Proxy Voting Report Six months ending 30 June 2014 Introduction Voting rights are important to us in order to maintain oversight of directors, boards and company policies. We aim to use our voting rights to promote best practice corporate governance in the long-term interests of the Fund and to meet our obligations under our governing legislation. We exercise our voting rights globally across the Fund’s segregated equity portfolio and report on our voting activities on a six-monthly basis. The broad principles set out in the voting guidelines of our elected proxy voting agency Institutional Shareholder Services (ISS) 1 and our investment managers represent the essential elements of good governance. Such principles include transparency, board alignment with shareholder interests, appropriate remuneration, business ethics, and shareholder rights. Our voting guidelines are based on global corporate governance principles 2, and for New Zealand, include consideration of codes adopted by the Financial Markets Authority, the NZX, relevant international agencies, and investor policies. Our voting guidelines for New Zealand companies are based on the New Zealand ISS Policy available on the ISS website: http://www.issgovernance.com/file/2014_Policies/2014NewZealandVotingRecommendations _FINAL.pdf GNZS Voting Process We direct our overseas investment managers 3 to vote on our behalf in line with the recommendations of our proxy voting agency or in line with their own governance voting policies. For our New Zealand equity holdings, we consider the recommendations of both our proxy voting agency and our New Zealand investment managers to arrive at our final voting decision. We pay particular attention to items that may attract a vote against resolutions or ISS recommendations. We will generally vote as set out in our voting guidelines, but respond to specific issues on a case-by-case basis taking account of our managers and the company’s views where special circumstances arise. Summary of Voting From 1 January to 30 June 2014, we voted on holdings in our New Zealand managers’ portfolios at 19 meetings on 172 proposals, primarily relating to director elections and routine business. Management proposals were supported in most cases but 5% of proposals on compensation proposals received a vote against. Our managers of our global portfolios voted on our behalf at 5571 meetings on 59588 proposals across our segregated portfolios 4. The majority of agenda items related to management proposals for director elections and routine business. The other categories of resolutions to dominate were non-salary remuneration and capitalisation. 1 ISS is the Guardians’ proxy voting service provider (www.issgovernance.com ). OECD Corporate Governance Principles and International Corporate Governance Network (ICGN) Guidelines 3 With the exception of Capital Partners where we vote the shares internally. 4 Global managers including LSV see Tables 3&4 2 Page 1 The large majority of votes on global portfolios supported management proposals. The proposals recording the highest percentage of votes against management were in the following categories: • • • Anti-takeover related Preferred Bondholder Capitalisation The LSV emerging market portfolio voted at 177 meetings on 1653 proposals and demonstrated a relatively high percentage of votes against or abstentions (28%) on management resolutions relating both to capital management and to election of directors or other board-related items. Shareholder resolutions typically account for a small percentage of total resolutions, and generally are submitted only when a shareholder or group of shareholders have significant concerns that have not been addressed by the board. Shareholder resolutions are most commonly submitted at the meetings of listed companies in the United States. Support across the investor base for shareholder resolutions is generally mixed for a variety of reasons, including where the issue may be considered too operational for the board or the general meeting agenda. Where shareholder resolutions do build support this can be a good indicator of the breadth of concern amongst other shareholders. The shareholder proposals that received the most votes in support (although not in the majority), related to the following categories: • • Director related Corporate Governance Director-related proposals accounted for the highest number of shareholder proposals, followed by routine items and environmental or social proposals. Environmental and social issues received 17% support and 22% abstentions. Support for director nominations were also often spread between for, against and abstain votes demonstrating the difficulty shareholders have in assessing the suitability of director candidates put forward by other shareholders and outside the normal Board nomination process. There were no shareholder resolutions at general meetings for companies in the emerging market portfolios. Page 2 1st January to 30st June 2014 Voting Report New Zealand Mandates 5 Table 1: Meetings Proposals 3 3 100 0 0 17 90 97 3 0 Capitalisation 4 9 89 0 11 Reorganisations & mergers Non-salary compensation 1 1 100 0 0 9 19 90 5 5 18 42 95 0 5 Environmental or Social (including Safety) Routine/Misc 2 2 50 50 0 3 6 0 100 0 Total 6 172 91 7 2 Category/Description % For % Against % Abstain DNV/other Management Proposals Anti-takeover Director related Routine business Shareholder Proposals Table 2: 19 Global managers 7 portfolios Meetings Proposals 494 543 33 66 1 Capitalisation 1542 3592 82 17 1 Director Related 5005 34811 92 6 2 Non-Salary Compensation 3551 5791 87 13 0 789 1540 92 5 3 10 28 43 54 4 4921 12033 95 4 1 Compensation 78 105 10 86 4 Corporate Governance 51 96 43 54 3 Director Related 234 597 39 42 19 Environmental or Social 167 212 17 60 23 SH-Routine (& other/misc) 142 240 10 88 2 5571 59588 90 8 2 Category/Description % For % Against % Abstain DNV/other Management Proposals Anti-takeover Related Reorg. & Mergers Preferred/Bondholder Routine Business Shareholder proposals Total 5 New Zealand managers, internal, and infrastructure portfolios voted directly by NZSF. Total is not cumulative for this column 7 Voting data aggregated for non-NZ managers (with exception LSV Emerging Markets Portfolio) 6 Page 3 Table 3: Category LSV Emerging Markets Portfolio 8 Description Proposals % For % Against % Abstain Other % Total Management Proposals Capitalisation Capital Management 135 72% 27% 1% 100% Director/Board Board Related 705 71% 13% 15% 100% Changes to Company Statutes 152 93% 1% 7% 100% Compensation Compensation 114 80% 15% 5% 100% Reorgs and Mergers Mergers and Acquisitions 25 92% 4% 4% 100% Routine/Misc. Audit/Financials Meeting Administration 344 94% 2% 4% 100% 152 84% 15% 1% 100% 26 100% 0% 0% 100% 0% 0% 0% 0% Other Shareholder Proposals 8 N/A N/A Total Meetings 177 1653 LSV utilises a different proxy voting service provider leading to minor variations in reporting format. Page 4