PERPETUA INVESTMENT MANAGERS PROXY VOTING POLICY Shareholder voting increasingly contains material issues involving shareholder rights and corporate governance which deserve careful review and consideration. In voting proxies, Perpetua Investment Managers (Perpetua) will consider, on a case-by-case basis, those factors that may affect the value of investments made on our clients behalf. While this policy serves as a guideline, our duty as an investment manager requires that we examine each resolution offered and the context in which it applies. Stemming from this work there may be instances in which Perpetua will not vote in strict adherence to these guidelines. When voting the overriding consideration is to optimise long term total returns on a risk adjusted basis and thus in some cases the policy might not suit our view of the specific situation. As a general matter proxies will be voted FOR incumbent members of a board of directors and FOR routine management proposals, except as otherwise addressed below. Shareholder and routine management proposals addressed by these policies will be voted as provided below. However shareholder and infrequent management proposals not addressed by these policies will be evaluated by the members of Investment Research Group (usually the analyst covering the investee company) and our fundamental analysis will guide the voting decision. PERPETUA S SPECIFIC POLICIES ARE AS FOLLOWS: 1. Ordinary Business - Routine housekeeping resolutions e.g. adoption of financial statements, appointment of auditors. Unless there is something clearly untoward, we would typically vote in favour of these resolutions. If for example, a new auditor
was proposed that was not large or recognised enough for the relevant listed company, we might consider voting against this. Where the same auditor has remained for many years we would encourage rotation of audit partners, and consider our vote in this context. 2. Election of Directors Perpetua will generally vote FOR incumbent members of a board of directors except: a. Attendance. The incumbent board member failed to attend at least 70% of meetings in the previous year and does not provide a reasonable explanation. b. Independent Directors do not comprise a majority of the board or certain key committees (e.g., audit, compensation, and nominating). c. Board s size is excessive - In South Africa there have been examples of ineffective boards as a result of having too many (or too few) members. We consider the appropriateness of the board structure in line with the relative size of the company on a case-by-case basis. Excessively large boards should be discouraged. In such cases, Perpetua will apply its voting in favour of independent non-executive directors over executive directors and other non-executive directors. d. Overall demographic composition of the Board is skew particularly with respect to gender, age and empowerment criteria. Perpetua encourage disclosure to shareholders on these issues and initiatives to increase the diversity on boards. e. Number of other board positions held particularly with respect to independent and non-executive directors. King III states that executive directors should be encouraged to hold other non-executive directorships only to the extent that these do not interfere with their immediate
management responsibilities. Non-executive directors should carefully consider the number of appointments they take in that capacity so as to ensure that the companies on which they serve enjoy the full benefit of their expertise, experience and knowledge. Details of the candidate directors other fiduciary commitments such as other directorships should accompany the proposal for their re-election or election. f. In other circumstances where a member of the board has acted in a manner inconsistent with the interests of shareholders. 3. Separate CEO and Chair positions Perpetua will generally support that the board chairman should be separate from operational responsibilities, given the board s role in holding executive directors and management accountable. We support the election of an independent non-executive Chairman so that the Board can provide strategic oversight that incorporates the interests of shareholders and other stakeholders. Reasons for non-separation of these positions should be carefully examined and this decision should be justified each year in the annual report. Note that the JSE Listings Requirements state that the chief executive officer must not hold the position of chairperson (JSE Section 3.84). 4. Perpetua also supports the classification of a lead director who is independent in cases where the Chairman is not. The lead director should attend shareholders meetings and make themselves accessible to investors with respect to issues related to the governance of the company. 5. Perpetua will discourage the practice of Chief Executive Officers moving directly into the position of chairman following their retirement, and in general will not support such proposals.
