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An active approach to corporate governance

As part of our commitment to delivering superior investment performance to our clients, we expect and encourage the companies in which we invest to demonstrate the highest standards of corporate governance and best business practice.

We examine the share structure and voting structure of the companies in which we invest, as well as the board balance, oversight functions and remuneration policy. These analyses then form the basis of our proxy voting and engagement activity.

Download the JPMAM Voting Policy and Corporate Governance Guidelines PDF

Proxy Voting: UK & Europe Q210

JPMAM manages the voting rights of the shares entrusted to it as it would manage any other asset. It is the policy of JPMAM to vote in a prudent and diligent manner, based exclusively on our reasonable judgement of what will best serve the financial interests of our clients. So far as is practicable, we will vote at all of the meetings called by companies in which we are invested. A summary of key voting statistics and activity for the period is detailed below:

*a further 227 meetings were not voted due to share-
blocking and/or Power of Attorney requirements

The second quarter is traditionally the busiest of the year in terms of proxy voting volumes, with AGM activity peaking in the UK and Europe in April and May.

• J.P. Morgan Asset Management voted against the Remuneration Report and the introduction of a new Long-Term Incentive Plan at Elementis plc. Our concerns were centred around the company’s decision not to disclose its three-year earnings per share (EPS) targets, citing commercial sensitivity. While we sometimes accept this argument in relation to annual bonuses (albeit with the proviso of retrospective disclosure), we did not feel this was appropriate for a long-term scheme. Following engagement, the company agreed to revert to normal disclosure of targets going forward from 2011.
  
  
• J.P. Morgan Asset Management also voted against an incentive plan at Ladbrokes, due to the rolling re-testing of performance, based on a short snapshot of share price performance during years three, four and five. Rolling re-testing is no longer considered acceptable remuneration practice, and contravenes our guidelines. We also questioned the joint share structure of the plan, which appears to increase the cost to shareholders, while providing considerable tax saving benefits to the participants. Lastly, we questioned the appropriateness of the quantum of the CEO's award of 1,070% of his basic salary.
  
  
• In Europe, J.P. Morgan Asset Management voted against remuneration at Deutsche Bank, where return on equity (ROE) targets on annual bonuses for executives are not being disclosed,Total Shareholder Return (TSR) targets on the Long-Term Performance Award (LTPA) are also not being disclosed, and bonuses are being left uncapped. The board also has discretionary power to increase bonuses by up to 50% in undefined circumstances. Deutsche looks like an outlier versus both its German and wider European peers in the relative paucity of quantitative criteria disclosed in relation to remuneration, which is unacceptable in our view, given the quantum of the awards (CEO Josef Ackermann was paid in excess of EUR 9.5m in 2009, including a 43.5% salary increase to EUR 1.65m). Mandatory ‘say on pay’ remuneration votes have been introduced for the first time in Germany this year.
  
  
• Elsewhere in Germany, a proposal to grant stock options to non-executive directors at Dialog Semiconductor was voted down by shareholders (including J.P. Morgan Asset Management, which is the largest single shareholder). J.P. Morgan Asset Management fundamentally disagrees with the practice of awarding share options to non-executives, as we believe that it risks moving their focus away from the long-term best interests of the business towards the short-term. We have subsequently met with the company and offered to assist in providing feedback on future remuneration arrangements.
  
  
• The Portuguese government surprised the market by bypassing shareholders and using its veto to block Telefonica’s EUR 7.15 billion bid for Portugal Telecom’s stake in Vivo, Brazil’s largest mobile phone company. Despite 74% of the shareholders represented at the meeting in Lisbon voting in favour of the bid, the government used the power of its 500 priority “Golden Shares” to block the deal, with prime minister Jose Socrates calling the asset “strategic.” PT chairman Henrique Granadeiro had already ruled that Telefonica could not vote their 10% stake in PT, with Socrates reported as putting pressure on state-owned lender Caixa Geral de Depositos to vote its 7.3% stake against the deal. The European Court of Justice in Luxembourg was due to rule on the legality of Portugal’s veto powers on 8 July, after the EU ruled such devices anti-competitive and ordered member States to dismantle them where they exist.
  
  
• Members of the Corporate Governance team met 9 companies specifically to discuss corporate governance issues, including Prudential, HSBC and BP.