
Joint Ventures
Vote CASE-BY-CASE on proposals to form joint ventures, taking into account the
following: Percentage of assets/business contributed; Percentage ownership;
Financial and strategic benefits; Governance structure; Conflicts of interest;
Other alternatives;
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Noncompletion risk.
Liquidations
Vote CASE-BY-CASE on liquidations, taking into account the following:
Management?s efforts to pursue other alternatives; Appraisal value of assets;
and The compensation plan for executives managing the liquidation.
Vote FOR the liquidation if the company will file for bankruptcy if the proposal
is not approved.
Mergers and Acquisitions
Vote CASE -BY- CASE on mergers and acquisitions. Review and evaluate the merits
and drawbacks of the proposed transaction, balancing various and sometimes
countervailing factors including: Valuation - Is the value to be received by the
target shareholders (or paid by the acquirer) reasonable? While the fairness
opinion may provide an initial starting point for assessing valuation
reasonableness, emphasis is placed on the offer premium, market reaction and
strategic rationale. Market reaction - How has the market responded to the
proposed deal? A negative market reaction should cause closer scrutiny of a
deal. Strategic rationale - Does the deal make sense strategically? From where
is the value derived? Cost and revenue synergies should not be overly aggressive
or optimistic, but reasonably achievable. Management should also have a
favorable track record of successful integration of historical acquisitions.
Negotiations and process - Were the terms of the transaction negotiated at
arm's-length? Was the process fair and equitable? A fair process helps to ensure
the best price for shareholders. Significant negotiation "wins" can also signify
the deal makers' competency. The comprehensiveness of the sales process (e.g.,
full auction, partial auction, no auction) can also affect shareholder value.
Conflicts of interest - Are insiders benefiting from the transaction
disproportionately and inappropriately as compared to non-insider shareholders?
As the result of potential conflicts, the directors and officers of the company
may be more likely to vote to approve a merger than if they did not hold these
interests. Consider whether these interests may have influenced these directors
and officers to support or recommend the merger. The CIC figure presented in the
"RMG Transaction Summary" section of this report is an aggregate figure that can
in certain cases be a misleading indicator of the true value transfer from
shareholders to insiders. Where such figure appears to be excessive, analyze the
underlying assumptions to determine whether a potential conflict exists.
Governance - Will the combined company have a better or worse governance profile
than the current governance profiles of the respective parties to the
transaction? If the governance profile is to change for the worse, the burden is
on the company to prove that other issues (such as valuation) outweigh any
deterioration in governance.
Plans of Reorganization (Bankruptcy)
Vote CASE-BY-CASE basis on proposals to common shareholders on bankruptcy plans
of reorganization, considering the following factors including, but not limited
to:
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Estimated value and financial prospects of the reorganized company; Percentage
ownership of current shareholders in the reorganized company; Whether
shareholders are adequately represented in the reorganization process
(particularly through the existence of an Official Equity Committee); The
cause(s) of the bankruptcy filing, and the extent to which the plan of
reorganization addresses the cause(s); Existence of a superior alternative to
the plan of reorganization; and Governance of the reorganized company.
Private Placements/Warrants/Convertible Debentures
Vote CASE-BY-CASE on proposals regarding private placements taking into
consideration:
1. Dilution to existing shareholders' position.
- - The amount and timing of shareholder ownership dilution should be weighed
against the needs and proposed shareholder benefits of the capital infusion.
2. Terms of the offer - discount/premium in purchase price to investor,
including any fairness opinion; conversion features; termination penalties; exit
strategy.
- - The terms of the offer should be weighed against the alternatives of the
company and in light of company?s financial issues.
- - When evaluating the magnitude of a private placement discount or premium,
RiskMetrics will consider whether it is affected by liquidity, due diligence,
control and monitoring issues, capital scarcity, information asymmetry and
anticipation of future performance.
3. Financial issues include but are not limited to examining the following:
- - Company's financial situation;
- - Degree of need for capital;
- - Use of proceeds;
- - Effect of the financing on the company's cost of capital;
- - Current and proposed cash burn rate; and
- - Going concern viability and the state of the capital and credit markets.
4. Management's efforts to pursue alternatives and whether the company engaged
in a process to evaluate alternatives. A fair, unconstrained process helps to
ensure the best price for shareholders. Financing alternatives can include joint
ventures, partnership, merger or sale of part or all of the company.
5. Control issues:
- - Change in management;
- - Change in control,
- - Guaranteed board and committee seats;
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- - Standstill provisions;
- - Voting agreements;
- - Veto power over certain corporate actions.
Minority versus majority ownership and corresponding minority discount or
majority control premium
6. Conflicts of interest
- - Conflicts of interest should be viewed from the perspective of the company and
the investor.
- - Were the terms of the transaction negotiated at arm?s-length? Are managerial
incentives aligned with shareholder interests?
7. Market reaction
- - The market?s response to the proposed deal. A negative market reaction is a
cause for concern. Market reaction may be addressed by analyzing the one day
impact on the unaffected stock price.
Vote FOR the private placement if it is expected that the company will file for
bankruptcy if the transaction is not approved.
Special Purpose Acquisition Corporations (SPACs)
Vote on a CASE-BY-CASE basis on SPAC mergers and acquisitions taking into
account the following: Valuation - Is the value being paid by the SPAC
reasonable? SPACs generally lack an independent fairness opinion and the
financials on the target may be limited. Compare the conversion price with the
intrinsic value of the target company provided in the fairness opinion. Also,
evaluate the proportionate value of the combined entity attributable to the SPAC
IPO shareholders versus the pre-merger value of SPAC. Additionally, a private
company discount may be applied to the target, if it is a private entity. Market
reaction - How has the market responded to the proposed deal? A negative market
reaction may be a cause for concern. Market reaction may be addressed by
analyzing the one-day impact on the unaffected stock price. Deal timing - A main
driver for most transactions is that the SPAC charter typically requires the
deal to be complete within 18 to 24 months, or the SPAC is to be liquidated.
Evaluate the valuation, market reaction, and potential conflicts of interest for
deals that are announced close to the liquidation date. Negotiations and process
- - What was the process undertaken to identify potential target companies within
specified industry or location specified in charter? Consider the background of
the sponsors. Conflicts of interest - How are sponsors benefiting from the
transaction compared to IPO shareholders? Potential conflicts could arise if a
fairness opinion is issued by the insiders to qualify the deal rather than a
third party or if management is encouraged to pay a higher price for the target
because of an 80% rule (the charter requires that the fair market value of the
target is at least equal to 80% of net assets of the SPAC). Also, there may be
sense of urgency by the management team of the SPAC to close the deal since its
charter typically requires a transaction to be completed within the 18-24 month
timeframe. Voting agreements - Are the sponsors entering into enter into any
voting agreements/ tender offers with shareholders who are likely to vote
AGAINST the proposed merger or exercise conversion rights? Governance - What is
the impact of having the SPAC CEO or founder on key committees following the
proposed merger?
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Spinoffs
Vote CASE-BY-CASE on spin-offs, considering: Tax and regulatory advantages;
Planned use of the sale proceeds; Valuation of spinoff; Fairness opinion;
Benefits to the parent company; Conflicts of interest; Managerial incentives;
Corporate governance changes; Changes in the capital structure.
Value Maximization Shareholder Proposals
Vote CASE-BY-CASE on shareholder proposals seeking to maximize shareholder value
by hiring a financial advisor to explore strategic alternatives, selling the
company or liquidating the company and distributing the proceeds to
shareholders. These proposals should be evaluated based on the following
factors: Prolonged poor performance with no turnaround in sight; Signs of
entrenched board and management; Strategic plan in place for improving value;
Likelihood of receiving reasonable value in a sale or dissolution; and Whether
company is actively exploring its strategic options, including retaining a
financial advisor.
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5. COMPENSATION
Executive Pay Evaluation
Underlying all evaluations are five global principles that most investors expect
corporations to adhere to in designing and administering executive and director
compensation programs:
1. Maintain appropriate pay-for-performance alignment, with emphasis on
long-term shareholder value: This principle encompasses overall executive pay
practices, which must be designed to attract, retain, and appropriately motivate
the key employees who drive shareholder value creation over the long term. It
will take into consideration, among other factors, the link between pay and
performance; the mix between fixed and variable pay; performance goals; and
equity-based plan costs;
2. Avoid arrangements that risk "pay for failure": This principle addresses the
appropriateness of long or indefinite contracts, excessive severance packages,
and guaranteed compensation;
3. Maintain an independent and effective compensation committee: This principle
promotes oversight of executive pay programs by directors with appropriate
skills, knowledge, experience, and a sound process for compensation
decision-making (e.g., including access to independent expertise and advice when
needed);
4. Provide shareholders with clear, comprehensive compensation disclosures: This
principle underscores the importance of informative and timely disclosures that
enable shareholders to evaluate executive pay practices fully and fairly;
5. Avoid inappropriate pay to non-executive directors: This principle recognizes
the interests of shareholders in ensuring that compensation to outside directors
does not compromise their independence and ability to make appropriate judgments
in overseeing managers? pay and performance. At the market level, it may
incorporate a variety of generally accepted best practices.