6. Remuneration Issues & Say-on-Pay (non-binding, General Advisory Vote): Perpetua will generally vote FOR the company's prior year's compensation for its executive officers, unless it believes the company has engaged in poor compensation practice, or provided poor compensation disclosure (especially with respect to long term targets and alignment to shareholders). a. Frequency - Perpetua will generally vote FOR having an advisory vote on executive compensation every year. b. Non-executive directors: their remuneration needs to be in line with other similar sized companies and taking into account the complexity of the company and the industry in which it operates. Perpetua will NOT support the remuneration proposal if it is deemed to be excessive. c. Executive directors/management: the remuneration of executive management needs to be clear and appropriate in the following manner: i. The base packages must be reasonable given the size of the business and the complexity of the business (globally) and the industry within which it operates. ii. Bonuses and other discretionary forms of remuneration (share based allocation) should be clearly related to performance-based criteria and more importantly aspects about performance that are within the control of the management team. The ultimate measure of the effectiveness of a management team and its business decisions is reflected in the overall return to the owners of the business over the long-term and this aspect must be explicitly monitored. iii. Retention payments; restraint of trade payments etc..: these will be considered on a case-by-case basis and while stability in a good
management team is key we would be cautious about any form of payment which conveys excessive perception of reliance on any particular individual as this might also disincentivise adequate succession planning. 7. Vote AGAINST Anti-Takeover Proposals, including: a. Addition of Special Interest Directors to the board. b. Authorization of Share Issuance ( Blank Check authority ) - Perpetua will vote AGAINST proposals that do not require shareholder approval for the distribution of shares except for acquisitions and raising capital in the ordinary course of business (i.e. below SRP threshold). c. Golden Parachutes including (1) any accelerated options and/or employment contracts that Perpetua deems to be excessive in the event of termination, (2) compensation contracts for outside directors, and (3) other Parachutes that cover a group beyond officers and directors and permit employees to voluntarily terminate employment and receive payment. In addition, adoption of Parachutes will result in Perpetua voting AGAINST the election of incumbent members of the remuneration committee. d. Reduction or Limitation of Shareholder Rights (e.g., action by written consent, ability to call meetings, or remove directors). 8. Share Related resolutions: a. Vote FOR Stock Buyback Programs, provided that the repurchase price to be paid would not exceed market levels by a material amount. As unconstrained investment managers we would typically only invest in companies that we believe were attractively valued. We would therefore be generally supportive of those same companies investing in their own
attractively valued shares if it was the best use of the company s excess capital and would enhance the value per share. We would however consider negative free float impact should that be a possible factor. b. Placing unissued shares under control of directors or directors issuing shares for cash: we would generally vote against granting directors this broad power. Currently, directors have to apply to shareholders on an annual basis to renew their control over unissued shares in the company. Unlike issuing shares for cash the mandate requested by directors is unrestricted, and does not require a special resolution. The use of scrip for corporate action can and has resulted in substantial destruction of shareholder wealth in the past, hence our caution. We view it as preferable to have the opportunity to review the reasoning and strategy behind a material issue of shares and thus seek a special resolution be presented to shareholders with respect to material placement of unissued shares. Perpetua would usually vote in favour of proposals by the company to limit control over unissued shares to 5% of issued share capital. Permission to issues shares to option schemes and executive share schemes should be put forward in a separate resolution as required by the Companies Act (1973, chapter VIII, 221). We oppose resolutions where the directors may seek authorisation to issue shares in an effort to avoid a takeover (see Antitakeover above). The motivation for the company to issue shares will need to be carefully examined on a case-by-case basis. 9. Vote FOR management proposals to implement a Share Splits (or Reversals) when the impact is likely to be beneficial for liquidity of the share.
10. Vote FOR Employee Share Ownership Plans ("ESOPs") of non-leveraged ESOPs. Perpetua may also examine where the ESOP shares are purchased and the dilution effect of the purchase. Perpetua will vote AGAINST a leveraged ESOP if all outstanding loans are due immediately upon a change in control. We encourage companies to put their policy on remuneration to shareholders' vote and to make the criteria whereby these schemes are calibrated clear. The transparency should extend to highlighting benchmarks and long term goals and any other relevant conditions. 11. Vote AGAINST the election of incumbent members of the remuneration committee if, within the last year and without shareholder approval, the company's board of directors or compensation committee has re-priced outstanding options. 12. Vote AGAINST management or shareholder proposals on other Compensation Plans if such plans are Inconsistent with the interests of shareholders. In addition, Perpetua may vote AGAINST the election of incumbents in the concurrent or next following vote on the election of directors if Perpetua believes a board has approved executive compensation arrangements inconsistent with the interests of shareholders. 13. Perpetua will vote AGAINST the re-election of auditors if: a. The audit fees are not reasonable given the size and complexity of the audit. b. There are material misstatements in the Annual Reports or serious concerns regarding the auditor s procedures and methodologies. c. Issue over the past year highlight that the auditors may no longer be independent or objective.
d. The new auditor proposed is not large or recognised enough for the size and complexity of the relevant company.