Corporate governance

AUSTRALIAN EQUITIES

This Corporate Governance Policy details the guidelines that are applied to HESTA’s mandated Australian equity fund managers and custodian in relation to voting of resolutions for entities invested in and listed on the Australian Stock Exchange (ASX).

Mandated Australian Equity Fund Managers

A significant portion of the Australian Equities strategic asset allocation is invested by various fund managers with specific mandates to manage a share portfolio, including stock selection and trading. As part of the operations performed by the fund manager (“the manager”), corporate governance is an area that is considered integral to the investment process. For ASX listed entities held in the portfolio, the manager is expected to give due consideration to the following:

proxy voting of all company resolutions
each company’s implementation of the ASX Corporate Governance guidelines with an emphasis on the appropriateness of the “if not, why not” explanations.

The Custodian

The shares are held by JP Morgan (previously known as the Chase Manhattan Bank), as custodian of HESTA’s assets JP Morgan will vote in favour of all proxies on behalf of HESTA unless the fund manager or HESTA provides notification that an alternative position is to be adopted. The fund managers have been delegated the task of dealing with Corporate Governance issues in respect to the shares in their portfolio and arranging for voting of resolutions issued by these companies. This is achieved by the fund manager receiving proxy voting information via the custodian and advising the custodian of any ‘no’ or ‘abstain’ voting instructions within the custodian’s agreed timeframe.

Proxy Voting Guidelines

Fund managers are required to provide timely instructions to JP Morgan in accordance with the following guidelines:

JP Morgan will vote in favour of all resolutions proposed by the Company Board unless the fund manager or HESTA provides notification that an alternative position is to be adopted. All resolutions will be referred to the manager by JP Morgan for consideration.
The manager will review all resolutions and where a ‘no’ or ‘abstain’ vote is decided, to advise HESTA for approval.
The manager is to determine the vote unless the issue falls into a Category required to be referred to HESTA or where HESTA provides specific instructions (HESTA will advise the manager in the event of this occurring).

The following Categories of issues are to be automatically referred to HESTA:

(a) Employee and/or Director share plans/benefit packages which involve any material departure from normal practice or significant increases in benefits.

Determining those resolutions where a ‘material departure may exist’ can be referred to accepted corporate governance industry standards by; IFSA’s Corporate Governance: A Guide for Investment Managers and Corporations, The ASX Corporate Governance Council Guidelines, ACSI Corporate Governance Guidelines, Corporate Governance International (CGI) or International Shareholder Services (ISS).

(b) Appointment of Executive Directors where non-executive Directors are in the minority.

Where the non-executive director would be considered an affiliate under the ASX Corporate Governance Council Guidelines recommendation 2.1.

(d) Significant issues which are likely to be contentious, including takeover defences.

Where a reasonable person would consider a matter to be significant.

(e) Where an Investment Manager holds 5% or more of the shares in a listed company.

(f) Where a material conflict could exist in relation to the manager or a subsidiary.

A material conflict to be determined through application of accepted corporate governance industry standards such as; IFSA, The ASX Corporate Governance Council, Australian Council For Institutional Investors (ACSI), CGI or ISS standards on independence.

In the case of any decisions regarding the above issues, the options for HESTA are to vote in favour of, to vote against or to not vote.

Determining the Vote

The process for dealing with matters brought to the attention of HESTA shall be as follows:

the matter and advice of the manager shall be forwarded to the Investments and Governance Manager (IGM);
the IGM review the recommendations provided by Corporate Governance International (CGI) and unless the IGM forms a contrary view, to vote in accordance with the CGI recommendation. In the event that the IGM forms a contrary view to the CGI recommendation, or CGI provide an abstain recommendation, the IGM will provide a voting recommendation to the Executive and CEO for consideration. The recommendation will be based on considered advice from fund managers, CGI and other corporate governance experts such as The Australian Council for Institutional Investors (ACSI). Contentious recommendations will be circulated to Directors inviting comment. The Executive to determine the action to be taken regarding the recommendation;
where possible, each party shall respond to the IGM;
if the IGM considers there is a clear consensus then he/she shall act accordingly. If not, a telephone conference shall be arranged and an appropriate action determined; anddecisions by the Executive will be presented to the Board at the following Board meeting.

