Warwickshire CC Pension Fund

Annual MeetingNovember 2013

Wawickshire CC’s Stewardship

• Warwickshre CC is an “active owner” of equities– Oversight through voting shares

• Better-run companies manage their risks better• Better-run companies are attractive employers• Better-run companies attract capital• Better-run companies are more sustainable or “durable”

• WCC is a Stewardship Code Signatory– Public demonstration of active ownership– Good fund governance builds trust amongst savers

(think of your 16 yr old apprentices!)– Savers may not understand all about “investment” but

they want to know what is being done with “their” money.

Why Stewardship Matters

• Active Monitoring by LGPS– The “Observer Effect”– The observer becomes part of the system being observed– The governance of Stewardship ensures better Stewardship

• Regulation by itself cannot create the right culture• UK is a blend of regulation and best practice

principles– Comply/Explain nudges the culture– Comply/Explain encourages stakeholder involvement– Comply/Explain keeps the debate moving

The issues that have been voted

Spread of Resolution Category

12.5%

56.1%

16.6%

0.3%

0.7%4.6% 1.9%7.2%

Audit & Reporting

Board

Capital

Corporate Actions

Other

Remuneration

Shareholder Rights

Sustainability

How engaged is the fund?

WACC and General Shareholder Dissent by Resolution Category

19.8%

74.8%

11.6%21.6%14.8%

0.4% 0%

89.7%

69.9% 66.7%

3.5% 6.6% 8.6% 9.4%

14.2%

2.7% 2.7% 2.2%

0%

25%

50%

75%

100%

Total Sustainability Remuneration Shareholder

Rights

Other Capital Board Audit &

Reporting

Corporate

Actions

WACC Dissent Shareholder Dissent

Top 350 Average Support

90%

92%

94%

96%

98%

100%

Dissent 2.87% 2.94% 2.95% 3.07% 3.35%

Support 97.13% 97.06% 97.05% 96.93% 96.95%

2009 2010 2011 2012 2013

UK Top 350 Events => 20% Dissent

196 178

147

166

121

0

50

100

150

200

2009 2010 2011 2012 2013

Typical Pay Concerns

• Excessive levels of annual bonus and/or total incentive pay;• Concerns regarding provisions in directors’ service contracts

and potential rewards for failure;• Company did not provide any evidence of clawback measures

in respect of the short-term or long-term incentives; • Incentive pay was pensionable and/or the pension

contributions for the executive directors during the year was considered excessive;

• Inadequate disclosures on performance conditions; and• No consideration of sustainability factors when setting

performance targets.

Typical Board Governance Concerns

• Nominee independence and Board Committee composition;

• Nominees with significant numbers of other directorships;

• Board and Committee attendance; • Excessive tenure; and• Overall Board independence.

Regulatory Updates

The Kay Review– Reasons for short-termism and how best to address– Review of Fiduciary Duty by Law Commission – Connecting shareholders to promote co-ordination

Davies Report– Board diversity– Aspiration of 30% of boards to be female– Some improvements in NEDs but not EDs– Long-term pipeline problems– Germany = the quota route

Regulatory Updates

• Competition Commission & Audit Market– High quality audit is shareholders first line defence– Market is highly concentrated– Companies not actively tendering (in some cases since

Victorian times!)

• Narrative Reporting – “The Strategic Report”– More transparent and (hopefully) joined up accountability– Strategy & Risk Management, Gender Diversity– C02 , human rights, social & community issues (although

charitable donations no longer need to be disclosed)

Regulatory Developments

Directors Remuneration Report Regulations• Options for voting on Pay:

– Forward looking policy vote (Binding)– LTIP vote (Binding)– Director-specific votes e.g. Chair of RemCom (Binding)– Implementation Report (Non-Binding)

• Directors now personally liable if payments are made that were not sanctioned by shareholders

• Directors must engage where significant dissent

Even More Regulatory Developments!

Best Practice Principles for Governance Research Providers

• Threat of regulation by securities markets regulators• Allegations by the companies of a variety of issues• ESMA found no market failure• ESMA recommended improved transparency• Principles codify Manifest’s current standard procedures

which are ISO9001 standard and externally audited– Conflicts: Manifest does not serve the corporate markets– Accurate, Objective Research: Manifest does not share

research prior to client publication and is committed to highest standards of accuracy and relevance in analysis