Quarterly Report 31 DECEMBER Europe, the Middle East and Africa

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1 Quarterly Report 31 DECEMBER 2014 Europe, the Middle East and Africa

2 Table of Contents Market Development and Trends Active Ownership and Responsible Investment Engagement with Issuers and Statistics Voting Highlights and Statistics QUARTERLY REPORT 31 DECEMBER 2014

3 Market Development and Trends Discussions between EU Member States, its institutions, and other stakeholders continue to evolve on the European Commission s (EC) proposed revisions to the Shareholder Rights Directive (SRD). Despite the earlier aspiration of the Italians, who hold the current Presidency of the Council of the European Union, to conclude these discussions by the end of the year, it now appears likely that negotiations will still continue into the next Presidency, which will be held by Latvia. The key hurdle is the proposal for increased shareholder oversight on related-party transactions, as Member States have different practices to address control and protection in these situations. The inclusion of other stakeholders, beyond issuers, their shareholders and the intermediaries in the investment chain, has also been tabled. We continue to monitor discussions as they progress among the Member States and the EU institutions. The Organisation of Economic Co-operation and Development has launched an invitation for public comments on its revised Principles of Corporate Governance. These Principles were last updated in 2004 and have come to serve as best practice guidance for markets in establishing their corporate governance frameworks. The key elements of the revised Principles cover: Ensuring the basis for an effective corporate governance framework; Rights and treatment of shareholders; Institutional investors, stock markets and other intermediaries; The role of stakeholders; Disclosure and transparency; and Responsibilities of the board Notably, we have observed significant overlap between the proposed revisions to the Principles and the proposed revisions to the EU SRD as previously discussed. This is not unexpected as the changes seek to incorporate and promote developments within global corporate governance practices over recent years, and to address challenges and deficiencies identified. BlackRock will be submitting a response. 3

4 Market Development and Trends United Kingdom As discussed in previous commentaries, 2014 was the first year in which UK issuers were required to put their forward-looking executive remuneration policies to a binding shareholder vote. This entailed significant engagement with shareholders to explain the appropriateness of the board s proposed remuneration package for the company and its stated strategy. We have since then witnessed a worrying trend whereby a not insignificant number of issuers, despite just having had their remuneration policies approved by shareholders at their 2014 AGMs, have begun to consult shareholders yet again for proposed changes to their remuneration policies for the coming year. BlackRock s view is that the remuneration policy, as approved by shareholders, should remain not only relevant but the most appropriate structure for issuers as they continue to execute the stated strategy for which these policies were originally proposed as the best possible structure. Italy Over the summer months, the Italian Parliament introduced legislation, known as the Development Decree, which introduces three major changes to Italian Company Law. One change is of particular concern as it introduces the possibility of multiple voting rights per share, which goes against the principle of the equitable treatment of shareholders, or one share one vote. As a result of this Decree, issuers have the option of amending their bylaws to provide double voting rights for shareholders who have held their shares for a continuous two years or more. Shareholders will need to have requested the registration of their shares in a special share register in order to qualify. BlackRock does not support the adoption of multiple voting rights. Our main areas of concern from a governance and policy point of view is as follows: The use of multiple voting rights runs contrary to what the EU institutions are trying to achieve with the proposals for a revised SRD, which is the strengthening of EU economies through improving their investment appeal. Crucial to this is the increased engagement between issuers and their investors. An important tool in promoting long term shareholder engagement is the improvement of the cross-border execution of voting rights, as this completes the circle of shareholder engagement. 4

