Meeting documents

Pension Fund Committee
Friday, 26 November 2004

PF261104-16

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ITEM PF16

PENSION FUND COMMITTEE – 26 NOVEMBER 2004

CORPORATE GOVERNANCE – VOTING AUDIT REPORT

Report by the Head of Finance & Procurement

Background

  1. The Oxfordshire Pension Fund fully exercises its voting rights in respect of all its share holdings. With regard to the Fund’s UK holdings managers have been instructed to vote in accordance with RREV (Research Recommendations and Electronic Voting), which is a joint venture between the NAPF (National Association of Pension Funds) and ISS (Institutional Shareholder Services). However, in exceptional circumstances managers may vote differently to RREV, if in their judgement this would be in the best interests of the fund. Where managers take a contrary view to the RREV they must obtain permission from the officers to vote differently. With regard to the overseas equity holdings, managers vote in accordance with their in house policies of best practice.

  2. RREV’s research and voting recommendations cover all companies in the FTSE All-Share index and selected UK companies that fall outside. They provide a best practices view on a company’s:

    • Governance and financial performance

    • Board structure

    • Remuneration

    • Auditing and accounting disclosure

    • Shareholder Relations

Role of Independent Custodian with regard to Proxy Voting

  1. Prior to the appointment of the independent global custodian, ABN Amro Mellon on 1 April 2003, and the appointment of the four new fund managers in July 2003, the proxy voting of shares was carried out by the custody arms of Schroders and Deutsche Asset Management. Under this arrangement it was difficult to verify independently whether Oxfordshire’s voting instructions had been correctly carried out.

  2. Under the new custody arrangements ABN Amro Mellon is responsible for physically exercising the voting rights. ABN Amro employ a specialist voting agency, ADP (Automatic Data Processing) to undertake this task and they act on the voting instructions received from Oxfordshire’s managers.

    3. Voting Audit

  3. For the quarter ended 30 June 2004 the Oxfordshire Pension Fund carried out an independent audit on the proxy voting of all its UK company holdings. ABN Amro produced a report on how Oxfordshire’s managers had voted and this was compared to the individual voting reports supplied by the managers. There were a number of discrepancies discovered and these were taken up individually with the managers.

  4. There was only one discrepancy on Baillie Gifford’s voting. The details of the resolution in question are summarised in Annex 1 (tables - download as .xls file). The discrepancy arose because Baillie Gifford purchased the shares in question after the voting cut off date and, therefore, did not vote. However, unknowingly to Baillie Gifford the previous owners of the shares had voted earlier and differently to the RREV recommendation.

  5. There were three discrepancies on Alliance Bernstein’s voting and the details are summarised in annex 1. The first discrepancy was due to a very tight voting deadline and it was difficult to pin point which party was at fault, the second was due to Alliance Bernstein missing the cut off date and the third was where Alliance Bernstein’s voting service provider, Institutional Shareholder Services (ISS), erroneously abstained on a resolution instead of voting for.

  6. There were a large number of discrepancies with UBS’s voting. In thirteen instances they did not vote at all when they should have done. In another eight instances the shares were voted incorrectly. Further details of these errors are set out in Annex 1 (tables - download as .xls file.

  7. Due to the high number of errors a written explanation was requested from the Corporate Governance Director of UBS. The errors were due to UBS’s voting service provider, Institutional Shareholder Services (ISS), not carrying out the correct voting instructions. The UBS letter is shown as Annex 2 (download as .doc file), and promises their own review of future voting arrangements.

  8. The voting audit took up a fair amount of officer time and it is not an exercise that we would recommend carrying out on a quarterly basis.

    9. RECOMMENDATION

  9. The Committee is RECOMMENDED to note this report and to instruct the officers to carry out a similar exercise over the next twelve months.


SUE SCANE
Head of Finance & Procurement.

Background papers: ABN Amro Mellon proxy voting report. Fund Managers voting reports.

Contact officer: Tony Wheeler, Pension Fund Investments Manager Tel: (01865) 815287

November 2004

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