Responsible Investment

Proxy Voting

Proxy Voting Policy

    STANLIB takes an active role when dealing with companies as the representative of beneficial shareholders. We adhere to the Companies Act and King III requirements as well as being a signatory to the UNPRI code. The proxy voting policy provides a guideline of how we apply ownership rights relating to our various equity investments. This policy document is in line with CRISA’s 2nd principle relating to Institutional investors, demonstrating their acceptance of ownership responsibilities in their investment arrangements and investment activities. The principle requires institutional investors to develop a policy dealing with ownership responsibilities. This is part of STANLIB’s continued aspirations to meet all the requirements of CRISA.

    We vote on each and every proxy. If our clients own shares in a company, our analysts, in consultation with the Managing Director of Asset Management and Head of Research will recommend a course of action for every proxy vote. Where we have a mandate to vote, we will implement the recommendation. Where we have to refer back to our clients to vote, we will communicate our in-house recommendation to them but will vote as directed by the client. In the event that an issue is unclear, we will contact the management of the company and clarify the issue first. All votes cast by STANLIB are recorded and are reported back to clients on request.

    All proxies are dealt with by our team of equity analysts as part of their ongoing research responsibilities. It is the analyst’s responsibility to understand the issues that require voting upon. There is an automated process driven by the Corporate Actions Department at STANLIB that forwards to the analyst team a report of all resolutions proposed. Where the resolutions relate to ordinary business, the MD of Asset Management or Head of Research will approve voting in line with the analyst’s recommendation. In the event that there are controversial issues without a precedent, the MD of Asset Management  and Head of Research will consult with and advise the analyst. In such instances we will engage with the Investee Company to advise them of our course of action.

    While the proxy policy serves as a guideline, our responsibility to clients is to analyse each resolution in the context to which it applies. Therefore, in some instances, we might not vote in strict adherence to these guidelines if it impedes our overriding mandate of optimizing risk adjusted performance in the long run.

    In the event that an issue is unclear, we will immediately contact the management of the company and clarify the issue prior to the meeting. We will from time to time ask for the postponement of a meeting to enable management to reconsider its proposed resolutions. In the event of a complicated transaction, we would request that critical issues within the transaction be voted on separately and not be hidden within the main resolution.

    Where we conceptually agree with what management is trying to achieve but we have some in principle disagreements we will, on record, make it clear that we disagree with some of the issues but still agree to vote in favour.

    The following is a list of how STANLIB will use their proxy votes. The list is not meant to be exhaustive, it simply provides a guideline.

      1. Composition of the Board
        We critically evaluate the board of directors of all companies that we have investments in, and we will recommend changes to the Chief Executive Officer (CEO) or Chairperson if we feel it is warranted. After thorough analysis of the board composition, STANLIB will vote in a manner to ensure:
        • A board comprises of a critical mix of skills and experience, and sufficient capacity for necessary committee functions.
        • A board comprises a majority of non-executive directors.
            • The majority of these non-executive directors should be independent from management.
        • The number of directors should be appropriate for the size and complexity of the business.
        • The size, diversity and board demographics make it effective.
        • The board displays a balance of power, so that no group of individuals can dominate any part of the decision-making progress.
        • Non-executive directors are suitably dedicated to the company. STANLIB would consider voting against the re-election of non-executive directors who have not attended the majority of board meetings without suitable motivation.

        • The number of Board positions held by a single individual does not compromise on their responsibilities to the company. We have occasionally voted against a director’s re-appointment where in the opinion of the analyst, the individual sits on too many different Boards. Where an individual director sits on more than five Boards, further analysis is needed. The key is for increased disclosure (regardless of the number of Board appointments) to allow shareholders to assess the overall effectiveness of the Board as well as the contribution made by the respective Board members.

        • The Audit, Remuneration and Nomination committees include a majority independent non-executive directors
        • The Audit, Remuneration and Nomination committees are chaired by an independent non-executive director.
      2. Chairperson of the Board
        STANLIB will vote in accordance with the following regarding the chairperson:
        • The Chairperson and the CEO should not be the same person.
        • The CEO should not become the chairperson until 3 years have lapsed.
        • The Chairperson should not be a member of the Audit Committee.
        • The Chairperson should be an independent non-executive director.
          • Should a non-independent director be appointed, the role of the lead independent director should be disclosed
                  in the company’s integrated annual report.
        • The Chairperson’s ability and performance should be assessed against what is expected.
      3. Selection of Board members
        STANLIB will favour the following resolutions when voting on director appointments:
        • At least one third of non-executive directors should be up for re-election each year.

        • Directors should be voted on individually by a single resolution.

        • Balancing the board taking into account the existing diversity, skill-sets and experience.

        • The nomination for the re-appointment of a director should only occur once an evaluation of the director’s performance and attendance is done.
      4. Remuneration
        After reviewing a company’s remuneration policy, STANLIB would consider voting against the remuneration policy where:
        • Director remuneration is excessive in comparison to competitor companies.

        • A poor performance management process is evident.

        • Management performance targets are not aligned to long-term shareholder value creation.

        • The remuneration policy is not sufficiently transparent.
        Non-executive director’s remuneration should be paid primarily in cash.
      5. Share options
        STANLIB will vote in favour of issuing share options if the following apply:
        • The options must be based on performance targets that are transparent, demanding and approved by both the remuneration committee and shareholders.

        • Participation is broad-based.

        • The options are issued at or above market price.
        • The vesting period should be over a reasonable period.
      6. Share issues
        STANLIB would consider providing directors the authority to issue up to a maximum of 10% of shares without needing our approval. Where a company continues to destroy value via share issues, we will vote against authorising the issue of shares.