Advisory Votes on Executive Compensation- Management Proposals (Management
Say-on-Pay)
Evaluate executive pay and practices, as well as certain aspects of outside
director compensation, on a CASE-BY-CASE basis.
Vote AGAINST management say on pay (MSOP) proposals, AGAINST/WITHHOLD on
compensation committee members (or, in rare cases where the full board is deemed
responsible, all directors including the CEO), and/or AGAINST an equity-based
incentive plan proposal if: There is a misalignment between CEO pay and company
performance (pay for performance); The company maintains problematic pay
practices; The board exhibits poor communication and responsiveness to
shareholders.
Voting Alternatives
In general, the management say on pay (MSOP) ballot item is the primary focus of
voting on executive pay practices-- dissatisfaction with compensation practices
can be expressed by voting against MSOP rather than withholding or voting
against the compensation committee. However, if there is no MSOP on the ballot,
then the negative vote will apply to members of the compensation committee. In
addition, in egregious cases, or if the board fails to respond to concerns
raised by a prior MSOP proposal, then vote withhold or against compensation
committee members (or, if the full board is deemed accountable, all directors).
If the negative factors involve equity-based compensation, then vote AGAINST an
equity-based plan proposal presented for shareholder approval.
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Additional CASE-BY-CASE considerations for the management say on pay (MSOP)
proposals: Evaluation of performance metrics in short-term and long-term plans,
as discussed and explained in the Compensation Discussion & Analysis (CD&A).
Consider the measures, goals, and target awards reported by the company for
executives? short- and long-term incentive awards: disclosure, explanation of
their alignment with the company?s business strategy, and whether goals appear
to be sufficiently challenging in relation to resulting payouts; Evaluation of
peer group benchmarking used to set target pay or award opportunities. Consider
the rationale stated by the company for constituents in its pay benchmarking
peer group, as well as the benchmark targets it uses to set or validate
executives? pay (e.g., median, 75th percentile, etc.,) to ascertain whether the
benchmarking process is sound or may result in pay "ratcheting" due to
inappropriate peer group constituents (e.g., much larger companies) or targeting
(e.g., above median); and Balance of performance-based versus
non-performance-based pay. Consider the ratio of performance-based (not
including plain vanilla stock options) vs. non-performance-based pay elements
reported for the CEO?s latest reported fiscal year compensation, especially in
conjunction with concerns about other factors such as performance metrics/goals,
benchmarking practices, and pay-for-performance disconnects.
Primary Evaluation Factors for Executive Pay
Pay for Performance
Evaluate the alignment of the CEO?s pay with performance over time, focusing
particularly on companies that have underperformed their peers over a sustained
period. From a shareholders? perspective, performance is predominantly gauged by
the company?s stock performance over time. Even when financial or operational
measures are utilized in incentive awards, the achievement related to these
measures should ultimately translate into superior shareholder returns in the
long-term.
Focus on companies with sustained underperformance relative to peers,
considering the following key factors: Whether a company?s one-year and
three-year total shareholder returns ("TSR") are in the bottom half of its
industry group (i.e., four-digit GICS - Global Industry Classification Group);
and Whether the total compensation of a CEO who has served at least two
consecutive fiscal years is aligned with the company?s total shareholder return
over time, including both recent and long-term periods.
If a company falls in the bottom half of its four-digit GICS, further analysis
of the CD&A is required to better understand the various pay elements and
whether they create or reinforce shareholder alignment. Also assess the CEO?s
pay relative to the company?s TSR over a time horizon of at least five years.
The most recent year-over-year increase or decrease in pay remains a key
consideration, but there will be additional emphasis on the long term trend of
CEO total compensation relative to shareholder return. Also consider the mix of
performance-based compensation relative to total compensation. In general,
standard stock options or time-vested restricted stock are not considered to be
performance-based. If a company provides performance-based incentives to its
executives, the company is highly encouraged to provide the complete disclosure
of the performance measure and goals (hurdle rate) so that shareholders can
assess the rigor of the performance program. The use of non-GAAP financial
metrics also makes it very challenging for shareholders to ascertain the rigor
of the program as shareholders often cannot tell the type of adjustments being
made and if the
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adjustments were made consistently. Complete and transparent disclosure helps
shareholders to better understand the company?s pay for performance linkage.
Problematic Pay Practices
The focus is on executive compensation practices that contravene the global pay
principles, including: Problematic practices related to non-performance-based
compensation elements; Incentives that may motivate excessive risk-taking; and
Options Backdating.
Non-Performance based Compensation Elements
Companies adopt a variety of pay arrangements that may be acceptable in their
particular industries, or unique for a particular situation, and all companies
are reviewed on a case-by-case basis. However, there are certain adverse
practices that are particularly contrary to a performance-based pay philosophy,
including guaranteed pay and excessive or inappropriate non-performance-based
pay elements.
While not exhaustive, this is the list of practices that carry greatest weight
in this consideration and may result in negative vote recommendations on a
stand-alone basis. For more details, please refer to RMG?s Compensation FAQ
document: http://www.riskmetrics.com/policy/2010_compensation_FAQ: Multi-year
guarantees for salary increases, non-performance based bonuses, and equity
compensation; Including additional years of unworked service that result in
significant additional benefits, without sufficient justification, or including
long-term equity awards in the pension calculation; Perquisites for former
and/or retired executives, and extraordinary relocation benefits (including home
buyouts) for current executives; Change-in-control payments exceeding 3 times
base salary and target bonus; change-in-control payments without job loss or
substantial diminution of duties ("Single Triggers"); new or materially amended
agreements that provide for "modified single triggers" (under which an executive
may voluntarily leave for any reason and still receive the change-in-control
severance package); new or materially amended agreements that provide for an
excise tax gross-up (including "modified gross-ups"); Tax Reimbursements related
to executive perquisites or other payments such as personal use of corporate
aircraft, executive life insurance, bonus, etc; (see also excise tax gross-ups
above) Dividends or dividend equivalents paid on unvested performance shares or
units; Executives using company stock in hedging activities, such as "cashless"
collars, forward sales, equity swaps or other similar arrangements; or Repricing
or replacing of underwater stock options/stock appreciation rights without prior
shareholder approval (including cash buyouts and voluntary surrender/subsequent
regrant of underwater options).
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Incentives that may Motivate Excessive Risk-Taking
Assess company policies and disclosure related to compensation that could
incentivize excessive risk-taking, for example: Guaranteed bonuses; A single
performance metric used for short- and long-term plans; Lucrative severance
packages; High pay opportunities relative to industry peers; Disproportionate
supplemental pensions; or Mega annual equity grants that provide unlimited
upside with no downside risk.
Factors that potentially mitigate the impact of risky incentives include
rigorous claw-back provisions and robust stock ownership/holding guidelines.
Options Backdating
Vote CASE-by-CASE on options backdating issues. Generally, when a company has
recently practiced options backdating, WITHHOLD from or vote AGAINST the
compensation committee, depending on the severity of the practices and the
subsequent corrective actions on the part of the board. When deciding on votes
on compensation committee members who oversaw questionable options grant
practices or current compensation committee members who fail to respond to the
issue proactively, consider several factors, including, but not limited to, the
following: Reason and motive for the options backdating issue, such as
inadvertent vs. deliberate grant date changes; Duration of options backdating;
Size of restatement due to options backdating; Corrective actions taken by the
board or compensation committee, such as canceling or re-pricing backdated
options, the recouping of option gains on backdated grants; and Adoption of a
grant policy that prohibits backdating, and creates a fixed grant schedule or
window period for equity grants in the future.
A CASE-by-CASE analysis approach allows distinctions to be made between
companies that had "sloppy" plan administration versus those that acted
deliberately and/or committed fraud, as well as those companies that
subsequently took corrective action. Cases where companies have committed fraud
are considered most egregious.
Board Communications and Responsiveness
Consider the following factors on a CASE-BY-CASE basis when evaluating ballot
items related to executive pay: Poor disclosure practices, including:
- - Unclear explanation of how the CEO is involved in the pay setting process;
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- - Retrospective performance targets and methodology not discussed;
- - Methodology for benchmarking practices and/or peer group not disclosed and
explained. Board?s responsiveness to investor input and engagement on
compensation issues, for example:
- - Failure to respond to majority-supported shareholder proposals on executive
pay topics; or
- - Failure to respond to concerns raised in connection with significant
opposition to MSOP proposals.
