Dialogue policy with issuers

Proxinvest dialogue Policy with issuers, in compliance with the Best Practices Principles for Providers of Voting Research and Analysis,  as recognized by ESMA,  is based on the following principles:

Principle N°1: Proxinvest provides a private service and is committed by contracts to its clients. The latter subscribes to a service and control the quality of the service and the reports. Issuers should not interfere within this contractual relationship.

Principle N° 2: Proxinvest must analyse proxy materials made available to shareholders and must not be provided with any insider information which have not yet been made public.  As a result, issuers are encouraged to disclose relevant and complete proxy materials online as early as possible.

Principle N° 3: Dialogue with issuers helps Proxinvest to improve its understanding and knowledge. Geographical proximity and dialogue with the relevant local stakeholders implied in proxy voting is a real difference with other proxy providers and contributes to the quality of service.

Principle N°4:  Issuers should prioritize dialogue with their shareholders and not with the voting agency working for shareholders.

Principle N° 5:  The biggest part of the dialogue is to present the voting policy and its changes, to debate with issuers about the content of the voting policy and to explain how the adoption of Proxinvest recommendations would enhance shareholder protection and value. Consequently dialogue must mainly occur before the proxy season, in general when Proxinvest voting policy is updated.  Proxinvest cannot meet each of the 350 covered issuers by one-to-one meetings, so issuers are invited to collective sessions of presentation of the voting policy which take place in late December or Early January.

Principle N° 6: If a particular project or event, uncovered by Proxinvest guidelines, occurs or if a French issuer has no headquarter near Paris,  Proxinvest accepts to give access to its researchers, for free, to discuss the issue.

Principle N° 7: During the proxy season period, Proxinvest analysts often contact the issuer when questions arise (information required, understanding of the context,…). Indeed, deadlines to analyse correctly the consequences of general meetings proposals are very short while issues may be very complex.

Principle N°8: Dialogue between the issuer and the voting agency must not be detrimental to clients in terms of delays and primacy of content availability .

However, French Financial Authority (AMF) recommended in 2011 ” that the proxy advisor submit its draft report to the relevant company for review”, that “the company shall be allowed at least 24 hours to submit any feedback or comments” and that “at the company’s request, the proxy advisor shall include the company’s comments on the voting  recommendations in the analysis report that it submits to the investors”. Proxinvest was from 1995 to 2013 one of the rare proxy firms to send draft of reports for discussions with the issuer and this issue was discussed between the proxy firms in 2013  during the sessions of their working group on best practice principles.  From 2014, after two years of feedback regarding the application of the AMF recommendations, Proxinvest decided to stop to submit its draft report to the issuer and, in accordance with the “comply or explain” approach provides explanations thereinafter :

  • The period of discussion between the issuer and the voting agency reduces the availability period of the proxy report for the ultimate client prior to its final voting decision and its capacity to enter into dialogue with the issuer. For many proxinvest clients, priority is to receive the proxy report as sooon as possible to get time to read it carefully, to develop its own thinking and enter into dialogue with the issuers. It must be kept in mind that investors face incredibly short voting deadlines to fill their votes on the electronic voting platforms made available for voting by their custodian (usually 2 weeks before the general meeting). As a result they have only few days to finalize their voting decisions.
  • While Proxinvest proxy report is one among several tools used by investors to build their own voting decisions, some issuers rather focused too much on Proxinvest proxy report which had emphasized some corporate governance concerns and forgot to ensure a correct dialoguey with their shareholders about how these issues may be solved.
  • Besides, it has appeared that the comments included within Proxinvest proxy report upon request of the issuer were seen as worthless by the clients with an extensive abuse of copy-paste of already publicly available documents. Sometimes these comments were too much controversial or flawed and added extra-works for Proxinvest analysts to set the record straight, delaying the report availability by clients.
  • Finally issuers failed to comply with the following AMF recommendation: “The AMF also advises issuers to keep the members of their Board or Directors or Supervisory Board informed of any discussions with proxy advisory firms and their recommendations”. Despite Proxinvest explicit requests, proxy reports and voting recommendations were usually kept by the management without the Board of Directors being informed.

Principle N° 9: In order to limit excessive pressure from the issuer on the analyst work, some barriers must be implement to protect the independence of the work.

The first barrier is that no staff member of no entity owned by Proxinvest is allowed to work for an issuer to provide consulting services.

With respect to voting recommendations, an issuer cannot be  objective, independent and free from any conflict of interest. As a result the second barrier is that issuers are not allowed to review the report or introduce comments before the proxy report be made available to clients.  Furthermore the submission of the proxy report unfortunately encouraged a handful of discourteous issuers to threaten Proxinvest with lawsuits aiming at influencing the content of the analysis.

Consequently drafts of proxy reports have not been submitted to issuers anymore. However the issuer is still informed when the report is available to clients and of the voting recommendations.

Any issuer which does not understand the rationale of a voting recommendation in view of Proxinvest voting guidelines may call the analyst to get explanation.

Principle N° 10: Board members are the direct representatives of the shareholders and are generally elected by them to monitor the company and to supervise the management. Therefore the Board of Directors must be organized to get access to Proxinvest voting guidelines, voting recommendations and any material supporting the changes for better corporate governance.  The Board of Directors must be active in the dialogue with the shareholders and the proxy firms and should not outsource completely dialogue on corporate governance issues to the management or to the corporate secretary.  Proxinvest is available for discussions with Board members.

Principle N° 11: Whenever a proxy fight occurs, Proxinvest does its best efforts to dialogue with both parties to understand their respective rationale.

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