Warwickshire CC Pension Fund Annual Meeting November 2013

Wawickshire CC’s Stewardship Warwickshre CC is an “active owner” of equities –Oversight through voting shares Better-run companies manage their risks better Better-run companies are attractive employers Better-run companies attract capital Better-run companies are more sustainable or “durable” WCC is a Stewardship Code SignatoryStewardship Code Signatory –Public demonstration of active ownership –Good fund governance builds trust amongst savers (think of your 16 yr old apprentices!) –Savers may not understand all about “investment” but they want to know what is being done with “their” money.

Why Stewardship Matters Active Monitoring by LGPS –The “Observer Effect” –The observer becomes part of the system being observed –The governance of Stewardship ensures better Stewardship Regulation by itself cannot create the right culture UK is a blend of regulation and best practice principles –Comply/Explain nudges the culture –Comply/Explain encourages stakeholder involvement –Comply/Explain keeps the debate moving

The issues that have been voted

How engaged is the fund?

Top 350 Average Support

UK Top 350 Events => 20% Dissent

Typical Pay Concerns Excessive levels of annual bonus and/or total incentive pay; Concerns regarding provisions in directors’ service contracts and potential rewards for failure; Company did not provide any evidence of clawback measures in respect of the short-term or long-term incentives; Incentive pay was pensionable and/or the pension contributions for the executive directors during the year was considered excessive; Inadequate disclosures on performance conditions; and No consideration of sustainability factors when setting performance targets.

Typical Board Governance Concerns Nominee independence and Board Committee composition; Nominees with significant numbers of other directorships; Board and Committee attendance; Excessive tenure; and Overall Board independence.

Regulatory Updates The Kay Review –Reasons for short-termism and how best to address –Review of Fiduciary Duty by Law CommissionLaw Commission –Connecting shareholders to promote co-ordination Davies Report –Board diversity –Aspiration of 30% of boards to be female30% of boards –Some improvements in NEDs but not EDs –Long-term pipeline problems –Germany = the quota route

Regulatory Updates Competition Commission & Audit Market –High quality audit is shareholders first line defence –Market is highly concentrated –Companies not actively tendering (in some cases since Victorian times!) Narrative Reporting – “The Strategic Report” –More transparent and (hopefully) joined up accountability –Strategy & Risk Management, Gender Diversity –C02, human rights, social & community issues (although charitable donations no longer need to be disclosed)

Regulatory Developments Directors Remuneration Report Regulations Options for voting on Pay: –Forward looking policy vote (Binding) –LTIP vote (Binding) –Director-specific votes e.g. Chair of RemCom (Binding) –Implementation Report (Non-Binding) Directors now personally liable if payments are made that were not sanctioned by shareholders Directors must engage where significant dissent

Even More Regulatory Developments! Best Practice Principles for Governance Research Providers Threat of regulation by securities markets regulators Allegations by the companies of a variety of issues ESMA found no market failure ESMA recommended improved transparency Principles codify Manifest’s current standard procedures which are ISO9001 standard and externally audited –Conflicts: Manifest does not serve the corporate markets –Accurate, Objective Research: Manifest does not share research prior to client publication and is committed to highest standards of accuracy and relevance in analysis