Equity-Based and Other Incentive Plans
Vote CASE-BY-CASE on equity-based compensation plans. Vote AGAINST the equity
plan if any of the following factors apply: The total cost of the company?s
equity plans is unreasonable; The plan expressly permits the repricing of stock
options/stock appreciate rights (SARs) without prior shareholder approval; The
CEO is a participant in the proposed equity-based compensation plan and there is
a disconnect between CEO pay and the company?s performance where over 50 percent
of the year-over-year increase is attributed to equity awards (see
Pay-for-Performance); The company?s three year burn rate exceeds the greater of
2% or the mean plus one standard deviation of its industry group; Liberal Change
of Control Definition: The plan provides for the acceleration of vesting of
equity awards even though an actual change in control may not occur (e.g., upon
shareholder approval of a transaction or the announcement of a tender offer); or
The plan is a vehicle for problematic pay practices.
Each of these factors is described below:
Cost of Equity Plans
Generally, vote AGAINST equity plans if the cost is unreasonable. For
non-employee director plans, vote FOR the plan if certain factors are met (see
Director Compensation section).
The cost of the equity plans is expressed as Shareholder Value Transfer (SVT),
which is measured using a binomial option pricing model that assesses the amount
of shareholders? equity flowing out of the company to employees and directors.
SVT is expressed as both a dollar amount and as a percentage of market value,
and includes the new shares proposed, shares available under existing plans, and
shares granted but unexercised. All award types are valued. For omnibus plans,
unless limitations are placed on the most expensive types of awards (for
example, full value awards), the assumption is made that all awards to be
granted will be the most expensive types. See discussion of specific types of
awards.
The Shareholder Value Transfer is reasonable if it falls below the
company-specific allowable cap. The allowable cap is determined as follows: The
top quartile performers in each industry group (using the Global Industry
Classification Standard: GICS) are identified. Benchmark SVT levels for each
industry are established based on these top performers? historic SVT. Regression
analyses are run on each industry group to identify the
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variables most strongly correlated to SVT. The benchmark industry SVT level is
then adjusted upwards or downwards for the specific company by plugging the
company-specific performance measures, size and cash compensation into the
industry cap equations to arrive at the company?s allowable cap.
Repricing Provisions
Vote AGAINST plans that expressly permit the repricing or exchange of underwater
stock options without prior shareholder approval, even if the cost of the plan
is reasonable. Also, vote AGAINST OR WITHHOLD from members of the Compensation
Committee who approved and/or implemented a repricing or an option exchange
program, by buying out underwater options for stock, cash or other consideration
or canceling underwater options and regranting options with a lower exercise
price, without prior shareholder approval, even if such repricings are allowed
in their equity plan.
Vote AGAINST plans if the company has a history of repricing options without
shareholder approval, and the applicable listing standards would not preclude
them from doing so.
Three-Year Burn Rate/Burn Rate Commitment
Generally vote AGAINST equity plans for companies whose average three-year burn
rates exceeds the greater of: (1) the mean plus one standard deviation of the
company's GICS group segmented by Russell 3000 index and non-Russell 3000 index
(per the following Burn Rate Table); or (2) two percent of weighted common
shares outstanding. The three-year burn rate policy does not apply to
non-employee director plans unless outside directors receive a significant
portion of shares each year.
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The annual burn rate is calculated as follows:
Annual Burn rate = (# of options granted + # of full value shares awarded *
Multiplier) / Weighted Average common shares outstanding)
However, vote FOR equity plans if the company fails this burn rate test but the
company commits in a public filing to a three-year average burn rate equal to
its GICS group burn rate mean plus one standard deviation (or 2%, whichever is
greater), assuming all other conditions for voting FOR the plan have been met.
If a company fails to fulfill its burn rate commitment, vote AGAINST or WITHHOLD
from the compensation committee.
For the Dec. 1, 2009 and future quarterly data downloads, RMG will use the
200-day volatility for the shareholder value transfer and burn rate policies. We
will also use the 200-day average stock price for the shareholder value transfer
policy.
For companies that grant both full value awards and stock options to their
participants, apply a premium on full value awards for the past three fiscal
years. The guideline for applying the premium is as follows: Stock Price
Volatility Multiplier
54.6% and higher
1 full-value award will count as 1.5 option shares
36.1% or higher and less than 54.6%
1 full-value award will count as 2.0 option shares
24.9% or higher and less than 36.1%
1 full-value award will count as 2.5 option shares
16.5% or higher and less than 24.9%
1 full-value award will count as 3.0 option shares
7.9% or higher and less than 16.5%
1 full-value award will count as 3.5 option shares
Less than 7.9%
1 full-value award will count as 4.0 option shares
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Pay-for-Performance- Impact on Equity Plans
If a significant portion of the CEO?s misaligned pay is attributed to equity
awards, and there is an equity plan on the ballot, vote AGAINST the equity plan,
taking in to consideration: Magnitude of pay increase/decrease in the last
fiscal year; Source of pay increase (cash or equity); and Proportion of equity
awards granted in the last fiscal year concentrated at the named executive
officer level.
See Pay-for-Performance discussion under Executive Pay Evaluation for further
details.
Liberal Definition of Change-in-Control
Generally vote AGAINST equity plans if the plan provides for the acceleration of
vesting of equity awards even though an actual change in control may not occur.
Examples of such a definition could include, but are not limited to,
announcement or commencement of a tender offer, provisions for acceleration upon
a "potential" takeover, shareholder approval of a merger or other transactions,
or similar language.
Problematic Pay Practices
If the equity plan on the ballot is a vehicle for problematic pay practices,
vote AGAINST the plan.
Specific Treatment of Certain Award Types in Equity Plan Evaluations:
Dividend Equivalent Rights
Options that have Dividend Equivalent Rights (DERs) associated with them will
have a higher calculated award value than those without DERs under the binomial
model, based on the value of these dividend streams. The higher value will be
applied to new shares, shares available under existing plans, and shares awarded
but not exercised per the plan specifications. DERS transfer more shareholder
equity to employees and non-employee directors and this cost should be captured.
Liberal Share Recycling Provisions
Under net share counting provisions, shares tendered by an option holder to pay
for the exercise of an option, shares withheld for taxes or shares repurchased
by the company on the open market can be recycled back into the equity plan for
awarding again. All awards with such provisions should be valued as full-value
awards. Stock-settled stock appreciation rights (SSARs) will also be considered
as full-value awards if a company counts only the net shares issued to employees
towards their plan reserve.
Operating Partnership (OP) units in Equity Plan analysis of Real Estate
Investment Trusts (REITs)
For Real Estate Investment Trusts (REITS), include the common shares issuable
upon conversion of outstanding Operating Partnership (OP) units in the share
count for the purposes of determining: (1) market capitalization in the
Shareholder Value Transfer (SVT) analysis and (2) shares outstanding in the burn
rate analysis.
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Option Overhang Cost
Companies with sustained positive stock performance and high overhang cost
attributable to in-the-money options outstanding in excess of six years may
warrant a carve-out of these options from the overhang as long as the dilution
attributable to the new share request is reasonable and the company exhibits
sound compensation practices. Consider, on a CASE-BY-CASE basis, a carve-out of
a portion of cost attributable to overhang, considering the following criteria:
Performance: Companies with sustained positive stock performance will merit
greater scrutiny. Five-year total shareholder return (TSR), year-over-year
performance, and peer performance could play a significant role in this
determination. Overhang Disclosure: Assess whether optionees have held
in-the-money options for a prolonged period (thus reflecting their confidence in
the prospects of the company). Note that this assessment would require
additional disclosure regarding a company's overhang. Specifically, the
following disclosure would be required:
- - The number of in-the-money options outstanding in excess of six or more years
with a corresponding weighted average exercise price and weighted average
contractual remaining term;
- - The number of all options outstanding less than six years and underwater
options outstanding in excess of six years with a corresponding weighted average
exercise price and weighted average contractual remaining term;
- - The general vesting provisions of option grants; and
- - The distribution of outstanding option grants with respect to the named
executive officers; Dilution: Calculate the expected duration of the new share
request in addition to all shares currently available for grant under the equity
compensation program, based on the company's three-year average burn rate (or a
burn-rate commitment that the company makes for future years). The expected
duration will be calculated by multiplying the company?s unadjusted (options and
full-value awards accounted on a one-for-one basis) three-year average burn rate
by the most recent fiscal year?s weighted average shares outstanding (as used in
the company?s calculation of basic EPS) and divide the sum of the new share
request and all available shares under the company?s equity compensation program
by the product. For example, an expected duration in excess of five years could
be considered problematic; and Compensation Practices: An evaluation of overall
practices could include: (1) stock option repricing provisions, (2) high
concentration ratios (of grants to top executives), or (3) additional practices
outlined in the Poor Pay Practices policy.
