1. Corporate Governance and Proxy Voting: Presentation to Suffolk CC Pension Fund Presentation by Alan MacDougall, Managing Director and Janice Hayward, Client Services Director 29 th July 2008 Regulated by the FSA

2. PIRC’s Three ‘R’s for Governance: Rights: We wish to protect and extend shareholders rights;  Risk: We believe that business is about managing risks and that governance risks need to be minimised in listed companies; and  Returns: We want to see businesses make effective choices that maximise wealth creation for all affected by a company’s operations.

3. PIRC’s Primary Governance Goals: PIRC seeks to encourage boards to:- Focus on strategic issues & the quality of the business rather than simply short term numbers; Develop a culture of transparency & accountability; Adopt clear values & standards in business dealing throughout the organisation Develop appropriate checks and balances to deal with conflicts of interests; Maintain effective internal controls and risk management systems; Create fair remuneration structures that reward the achievement of business objectives at all levels; and Recognise and responsibly manage impacts on all stakeholders.

4. PIRC Research Process – company monitoring Share Ownership: PIRC owns one share in all companies in the FTSE All Share index; Companies Receive Guidelines: PIRC seeks to promote dialogue and engagement with the companies we report on by circulating the PIRC Shareholder voting Guidelines to all listed companies; Company Consultation: Giving companies the opportunity to comment on our analyses both prior to publication and after publication (to clients) of our research reports and in regular meetings throughout the year; Company Meetings: PIRC research staff meet and discuss governance issues with many companies in the course of preparing reports on AGMs and EGMs.

5. Proxy Voting – due diligence PIRC Shareholder Voting Guidelines: the annual Guidelines are designed to augment and explain the analysis undertaken as part of our corporate governance service; Best Practice +: As far as possible we have set out in the guidelines where our view of best practice goes beyond existing legal or regulatory requirements Across the board approach: In setting out general principles, we seek to ensure consistency and fairness in determining voting advice, but also … Flexibility: Guidelines cannot be issued for all eventualities and PIRC exercises judgement when talking to each company according to the nature and materiality of the issue; Transparent Policy Audit Trail: PIRC has a Policy Forum comprising of Executive Directors, Managers, Executives and Senior Researchers.

6. Why is Proxy Voting important? Active Ownership: A range of organisations, from Deutsche Bank to Watson Wyatt, say investors have a financial self-interest in being active owners; The Myners Review (and LGPS Regs) make the same point, and a duty on pension funds to be shareowner active; Compliance monitoring is not enough: ESG must add value through risk analysis, and engagement should be seen as defending and enhancing value, and as a tool for reducing investment risk; Northern Rock: shows the damage that can be done – its shares lost almost 95% of their value in less than a year; PIRC’s analysis of voting at Northern Rock’s 2007 AGM suggests that only PIRC and CIS used voting rights to address governance concerns.

7. The Proxy Season 2008: UK issues Marks & Spencer: Increased risk at the head of the company; clear breach of the Combined Code of CG; concentration of power; succession planning; Retention Bonuses: these practices caused big spikes on oppose votes at BP, Shell and Glaxo. Shell very nearly lost the remuneration report vote; UK Banks and Rewards for Failure: shareholders could be forgiven for thinking that they are being asked to provide extra incentives to bank directors to put right their past mistakes: RBS, Barclays, Bradford and Bingley, HSBC and HBOS; … and not just the banks: Yell – cut dividend by 30% but overall incentive based remuneration increased; Land Securities - The fact that Executive Directors received combined awards with an aggregate value of over four times base salaries bears out this concern. Furthermore, bonuses increased by 38% over last year while the Company recorded a loss of £888 million contrasted to profits of £1,979 million last year.

8. The Proxy Season 2008: Global issues ExxonMobil (USA): demands for separation of Chairman and CEO plus various environmental resolutions achieved 38.5% shareholder support; Aflac (USA): the first say on pay vote in the US market proposed by the company; UBS (Switzerland): ECGS partner Ethos proposed shareholder resolution to require a special audit “Sonderprufung” following massive sub prime losses. Achieved unprecedented support of 46% particularly in light of restrictive Swiss voting practices.

9. The Proxy Season 2008: Global issues Electric Power Development Co (Japan): A US investment fund sought to force EPD to increase returns to shareholders but lost the vote. Distributions to shareholders via dividend or repurchase are notoriously poor by comparison with UK standards but look set to remain this way unless companies voluntarily increase pay outs. PIRC Japanese policy reflects concern over distribution policy on resolutions to approve the appropriation of profits at Japanese companies.   Television Broadcasts (HK): The 100 year old Chair married to the 75 yr old CEO is insulated from election in the articles. The practice of insulating directors is something the UK has managed to stamp out, and was something PIRC campaigned on for a number of years.

10. Market Trends – 2007/08 New Players: The increasing activism of hedge funds/private equity: future of the listed equity market under pressure; Greater dialogue: between traditional investors and companies, partly as a result of the Remuneration Regulations; Auditors under the spotlight: on role of audit committees and Smith compliance; FRC review of Smith Guidance; Audit firm risk addressed; Governance & Core Business Issues: The sub- prime crisis/credit market crisis has led to renewed focus on corporate business models (cf Northern Rock);

11. (2) Market Trends – 2007/08 (2) Applying Standards Consistently: Increasing occurrence of ‘corporate dualism’ - UK companies’ operations abroad coming under scrutiny (First Group, Tesco, G4S); Sustainability: Increasing adoption of sustainability rhetoric & policies by companies and investors: UN Principles of Responsible Investment; Growing integration of E and S into ‘G’: development of PIRC’s ‘GovernancePlus Ratings’ service, based on risk model, reflected in our 2008 Shareholder Voting Guidelines.

12. PIRC Services for Suffolk CC: PIRC goes global: From January this year PIRC has extended its research coverage to each publicly listed equity market on a client portfolio basis. We provide an individual company report on each equity holding you have in any market, focusing on AGM and EGM meetings, which informs how your fund can vote its shareholding; Proxy Voting Execution Service: This provides a voting service which executes all votes attached to the equity shares held in your fund’s various segregated portfolios, and uses the electronic voting platform used by your custodian to implement voting. Customised Voting Recommendations: Suffolk’s own proxy voting guidelines are used by PIRC and our service is delivered via a client-specific website and includes a Quarterly Voting Report for the fund.

13. Governance Plus Ratings Why engage: increasingly investors are recognising risk management as a key to portfolio performance. The question is, how to identify significant governance and CSR risks?; Disclosure: Business review reporting provides new insight into company performance and risk management, particularly on ESG management. The rhetoric of ‘Our people are our greatest asset’, ‘managing for sustainability’ and ‘long term shareholder value’ are now subject to greater scrutiny; Risk Management: GovPlus Ratings identifies core corporate risks associated with managing ESG. It provides a rating to evaluate company ESG risk management and creates an objective basis for shareholder engagement. Engagement on high risk stocks in a client’s actual UK equity portfolio provides the basis for reducing and mitigating risk and thus adding long term value.