5 Market Development and Trends We see very real unintended consequences as a result of this legislation, which could ultimately have a negative impact on the Italian economy. Disenfranchisement of minority shareholders, who are typically pan- European but cross-border investors, who will see a disproportionality between the economic capital they provided and their voting rights; Issuers no longer engaging with minority shareholders whose voting power has been diluted, i.e., an alienation of minority shareholders from governance dialogue with issuers; and The augmentation of the weight of activist shareholders. France The Florange Act We are noting some potentially concerning trends across European markets where countries are introducing (see Italy above) or re-enforcing the existing rules (France) on multiple voting rights. Earlier in 2014, under the Florange Act (Loi Florange) adopted in France, registered shareholders for two years or more will automatically receive double voting rights. The act/rule is automatically applied to all French issuers above a certain size. The main concern in relation to the rule is that it is moving away from the widely accepted one-share, one-vote principle. Prior to this act, French companies were allowed to grant double-voting rights to registered shareholders after a minimum of two years only if they had a bylaw provision specifically allowing for it. The new law works in the way that companies whose bylaws already include double voting rights before the introduction of the Florange law are exempt from this law. Companies whose bylaws are silent on voting rights, are required to amend their bylaws to preclude the automatic granting of double voting rights. The bylaws amendment requires shareholder approval of two-thirds of voting rights to be enacted is the last full year when French listed companies can amend their bylaws to keep the one-share, one-vote principle, before the automatic introduction of doublevoting rights. The two-year holding period resulting in the automatic granting of double-voting rights started in April This means that French companies that are looking to prevent automatic granting of double-voting rights have to submit an amendment to their bylaws by April 2016 in order to give shareholders the option to opt out of double-voting rights. 5

6 Market Development and Trends Switzerland Swiss Corporation Law Reform On November 28th, 2014, the Swiss Federal Council presented a preliminary draft for a reform of the stock corporation law. The reform intends to modernize the corporation law and to incorporate the 2013 Ordinance Against Excessive Remuneration at Listed Companies (the Minder Ordinance ) in the Code of obligations. The draft aims at fostering shareholder participation by different mechanisms: companies could modify their bylaws to allow the distribution of a dividend 20% higher to shareholders who exercise their voting rights companies would have to accept shareholder registration through an intermediary and the registration could be done electronically companies could hold cyber-general meetings public companies are to set up an online platform for discussions before any shareholders meeting Regarding directors and executives compensation, the draft is clarifying certain elements that had not been defined in the Minder Ordinance: prospective say on pay votes on variable compensation are illegal sign-on bonuses are only permissible if they are to compensate clearly demonstrated financial disadvantages incurred in connection with the change of employment non-competition agreements must be concluded at arm s length, they must be commercially justified and not exceed a duration of 12 months the compensation report must disclose the compensations, of each member of the board and of the executive committee Among the other proposals, the draft introduces a target gender quota of 30% for the board of directors and the executive committee of publicly listed companies based on a comply or explain approach with a five-year deadline. Shareholder rights are being facilitated by decreasing shareholding thresholds required to use them. Derivative lawsuits could be litigated at the expense of the company. There is also the introduction of a capital band, allowing the board to increase or decrease the share capital within an upper and lower limit during a period of five years. Finally, the draft proposes that major companies engaged in the natural resources sector disclose annually all payments made to public authorities. The Federal Council opened a consultation on the draft which will end on March 15th,

7 Active Ownership and Responsible Investment Speaking Engagements Below is a complete list of speaking events from the quarter, and subject matter covered which include: BDO London BlackRock presented at a roundtable debate on investor engagement, hosted by BDO. The participants were Chairmen and other non-executive directors from smaller and AIM-listed issuers in the technology, media and telecommunications industry. The session focused on the frequency, quality and success of engagement between issuers in this sector and their investors. BlackRock described its philosophy and approach to engagement with issuers on corporate governance, focusing on the importance of discussions on strategy, board composition, succession planning and talent development, and overall transparency and disclosure. Investor Relations training workshop hosted by The London Stock Exchange - London This workshop was for junior Investor Relations officers from both privately-held and publicly-listed issuers. BlackRock presented an investor s view on the importance of the Investor Relations function in furthering good corporate governance practices, primarily as a conduit for information flow between the issuer and its investors, including fostering transparency, engaging in regular dialogue with investors and encouraging and promoting a clear message from the top for the integration of good corporate governance practices into strategy. Investor Relations training workshop hosted by The London Stock Exchange - London This workshop was a master class for more senior Investor Relations officers. The majority of attendees were from UK-listed issuers with a wide array of market capitalization. BlackRock participated in a panel discussion on the relevance of corporate governance and responsible investment considerations in investor and issuer engagement, the expectations of investors in regards to the understanding of boards and management on these issues and the way in which the Investor Relations function can contribute to a more effective and meaningful dialogue between issuers and their investors. 7