Other Compensation Plans
401(k) Employee Benefit Plans
Vote FOR proposals to implement a 401(k) savings plan for employees.
Employee Stock Ownership Plans (ESOPs)
Vote FOR proposals to implement an ESOP or increase authorized shares for
existing ESOPs, unless the number of shares allocated to the ESOP is excessive
(more than five percent of outstanding shares).
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Employee Stock Purchase Plans-- Qualified Plans
Vote CASE-BY-CASE on qualified employee stock purchase plans. Vote FOR employee
stock purchase plans where all of the following apply: Purchase price is at
least 85 percent of fair market value; Offering period is 27 months or less; and
The number of shares allocated to the plan is ten percent or less of the
outstanding shares.
Vote AGAINST qualified employee stock purchase plans where any of the following
apply: Purchase price is less than 85 percent of fair market value; or Offering
period is greater than 27 months; or The number of shares allocated to the plan
is more than ten percent of the outstanding shares.
Employee Stock Purchase Plans-- Non-Qualified Plans
Vote CASE-by-CASE on nonqualified employee stock purchase plans. Vote FOR
nonqualified employee stock purchase plans with all the following features:
Broad-based participation (i.e., all employees of the company with the exclusion
of individuals with 5 percent or more of beneficial ownership of the company);
Limits on employee contribution, which may be a fixed dollar amount or expressed
as a percent of base salary; Company matching contribution up to 25 percent of
employee?s contribution, which is effectively a discount of 20 percent from
market value; No discount on the stock price on the date of purchase since there
is a company matching contribution.
Vote AGAINST nonqualified employee stock purchase plans when any of the plan
features do not meet the above criteria. If the company matching contribution
exceeds 25 percent of employee?s contribution, evaluate the cost of the plan
against its allowable cap.
Incentive Bonus Plans and Tax Deductibility Proposals (OBRA-Related Compensation
Proposals)
Vote FOR proposals that simply amend shareholder-approved compensation plans to
include administrative features or place a cap on the annual grants any one
participant may receive to comply with the provisions of Section 162(m) of the
Internal Revenue Code.
Vote FOR proposals to add performance goals to existing compensation plans to
comply with the provisions of Section 162(m) unless they are clearly
inappropriate.
Votes to amend existing plans to increase shares reserved and to qualify for
favorable tax treatment under the provisions of Section 162(m) are considered on
a CASE-BY-CASE basis using a proprietary, quantitative model developed by RMG.
Generally vote FOR cash or cash and stock bonus plans that are submitted to
shareholders for the purpose of exempting compensation from taxes under the
provisions of Section 162(m) if no increase in shares is requested.
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Vote AGAINST proposals if the compensation committee does not fully consist of
independent outsiders, as defined in RMG?s classification of director
independence.
Option Exchange Programs/Repricing Options
Vote CASE-by-CASE on management proposals seeking approval to exchange/reprice
options taking into consideration: Historic trading patterns--the stock price
should not be so volatile that the options are likely to be back "in-the-money"
over the near term; Rationale for the re-pricing--was the stock price decline
beyond management's control? Is this a value-for-value exchange? Are surrendered
stock options added back to the plan reserve? Option vesting--does the new
option vest immediately or is there a black-out period? Term of the option--the
term should remain the same as that of the replaced option; Exercise
price--should be set at fair market or a premium to market;
Participants--executive officers and directors should be excluded.
If the surrendered options are added back to the equity plans for re-issuance,
then also take into consideration the company?s total cost of equity plans and
its three-year average burn rate.
In addition to the above considerations, evaluate the intent, rationale, and
timing of the repricing proposal. The proposal should clearly articulate why the
board is choosing to conduct an exchange program at this point in time.
Repricing underwater options after a recent precipitous drop in the company?s
stock price demonstrates poor timing. Repricing after a recent decline in stock
price triggers additional scrutiny and a potential AGAINST vote on the proposal.
At a minimum, the decline should not have happened within the past year. Also,
consider the terms of the surrendered options, such as the grant date, exercise
price and vesting schedule. Grant dates of surrendered options should be far
enough back (two to three years) so as not to suggest that repricings are being
done to take advantage of short-term downward price movements. Similarly, the
exercise price of surrendered options should be above the 52-week high for the
stock price.
Vote FOR shareholder proposals to put option repricings to a shareholder vote.
Stock Plans in Lieu of Cash
Vote CASE-by-CASE on plans that provide participants with the option of taking
all or a portion of their cash compensation in the form of stock.
Vote FOR non-employee director-only equity plans that provide a
dollar-for-dollar cash-for-stock exchange.
Vote CASE-by-CASE on plans which do not provide a dollar-for-dollar cash for
stock exchange. In cases where the exchange is not dollar-for-dollar, the
request for new or additional shares for such equity program will be considered
using the binomial option pricing model. In an effort to capture the total cost
of total compensation, RMG will not make any adjustments to carve out the
in-lieu-of cash compensation.
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Transfer Stock Option (TSO) Programs
One-time Transfers: Vote AGAINST or WITHHOLD from compensation committee members
if they fail to submit one-time transfers to shareholders for approval.
Vote CASE-BY-CASE on one-time transfers. Vote FOR if: Executive officers and
non-employee directors are excluded from participating; Stock options are
purchased by third-party financial institutions at a discount to their fair
value using option pricing models such as Black-Scholes or a Binomial Option
Valuation or other appropriate financial models; There is a two-year minimum
holding period for sale proceeds (cash or stock) for all participants.
Additionally, management should provide a clear explanation of why options are
being transferred to a third-party institution and whether the events leading up
to a decline in stock price were beyond management's control. A review of the
company's historic stock price volatility should indicate if the options are
likely to be back "in-the-money" over the near term.
Ongoing TSO program: Vote AGAINST equity plan proposals if the details of
ongoing TSO programs are not provided to shareholders. Since TSOs will be one of
the award types under a stock plan, the ongoing TSO program, structure and
mechanics must be disclosed to shareholders. The specific criteria to be
considered in evaluating these proposals include, but not limited, to the
following: Eligibility; Vesting; Bid-price; Term of options; Cost of the program
and impact of the TSOs on company?s total option expense Option repricing
policy.
Amendments to existing plans that allow for introduction of transferability of
stock options should make clear that only options granted post-amendment shall
be transferable.
Director Compensation
Equity Plans for Non-Employee Directors
Vote CASE-BY-CASE on compensation plans for non-employee directors, based on the
cost of the plans against the company?s allowable cap.
On occasion, director stock plans that set aside a relatively small number of
shares when combined with employee or executive stock compensation plans will
exceed the allowable cap. Vote for the plan if ALL of the following qualitative
factors in the board?s compensation are met and disclosed in the proxy
statement: Director stock ownership guidelines with a minimum of three times the
annual cash retainer. Vesting schedule or mandatory holding/deferral period:
- - A minimum vesting of three years for stock options or restricted stock; or
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- - Deferred stock payable at the end of a three-year deferral period. Mix between
cash and equity:
- - A balanced mix of cash and equity, for example 40% cash/60% equity or 50%
cash/50% equity; or
- - If the mix is heavier on the equity component, the vesting schedule or
deferral period should be more stringent, with the lesser of five years or the
term of directorship. No retirement/benefits and perquisites provided to
non-employee directors; and Detailed disclosure provided on cash and equity
compensation delivered to each non-employee director for the most recent fiscal
year in a table. The column headers for the table may include the following:
name of each non-employee director, annual retainer, board meeting fees,
committee retainer, committee-meeting fees, and equity grants.
Director Retirement Plans
Vote AGAINST retirement plans for non-employee directors.
Vote FOR shareholder proposals to eliminate retirement plans for non-employee
directors.
Shareholder Proposals on Compensation
Advisory Vote on Executive Compensation (Say-on-Pay)
Generally, vote FOR shareholder proposals that call for non-binding shareholder
ratification of the compensation of the Named Executive Officers and the
accompanying narrative disclosure of material factors provided to understand the
Summary Compensation Table.
Compensation Consultants- Disclosure of Board or Company's Utilization
Generally vote FOR shareholder proposals seeking disclosure regarding the
Company, Board, or Compensation Committee?s use of compensation consultants,
such as company name, business relationship(s) and fees paid.
Disclosure/Setting Levels or Types of Compensation for Executives and Directors
Generally, vote FOR shareholder proposals seeking additional disclosure of
executive and director pay information, provided the information requested is
relevant to shareholders' needs, would not put the company at a competitive
disadvantage relative to its industry, and is not unduly burdensome to the
company.
Vote AGAINST shareholder proposals seeking to set absolute levels on
compensation or otherwise dictate the amount or form of compensation.