Voting Decisions

HESTA’s Australian Share Voting Reports are produced each 6 months and can be downloaded here. These reports detail all of the resolutions that have been voted on at Australian company meetings and the vote that HESTA lodged for each one.

HESTA's Australian Share Voting Report for the Six Months ended 31 December 2009

Pooled Investment Vehicles

Introduction

The policy outlines the practical considerations for monitoring corporate governance issues as a consequence of the Trustee investing in equities through a pooled investment vehicle ("Pooled Trust"). At all times, when monitoring corporate governance issues, the trustee will act in the best financial interests of members as outlined in the Superannuation Industry (Supervision) Act (Clth) ("the SIS Act") and common law requirements.

HESTA’s Investment in Pooled Trusts

HESTA invests part of its assets in Australian and overseas equities through various Pooled Trusts in accordance with The Investment Policy and strategic asset allocation.

Extending existing reports to Corporate Governance Issues

Regular reports from each fund manager on the investment performance of each respective Pooled Trust are received. The manager also provides appropriate detail and reports on issues that impact on the investment performance of each Pooled Trust.

Manager’s are requested to provide regular reports to the Trustee on its activities in relation to corporate governance issues that arise in listed companies that form part of each respective Pooled Trust.

Guidelines

The Trustee recognises that the manager has the legal capacity to exercise votes attached to shares in companies that form part of the unit trust. It is also possible for the manager to enter into dialogue with these companies on corporate governance issues.

HESTA considers it important to be advised of the manager's policy and actions on these issues.
HESTA will request from each manager an outline and explanation of their policies on corporate governance issues that are applicable to the unit trust.
HESTA will seek advise on the manager's actions on corporate governance issues in a timely and efficient manner to be agreed to by the Fund and the Manager.

Policy Implementation and Compliance

JP Morgan will provide the IGM with company resolutions for those companies invested in by HESTA.
JP Morgan will provide quarterly proxy voting reports to HESTA.
Managers are to report to HESTA once each year (with timing to be advised) or more frequently if requested. The report should deal with the following:
a) current policy and guidelines on Corporate Governance;
b) extent to which the manager has adopted IFSA industry guidelines on Corporate Governance;
c) cases where the manager voted against the relevant company Directors’ recommendation and the outcome, with a brief discussion of the issues;
d) instances where candidates for Director positions had on their main platform environmental issues;
e) issues that may impact on the environmental performance of the company;
f) issues resolved by discussion prior to any general meeting;
g) issues not voted after consultation with HESTA;
h) issues voted in favour of the relevant company Directors’ recommendation where more than 20% of votes were cast in opposition; and
i) issues referred under agreed Categories (as per Part 3) and the outcome.
The IGM will provide the Board with an annual audit and review of fund manager and custodian conduct in relation to HESTA’s Corporate Governance Policy.
HESTA as a member of the Australian Council of Superannuation Investors ("ACSI") will contribute to the continued development of ACSI's corporate governance guidelines and consider their adoption. Best practice evolves over time and the ACSI guidelines will need to be periodically updated to reflect higher standards of best practice. These best practice corporate governance standards are to be a reference for fund managers when applying this Policy.
The IGM to encourage managers to incorporate formal corporate governance standards that are to be applied in the investment selection and monitoring of companies on behalf of HESTA.

INTERNATIONAL EQUITIES

This Corporate Governance Policy details the guidelines that are applied to HESTA’s mandated international equity fund managers and custodian in relation to voting of resolutions for shares which are owned on behalf of HESTA. These shares are domiciled outside of Australia.

Mandated International Equity Fund Managers

A significant portion of the international equities strategic asset allocation is invested by various fund managers with specific mandates to manage a share portfolio, including stock selection and trading. As part of the operations performed by the fund manager (“the manager”), corporate governance is an area that is considered integral to the investment process. Due consideration by the manager of all company resolutions issued by companies held in the portfolio is an expected condition of the mandate.

HESTA believes that our international managers have well developed proxy voting policies and procedures. HESTA believes that local market insights are essential in making appropriate corporate governance decisions and HESTA believes that our international equities managers have far greater local market insights than either HESTA or global corporate governance advisory services.