8 Active Ownership and Responsible Investment Speaking Engagements - continued The 15th European Conference on Corporate Governance entitled "Corporate Governance, Value Creation and Growth Milan BlackRock presented on the panel that was exploring the ways and tools that can be used to build relationships between companies and investors. We explained our philosophy around engagement that is based on constructive dialogue and building trust. We also explained how we reach voting decisions where we use different sources of information to arrive at our view on the voting items. Finally we elaborated on our approach to vote against only in circumstance where engagement had not worked. Hawkamah 8th Corporate Governance Conference: ACCOUNTABILITY & LONG-TERM SUSTAINABILITY Dubai, United Arab Emirates BlackRock participated in a panel discussion on the premise that "Boards are about creating value for shareholders. What are the investor expectations from companies and their boards? What is the role of corporate governance in enhancing investor confidence?" A range of views were expressed but the panel agreed that theses investors have growing expectations of company boards and that expectations will continue to grow. We debated the key tasks of the board and the individual board members. To coincide with the event, BlackRock published an article entitled "Evolving role of the company director" in the Hawkamah Journal on Corporate Governance. AFEP Paris A briefing organized by AFEP for a group of large French corporates provided BlackRock an opportunity to communicate and elaborate on our voting policies for France in preparation for the 2015 voting season. We also communicated our views on the recently adopted Florange Law (please see the section on market developments for more information) and BlackRock's clear preference for one share - one vote. French Corporate Governance Forum Paris BlackRock participated on a panel which debated engagements between companies and investors in a French context and how the nature and frequency of engagements have changed as investors expectations have grown in relation to direct conversations with board members. The panel also discussed the pros and cons of the Florange law and dual voting rights vs. one-share one-vote both from an issuer and investor perspective. 8

9 Engagement with Issuers 1 and Statistics EMEA The United Engagement Kingdom Statistics Engagement Statistics 2 Level of Engagement 3 ³ Topics Discussed Number of engagements Basic Moderate Extensive Environmental Social Governance XX 15 XX 11 X 4 X 0 X 1 X 1 XX 15 The following examples from the past quarter demonstrate the wide range of issues our engagements cover and highlight our efforts to protect the value of client s assets invested in these and similarly situated issuers. These examples reflect engagements that merited particular focus on ESG considerations. The companies mentioned are for illustrative purposes only and not as a recommendation of any particular securities. 1 This quarter, we conducted a follow-up engagement on board composition and refreshment with a financial services company. At the time of the annual general shareholder meeting (AGM), we identified upcoming board changes and our objective was to understand how the future composition of the board would retain an appropriate balance of skills and experience to provide the necessary strategic oversight. We met with the Chairman of the board as well as the new Senior Independent Director (SID) to discuss the evolution of the board in this context. Incidentally, the position of SID was one of the board roles that we wanted to monitor at the time of the AGM as the director holding the role was stepping down and a successor had not yet been announced. The incoming SID is a nonexecutive director who has been on the board for some years and whom we and our fund managers believe will be well suited for the role. We also discussed the Chairman s board roles at other listed entities and the prioritization of demands for time. We are comfortable that the board is taking an appropriately long-term view of its composition in relation to the company s strategy over time, and managing its succession planning in a well thought out manner. 1 The companies discussed are for illustrative purposes only and not as a recommendation of any particular securities. 2 The United Kingdom Engagement Statistics Report is a reflection of 4th Quarter Basic engagement is generally a single conversation on a routine matter; Moderate engagement is technically more complex and generally involves more than one meeting; Extensive engagement is technically complex, high profile and involves numerous meetings over a longer time frame. 9

