Non-routine items that are also often seen on agendas and require shareholder approval include:

• Approval of new equity incentive schemes or amendments to existing schemes;
• Amendments to the Memorandum of Incorporation (MOI);
• Black Economic Empowerment (BEE) transactions;
• Social and ethics committee elections;
• Social and ethics committee report.

For proposals which are not covered in this document, we will analyse the financial impact thereof on a case-by-case basis and vote in the best interest of our investors. In South African incorporated companies, one or more shareholders holding 10% or more of voting capital can call a special shareholder meeting. Shareholder proposals will be evaluated on a case-bycase basis. We generally favour proposals which are likely to increase shareholder value and/or promote and protect shareholder rights. We typically prefer to leave decisions regarding day-to-day management of the business to management and the board, except when we see a clear and direct link between the proposal and some economic or financial issue for the company.

We believe shareholders should not attempt to micromanage the business or its board and executives. Rather, shareholders should use their influence to push for governance structures which protect shareholders, and then put in place a board they can trust to make informed and careful decisions which are in the best interests of the business and its shareholders. We believe shareholders should hold directors accountable for management and policy decisions through the election of directors and we will vote against the re-election of one or more members of the board if we consider they have not handled key issues appropriately.

These guidelines are reviewed annually to ensure they remain appropriate with market practice and the ever-evolving standards of corporate governance.

Proxy voting policy and procedures

For South African (SA) mandates we vote on all meetings. Due to the high costs of submitting proxy votes through global custodians in other Emerging and Frontier markets, it is our policy to generally only vote on non-routine matters that can impact shareholder value. For SA mandates we generally vote alongside company management on routine matters. With respect to non-routine matters in all markets, such as proposed mergers or capital restructures, we will analyse the financial impact thereof and on a case-by-case basis vote in the best interest of our investors. When we believe that the interests of our investors may be affected or prejudiced by any proposal, we typically engage with management and other shareholders prior to the vote, and at times also attend the meeting.

Voting decisions are based on the views of the Investment team. We will generally vote in accordance with the above proxy voting policy and below guidelines, but may deviate if facts and circumstances so warrant in order to protect the rights of our investors. We will always vote in the best interest of our investors. . In determining how to vote, the investment team will review prior year voting records to identify any controversial items with significant votes against or abstained, and consider whether any changes have been made in the current year. We have a particular focus on remuneration and perform detailed analyses in accordance with the guidelines below, to ensure that directors’ incentives are aligned with shareholders and company strategy. We also focus on any new directors, and perform in-depth analysis of all non-routine/special resolutions on a case-by-case basis to ensure it is in the best interest of shareholders.

Our Operations Team is responsible for monitoring upcoming meetings, and engaging with the Investment Team in order to cast our votes and keep record thereof. Proxy votes are submitted via the custodians for all portfolios. The Operations Team also reviews the voting outcome of the AGM, with a particular focus on the resolutions we voted against, and will report to the investment team so that they may consider engaging with the company’s management team.

Voting Guidelines – Operational Items:

Annual financial statements

Vote in favour, unless:

• There are concerns about the accounts presented or audit procedures used;
• The company is not responsive to shareholder questions about specific items that should be disclosed publicly.

Auditors’ reappointment and remuneration

Vote in favour, unless:

• There are serious concerns about the accounts presented or the audit procedures used;
• The auditors are being changed without explanation;
• Non-audit related fees are substantial or are routinely in excess of standard audit-related fees; or non-disclosure of such fees and/or split;
• There are other relationships or issues of concern with the auditor that might suggest a conflict of interest between the auditor and shareholders;
• We are uncomfortable with the auditors given ongoing allegations of misconduct and we believe a rotation of auditor is appropriate under the circumstances.

Authority to ratify and execute approved resolutions

Vote in favour, unless:

• Opposition is recommended to all other items on the agenda.

Voting Guidelines – Board of Directors

Voting on director nominees

Vote in favour, unless:

• Composition and Independence:
  • The majority of board is not comprised of independent NEDs;
  • The chairman is a not an independent NED;
  • The chairman is a CEO or former CEO;
  • The majority of key board committees (audit, remuneration, nominations) are not comprised of independent NEDs with an independent chair;
  • There are other relationships or issues of concern with the director that might suggest a conflict between the interest of the director and the interests of shareholders;
  • Repeated absences at board and committee meetings have not been explained;
  • Serves on too many public company boards and is considered to be overcommitted;
  • Insufficient breadth and depth of skills, experience and diversity across board.
• Accountability:
  • Elections are bundled;
  • Adequate disclosure has not been provided in a timely manner;
  • There are clear concerns over questionable finances or restatements, questionable transactions with conflicts of interest or records of abuses against minority shareholder interests;
  • The board fails to meet minimum governance standards;
  • There are specific concerns about the individual nominee, such as criminal wrongdoing or breach of fiduciary responsibilities;
  • Material failures of governance, stewardship, risk oversight, or fiduciary responsibilities at the company;
  • Failure to replace management as appropriate;
  • Egregious actions related to a director’s service on other boards that raise substantial doubt about his or her ability to effectively oversee management and serve the best interests of shareholders at any company.

Audit Committee elections

Vote in favour, unless:

• Committee member elections are bundled into a single voting item;
• The majority of audit committee members are not independent NEDs;
• Repeated absences at committee meetings have not been explained;
• Committee Chair did not convene at least 4 meetings in last year;
• There are serious concerns about the accounts presented, the audit procedures used, or some other feature for which the audit committee has responsibility.

