Principles for voting
Described below is our general philosophy when evaluating issues that may be presented at a general meeting of shareholders. The intention is to describe our basic approach rather than to specify a template. Each company and general meeting is unique, and we act accordingly.
Voting at general meetings is a natural part of our active management, which aims to protect the value of our investments over time and create a good return in the portfolios we manage. The right of shareholders to decide on the affairs of a limited company is exercised at general meetings.
As far as possible, Carnegie Fonder’s fund managers participate in general meetings and vote on behalf of the shares in the portfolios. When it is not possible for us to attend, we seek to vote through proxy for the shares we manage. As with our corporate financial analysis, we perform individual analysis of the issues that may arise in connection with the meetings.
Many countries have laws and corporate codes governing nomination committees and other committees. In general, we follow the local custom. Where laws and company codes go beyond what we in Sweden are accustomed to, we follow local rules as far as possible, and in markets that are perceived to lack legislation or whose laws and codes fall short of what we are used to, we usually relate our position to international best practice and Swedish corporate codes.
There are six main groups of questions that are common at meetings.
- Board of directors
- Capital structure
- Environmental and social issues
- Other issues
Board of directors
Given that the board is elected by the shareholders, and that effective and positive leadership begins with a good board, the composition of the board is of central importance. The board is tasked with being engaged, informed and proactive in matters relating to business strategies, capital allocation and remuneration levels that encourage long-term action, including on environmental and social issues that affect the company.
We believe it is good if directors are also shareholders so that the board’s interests coincide with those of the shareholders.
In the vast majority of cases, the nomination committee has done a good job ahead of a general meeting to submit proposals for the directors. In general, we vote in favour of the nomination committee’s proposal.
We would like least half of directors to be classified as independent, and in situations where this is not the case we require, in accordance with the Swedish corporate governance code, that at least two of the directors are independent of the controlling shareholder.
In the same vein, we expect that committees such as (but not limited to) remuneration committees and audit committees are independent. The definition of independent can vary from market to market. Normally, the following factors are things that disqualify a candidate from being classified as independent:
- Has been employed by the company during the past five years
- Has a shareholding in the company that is greater than 20 percent
- Has other interests, business or relationships that can easily be perceived as being in strong relationship with a controlling shareholder or the management of the company
In line with the Swedish corporate governance code, we do not think that company officials other than the CEO should be included on the board. When other officials are proposed as directors, we conduct an additional suitability analysis and may vote against the official if we find it warranted. We generally believe that a board of directors should consist of at least 75 percent non-executive directors.
We like the number of directors to not be greater than a number that requires all to be deeply involved in the work of the board. We also believe that a director should not have more appointments that the number that allows him or her to be deeply engaged. We may perform additional suitability analysis when the following criteria are met:
- The director has participated in fewer than 75 percent of board and committee meetings during the previous period
- The director is perceived to have too many board assignments in public companies and/or combines board work with being CEO or similar in another listed company
- In general, it can be said that a person who is the CEO of a listed company could also have one further board appointment outside his or her own group
- A director who is not a CEO or similar in a public company, but who has more than four other board appointments in public companies
We expect boards to act in the best interests of all shareholders and follow at least international best practice. We may vote against proposed directors who obviously and/or flagrantly do not respect minority shareholders or other stakeholders in the company’s sphere.
We encourage and support boards to perform independent evaluation of board efficiency and competence.
We expect a board to be well-composed and diverse in terms of competence and versatility, and with an even gender distribution.
We believe that rotation and good succession planning are facilitated by directors only being elected until the next AGM, but with the possibility of re-election. This enables the company to always be at the forefront of competence and versatility and thus be well positioned for the future.
We expect each candidate to be voted on separately. It must be possible to vote against or for an individual candidate without, by definition, also disqualifying or approving all candidates. In the event that this is not the case, we may vote against the nomination committee’s proposal.