Vote AGAINST shareholder proposals requiring director fees be paid in stock
only.
Vote CASE-BY-CASE on all other shareholder proposals regarding executive and
director pay, taking into account company performance, pay level versus peers,
pay level versus industry, and long-term corporate outlook.
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Golden Coffins/Executive Death Benefits
Generally vote FOR proposals calling companies to adopt a policy of obtaining
shareholder approval for any future agreements and corporate policies that could
oblige the company to make payments or awards following the death of a senior
executive in the form of unearned salary or bonuses, accelerated vesting or the
continuation in force of unvested equity grants, perquisites and other payments
or awards made in lieu of compensation. This would not apply to any benefit
programs or equity plan proposals that the broad-based employee population is
eligible.
Pay for Superior Performance
Generally vote FOR shareholder proposals based on a case-by-case analysis that
requests the board establish a pay-for-superior performance standard in the
company's executive compensation plan for senior executives. The proposal has
the following principles: Sets compensation targets for the Plan?s annual and
long-term incentive pay components at or below the peer group median; Delivers a
majority of the Plan?s target long-term compensation through performance-vested,
not simply time-vested, equity awards; Provides the strategic rationale and
relative weightings of the financial and non-financial performance metrics or
criteria used in the annual and performance-vested long-term incentive
components of the plan; Establishes performance targets for each plan financial
metric relative to the performance of the company?s peer companies; Limits
payment under the annual and performance-vested long-term incentive components
of the plan to when the company?s performance on its selected financial
performance metrics exceeds peer group median performance.
Consider the following factors in evaluating this proposal: What aspects of the
company?s annual and long-term equity incentive programs are performance driven?
If the annual and long-term equity incentive programs are performance driven,
are the performance criteria and hurdle rates disclosed to shareholders or are
they benchmarked against a disclosed peer group? Can shareholders assess the
correlation between pay and performance based on the current disclosure? What
type of industry and stage of business cycle does the company belong to?
Performance-Based Awards
Vote CASE-BY-CASE on shareholder proposal requesting that a significant amount
of future long-term incentive compensation awarded to senior executives shall be
performance-based and requesting that the board adopt and disclose challenging
performance metrics to shareholders, based on the following analytical steps:
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First, vote FOR shareholder proposals advocating the use of performance-based
equity awards, such as performance contingent options or restricted stock,
indexed options or premium-priced options, unless the proposal is overly
restrictive or if the company has demonstrated that it is using a "substantial"
portion of performance-based awards for its top executives. Standard stock
options and performance-accelerated awards do not meet the criteria to be
considered as performance-based awards. Further, premium-priced options should
have a premium of at least 25 percent and higher to be considered
performance-based awards. Second, assess the rigor of the company?s
performance-based equity program. If the bar set for the performance-based
program is too low based on the company?s historical or peer group comparison,
generally vote FOR the proposal. Furthermore, if target performance results in
an above target payout, vote FOR the shareholder proposal due to program?s poor
design. If the company does not disclose the performance metric of the
performance-based equity program, vote FOR the shareholder proposal regardless
of the outcome of the first step to the test.
In general, vote FOR the shareholder proposal if the company does not meet both
of the above two steps.
Pension Plan Income Accounting
Generally vote FOR shareholder proposals to exclude pension plan income in the
calculation of earnings used in determining executive bonuses/compensation.
Pre-Arranged Trading Plans (10b5-1 Plans)
Generally vote FOR shareholder proposals calling for certain principles
regarding the use of prearranged trading plans (10b5-1 plans) for executives.
These principles include: Adoption, amendment, or termination of a 10b5-1 Plan
must be disclosed within two business days in a Form 8-K; Amendment or early
termination of a 10b5-1 Plan is allowed only under extraordinary circumstances,
as determined by the board; Ninety days must elapse between adoption or
amendment of a 10b5-1 Plan and initial trading under the plan; Reports on Form 4
must identify transactions made pursuant to a 10b5-1 Plan; An executive may not
trade in company stock outside the 10b5-1 Plan. Trades under a 10b5-1 Plan must
be handled by a broker who does not handle other securities transactions for the
executive.
Recoup Bonuses
Vote on a CASE-BY-CASE on proposals to recoup unearned incentive bonuses or
other incentive payments made to senior executives if it is later determined
that the figures upon which incentive compensation is earned later turn out to
have been in error. This is line with the clawback provision in the Trouble
Asset Relief Program. Many companies have adopted policies that permit
recoupment in cases where fraud, misconduct, or negligence significantly
contributed to a restatement of financial results that led to the awarding of
unearned incentive compensation. RMG will take into consideration: If the
company has adopted a formal recoupment bonus policy; If the company has chronic
restatement history or material financial problems; or
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If the company?s policy substantially addresses the concerns raised by the
proponent.
Severance Agreements for Executives/Golden Parachutes
Vote FOR shareholder proposals requiring that golden parachutes or executive
severance agreements be submitted for shareholder ratification, unless the
proposal requires shareholder approval prior to entering into employment
contracts.
Vote on a CASE-BY-CASE basis on proposals to ratify or cancel golden parachutes.
An acceptable parachute should include, but is not limited to, the following:
The triggering mechanism should be beyond the control of management; The amount
should not exceed three times base amount (defined as the average annual taxable
W-2 compensation during the five years prior to the year in which the change of
control occurs; Change-in-control payments should be double-triggered, i.e., (1)
after a change in control has taken place, and (2) termination of the executive
as a result of the change in control. Change in control is defined as a change
in the company ownership structure.
Share Buyback Holding Periods
Generally vote AGAINST shareholder proposals prohibiting executives from selling
shares of company stock during periods in which the company has announced that
it may or will be repurchasing shares of its stock. Vote FOR the proposal when
there is a pattern of abuse by executives exercising options or selling shares
during periods of share buybacks.
Stock Ownership or Holding Period Guidelines
Generally vote AGAINST shareholder proposals that mandate a minimum amount of
stock that directors must own in order to qualify as a director or to remain on
the board. While RMG favors stock ownership on the part of directors, the
company should determine the appropriate ownership requirement.
Vote on a CASE-BY-CASE on shareholder proposals asking companies to adopt
policies requiring Named Executive Officers to retain 75% of the shares acquired
through compensation plans while employed and/or for two years following the
termination of their employment, and to report to shareholders regarding this
policy. The following factors will be taken into account: Whether the company
has any holding period, retention ratio, or officer ownership requirements in
place. These should consist of:
- - Rigorous stock ownership guidelines, or
- - A holding period requirement coupled with a significant long-term ownership
requirement, or
- - A meaningful retention ratio, Actual officer stock ownership and the degree to
which it meets or exceeds the proponent?s suggested holding period/retention
ratio or the company?s own stock ownership or retention requirements.
Problematic pay practices, current and past, which may promote a short-term
versus a long-term focus.
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A rigorous stock ownership guideline should be at least 10x base salary for the
CEO, with the multiple declining for other executives. A meaningful retention
ratio should constitute at least 50 percent of the stock received from equity
awards (on a net proceeds basis) held on a long-term basis, such as the
executive?s tenure with the company or even a few years past the executive?s
termination with the company.
Supplemental Executive Retirement Plans (SERPs)
Generally vote FOR shareholder proposals requesting to put extraordinary
benefits contained in SERP agreements to a shareholder vote unless the company?s
executive pension plans do not contain excessive benefits beyond what is offered
under employee-wide plans.
Generally vote FOR shareholder proposals requesting to limit the executive
benefits provided under the company?s supplemental executive retirement plan
(SERP) by limiting covered compensation to a senior executive?s annual salary
and excluding of all incentive or bonus pay from the plan?s definition of
covered compensation used to establish such benefits.
Termination of Employment Prior to Severance Payment and Eliminating Accelerated
Vesting of Unvested Equity
Vote on a CASE-by-CASE on shareholder proposals seeking a policy requiring
termination of employment prior to severance payment, and eliminating
accelerated vesting of unvested equity. Change-in-control payouts without loss
of job or substantial diminution of job duties (single-triggered) are consider a
poor pay practice under RMG policy, and may even result in withheld votes from
compensation committee members. The second component of this proposal -- related
to the elimination of accelerated vesting - requires more careful consideration.
The following factors will be taken into regarding this policy. The company?s
current treatment of equity in change-of-control situations (i.e. is it double
triggered, does it allow for the assumption of equity by acquiring company, the
treatment of performance shares. Current employment agreements, including
potential poor pay practices such as gross-ups embedded in those agreements.
Tax Gross-Up Proposals
Generally vote FOR proposals calling for companies to adopt a policy of not
providing tax gross-up payments to executives, except in situations where
gross-ups are provided pursuant to a plan, policy, or arrangement applicable to
management employees of the company, such as a relocation or expatriate tax
equalization policy.
