1. Why Corporate Governance Matters
Mark Zinkula, CEO
Legal & General Investment Management

2. LGIM is a major index investor
Index investing does NOT mean being a passive shareholder
Index managers need to be active shareholders – selling a poorly performing company is not an option
Index managers are long-term investors with a vested interest in the success of the companies they invest in
Corporate Governance a major source of added value
Internal
£84.7bn
External
£591.5bn
Source: LGIM - data total assets as at 30 September 2014.
Notes:
Passive includes all Passive assets but excludes Passive LDI and Passive Multi Asset. Active includes all active assets but excludes Active LDI and Active Multi Asset. Solutions include LDI (Passive and Active), Multi Asset (Passive and Active) and Overlay assets. All Overlay assets are included in the Solutions category.
We have large index assets
But we actively manage them
The purpose is to add financial value for our clients’ assets

3. What is Corporate Governance? Protect your money
Engage and vote on poorly governed companies
Align your interests
Your companies; your shares
Keep management focused on the long term
Align incentives
Maximise your long-term returns
Appoint the best management teams
Extract best shareholder value
Promote industry best practice
This is everyone’s stewardship responsibility
We are meant to protect and voice opinions on behalf of our clients

4. Good governance enhances shareholder value
Index assets ideal for raising long- term performance across the market
Professor Kay: “Passive Managers should recognise a special responsibility to improve the performance of the index they track”
“...no doubt LGIM takes corporate engagement seriously”
Raising the overall index performance (beta)
Focusing on one company (alpha)
It’s not just about stock picking, when you own the whole market
It’s about raising the bar. For the benefit of everyone.

5. Expanding our influence
Environment
Governance
Social
Financial
Pushing Governance improvements outside of the UK
Meaningful dialogue with companies on anything that impacts long-term financial returns
We don’t just do ‘passive voting’ everywhere
We don’t only operate where we own 4% and have clout with companies
We push for market changes (stewardship/governance code In Japan)
Participate in collective voices – stock exchanges, listing authorities etc in Asia
Important as our clients assets diversify and increase exposure to EM etc..
ESG – importance of environmental and social impacts
How companies manage pollution/resources/human capital/corruption/supply chain are all financially material issues
Integrating also into the active fundamental analysis process
**********explanation/examples**********
Example of talking to Yahoo/Google/Apple on governance
Participate in consultations for the Hong Kong / Moscow Stock Exchange

6. LGIM: Three areas of distinction
Managing conflicts of interest
Joining forces through collaboration
Committed to communicate
Will focus on THREE differentiators
Legal & General Investment Management

7. Non-Executive Directors
1. Managing conflicts
“Conflict of interest is the cancer of corporate governance” Bob Monks
Conflicts with active fund managers
Conflicts with clients
Conflicts with parent company
LGIM
CEO
Fund
Management
Teams
Corporate
Governance
Team
Non-Executive Directors
Independent
views and actions
Managing conflicts is VITAL
There are many levels to consider
Director of Corporate Governance sits on the board.
**********explanation/examples**********
Bob Monks is a US activist investor who founded Institutional Shared Services…

8. 1. Managing conflicts M&A – looking after interests of both entities
AstraZeneca (UK) – bid by Pfizer
Failed to reach a common ground on valuation
AstraZeneca has set a future sales target to be achieved from its current pharmaceutical pipeline
We are actively pushing to link pay to the sales targets
Each fund manger has a view on this stock
But index manager means we own both ends of M&A
We do what’s best for clients who own both
Chinese wall / separate reporting line, ensures interests not eroded
*********explanation/examples**********
AstraZeneca (UK) – bid by Pfizer (US)
Failed to reach a common ground on valuation due to the risks and uncertainties of completing the deal
AstraZeneca has set a future sales target to be achieved from its current pharmaceutical pipeline and we will monitor their performance to achieve this goal
We are actively pushing the company to link pay to the sales targets that they set out in their defence document
Time Warner inc. (US) – bid by 21st Century Fox inc. (US)
Voting shares being exchanged for non-voting shares; poor governance structures and regulatory focus and challenges were the main concerns highlighted.
Plan to announce strategy for the business in the Autumn 2014

9. shared business interests
1. Managing conflicts
shared business interests
Barclays Bank
2011 results: “unacceptable” by CEO
We voted against
Remuneration Report (2012,2014)
Chairman of Remuneration Committee (2012)
Continued dialogue on a range of issues:
CEO, CFO and Chairman succession
LIBOR litigation
Helping to change their remuneration
The Salz Review – helping improve culture
We Don’t Abstain
Many business interests can compromise judgement in AMs
Strong internal governance key to uphold stance
Voting against is actually rare in the market
We DID and continue dialogue with company

