Stewardship – taking action Janet Williamson TUC Senior Policy Officer and Trustee of the TUC Pension Fund

Context – emphasis on ‘Stewardship’ in public debate and policy Financial crisis - highlighted importance of shareholders’ engagement role and risks if not carried out properly Public policy developments: Stewardship Code – published July 2010, revised September 2012 Kay review of equity markets – July 2012

Stewardship Code principles 1. Public disclosure of stewardship policies 2. Policy on managing conflicts of interest in relation to stewardship 3. Monitor their investee companies 4. Establish clear guidelines on when and how they will escalate their stewardship activities 5. Be willing to act collectively with other investors 6. Policy on voting and disclosure of voting activity 7. Report periodically on their stewardship and voting activities

Increased union interest in shareholder activity UNISON capital stewardship programme since 2007 Union campaigns on private equity Union shareholder resolutions: – Unite shareholder resolution at Tesco AGM in 2009 – UNISON and PCS support for Tar Sands resolution at BP and Shell AGMs

Gap between union values and fund manager voting records Union funds keen to put their own house in order TUC Fund Manager Voting Survey started in 2003 – latest Survey released yesterday Gap between union values and fund manager voting – record on ESG resolutions Highlighted need for union perspective on voting and engagement

Collaboration on voting and engagement Unions’ own funds should come together to: Vote in line with trade union values at AGMs Engage with companies in line with union values Benefits - speak with one voice in capital markets More effective and cost-efficient than unions acting individually TUC keen to lead in this direction – natural coordination role for TUC

Trade Union Share Owners Launched end of March 2013 Initial participation of staff pension funds of TUC, Unite and UNISON Over £1 billion assets All union funds welcome to join at any time – pension funds and general funds Other funds also welcome if happy to follow our voting guidelines

Voting recommendations and implementation Trade Union Voting and Engagement Guidelines – available on the TUC website Based on TUC and trade union policies Appointed PIRC – worked with us to create voting template from our guidelines Generate voting recommendations for FTSE 350 PIRC can executive the votes Or can mandate fund manager to follow voting recommendations

Voting policy - examples Ratio between top and average company pay is over 20:1 – vote against remuneration reports Pay increases for executives do not reflect pay increases for other staff – vote against remuneration report Vote against long-term incentive schemes that do not include all staff on the same terms Equal opportunities in terms of board recruitment – vote against Chair of nomination Committee

Engagement National Express – anti-union activity in US subsidiary Durham School Services TUSO signed investor letter Attended AGM on behalf of TUSO Develop further engagement activities after voting bedded in

Governance principles Each participating fund gets an equal voice and vote So far, all decisions made by consensus Individual funds can opt out of any voting recommendation they want – retain final say on how their fund votes TUSO does not take positions on stock selection or divestment issues

Next steps Reach out to more union funds – need to reach pension fund trustees Charges – maximum £6,000 and sliding scale for smaller funds Develop engagement strategy – possible focus on advertising all directors’ positions publicly

Implications for other funds Key decision - delegating stewardship and voting policy to fund managers OR developing fund’s own voting policy If delegating to fund managers, need to develop system for monitoring their actions Trade Union Voting and Engagement Guidelines – freely available for use by other funds Other funds welcome to join TUSO Voting in pooled funds