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6. Social/Environmental Issues
Overall Approach
When evaluating social and environmental shareholder proposals, RMG considers
the following factors: Whether adoption of the proposal is likely to enhance or
protect shareholder value; Whether the information requested concerns business
issues that relate to a meaningful percentage of the company's business as
measured by sales, assets, and earnings; The degree to which the company's
stated position on the issues raised in the proposal could affect its reputation
or sales, or leave it vulnerable to a boycott or selective purchasing; Whether
the issues presented are more appropriately/effectively dealt with through
governmental or company-specific action; Whether the company has already
responded in some appropriate manner to the request embodied in the proposal;
Whether the company's analysis and voting recommendation to shareholders are
persuasive; What other companies have done in response to the issue addressed in
the proposal; Whether the proposal itself is well framed and the cost of
preparing the report is reasonable; Whether implementation of the proposal?s
request would achieve the proposal?s objectives; Whether the subject of the
proposal is best left to the discretion of the board; Whether the requested
information is available to shareholders either from the company or from a
publicly available source; and Whether providing this information would reveal
proprietary or confidential information that would place the company at a
competitive disadvantage.
Animal Welfare
Animal Testing
Generally vote AGAINST proposals to phase out the use of animals in product
testing unless: The company is conducting animal testing programs that are
unnecessary or not required by regulation; The company is conducting animal
testing when suitable alternatives are commonly accepted and used at industry
peers; or There are recent, significant fines or litigation related to the
company?s treatment of animals.
Animal Welfare Policies
Generally vote FOR proposals seeking a report on the company?s animal welfare
standards unless: The company has already published a set of animal welfare
standards and monitors compliance; The company?s standards are comparable to
industry peers; and There are no recent, significant fines or litigation related
to the company?s treatment of animals.
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Controlled Atmosphere Killing (CAK)
Generally vote AGAINST proposals requesting the implementation of CAK methods at
company and/or supplier operations unless such methods are required by
legislation or generally accepted as the industry standard.
Vote CASE-BY-CASE on proposals requesting a report on the feasibility of
implementing CAK methods at company and/or supplier operations considering the
availability of existing research conducted by the company or industry groups on
this topic and any fines or litigation related to current animal processing
procedures at the company.
Consumer Issues
Genetically Modified Ingredients
Generally vote AGAINST proposals asking suppliers, genetic research companies,
restaurants and food retail companies to voluntarily label genetically
engineered (GE) ingredients in their products and/or eliminate GE ingredients.
The cost of labeling and/or phasing out the use of GE ingredients may not be
commensurate with the benefits to shareholders and is an issue better left to
regulators.
Vote CASE-BY-CASE on proposals asking for a report on the feasibility of
labeling products containing GE ingredients taking into account: The company's
business and the proportion of it affected by the resolution; The quality of the
company?s disclosure on GE product labeling, related voluntary initiatives, and
how this disclosure compares with industry peer disclosure; and Company?s
current disclosure on the feasibility of GE product labeling, including
information on the related costs.
Generally vote AGAINST proposals seeking a report on the social, health, and
environmental effects of genetically modified organisms (GMOs). Studies of this
sort are better undertaken by regulators and the scientific community.
Generally vote AGAINST proposals to completely phase out GE ingredients from the
company's products or proposals asking for reports outlining the steps necessary
to eliminate GE ingredients from the company?s products. Such resolutions
presuppose that there are proven health risks to GE ingredients (an issue better
left to regulators) that may outweigh the economic benefits derived from
biotechnology.
Consumer Lending
Vote CASE-BY CASE on requests for reports on the company?s lending guidelines
and procedures taking into account: Whether the company has adequately disclosed
mechanisms in place to prevent abusive lending practices; Whether the company
has adequately disclosed the financial risks of the lending products in
question; Whether the company has been subject to violations of lending laws or
serious lending controversies; Peer companies? policies to prevent abusive
lending practices.
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Pharmaceutical Pricing, Access to Medicines, and Product Reimportation
Generally vote AGAINST proposals requesting that companies implement specific
price restraints on pharmaceutical products unless the company fails to adhere
to legislative guidelines or industry norms in its product pricing.
Vote CASE-BY-CASE on proposals requesting that the company evaluate report on
their product pricing policies or their access to medicine policies,
considering: The nature of the company?s business and the potential for
reputational and market risk exposure; The existing disclosure of relevant
policies; Deviation from established industry norms; The company?s existing,
relevant initiatives to provide research and/or products to disadvantaged
consumers; Whether the proposal focuses on specific products or geographic
regions; and The potential cost and scope of the requested report.
Generally vote FOR proposals requesting that companies report on the financial
and legal impact of their prescription drug reimportation policies unless such
information is already publicly disclosed.
Generally vote AGAINST proposals requesting that companies adopt specific
policies to encourage or constrain prescription drug reimportation. Such matters
are more appropriately the province of legislative activity and may place the
company at a competitive disadvantage relative to its peers.
Product Safety and Toxic/Hazardous Materials
Generally vote FOR proposals requesting the company to report on its policies,
initiatives/procedures, and oversight mechanisms related to toxic/hazardous
materials or product safety in its supply chain, unless: The company already
discloses similar information through existing reports such as a Supplier Code
of Conduct and/or a sustainability report; The company has formally committed to
the implementation of a toxic/hazardous materials and/or product safety and
supply chain reporting and monitoring program based on industry norms or similar
standards within a specified time frame; and The company has not been recently
involved in relevant significant controversies, significant fines, or
litigation.
Vote CASE-BY-CASE on resolutions requesting that companies develop a feasibility
assessment to phase-out of certain toxic/hazardous materials, or evaluate and
disclose the potential financial and legal risks associated with utilizing
certain materials, considering: The company?s current level of disclosure
regarding its product safety policies, initiatives and oversight mechanisms.
Current regulations in the markets in which the company operates; and Recent
significant controversies, litigation, or fines stemming from toxic/hazardous
materials at the company.
Generally vote AGAINST resolutions requiring that a company reformulate its
products.
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Tobacco
Vote CASE-BY-CASE on resolutions regarding the advertisement of tobacco
products, considering: Recent related fines, controversies, or significant
litigation; Whether the company complies with relevant laws and regulations on
the marketing of tobacco; Whether the company?s advertising restrictions deviate
from those of industry peers; Whether the company entered into the Master
Settlement Agreement, which restricts marketing of tobacco to youth; Whether
restrictions on marketing to youth extend to foreign countries.
Vote CASE-BY-CASE on proposals regarding second-hand smoke, considering; Whether
the company complies with all laws and regulations; The degree that voluntary
restrictions beyond those mandated by law might hurt the company?s
competitiveness; The risk of any health-related liabilities.
Generally vote AGAINST resolutions to cease production of tobacco-related
products, to avoid selling products to tobacco companies, to spin-off
tobacco-related businesses, or prohibit investment in tobacco equities. Such
business decisions are better left to company management or portfolio managers.
Generally vote AGAINST proposals regarding tobacco product warnings. Such
decisions are better left to public health authorities.
Diversity
Board Diversity
Generally vote FOR requests for reports on the company's efforts to diversify
the board, unless: The gender and racial minority representation of the
company?s board is reasonably inclusive in relation to companies of similar size
and business; and The board already reports on its nominating procedures and
gender and racial minority initiatives on the board and within the company.
Vote CASE-BY-CASE on proposals asking the company to increase the gender and
racial minority representation on its board, taking into account: The degree of
existing gender and racial minority diversity on the company?s board and among
its executive officers; The level of gender and racial minority representation
that exists at the company?s industry peers; The company?s established process
for addressing gender and racial minority board representation; Whether the
proposal includes an overly prescriptive request to amend nominating committee
charter language; The independence of the company?s nominating committee; The
company uses an outside search firm to identify potential director nominees; and
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Whether the company has had recent controversies, fines, or litigation regarding
equal employment practices.
Equality of Opportunity
Generally vote FOR proposals requesting a company disclose its diversity
policies or initiatives, or proposals requesting disclosure of a company?s
comprehensive workforce diversity data, including requests for EEO-1 data,
unless: The company publicly discloses its comprehensive equal opportunity
policies and initiatives; The company already publicly discloses comprehensive
workforce diversity data; and The company has no recent significant EEO-related
violations or litigation.
Generally vote AGAINST proposals seeking information on the diversity efforts of
suppliers and service providers. Such requests may pose a significant cost and
administration burden on the company.
Gender Identity, Sexual Orientation, and Domestic Partner Benefits
Generally vote FOR proposals seeking to amend a company?s EEO statement or
diversity policies to prohibit discrimination based on sexual orientation and/or
gender identity, unless the change would result in excessive costs for the
company.