In general, we believe it is incompatible with good corporate governance for the CEO and chairman of the board to be the same person. Where these are combined, we wish there to be an independent lead director.
Annual reports and sustainability reports are critical documents to give the most truthful possible picture of a company, its financial situation and its operational risks. We believe that the audit committee is responsible for ensuring that the image portrayed is truthful.
If directors have failed in their responsibilities on the audit committee, we may vote against these directors. Failure to attend at least 75 percent of committee meetings, for example, may be considered a breach of responsibility.
We recommend that an independent auditor be appointed regardless of whether local laws and customs permit otherwise. We believe that procurement of audit services for the statutory review of the annual report, accounts and administration of listed companies should not be handled by the CEO or other official of the company, other than for administrative purposes.
We want auditors to regularly report to the board and the audit committee and to report on the audit at the general meeting.
From time to time, shareholders may propose to the general meeting to replace an auditor for the purpose of ensuring independence or rotation of the auditor. We may support such proposals, especially if the existing auditor has been engaged for the past ten years. The rotation of auditors can be value-creating and risk-reducing in the long term.
It is common for the general meeting to be asked for a mandate to buy back shares, or to issue new shares without having to ask the shareholders. We generally support such proposals that extend up to 10 percent of the share capital and run no longer than until the next AGM. We may make other assessments in individual cases if justified.
Decisions on synthetic options or similar must be taken by the general meeting. We may vote against proposals that suggest otherwise.
We may vote in favour of proposals for amendments to the articles of association that remove provisions making acquisition more difficult.
We may vote in favour of proposals that end cross-ownership.
We may vote in favour of proposals that eliminate differences in voting rights between different types of share.
We believe that all remuneration to directors should be decided by the general meeting. We may vote against changes to the articles of association that deprive shareholders of this right.
We support proposals that result in remuneration to the CEO containing a significant variable component calculated in a way that equates the CEO’s interests with the common interests of the shareholders, and that the portion of the variable remuneration is paid in the form of shares or equity-related instruments in the company, which means a significant exposure to both positive and negative share price movements.
All countries and cultures are different in terms of pension agreements and other benefits for the CEO. For the Swedish market, we support that pension benefits corresponding to the ITP plan according to collective agreements become the norm for the CEO, and that any additional pension benefits are reported with a statement of cost and opening and closing capital value, including for benefits that are unearned.
Environmental and social issues
We believe that a long-term sustainable corporate culture and good leadership start from the top. It is therefore crucial for the success of these issues that the company’s board of directors also has good knowledge of the environmental and social risk factors that are central to the company, and that the board is also suitable to lead the company on these issues.
We expect companies to present a sustainability report with at least the same frequency as an annual report, and that they report and highlight the company’s environmental and social risks and what strategies they use to manage them. We would like companies to have a stated strategy on environmental and social issues and that these are clearly linked to the company’s business strategy and objectives.
Shareholders may propose that the general meeting vote on various forms of environmental reporting and reporting on social issues. We may vote in favour of proposals aimed at the following:
- Variable remuneration to the board and senior executives being strongly linked to relevant environmental and social aspects identified as risks and opportunities for the company
- That the company uses an independent external auditor for the sustainability report
- That the company reports its risks with environmental and social impacts
- That the company adopts a policy on these issues
There are many aspects that lead to increased or reduced economic value of a company.
The CEO must be able to be removed from the company without any compensation other than severance pay corresponding to a maximum of two years’ fixed salary, and accrued pension.
It sometimes happens that shareholders want to be compensated by the company for having brought an issue to the general meeting and having won their case. We generally vote against this type of compensation as we believe it can lead to unjustified action.
In some markets, shareholders are asked at the meeting to approve political donations from the company. Generally, we vote against this kind of donation.
We vote in favour of proposals that remove obstacles for shareholders to effectively exercise their voting rights at the general meeting.
We generally vote in favour of proposals that increase the company’s transparency.