CORPORATE GOVERNANCE GUIDELINES
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INTRODUCTION
The following document outlines the Corporate Governance Guidelines used by the
Corporation in managing both its’ public and private investments. These
guidelines include direction in terms of proxy voting procedures and guidance
on socially responsible investment issues.
In all cases these guidelines are based on the following two objectives that
form the basis of each of the investment policies for our funds under management:
- Maximize investment returns, and
- Protect accumulated assets.
Investment policy directly indicates that the voting rights on shares held by the
Corporation shall be exercised according to these objectives. The Board of
Directors also delegates these voting rights to the President of the Corporation
to fulfill. The following guidelines have therefore been produced to further
outline how this responsibility will be carried out and accounted for.
As a long term investor, NBIMC is very interested in enhancing shareholder value
for the benefit of our funds under management. Good corporate governance is well
recognized as contributing to better corporate performance and long-term investment
returns.
This interest is shared across a number of peer institutional pension fund managers,
and is manifested in a number of industry groups and associations. NBIMC has been
an active member in related groups such as the Pension Investment Association of
Canada (PIAC) and the Canadian Coalition for Good Governance (CCGG). Both of these
organizations act as an excellent resource for governance guidelines and are utilized
by NBIMC to help with our activities and direction in corporate governance and
proxy voting guidelines.
WHAT IS CORPORATE GOVERNANCE?
The Ontario Teachers Pension Plan Board (OTPPB), who has been a leader in the pension
fund governance area, defines corporate governance as follows:
“the system by which companies are directed, controlled and
evaluated*"
They further point out that this responsibility lies primarily with the board of
directors, however it is the shareholders and investors role to appoint those directors
and to ensure that a proper governance structure is in place.
*Good Governance Is Good Business - Corporate Governance Policies and Proxy Voting
Guidelines, Ontario Teachers’ Pension Plan, 2005.
NBIMC CORPORATE GOVERNANCE GUIDELINES
We have developed the following guidelines to detail how NBIMC will execute its’ role
as an investor in helping to ensuring that a proper governance structure is in place
in companies in which we invest.
It is also to point out that these are guidelines and not strict rules or regulations.
All governance related situations will not be identical and therefore will require an
open-minded pragmatic approach.
NBIMC will base its actions along the PIAC Corporate Governance Standards that are
included in the Appendix (or
http://www.piacweb.org/publications/index.html
) and click on PIAC Corporate Governing Principles and Guidelines May 2007.
As mentioned early PIAC is an institutional pension fund management organization,
established in 1977 as a forum in which members can share information and knowledge.
Its mission is “To promote the financial security of pension fund beneficiaries through
sound investment policy and practices. NBIMC has been an active member in PIAC since
the inception of the Corporation.
PIAC was also the first organization in Canada to issue corporate governance standards
and works to promote the importance of proxy voting by its members as a means of
improving shareholder value in investee corporations.
PROXY VOTING PROCESS
NBIMC invests in financial securities by three means; direct purchases, derivative
contracts, and through external managers. The proxy process for each of these
is outlined below:
Directly Held Shares
In cases where we directly hold securities the proxies received will be directed
to the applicable investment team that has invested in the security. They will
use the PIAC guidelines to vote the proxy and forward the result to the President
(or Designate). The President (or Designate) will review, acknowledge, and have
the completed proxy forwarded back to the investee company or appropriate agent.
Proxies are kept in a file for each calendar year, by NBIMC’s Administrative
Secretary, in alphabetical order by company name.
It is anticipated that cases will arise that will be considered unique and that
will require further analysis or interpretation. These will be brought to the
attention of the President who may coordinate a number of resources both internal,
and external to the Corporation to provide further analysis on the situation.
Examples of applicable external resources are outlined in a later section of
this document.
It should also be noted that a number of NBIMC investment portfolios participate
in securities lending opportunities. These opportunities provide additional income
to NBIMC by lending securities to other investors. Securities which are part of
the lending program do not however provide NBIMC with the ability to exercise the
applicable proxy. In these cases NBIMC always reserves the right to call back
securities that are on loan to be able to vote the proxy. In practice however
this activity would only be undertaken if it was deemed in advance that a specific
proxy was extremely grievous to investors, and that our vote could be a deciding
factor in the outcome of the issue.
Derivative Based Exposure
While derivative based exposure provides for a cost efficient means of gaining
exposure to various markets, it unfortunately does not provide for the ability
for NBIMC to vote proxies of underlying securities. The physical securities are
typically held by the counterparty to the transaction.
Through discussions with a number of our derivative counterparties we have found
that they typically do not play an active role in the proxy process and therefore
take a neutral stance by abstaining from the voting process.
External mandates
NBIMC utilizes the resources of external managers for specific mandates. In these
cases NBIMC will actively review and discuss the manager’s proxy voting process
during the initial due diligence process before a manager is retained.
The Corporation also requires the manager to submit its proxy voting history to us
on a quarterly basis which is subsequently reviewed by NBIMC management ( President,
Chief Investment Officer, and Vice President Finance). This information is filed
under the appropriate manager in NBIMC’s central files.
In specific circumstances NBIMC also reserves the right to discuss our view on a
particular proxy related issue with an external manager in advance of a voting
deadline.
SOCIAL INVESTING ISSUES
As mentioned in the Introduction, the investment policies for our funds under
management outline two main objectives:
- Maximize investment returns, and
- Protect accumulated assets.
The Legislative Act which created NBIMC also designates the Corporation as trustee
for the funds under management. Our fiduciary duty as trustee therefore requires
the Corporation to invest in opportunities that can obtain the highest possible
return for the funds, commensurate with acceptable levels of risk. As a fiduciary
it is therefore very important that non-financial investment considerations do not
preclude this risk adjusted return obligation.
In most cases we believe that the laws and regulatory agencies of the specific
countries in which we invest are the best served to opine on social issues. NBIMC
does however believe that responsible corporate behavior is related to good long-term
corporate performance. It is therefore important to point out that some social
responsibility issues may very well affect our view on a specific company’s long-term
shareholder value. In those cases we will use any governance related means at our
disposal to address the issue with the company in question.
OTHER RESOURCES
While PIAC will provide the main framework for our Governance Guidelines, we have
identified a number of other sources who produce both guidelines and provide records
of their own proxy voting activities. NBIMC management will periodically use these
resources as an aid in analyzing more difficult proxy situations, or in periodically
reviewing our own internal policies and guidelines.
Ontario Teachers Investment Pension Plan
(http://www.otpp.com
)
British Columbia Investment Management
(http://www.bcimc.com
)
Ontario Municipal Employees Retirement System
(http://www.omers.com
)
APPENDIX – PIAC CORPORATE GOVERNANCE PRINCIPLES AND GUIDELINES
Source:
http://www.piacweb.org/publications/index.html
and click on: PIAC Corporate Governing Principles and Guidelines May 2007