Proxy voting is a key lever that we use to assist our clients to exercise their ownership responsibilities and safeguard their investments. As shareholders of the companies we invest in, our clients are awarded voting rights. We provide our clients with voting recommendations or, when mandated to, vote on their behalf according to what we believe to be in their long-term best interests. Our recommendations are based on extensive research and ongoing engagements with company boards and management teams.
We make recommendations on how to vote at shareholder meetings of all companies in which:
- The value of our clients’ aggregated holding exceeds 1% of the total value of Botswana equities under our management at the time
- Our clients’ aggregate holding exceeds 4% of that company’s shares in issue at the time
- We believe it is in our clients’ best interests to recommend a particular voting course, regardless of the number of shares held
The analyst responsible for researching the company considers the proposed resolutions and makes recommendations to the portfolio manager responsible for the share. The portfolio manager reviews these voting recommendations and writes to our clients, including the reasons for dissent, if applicable.
Individual accountability and independence of thought
We prefer to assign this responsibility to a portfolio manager rather than delegate it to a compliance department, as the former will be well-versed in the intricacies of the company and aligned with our clients in seeking the maximum long-term value. We believe that this reinforces the individual accountability of our portfolio managers for the performance of the assets under their management.
Just as there is scope for differing assessments of a company’s fair value, there is scope for differing opinions over proposed resolutions. This is why companies seek a vote from all shareholders but only require majority approval (or 75% in some cases) for a resolution to be passed. We may hold a minority view from time to time, in which case we may try to persuade the company’s directors of our view. However, we expect the company to act according to the wishes of the majority of its shareholders.
Nevertheless, we believe that it is important for minority views to be expressed at shareholder meetings. We do not only recommend voting against resolutions when shareholder sentiment overwhelmingly conforms to our view. Our voting recommendations prioritise what we believe are our clients’ best interests, regardless of whether our view falls into the majority or minority.
Our clients hold the ultimate voting rights
We mainly manage segregated portfolios with appointed client trustees. In exercising their ownership responsibilities, our clients’ appointed trustees will consider our voting recommendations, but they always hold and control the voting rights. Occasionally, appointed trustees disagree with our voting recommendations, in which case they may instruct us or their custodians to vote differently.
Before a shareholder meeting, companies may ask us to recommend that our clients vote in a particular way; we will only do so if we are convinced that the relevant resolutions will benefit our clients. Of course, we cannot bind our clients to vote in the direction we recommend, and in this case, as in all others, our clients are free to disagree and vote as they see fit.
Key annual general meeting (AGM) agenda items
Company AGMs typically require shareholders to vote on both “housekeeping” resolutions and three substantial matters:
- Appointment or re-election of directors
- Executive remuneration
- Permission to issue or repurchase shares
We consider these matters on a company-by-company basis, taking into account the special circumstances which may be affecting a company at the time. In forming our view on the appropriate voting recommendation, we typically consider the factors discussed below.
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Appointment or re-election of directors
If we have concerns that the election of an individual director may not be in the best interests of shareholders, we may recommend abstaining from voting on the election or voting against the appointment of that director.
We are not privy to what happens in company boardrooms, which can make it difficult for us to determine whether an individual director is making a positive, negligible or negative contribution. If we believe that shareholders could be better served by another director on a balance of probability, we may recommend voting against the re-election of the incumbent director. In forming these assessments, we may consider the director’s ascertainable performance, including material actions we know them to have taken at other companies and the overall performance and composition of the company board in question. If the overall performance of a company’s board is disappointing, or we believe that there are too many directors on the board, we may recommend voting against one or several directors. We also consider the performance of a board member in their various roles on the board. For instance, if we have an issue with the remuneration structure for directors, we may seek to vote against the chairperson of the subcommittee that deals with remuneration matters.
We keep a record of directors we have previously advised voting against to inform subsequent recommendations and also screen for politically exposed individuals.
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Executive remuneration
Our view is that a company’s remuneration policy should aim to attract and retain competent executives, reward these executives fairly in line with their performance and align the incentives for executives with the best interests of the company and its shareholders. We believe that we can play a constructive role in the continued improvement of companies’ remuneration schemes, either through engagement or by recommending that our clients vote against policies or implementation reports that materially fall short of the company’s goals and objectives.
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Permission to issue or repurchase shares
The value of the shares held by our clients is derived from their scarcity. We typically recommend voting against resolutions that grant the company’s directors general authority to issue new shares, because this could diminish the scarcity value of our clients’ shares. Even if the resolution is restricted to the issuing of new shares required for employee incentive schemes, we prefer to recommend voting against resolutions of this type. Unless there are regulatory or tax considerations that complicate matters, we prefer companies to repurchase the shares required to fulfil their obligations under employee incentive schemes. This generally makes the cost of such schemes more explicit.
If directors wish to issue new shares for the purpose of an acquisition or some other form of corporate transaction, we prefer to consider their proposal on its merits and, if we agree, recommend that our clients vote in favour of a resolution that grants them specific authority to issue the shares required just prior to the finalisation of the transaction. We believe that this approach reduces the risk of the value of our clients’ shares being diluted by the ill-advised issuing of new shares by company directors.
We seek to invest in shares that trade at a discount to our assessment of the share’s fair value. By repurchasing its own shares at a discount, a company increases the intrinsic value of each remaining share to the benefit of our clients. Thus, we typically recommend supporting a resolution which grants a company general authority to repurchase its own shares.
The principles above act as our guiding light in ensuring that we stay focused on remaining good stewards of our clients’ capital through the passage of time and within changing contexts.