10. Practising what we preach
1. Managing conflicts
Practising what we preach
Governance structure 
Executive pay 
Tax disclosure 
Global Compact 
Living wage employer 
ESG in L&G Pension Scheme 
Focus on diversity 
L&G
LGIM I
Corporate
Governance
We look hard at what we do internally
Provides us with credibility in engagement
Makes L&G a better company in the process
*********explanation/examples**********
Global compact
- United Nations defined basic environmental and social standards (10 principles) for companies to comply with . We signed up in 2013, before we start to engage with investee companies.
(can add others)

11. Leading and joining forces
2. Collaboration
Investor Forum
Global investor network
Board diversity
Executive pay
Improving IPO process
Japan – independent directors
Climate Change policies
Auditor independence
Engagement effective through formal and informal channels
We are open to collaborate and make change (we cant do it alone)
*********explanation/examples**********
UN-sponsored PRI (Principles for Responsible Investment)
The 30% Club, which is lobbying for FTSE 100 companies to have 25% women on the board by the end of 2015
Will add ACGA / IIGCC an
CG33/QV18143
CORPGOV_2013_03

12. 2. Collaboration Audit
Growing coalition of long-term investors working together for a more independent audit process
Held a meeting with EU Commissioner Barnier on ways to improve the audit market
EU law, Reform of the EU statutory Audit market, April, 2014
 10 year mandatory rotation with option to extend by 10 more years
Making meaningful impacts:
BG Group, Aviva, Land Securities and Hargreaves Lansdown changing their auditors
HSBC, Henderson Group and Unilever set to change in 2014
“Any reputable company should review their audit arrangements regularly. The contribution and objectivity of an external auditor must surely reduce with time and familiarity, however good they are. That is just common sense”
Ian Gorham, CEO, Hargreaves Lansdown
Average auditor tenure for FTSE100 companies had been 48 years
Question of ‘independence’

13. Diversity leads to better performance
2. Collaboration
Diversity leads to better performance
Experience
Age
Skills
Nationality/culture
Gender
“The key to business success is innovation and the key to innovation is diversity of thinking. (Boardroom) diversity alone does not guarantee innovation, but it increases the possibility” Arnold Donald, CEO, Carnival, September 2013
Diversity is key to healthy debate – to build a strong strategy
Status quo needs to be challenged to survive in the future
*********explanation/examples**********
Quote comes from Arnold Donald, CEO of Carnival Group
Key topic of engagement during company meetings
Headhunters - engage with them to widen the talent pool
Regulators - EU consultation; EU quota; narrative reporting
Industry level - talking to proxy advisors (ISS, ABI)
Collaboration with other investors - FTSE 250 companies
Consulting with Lord Davies and Vince Cable on policies to promote diversity
Speak publicly in UK and US on what LGIM is doing
We sit on the L&G Plc Equality, Diversity and Inclusion Committee and the L&G Plc Female Talent Forum

14. 3. Communication Keeping clients informed
Quarterly reports
Annual report
Thought pieces
Trustee meetings
Trustee education
Seminar on
active ownership
All this doesn’t matter if our clients are not informed
Many opportunities to find out about CG or what LGIM does
*********explanation/examples**********
Neutral CG education
Trustee education
Seminar about active ownership with clients
Speaking events etc
LGIM reporting
- large numbers of clients are now asking about our activities

15. The Stewardship Disclosure Framework – how did LGIM do?
3. Communication
The Stewardship Disclosure Framework – how did LGIM do?
Public transparency
Stewardship policy disclosure A
Voting disclosure B
Voting disclosure timing
Engagement reporting
Independent assurance
Managing conflicts
Policy
Disclosure
Monitoring engagement and escalation
Engagement approach
We vote on over 95% of shares (by market cap)
Haven't abstained for 3 years
Significant resources (8 people) allocated to stewardship
Full commitment to transparency
Our stewardship is externally audited
Signed up to this Disclsoure Framework on Day 1
Our annual report was positively received, but we continuously look for feedback and look to improve
But we are always looking for feedback from clients and looking to improve

16. Summary Good governance enhances shareholder value
Every member has a voice
LGIM
Using size to maximise clients’ rights
Bring change through collaboration
Committed to transparency
We do this because it makes financial sense for our clients’ assets
Index doesn’t mean passive
We use size and access to voice everyone’s rights

17. Legal & General Investment Management does not provide advice on the suitability of its products or services
This document is intended for educational purposes and should not be relied on for any other reason
Legal & General Investment Management
Authorised and regulated by the Financial Conduct Authority
One Coleman Street
London
EC2R 5AA
LEGAL & GENERAL INVESTMENT MANAGEMENT