The Custodian

The shares are held by JP Morgan as custodian of HESTA’s assets.

The fund managers have been delegated the task of dealing with Corporate Governance issues in respect to the shares in their portfolio and arranging for voting of resolutions issued by these companies. This is achieved by the fund manager receiving proxy voting information via the custodian and advising the custodian of their voting instructions within the custodian’s agreed timeframe.

Proxy Voting Guidelines

Fund managers are required to provide timely instructions to JP Morgan.
Fund managers are to vote in accordance with their current Corporate Governance proxy voting policies and procedures; other than in the specific instances where HESTA advises them to vote otherwise.
Fund managers may bring voting matters to the attention of HESTA’s Investments & Governance Manager (IGM) should they believe it appropriate.
HESTA will engage with like minded superannuation funds globally through the International Forum for Activist Shareholders (“IFSA”) to identify company shareholder meetings with contentious issues. HESTA will participate in global shareholder activism where HESTA agrees with the corporate governance principles being pursued and where coordinated pressure from superannuation funds may achieve change. In these instance, HESTA will direct the fund manager on the voting of HESTA’s holding in those shares.

In the case of any decisions regarding the above issues, the options for HESTA are to vote in favour of, to vote against or to not vote.

Determining the Vote

The process for dealing with matters brought to the attention of HESTA via either a fund manager or through participation in global shareholder activism shall be as follows:

the matter and advice of the manager shall be forwarded to the Investments and Governance Manager (IGM);
the IGM will determine the vote through application of accepted corporate governance industry standards such as; OECD Principles of Corporate Governance, International Corporate Governance Network (ICGN) Statement on Global Corporate Governance Principles, Australian Council For Institutional Investors (ACSI), or ISS standards on independence. The IGM will provide a voting recommendation to the Executive and CEO for consideration;
where possible, each party shall respond to the IGM;if the IGM considers there is a clear consensus then he/she shall act accordingly. If not, a telephone conference with the Executive shall be arranged and an appropriate action determined; and
decisions by the Executive will be presented to the Board at the following Board meeting.

Pooled Investment Vehicles

Introduction

The policy outlines the practical considerations for monitoring corporate governance issues as a consequence of the Trustee investing in equities through a pooled investment vehicle ("Pooled Trust").

At all times, when monitoring corporate governance issues, the trustee will act in the best financial interests of members as outlined in the Superannuation Industry (Supervision) Act (Clth)("the SIS Act") and common law requirements.

HESTA’s Investment in Pooled Trusts

HESTA invests part of its assets in international equities through various Pooled Trusts in accordance with The Investment Policy and strategic asset allocation.

Guidelines

The Trustee recognises that the manager has the legal capacity to exercise votes attached to shares in companies that form part of the unit trust. It is also possible for the manager to enter into dialogue with these companies on corporate governance issues.

HESTA considers it important to be advised of the manager's policy and actions on these issues.
HESTA will request from each manager an outline and explanation of their policies on corporate governance issues that are applicable to the unit trust.
HESTA will seek a dialogue with managers, as appropriate, on corporate governance issues in which HESTA is involved in coordinated global shareholder activism. The purpose of the dialogue will be to convince the manager of the merits of the coordinated activism so that the manager votes all shares under their control consistent with HESTA’s stance.

Policy Implementation and Compliance

Managers are to report to HESTA as and when any changes are made to their Corporate Governance proxy voting policies.
The IGM will provide the Board with an annual audit and review of fund managers conduct in relation to HESTA’s Corporate Governance Policy.
HESTA will communicate this formalised policy with existing managers to facilitate implementation of this policy.
HESTA as a member of the International Corporate Governance Network (ICGN) will contribute to the development of ICGN's corporate governance guidelines and consider their adoption. These policies are to be used as a reference to what constitutes good corporate governance practice in listed companies from the point of view of a superannuation fund.
HESTA will become an active shareholder on international equities corporate governance issues through association with informal activist groups such as the International Forum for Activist Shareholders (“IFSA”) and seek also to engage HESTA’s international equities managers and other Australian superannuation funds on international companies with contentious corporate governance issues.
Where HESTA is seeking to oppose resolutions, HESTA will take steps to “call-back” any shares that are out on loan under HESTA’s securities lending agreement.