The right to vote is one of the most important rights a shareholder has, and with that right comes the responsibility to cast votes in a manner that is consistent with the long-term interests of shareholders and other stakeholders. Voting at shareholder meetings provides Addenda Capital with an opportunity to affect governance, communicate preferences and signal confidence or lack of confidence in a company’s management and oversight. Our emphasis on voting and corporate governance practices is based on the evidence that companies that have good corporate governance are likely to generate more long-term value for their shareholders and society than similar companies with inferior corporate governance.

What is Proxy Voting?

Shareholders of public companies have a right to vote on proposals brought before them at annual and special meetings (for example, the election of directors or ratifying the appointment of the auditor).

Addenda Capital usually votes “by proxy” by instructing someone to vote our clients’ shares in accordance with our instructions which are based on our Proxy Voting Policy. We will, if necessary, attend a meeting to vote in person.

Proxy Voting Policy

Addenda Capital casts votes according to our Proxy Voting Policy 1 . Our Policy consists of voting guidelines that establish how we will vote on many commonly raised issues as well as some less common but potentially contentious issues. The guidelines do not cover all situations.

Our Policy is reviewed annually to keep our practices consistent with developing governance best practices. We review academic and practitioner research and the policies of peers and the leading proxy voting service providers. We then incorporate feedback from our equity teams before the Policy is reviewed by our Sustainable Investing Committee and approved by Addenda Capital’s Executive Committee. There were no major changes to our Policy in 2015.

Proxy Voting Process

Our proxy voting process is focused on protecting and enhancing the long-term interests of shareholders and other stakeholders. We consider each ballot item, with the help of Glass, Lewis & Co., and determine how to vote in a manner consistent with our Proxy Voting Policy as shown in figure 1 below. There could be particular aspects of any given resolution which could cause us to vote in a manner different from our Policy.


Glass, Lewis & Co. Glass

Lewis is an independent investment research and global proxy advisory and voting services firm, serving institutions that collectively manage more than USD 20 trillion. The company analyses governance, business, legal, political and accounting risks with a focus on the long-term impact of proxy vote decisions. Their research is provided by a group of professionals with diverse and relevant experience and education, which allows them to analyze each ballot item in an appropriate way.
 


Voting During the Year Ending June 30, 2015

The majority of annual meetings take place during the first half of the calendar year. During the twelve months ending June 30, 2015, Addenda Capital voted at 236 meetings as detailed in figure 2 below. Of these meetings, 90% took place during the first six months of this year.

Figures 3 and 4 provide an overview of Addenda Capital’s voting activity. We have highlighted the votes we cast against management or board recommendations. Voting against management recommendations is not in itself an effective measure of our voting process but it does highlight our willingness to vote in the best interest of our clients and our ability to effectively and critically analyze each ballot item.

Figure 3 on the following page shows that we voted against management on about 9% of all ballot items, ranging from about 7% in Canada and outside North America to more than 12% in the United States.

Figure 4 on the following page shows the top 10 ballot items where we voted against management recommendations. For example, we withheld votes from or cast votes against 107 director nominees out of a total 2,140 nominees that we voted on. We did not support director nominations for various reasons including a lack of independence on a board, a nominee’s apparent lack of effective oversight on another board or the appearance of too many commitments to fulfill their duties as a director.

A lot of our votes against management relate to executive compensation whether in the form of an advisory vote on executive compensation, approval of compensation policies or amendments to equity compensation plans. In many of these cases, it was not clear that a company’s executive compensation program sufficiently links pay with performance in a manner that aligns executives with the long-term interests of their company.

We supported quite a few shareholder proposals (SHP), including proposals at 14 companies requesting enhanced disclosure of policies and procedures that govern lobbying and lobbying related expenditures. We supported these initiatives because we believe that improved disclosure of political contributions, lobbying expenditures and trade association spending and a company’s related policies and practices will help with the evaluation of related risks and opportunities.

Engagement with Companies beyond Proxy Voting

At the beginning of 2014, we enhanced our stewardship activities by expanding our engagement activities related to proxy voting. In 2015, we once again identified three issues or concerns that have caused us to vote against management recommendations in the past and we set out to contact the companies after the vote to inform them why we voted how we did. The three items we selected were:

  1. Advisory votes on executive compensation or votes on compensation policy, if a compensation program directly contravenes our Proxy Voting Policy on one of these items:
    • Overuse of absolute metrics because they may reflect economic or industry factors beyond the control of executives
    • Long-term incentive awards that are not based significantly on performance measures
    • Long-term incentive awards that have performance measures that are measured over less than 3 years
    • Performance targets that are not sufficiently challenging or are lowered without justification
  2. Shareholder proposals regarding environmental best practice or environmental disclosure
  3. Shareholder proposals regarding social issues

In total, we will have written to approximately 45 companies, some for more than one issue.

Conclusion

Voting is an opportunity for us to affect governance, communicate preferences and signal confidence or lack of confidence in a company’s management and oversight. We enhanced our stewardship activities in 2014 by going beyond voting to contact companies directly regarding important voting issues and we have continued that practice in 2015. Our stewardship activities have enhanced the quality of engagement between ourselves and companies and help us protect and enhance the long-term interests of shareholders and other stakeholders.

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