10 Engagement with Issuers and Statistics 2 3 We engaged a number of times this quarter with a major oil and gas company. In collaboration with our fund managers, we met with the Chairman to discuss strategy, succession planning and board composition. We spent considerable time examining the long-term risks and opportunities for the company in relation to the falling oil price as well as non-financial factors such as sanctions and geo-political considerations. We gained a better understanding of the cost/benefit analysis conducted by the board and management on projects individually as well as in the context of the entire portfolio. Separately, we also met with senior management to discuss the environmental impact of the company s operations, and its strategy to manage them. We focused our discussion on water management. We discussed their collaborative efforts with governments, non-governmental organizations and other external stakeholders. The company highlighted the importance of being prepared, for example by identifying areas or regions which, although not currently water scarce, could realistically become water scarce in the future due to climate change, water supply and other factors. We also discussed different initiatives and programmes in which the company is involved to advance technological development in this area. Overall, we found these engagements to be informative and are comfortable that the company is managing its risks and opportunities in this area. A large retail company sought feedback from us on proposed changes to its remuneration policy. The changes were considered necessary in light of the appointment of a new CEO and to reflect the volatile nature of the industry. The main goal behind the changes was to bring stability to the executive team and to retain them for at least the next five years. The company proposed a slight decrease in base salaries and in the maximum cash and shares award percentage. In turn it wants to implement a shorter one-year performance targets in order to motivate management with targets which are predictable and achievable in the fastpaced retail industry. The components of the remuneration package would be a base salary, an annual cash bonus and an annual deferred share award vesting in years three, four and five. We were generally supportive of the new policy as the company was trying to simplify the policy and align it with its industry characteristics. We pointed that the one year performance targets have to be linked to the achievement of longer time strategy. The company responded very positively to our suggestions. The company s remuneration committee will discuss them and take actions as appropriate. 10

11 Engagement with Issuers and Statistics 4 5 We engaged with the UK retailer to discuss our concerns in relation to their financial reporting and profit misstatements that had a substantial impact on the company's share price and reputation. We met with the company's senior independent director to get a better understanding about (i) the reasons for the misstatement, (ii) the oversight of accounting and reporting process provided by the audit committee, and (iii) the oversight of the audit process and the relationship with the external auditors. We raised questions about the corporate culture with the aim of getting a better understanding of the way that potential problems could/can be reported (whistleblowing policies and practice). We were looking to get an indication of an alternative plan for the key board members in case the investigation confirmed wrongdoings. With a number of senior executives leaving the company as a result of findings, and with the Chairman resigning his position, we expressed our view that the board needs to consider the balance of skills of its members, particularly the lack of retail experience that some feel might have contributed to the misstatement problems. Having a plan on how to rebuild the company's severely impacted reputation was highlighted as a priority for the board. We engaged with the UK energy company over the appointment of the new CEO after a period of uncertainty over the leadership of the company. The engagement included a discussion about the remuneration plans for the incoming CEO. We met with the Chairman of the company to discuss the process for identification of the potential CEO candidates and the final decision making process. The chairman presented the board's view on the appropriate remuneration plan that was to be put in place for the new candidate. In the board's view, given the exceptional nature of the candidate, the proposed remuneration package included a one off payment that was falling outside the existing remuneration policy approved by shareholders earlier in 2014 (on a binding vote). In BlackRock's view, the new CEO was the right person for the job. However, we were concerned about the board's decision to award the one off sign on payment that was outside the policy. Subsequent to the meeting with the chairman we had a number of conversations with the company expressing our concerns over the one off payment and the decision to move away from the policy so shortly after it was approved. After the period of consultation with shareholders, the company withdrew its pay proposals and has agreed to structure the incoming CEO's pay within the existing policy. 11

12 Voting Highlights 74 and Statistics United The United Kingdom Kingdom Voting Voting Statistics Statistics 8 5 Number of meetings voted Number of proposals % of meetings voted against one or more management recommendations % of proposals voted against management recommendation % 9% 1% 2% 1 As most UK-listed companies hold their annual shareholder meetings in the first half of the year, much of the voting activity in the second half centres around extraordinary general meetings (EGMs). This quarter in particular we have witnessed a number of issuers calling EGMs for shareholder approval of mergers and acquisitions and business unit disposals. The below are examples of some of our voting highlights to provide more transparency into the scope of our work. A UK integrated dairy company held an Extraordinary General Meeting this quarter as the company was asking shareholders to approve the disposal of part of its business as well as an amendment to the company s remuneration policy to grant exceptional incentive awards to the CEO. Since the remuneration policy had just been approved by shareholders last June, the CGRI team engaged with the company to understand the rationale for this extra-award so soon after the vote. BlackRock expressed concerns over one-off payments to executives, especially when they are linked to transactions which have not been finalized yet. We believe executives remuneration should be aligned with the company s long-term strategy and should allow retention of talent without the need for exceptional additional payments. The board argued that they could not foresee a transaction of that size at the time they shaped the remuneration policy while also defending the operation as one shareholder had been demanding for a long period of time. Finally, the company was portraying the operation as very positive without mentioning the fact that shareholders would be left with a high amount of liabilities. For all these reasons, and after careful consideration, BlackRock decided to support the transaction which seemed necessary but to vote against the grant to the CEO. 4 The companies discussed are for illustrative purposes only and not as a recommendation of any particular securities and are not a complete list. 5 The United Kingdom Voting Statistic Report is a reflection of 4th Quarter 2014 and sourced from ISS Proxy Exchange, January 2,