Generally vote AGAINST proposals to extend company benefits to, or eliminate
benefits from domestic partners. Decisions regarding benefits should be left to
the discretion of the company.
Climate Change and the Environment
Climate Change
Generally vote FOR resolutions requesting that a company disclose information on
the impact of climate change on the company?s operations and investments
considering: The company already provides current, publicly-available
information on the impacts that climate change may have on the company as well
as associated company policies and procedures to address related risks and/or
opportunities; The company?s level of disclosure is at least comparable to that
of industry peers; and There are no significant, controversies, fines,
penalties, or litigation associated with the company?s environmental
performance.
Concentrated Animal Feeding Operations (CAFOs)
Generally vote FOR resolutions requesting companies report to shareholders on
the risks and liabilities associated with CAFOs unless: The company has publicly
disclosed its environmental management policies for its corporate and contract
farming operations, including compliance monitoring; and The company publicly
discloses company and supplier farm environmental performance data; or
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The company does not have company-owned CAFOs and does not directly source from
contract farm CAFOs.
Energy Efficiency
Generally vote FOR on proposals requesting a company report on its comprehensive
energy efficiency policies, unless: The company complies with applicable energy
efficiency regulations and laws, and discloses its participation in energy
efficiency policies and programs, including disclosure of benchmark data,
targets, and performance measures; or The proponent requests adoption of
specific energy efficiency goals within specific timelines.
Facility and Operational Safety/Security
Vote CASE-BY-CASE on resolutions requesting that companies report on safety
and/or security risks associated with their operations and/or facilities,
considering: The company?s compliance with applicable regulations and
guidelines; The company?s current level of disclosure regarding its security and
safety policies, procedures, and compliance monitoring; and, The existence of
recent, significant violations, fines, or controversy regarding the safety and
security of the company?s operations and/or facilities.
Greenhouse Gas (GHG) Emissions
Generally vote FOR proposals requesting a report on greenhouse gas (GHG)
emissions from company operations and/or products and operations, unless: The
company already provides current, publicly-available information on the impacts
that GHG emissions may have on the company as well as associated company
policies and procedures to address related risks and/or opportunities; The
company's level of disclosure is comparable to that of industry peers; and There
are no significant, controversies, fines, penalties, or litigation associated
with the company's GHG emissions.
Vote CASE-BY-CASE on proposals that call for the adoption of GHG reduction goals
from products and operations, taking into account: Overly prescriptive requests
for the reduction in GHG emissions by specific amounts or within a specific time
frame; Whether company disclosure lags behind industry peers; Whether the
company has been the subject of recent, significant violations, fines,
litigation, or controversy related to GHG emissions; The feasibility of
reduction of GHGs given the company?s product line and current technology and;
Whether the company already provides meaningful disclosure on GHG emissions from
its products and operations.
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Operations in Protected Areas
Generally vote FOR requests for reports on potential environmental damage as a
result of company operations in protected regions unless: Operations in the
specified regions are not permitted by current laws or regulations; The company
does not currently have operations or plans to develop operations in these
protected regions; or, The company?s disclosure of its operations and
environmental policies in these regions is comparable to industry peers.
Recycling
Vote CASE-BY-CASE on proposals to adopt a comprehensive recycling strategy,
taking into account: The nature of the company?s business; The extent that peer
companies are recycling; The timetable prescribed by the proposal and the costs
and methods of implementation; Whether the company has a poor environmental
track record, such as violations of applicable regulations.
Renewable Energy
Generally vote FOR requests for reports on the feasibility of developing
renewable energy resources unless the report is duplicative of existing
disclosure or irrelevant to the company?s line of business.
Generally vote AGAINST proposals requesting that the company invest in renewable
energy resources. Such decisions are best left to management?s evaluation of the
feasibility and financial impact that such programs may have on the company.
General Corporate Issues
Charitable Contributions
Vote AGAINST proposals restricting the company from making charitable
contributions. Charitable contributions are generally useful for assisting
worthwhile causes and for creating goodwill in the community. In the absence of
bad faith, self-dealing, or gross negligence, management should determine which,
and if, contributions are in the best interests of the company.
Environmental, Social, and Governance (ESG) Compensation-Related Proposals
Generally vote AGAINST proposals to link, or report on linking, executive
compensation to environmental and social criteria (such as corporate
downsizings, customer or employee satisfaction, community involvement, human
rights, environmental performance, or predatory lending) as the practice of
linking executive compensation and such criteria is currently the exception
rather than the norm and there appears to be a lack of widely-accepted standards
regarding the implementation of effective linkages between executive
compensation and corporate non-financial performance. However, the following
factors will be considered:
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Whether the company has significant and persistent controversies or violations
regarding social and/or environmental issues; Whether the company has management
systems and oversight mechanisms in place regarding its social and environmental
performance; The degree to which industry peers have incorporated similar
non-financial performance criteria in their executive compensation practices;
and The company?s current level of disclosure regarding its environmental and
social performance.
Generally vote AGAINST proposals calling for an analysis of the pay disparity
between corporate executives and other non-executive employees. The value of the
information sought by such proposals is unclear.
Health Pandemics
Vote CASE-BY-CASE on requests for reports outlining the impact of health
pandemics (such as HIV/AIDS, Malaria, Tuberculosis, and Avian Flu) on the
company?s operations and how the company is responding to the situation, taking
into account: The scope of the company?s operations in the affected/relevant
area(s); The company?s existing healthcare policies, including benefits and
healthcare access; and Company donations to relevant healthcare providers.
Vote AGAINST proposals asking companies to establish, implement, and report on a
standard of response to health pandemics (such as HIV/AIDS, Malaria,
Tuberculosis, and Avian Flu), unless the company has significant operations in
the affected markets and has failed to adopt policies and/or procedures to
address these issues comparable to those of industry peers.
Lobbying Expenditures/Initiatives
Vote CASE-BY-CASE on proposals requesting information on a company?s lobbying
initiatives, considering: Significant controversies, fines, or litigation
surrounding a company?s public policy activities, The company?s current level of
disclosure on lobbying strategy, and The impact that the policy issue may have
on the company?s business operations.
Political Contributions and Trade Associations Spending
Generally vote AGAINST proposals asking the company to affirm political
nonpartisanship in the workplace so long as: There are no recent, significant
controversies, fines or litigation regarding the company?s political
contributions or trade association spending; and The company has procedures in
place to ensure that employee contributions to company-sponsored political
action committees (PACs) are strictly voluntary and prohibits coercion.
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Vote AGAINST proposals to publish in newspapers and public media the company's
political contributions. Such publications could present significant cost to the
company without providing commensurate value to shareholders.
Vote CASE-BY-CASE on proposals to improve the disclosure of a company's
political contributions and trade association spending considering: Recent
significant controversy or litigation related to the company?s political
contributions or governmental affairs; and The public availability of a company
policy on political contributions and trade association spending including
information on the types of organizations supported, the business rationale for
supporting these organizations, and the oversight and compliance procedures
related to such expenditures of corporate assets.
Vote AGAINST proposals barring the company from making political contributions.
Businesses are affected by legislation at the federal, state, and local level
and barring political contributions can put the company at a competitive
disadvantage.
Vote AGAINST proposals asking for a list of company executives, directors,
consultants, legal counsels, lobbyists, or investment bankers that have prior
government service and whether such service had a bearing on the business of the
company. Such a list would be burdensome to prepare without providing any
meaningful information to shareholders.
International Issues, Labor Issues, and Human Rights
Community Social and Environmental Impact Assessments
Vote CASE-BY-CASE on requests for reports outlining policies and/or the
potential (community) social and/or environmental impact of company operations
considering: Current disclosure of applicable policies and risk assessment
report(s) and risk management procedures; The impact of regulatory
non-compliance, litigation, remediation, or reputational loss that may be
associated with failure to manage the company?s operations in question,
including the management of relevant community and stakeholder relations; The
nature, purpose, and scope of the company?s operations in the specific
region(s); The degree to which company policies and procedures are consistent
with industry norms; and Scope of the resolution.
Foreign Military Sales/Offsets
Vote AGAINST reports on foreign military sales or offsets. Such disclosures may
involve sensitive and confidential information. Moreover, companies must comply
with government controls and reporting on foreign military sales.
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Internet Privacy and Censorship
Vote CASE-BY-CASE on resolutions requesting the disclosure and implementation of
Internet privacy and censorship policies and procedures considering: The level
of disclosure of company policies and procedures relating to privacy, freedom of
speech, Internet censorship, and government monitoring of the Internet;
Engagement in dialogue with governments and/or relevant groups with respect to
the Internet and the free flow of information; The scope of business involvement
and of investment in markets that maintain government censorship or monitoring
of the Internet; The market-specific laws or regulations applicable to Internet
censorship or monitoring that may be imposed on the company; and, The level of
controversy or litigation related to the company?s international human rights
policies and procedures.