Social and Ethics Committee Elections

Vote in favour, unless:

• The committee does not satisfy the minimum guidelines for membership, as set out in South African company law;
• Serious concerns have been raised with the work of the committee during the year.

Voting Guidelines – Capital Structure

Share issuance authorities

Vote:

• We would generally vote against this resolution as we believe that the compounding effect of share dilution can have a detrimental impact on shareholder returns. Instead, we would prefer if the company gets a specific resolution for each transaction with the appropriate motivation provided by management, so that shareholders can evaluate each transaction’s merits on a case-by-case basis.
• We may consider approving the resolution if the authority is over a number of shares equivalent to a maximum of 5 percent of the current issued share capital.

Share buyback authorities

Vote in favour, unless:

• The repurchase is likely to be used for takeover defences;
• The repurchase is likely to materially impact the free float;
• There is clear evidence of abuse;
• The company will not satisfy the solvency and liquidity test.

Voting Guidelines – Remuneration

Fees for non-executive directors

Vote in favour, unless:

• Proposed fees are excessive, relative to similarly-sized companies in the same sector.

Approval of Remuneration policy

Vote in favour, unless:

• The level of disclosure around the policy is below what is required for shareholders to make an informed judgment.
• The company operates long-term incentive schemes (including matching shares) which do not have performance conditions attached for all or a substantial proportion of awards;
• The vesting period for long-term incentive schemes is set at less than three years;
• Long-term schemes include an element of retesting;
• The policy provides for grants of share options at a discount to market value;
• The potential dilution under all share incentive schemes is excessive, and there are no mitigating circumstances (e.g. stringent performance measures);
• The quality of disclosure around the severance provisions of the executive directors’ service contracts, including any potential termination payments, is considered inadequate;
• The policy is in any way not considered aligned with shareholder interests.

Approval of implementation report

Vote in favour, unless:

• The level of disclosure regarding the application of the policy is below what is required for shareholders to make an informed judgment.
• Large increases in fixed remuneration have been implemented which have not been adequately explained;
• The company has made bonus payments, but these have not been clearly linked to performance (including guaranteed bonuses or transaction bonuses);
• The company has made ex-gratia payments or one-off special awards to executives during the year which have not been adequately explained;
• The performance conditions for long-term incentive schemes, where applicable, are not disclosed, or are not considered sufficiently challenging or relevant;
• Significant termination-related or restraint of trade payments have been made to executive directors, and the reasons for these are not disclosed or, where they are disclosed, do not adequately justify the size of the payment;
• Discretion has been used during the year in a manner not considered consistent with shareholder interests, or the application of the policy is in any way not considered aligned with shareholder interests, with particular attention given to any payments or decisions which have been made outside of the policy framework previously communicated to shareholders.

New equity incentive scheme or amendment to existing scheme

Vote in favour, unless:

• The level of disclosure on the proposal is below what is required for shareholders to make an informed judgment on the scheme;
• Performance conditions do not apply, have not been disclosed or are not considered sufficiently challenging or relevant;
• Performance conditions can be retested;
• Performance is measured over a period shorter than three years;
• The plan allows for option repricing or issue of options at a discount or backdating of options;
• The potential maximum dilution under all share incentive schemes exceeds 5 percent of the issued share capital of a large, widely held company, or 10 percent in the case of an emerging high-growth company, and there are no mitigating circumstances (e.g. stringent performance measures);
• The scheme provides for potentially excessive individual reward or has no caps on individual participation;
• NEDs can participate in the scheme;
• The scheme is in any way not considered aligned with shareholder interests.

Financial assistance to related and interrelated entities

Vote in favour, unless:

• As part of the authority, the company requests a general authority to provide financial assistance to directors, and this is not limited to participation in incentive schemes;
• The authority would facilitate the operation of an incentive scheme(s) which raises governance concerns, with particular attention given to any schemes which authorise the provision of preferential loans to directors;
• As part of the authority, the company seeks approval to provide financial assistance “to any person”;
• The company will not satisfy the solvency and liquidity test;
• The terms of the proposed assistance is not fair and reasonable to the company;
• Evidence that the company has used a previous authority in a manner deemed not to be in shareholders’ interests would warrant further review and analysis.

Voting Guidelines – Other Items

New MOI/ amendments to the MOI

Vote:

• Vote on a case-by-case basis, depending on the impact on shareholder rights;
• Vote against an MOI which limits retirement by rotation to non-executive directors only.

BEE transactions

Vote:

• Vote on BEE transactions on a case-by-case basis. Factors considered include the overall dilutive impact, the structure of the transaction and the identity of the company’s chosen BEE partners. Proposals which are genuinely broad-based are more appealing than those which stand to benefit a narrow group of investors, as are those which have a long-term timeframe.

Social and Ethics Committee report

Vote:

• Vote for the report of the social and ethics committee, unless:
  • The report does not include details of how the committee has undertaken the functions prescribed to it by South African company law; or
  • Serious concerns have been raised with the work of the committee during the year.

ESG considerations

Vote:

• When a substantial environmental or social risk has been ignored or inadequately addressed, we may vote against certain members of the board who, in our opinion, have had some influence over these practices (particularly those responsible for risk oversight in consideration of the nature of the risk and the potential effect on shareholder value).

Measurement of success

Active ownership

We regard our actions as successful if our engagement and voting efforts have resulted in management delivering a more favourable outcome for shareholders and other stakeholders.

Disclosure

Our company engagements and voting records are reported to clients on a quarterly basis. This information is also summarised in our annual Stewardship Report. A copy of our historic voting records, engagement records or annual Stewardship report can be requested by emailing info@steyncapitalmanagement.com.