13 Q 4 s a w p h a r m a c e u t i c a l companies looking for synergies as markets kept consolidating. The last two voting highlights include overviews on two large pharmaceutical companies which entered into a three-step agreement, exchanging assets and created a joint-venture In the last quarter of 2014 we participated in an annual general meeting of an independent oil and gas company listed on AIM (Alternative Investment Market). Amongst other proposals the company was seeking to re-elect its current CEO and Chairman and to get authorisation for issuance of shares without pre-emptive rights to the limit of 15%. We had reservations regarding re-electing the CEO/Chairman because he is considered to be an insider beneficially owning 21.4% of the company, yet he serves on the audit and the remuneration committees. He is performing a role of both CEO and Chairman, which may be seen as inappropriate in light of him being an insider and considering the lack of a senior independent director on the board to provide a counter balance to his control. The awards granted to the CEO during the year under review were very high considering the company s size and were not conditional on the achievement of performance hurdles. On this occasion we voted in favour of re-election as we understand that the CEO is a key member of the Board and his expertise is necessary to the achievement of company s goals. However, we still believe the company s governance practices require improvement. We will engage with the company in due course to recommend that additional independent non-executive directors are recruited to mitigate the risks connected to consolidation of power in CEO/Chairman s hands. Secondly, we voted against authorisation for issuance of shares without pre-emptive rights to the limit of 15%. In line with our policy we believe that limits above 10% for AIM listed companies have a potential to be excessively dilutive to existing shareholders. A large consumer goods company sought shareholder approval to spin off its pharmaceuticals business. The company recently undertook a strategic review, the outcome of which was to refocus on its core businesses. The pharmaceuticals business had been developed and managed as a separate division of the company, with significantly different characteristics compared to the company s core operations. As such, the pharmaceuticals business had been regarded as non-core since 2007 and, indeed, its results had been reported as a separate operating segment as well. In the context of the revised strategy, the board decided it was appropriate to demerge the pharmaceuticals business at this time. The newly created company will be a distinct entity with a separate management team. BlackRock voted in favour of this proposal as it was in line with the board s stated strategy, and seemed aligned with long-term shareholder interest. A large UK pharmaceutical company asked shareholders to approve a transaction with a Swiss issuer. The two companies entered into a three-part agreement, exchanging assets in the vaccines and oncology businesses and creating a jointventure in the consumer healthcare sector. This large-scale transaction illustrates the consolidation movement that is ongoing in the pharmaceutical market as companies are looking for more synergies. The operation should allow for annual cost savings of 1 billion by year five and 4 billion of the net proceeds from the disposal is intended to be returned to shareholders via a B share scheme following completion of the transaction. As the transaction seemed to be in line with the company s strategy to focus and strengthen its core business in order to create long-term growth, we decided to support the transaction. 13