Labor and Human Rights Standards
Generally vote FOR proposals requesting a report on company or company supplier
labor and/or human rights standards and policies unless such information is
already publicly disclosed.
Vote CASE-BY-CASE on proposals to implement company or company supplier labor
and/or human rights standards and policies, considering: The degree to which
existing relevant policies and practices are disclosed; Whether or not existing
relevant policies are consistent with internationally recognized standards;
Whether company facilities and those of its suppliers are monitored and how;
Company participation in fair labor organizations or other internationally
recognized human rights initiatives; Scope and nature of business conducted in
markets known to have higher risk of workplace labor/human rights abuse; Recent,
significant company controversies, fines, or litigation regarding human rights
at the company or its suppliers; The scope of the request; and Deviation from
industry sector peer company standards and practices.
MacBride Principles
Generally vote AGAINST proposals to endorse or increase activity on the MacBride
Principles, unless: The company has formally been found to be out of compliance
with relevant Northern Ireland fair employment laws and regulations; Failure to
implement the MacBride Principles would put the company in an inconsistent
position and/or at a competitive disadvantage compared with industry peers;
Failure to implement the MacBride Principles would subject the company to
excessively negative financial impacts due to laws that some municipalities have
passed regarding their contracting operations and companies that have not
implemented the MacBride Principles; or
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The company has had recent, significant controversies, fines or litigation
regarding religious-based employment discrimination in Northern Ireland.
Nuclear and Depleted Uranium Weapons
Generally vote AGAINST proposals asking a company to cease production or report
on the risks associated with the use of depleted uranium munitions or nuclear
weapons components and delivery systems, including disengaging from current and
proposed contracts. Such contracts are monitored by government agencies, serve
multiple military and non-military uses, and withdrawal from these contracts
could have a negative impact on the company?s business.
Operations in High Risk Markets
Vote CASE-BY-CASE on requests for a report on a company?s potential financial
and reputational risks associated with operations in "high-risk" markets, such
as a terrorism-sponsoring state or politically/socially unstable region, taking
into account: The nature, purpose, and scope of the operations and business
involved that could be affected by social or political disruption; Current
disclosure of applicable risk assessment(s) and risk management procedures;
Compliance with U.S. sanctions and laws; Consideration of other international
policies, standards, and laws; and Whether the company has been recently
involved in recent, significant controversies, fines or litigation related to
its operations in "high-risk" markets.
Outsourcing/Offshoring
Vote CASE-BY-CASE on proposals calling for companies to report on the risks
associated with outsourcing/plant closures, considering: Controversies
surrounding operations in the relevant market(s); The value of the requested
report to shareholders; The company?s current level of disclosure of relevant
information on outsourcing and plant closure procedures; and The company?s
existing human rights standards relative to industry peers.
Sustainability
Sustainability Reporting
Generally vote FOR proposals requesting the company to report on its policies,
initiatives, and oversight mechanisms related to social, economic, and
environmental sustainability, unless:
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The company already discloses similar information through existing reports or
policies such as an Environment, Health, and Safety (EHS) report; a
comprehensive Code of Corporate Conduct; and/or a Diversity Report; or The
company has formally committed to the implementation of a reporting program
based on Global Reporting Initiative (GRI) guidelines or a similar standard
within a specified time frame
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7. Mutual Fund Proxies
Election of Directors
Vote CASE-BY-CASE on the election of directors and trustees, following the same
guidelines for uncontested directors for public company shareholder meetings.
However, mutual fund boards do not usually have compensation committees, so do
not withhold for the lack of this committee.
Converting Closed-end Fund to Open-end Fund
Vote CASE-BY-CASE on conversion proposals, considering the following factors:
Past performance as a closed-end fund; Market in which the fund invests;
Measures taken by the board to address the discount; and Past shareholder
activism, board activity, and votes on related proposals.
Proxy Contests
Vote CASE-BY-CASE on proxy contests, considering the following factors: Past
performance relative to its peers; Market in which fund invests; Measures taken
by the board to address the issues; Past shareholder activism, board activity,
and votes on related proposals; Strategy of the incumbents versus the
dissidents; Independence of directors; Experience and skills of director
candidates; Governance profile of the company; Evidence of management
entrenchment.
Investment Advisory Agreements
Vote CASE-BY-CASE on investment advisory agreements, considering the following
factors: Proposed and current fee schedules; Fund category/investment objective;
Performance benchmarks; Share price performance as compared with peers;
Resulting fees relative to peers; Assignments (where the advisor undergoes a
change of control).
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Approving New Classes or Series of Shares
Vote FOR the establishment of new classes or series of shares.
Preferred Stock Proposals
Vote CASE-BY-CASE on the authorization for or increase in preferred shares,
considering the following factors: Stated specific financing purpose; Possible
dilution for common shares; Whether the shares can be used for antitakeover
purposes.
1940 Act Policies
Vote CASE-BY-CASE on policies under the Investment Advisor Act of 1940,
considering the following factors: Potential competitiveness; Regulatory
developments; Current and potential returns; and Current and potential risk.
Generally vote FOR these amendments as long as the proposed changes do not
fundamentally alter the investment focus of the fund and do comply with the
current SEC interpretation.
Changing a Fundamental Restriction to a Nonfundamental Restriction
Vote CASE-BY-CASE on proposals to change a fundamental restriction to a
non-fundamental restriction, considering the following factors: The fund's
target investments; The reasons given by the fund for the change; and The
projected impact of the change on the portfolio.
Change Fundamental Investment Objective to Nonfundamental
Vote AGAINST proposals to change a fund?s fundamental investment objective to
non-fundamental.
Name Change Proposals
Vote CASE-BY-CASE on name change proposals, considering the following factors:
Political/economic changes in the target market; Consolidation in the target
market; and Current asset composition.
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Change in Fund's Subclassification
Vote CASE-BY-CASE on changes in a fund's sub-classification, considering the
following factors: Potential competitiveness; Current and potential returns;
Risk of concentration; Consolidation in target industry.
Disposition of Assets/Termination/Liquidation
Vote CASE-BY-CASE on proposals to dispose of assets, to terminate or liquidate,
considering the following factors: Strategies employed to salvage the company;
The fund?s past performance; The terms of the liquidation.
Changes to the Charter Document
Vote CASE-BY-CASE on changes to the charter document, considering the following
factors: The degree of change implied by the proposal; The efficiencies that
could result; The state of incorporation; Regulatory standards and implications.
Vote AGAINST any of the following changes: Removal of shareholder approval
requirement to reorganize or terminate the trust or any of its series; Removal
of shareholder approval requirement for amendments to the new declaration of
trust; Removal of shareholder approval requirement to amend the fund's
management contract, allowing the contract to be modified by the investment
manager and the trust management, as permitted by the 1940 Act; Allow the
trustees to impose other fees in addition to sales charges on investment in a
fund, such as deferred sales charges and redemption fees that may be imposed
upon redemption of a fund's shares; Removal of shareholder approval requirement
to engage in and terminate subadvisory arrangements; Removal of shareholder
approval requirement to change the domicile of the fund.
Changing the Domicile of a Fund
Vote CASE-BY-CASE on re-incorporations, considering the following factors:
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Regulations of both states; Required fundamental policies of both states; The
increased flexibility available.
Authorizing the Board to Hire and Terminate Subadvisors Without Shareholder
Approval
Vote AGAINST proposals authorizing the board to hire/terminate subadvisors
without shareholder approval.
Distribution Agreements
Vote CASE-BY-CASE on distribution agreement proposals, considering the following
factors: Fees charged to comparably sized funds with similar objectives; The
proposed distributor?s reputation and past performance; The competitiveness of
the fund in the industry; The terms of the agreement.
Master-Feeder Structure
Vote FOR the establishment of a master-feeder structure.
Mergers
Vote CASE-BY-CASE on merger proposals, considering the following factors:
Resulting fee structure; Performance of both funds; Continuity of management
personnel; Changes in corporate governance and their impact on shareholder
rights.
Shareholder Proposals for Mutual Funds
Establish Director Ownership Requirement
Generally vote AGAINST shareholder proposals that mandate a specific minimum
amount of stock that directors must own in order to qualify as a director or to
remain on the board.
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Reimburse Shareholder for Expenses Incurred
Vote CASE-BY-CASE on shareholder proposals to reimburse proxy solicitation
expenses. When supporting the dissidents, vote FOR the reimbursement of the
proxy solicitation expenses.
Terminate the Investment Advisor
Vote CASE-BY-CASE on proposals to terminate the investment advisor, considering
the following factors: Performance of the fund?s Net Asset Value (NAV); The
fund?s history of shareholder relations; The performance of other funds under
the advisor's management.
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