Corporate governance - J.P. Morgan Asset Management

Corporate governance

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 Guidelines
Guidelines for portfolios managed within the UK Guidelines for portfolios managed outside the UK
Proxy voting: UK and Europe Q2 2018

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
Meetings voted (UK):
257 (98.1%)
Meetings voted (EUR):
672 (93.5%)*
Votes with management:
12,496 (89.5%)
Votes against management:
1,406 (10.1%)
21 (0.4%)

*a further 47 meetings were not voted due to share blocking and/or conflicts of interest (voting in relation to JPM Funds)

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.

  • After much deliberation, J.P. Morgan Asset Management elected to support management at Persimmon plc at their AGM in April. Persimmon attracted controversy over LTIP payouts that will see 133 managers share hundreds of millions of pounds. The incentive scheme, put in place in 2012, was flawed because it did not have an upper limit and also because it was based on the share price which has since risen strongly, boosted by the introduction of the taxpayer-backed Help to Buy scheme in 2013. Voting options were limited, however, as the main architects of the plan, former board Chairman Nicholas Wrigley and Remuneration Committee Chairman Jonathan Davie, have both subsequently resigned over the issue. In reaching our final decision, we took into account the outstanding returns generated for our clients, as well as the fact that some 85% of shareholders (including J.P. Morgan Asset Management) supported the plan in 2012, at a time when caps and clawback mechanisms were not common practice. Extensive engagement with the company resulted in Acting Chairman Nigel Mills negotiating a deal with executives to cut 50% of Tranche Two awards, leading to an overall reduction in payouts of some 25% to 30%. We have also engaged with the company to encourage better compensation plans going forward. The company subsequently announced that Roger Devlin would take over as Chairman of the company in July.
  • J.P. Morgan Asset Management also elected not to oppose the remuneration report at WPP, allowing former CEO and founder Sir Martin Sorrell to depart as a ‘good leaver’, despite concerns over an ongoing internal investigation in response to an allegation of personal misconduct. J.P. Morgan Asset Management met separately with both Sir Martin and Chairman Roberto Quarta to discuss the issues, and reached the conclusion that the priority for shareholders was to allow for an orderly succession after 33 years at the help of the company.
  • J.P. Morgan Asset Management voted against three directors at CLS Holdings, due to concerns over board independence. Currently, only three out of ten directors meet our criteria for independence, the remainder being either executive, or having links with company founder Sten Mortstedt, who controls 50.99% of the issued share capital via his Creative Value Investment Group.
  • J.P. Morgan Asset Management also opposed remuneration at William Hill. CEO Philip Bowcock’s salary was increased by over 9% on his appointment as permanent CEO in March 2017. This followed a substantial 31% salary increase following his appointment as interim CEO in 2016. In February, the company entered into a regulatory settlement with the UK Gambling Commission, after an investigation revealed the group breached anti-money laundering and social responsibility regulations between 2014 and 2016. This resulted in ten customers being allowed to deposit large sums of money linked to criminal offences. William Hill has stated it will appoint external auditors to review the effectiveness and implementation of its anti-money laundering and social responsibility policies, and share any lessons learned with the wider industry.
  • J.P. Morgan Asset Management took the unusual step of voting against the Annual Report and Accounts, as well as the reappointment of the Auditor, at SIG plc. In January, a whistleblower identified a number of accounting irregularities at its SIG Distribution subsidiary (SIGD), some of which were reported as ‘intentional’. This resulted in an overstatement in the 2017 Half Year results, which had to be restated. The company has subsequently undertaken a comprehensive review of accounting practices at SIGD and is implementing additional control measures over accounting procedures. A number of employees have also been terminated following disciplinary investigations. The issue also raised material concerns over the role of Deloitte as auditor in our view.
  • In Europe, J.P. Morgan Asset Management took a firmer line than voting agencies and voted against the discharge of the Supervisory Board at Akzo Nobel, for refusing to enter into dialogue with PPG Industries, as a potential bidder for the company. The Supervisory Board also refused to allow shareholders an open choice for vacancies in the Supervisory Board in 2017. Both issues contravene both the basic principles of good corporate governance, as articulated by the Dutch Corporate Governance Monitoring Committee, as well as our corporate governance guidelines.
  • J.P. Morgan Asset Management voted against pension arrangement and compensation for executives at Accor SA. The company did not disclose why it chose to modify the weights attached to its LTIP performance criteria, and the potential increases in remuneration related to the implementation of a co-investment plan also remain largely unexplained. We also elected to voted against a ‘poison pill’ anti-takeover defence, which we did not think was in the best interests of shareholders. Separately, we have requested engagement with the company to discuss their decision to potentially acquire a 14% stake in Air France KLM. We do not see any strategic logic in such a move which, in our view, is at odds with their stated strategy of buying hotel assets. Air France is a highly challenged, high cost, highly unionised airline, and we view this proposal as both potentially value-destructive and not in the interests of clients.
  • Year-to-date, J.P. Morgan Asset Management has engaged with 131 companies in the UK and Europe on ESG issues (not counting scheduled one-to-one meetings). Of these, 66 were meetings to discuss corporate governance issues at portfolio companies, 18 were consultations over remuneration arrangements, and 28 were in relation to social or environmental issues.

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