Business practices and voting information
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.
J.P. Morgan Asset Management Voting Policy and Corporate GuidelinesGuidelines for portfolios managed within the UK Guidelines for portfolios managed outside the UK
Proxy voting: UK and Europe Q3 2017
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.
Summary of key voting statistics
The third quarter is traditionally one of the quietest of the year in terms of proxy voting volumes, with relatively little AGM activity in the UK and Europe after the peaks in the second quarter.
Meetings voted (UK):
Meetings voted (EUR):
Votes with management:
Votes against management:
*a further 6 meetings were not voted due to share-blocking and/or Power of Attorney requirements
Summary of key activity
- J.P. Morgan Asset Management took the unusual step of voting against the Annual Report and Accounts at BT Group plc, due to concerns over internal controls. This followed the uncovering of complex fraud at the group’s Italian business earlier in the year. Forensic accountants were engaged after a whistleblower disclosed wrongdoings related to the inflation of profits, which led to the discovery of “a series of improper sales, purchase, factoring and leasing transactions” at the Italian unit. The result was an over-statement of profits, which have been re-stated by GBP 268 million. The company launched an investigation (now completed) and the CEO and CFO of BT Italy have been replaced. The accounting scandal also led to the Remuneration Committee electing to withhold bonuses from Group CEO Gavin Patterson and former Finance Director Tony Chanmugam for the year under review, as well as clawing back shares worth GBP 338,000 and GBP 193,000 from Patterson and Chanmugam respectively. The Committee has also outlined measures to re-calculate bonuses paid between 2013 and 2016, in a rare example of malus provisions in action. Separately, a GBP 42 million fine has been imposed at BT Openreach, in relation to historical breaches of “deemed consent” contractual and legal obligations, where total compensation is expected to amount to some GBP 300 million. J.P. Morgan Asset Management also voted against PwC, BT’s auditor since privatisation some 33 years ago, while noting that the audit tender process was accelerated, with KPMG due to replace PwC as auditors from this year. We also note that KPMG was the firm engaged to conduct the original Italian investigation.
- J.P. Morgan Asset Management also opposed the accounts at Mitie Group, where a January trading update informed shareholders that the company intended to carry out an independent review of its balance sheet. This review was also carried out by KPMG, together with the newly-appointed management team. The review identified a number of prior year errors that led to a restatement of GBP 60.5 million. A key finding of the review was that the company’s accounting was less conservative than its peers, which led to further asset writedowns being undertaken. We also note that there has been significant turnover at board level, with CEO Philip Bentley, CFO Sandip Mahajan and Chairman Derek Mapp all joining in the last 12 months.
- In Europe, J.P. Morgan Asset Management voted against the discharge of the board at Logitech International, again due to concerns over internal controls, specifically in relation to internal estimates concerning customer breakages. According to filings, the company expanded its use of performance-based customer programmes in the Europe, Middle East and Africa (EMEA) region in 2016 and 2017, which resulted in increased allowances and accruals for customer breakages. Logitech stated that it did not have sufficient historical data on customer breakage patterns in the EMEA region to allow for reliable estimates of future customer breakage attributable to these allowances and accruals. Logitech management concluded that the allowances and accrued liabilities relating to customer programmes were overstated, and began implementing a remediation plan to address the material weakness. In Switzerland, shareholders have the right to formally discharge the board and senior management of liability for decisions taken in the prior year in a separate vote at the AGM. J.P. Morgan Asset Management has also engaged with the company on the issue.
- J.P. Morgan Asset Management voted against 12 directors at Cie Fin Richemont, due to concerns over board independence. Only seven out of 19 board members currently meet our independence criteria, the rest being executive, or having served in excess of 10 years, or having links with the controlling Rupert family. Despite this, we would note that, as a result of ongoing engagement with shareholders in recent years, both payout ratios and board independence have improved markedly at the company, where once only two out of 20 board members met our criteria for independence.
- Elsewhere in Europe, J.P. Morgan Asset Management voted against a phantom option plan at Atlantia SpA, where the exercise price allows the options to be granted at a discount to the average market price at the time of grant, and where the board may authorise beneficiaries to exercise the options in advance in full, in the event of a change in control.
- J.P. Morgan Asset Management met Members of the ESG Team met 21 companies specifically to discuss governance issues, including Glencore, Arcelormittal, ING Groep, Henkel, LafargeHolcim and Akzo Nobel, bringing the total number of engagements for the year (not counting scheduled one-to-one meetings) to 204, of which 79 were meetings to discuss corporate governance issues at investee companies, 51 were remuneration consultations and 44 were to discuss social and environmental issues at portfolio companies.
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