      7. Share repurchases
        STANLIB will generally support a share repurchase limit of 10% of outstanding issued share capital if the terms comply with the following:
        • The company has adequate cash resources.

        • The current share price is below what we feel is its intrinsic value.

        • It does not impair the tradability of the share.

        • It does not impact negatively on the capital structure of the business.
      8. Appointment of the Auditor
        STANLIB will vote in favour of the re-election of auditors unless:
        • The audit fees are not reasonable given the size and complexity of the audit.
        • The external auditors have previously served as senior management in the company or the company appoints a former member of the audit team into a senior position.
        • The annual non-audit fees exceed the standard annual audit-related fees.
        • There are repeated material misstatements in the Annual Report.
        • There are serious concerns regarding the auditor’s procedures and methodologies.
      9. Conflict Resolution
        If STANLIB continuously encounters conflict with directors and management regarding material risks and there is a lack of providing suitable solutions, we would use our rights to vote against the re-election of directors associated with these issues and potentially voting against the acceptance of the financial statements.

        In the event that the company is diametrically opposed to our view, we would call for an extraordinary general meeting (“EGM”) and insist that our proposed changes be put to a vote by shareholders. In the event that we go so far as calling for an EGM, we would canvass other institutional investors regarding our proposed changes in advance.
 

Stewardship

STANLIB has long had a process for assessing the strength of each of the management teams of the companies in which it invests. Our research team currently uses a research process with 4 pillars including company valuation, moat, uncertainty rating and stewardship. STANLIB’s stewardship approach focuses on assessing the quality of management through a detailed questionnaire in terms of: accounting transparency; board independence; ownership, management incentives and accountability; strategy and execution; and social and environmental responsibility.

On an annual basis, STANLIB will perform a detailed review of a company’s integrated report and, where appropriate, a review of additional information, such as detailed sustainability reports. In addition, we will have specific interactions with company management and board sub-committees, when considered appropriate, as well as the completion of our proxy voting responsibilities. The entire stewardship process is reviewed at least annually, so we are able to monitor whether companies are improving in this regard.

The rating for stewardship is incorporated into our assessment of the overall attractiveness of the company as an investment. This is in line with CRISA’s 1st principle relating to institutional investors incorporating sustainability considerations into their investment analysis, as part of delivering superior risk-adjusted returns to ultimate beneficiaries.

As part of the stewardship process, we will analyse the actions of the Board holistically. Without being able to vote on specific matters, we will support a Board if we feel they are acting in the best interest of shareholders.

 

Sustainability reporting

Currently, we do not yet have detailed policies in place that would guide us in terms of when to, or how to, engage and intervene when we have concerns about social and environmental issues. STANLIB does not have the means to assess all the long term social or environmental impacts of the various company policies nor can we always make appropriate suggestions with regard to alternative solutions.

Our current practice is therefore to simply identify whether companies have appropriate policies in place and, if not, to encourage them to introduce such policies. We are working on a rating system that will dictate whether we should simply continue to monitor progress with regard to social and environmental issues or whether we should become more active in persuading management to change its policies.

STANLIB will encourage companies to develop the following:

  • An integrated report on the social and environmental impact of its operations and how it plans to mitigate the negative future impact.

  • A suitable health, safety and welfare arrangement for employees.

  • The consideration of the impact on the environment from its existing projects and when considering new projects and whether there are suitable initiatives in place to actively try to reduce its impact on the environment.

  • A program whereby the company can give regular financial support to local community activities and projects.

  • A clearly defined set of values and rules of conduct for its employees, customers and suppliers.
 

Disclosure

When analysing the Annual Report and discussions with management, STANLIB will focus on identifying the following negative practices management may use:

  • Overuse of “one time” charges or write offs.

  • Regularly changing its segmental reporting or consistently focusing on "adjusted" earnings.

  • Unjustified restatement of earnings.

  • Aggressive accounting practices.

  • Delays in publishing results.

  • Limited disclosure and transparency which makes it difficult to analyse results and reduces the ability to reach a view on future prospects.

  • Disclosure that is significantly different from its competitors which makes peer comparisons difficult.

We adopt a more cautious view on companies that engage in these practises.

 

Dividends

STANLIB will evaluate a company’s dividend policy and support the following:

  1. "A steady, consistent and transparent dividend policy.
  2. That undue strain is not placed on the cash resources and liquidity of the company.
  3. Dividends that don’t change the capital structure of the firm to such an extent that the value of the investment may be impaired.
  4. Special dividends that return cash to shareholders are encouraged only if it does not have a major effect on the company’s liquidity.
 

Identification of material risks associated with Mandatory Disclosures

The Companies Act and King III require numerous disclosure requirements relating to financial, social, environmental and ethical issues. When STANLIB feels that there is a material risk associated with these, we will liaise with companies by:

  • Requesting the company review the activities in relation to best practices.
  • Making recommendations we feel will mitigate those risks
  • Requesting the disclosure of those risks as well as the actions taken to mitigate these risks, in the Annual Report.
 

Board appointments for STANLIB

We do not accept appointments to boards of companies that we might have investments in. In the event that we think a change is needed to the Board of a company, we will recommend changes to the CEO or Chairperson. In the event that our recommendations are implemented, the appointees are not beholden to STANLIB.

 

Corporate Actions

Generally only significant corporate actions require shareholder approval. We will give all these transactions due consideration with particular regard given to:
  • The value proposition
  • The financial effects
    • Earnings impact
    • Dilution
    • Synergistic benefits
    • Management’s track record in acquisitions or disposals

We will vote against deals that we believe do not add long-term value. In such instances we will engage and dialogue with management. BEE deals are evaluated on the same basis but we do favour BEE transactions that result in broad based participation.