14 Engagement with Issuers 6 and Statistics EMEA Engagement excluding the Statistics United Kingdom Engagement Statistics 7 Level of Engagement 8 ³ Topics Discussed Number of engagements Basic Moderate Extensive Environmental Social Governance XX 19 XX 14 X 5 X 0 X 4 X 4 XX 17 The following examples from the past quarter demonstrate the wide range of issues our engagements cover and highlight our efforts to protect the value of client s assets invested in these and similarly situated issuers. These examples reflect engagements that merited particular focus on ESG considerations. The companies mentioned are for illustrative purposes only and not as a recommendation of any particular securities. 1 This quarter we engaged with a European multinational oil and gas company to discuss board composition, responsibilities and training. This was particularly timely as the board was newly elected in the spring. An encouraging aspect of the engagement was the presence of the Board Chairman as it is still uncommon in this market for non-executive directors to meet with shareholders, although we have been witnessing wider take-up in the last year or so. In regards to non-executive directors skills and experience, we note a shift towards more practical experience than previous boards. This is something that the chairman values. We also discussed the company s environmental and social initiatives. The company has been chosen to participate in the United Nations (UN) Global Compact LEAD Board Programme designed to accelerate the recognition by boards and management of the material impacts of non-financial issues. Specifically, the initiative seeks to foster the integration of sustainability into corporate strategies by educating and training directors on its relevance. 6 The companies discussed are for illustrative purposes only and not as a recommendation of any particular securities. 7 The EMEA ex United Kingdom Engagement Statistics Report is a reflection of 4th Quarter Basic engagement is generally a single conversation on a routine matter; Moderate engagement is technically more complex and generally involves more than one meeting; Extensive engagement is technically complex, high profile and involves numerous meetings over a longer time frame. 14

15 We engaged with a European utilities company to discuss board composition and induction after a number of new members were elected in the spring. The induction process appears extensive and robust as a session on different business lines follows each board meeting. There has also been a shift in the skills and experience of the non-executives, with a greater subset now with strategic, legal and broad economic backgrounds. An evaluation will be conducted later this year to ascertain the impact this has had on the execution of board responsibilities. We also discussed the company s key risks and the processes by which these are assessed. The new CEO has launched an initiative to reduce the company s overall risk. In tandem, and as a result, a new committee on sustainability has been established for integration into the business and strategy. The company is also a participant in the previously mentioned UN Global Compact LEAD Board Programme. In recent years, we have witnessed increasingly proactive steps by South African issuers to engage with their shareholders on governance matters. This quarter we engaged with an integrated energy and chemicals company to receive an update on strategy in particular its operational transformation, board structure including succession planning and non-executive directors skills and experience, board effectiveness and evaluation, and executive remuneration. The discussion was beneficial in that we were able to introduce the company to BlackRock s approach to corporate governance, and the board was able to demonstrate to us that it is taking a considered view of the company s evolving strategy and the required board profile. Alongside other investors we attended a roadshow of a multinational automotive manufacturing company to understand the company s business strategy and its approach to sustainability. In the light of the CO2 emission targets imposed by the EU as well as by individual countries globally, we wanted to satisfy ourselves that the company was doing enough to meet these targets. We noted that at the currently the company is behind its competitors in producing cars with lower CO2 emissions. When asked, the company failed to formulate a precise answer on how it envisages achieving these targets. We will continue to monitor the company s progress towards them. The company wants to encourage its customers to buy its electric vehicles by investing in the infrastructure required for charging and by changing the chemical composition of the batteries to extend their range to 300 km. Recognising that at present electric cars are not a solution for every customer, the company is advertising its hybrid cars as a bridge technology. On another occasion, we met with a different automotive manufacturing company, operating at the premium end of the market. The aim of this group investor meeting was to outline the company s future plans, especially in the areas of sustainability and profitability. The company believes that it imbeds sustainability into every aspect of its operations, starting from the top management and Supervisory Board oversight and ending with the electric vehicles (EV) range offered to the customers. In terms of future strategy, on one hand the company is focusing on making their combustion engines more efficient, on the other, it is developing its EV range. 15

16 The company s EVs are designed specifically for electric driving - not just modified from previous combustion engine models. The company is working on extending the range of its EVs. This includes making them lighter by using carbon fibre for the body of the car and by working with its battery supplier. The company has its own carbon fibre manufacturing plant in the US, which is using hydro energy to power production. Therefore it was able to reduce the cost of carbon fibre and improve its margins on EVs. Using carbon fibre had an unexpected positive impact on the employee wellbeing as the noise in the car manufacturing plants was reduced significantly. Lastly the company is working on extending its brand recognition and product diversification by entering into joint ventures to provide other mobility services, e.g. a car share scheme or a parking aid application. 6 We engaged with a large bank in Switzerland on their implementation of rules in relation to the Minder Ordinance. As a reminder, in November 2013 the Swiss Federal Council (the executive branch of the Swiss federal government) adopted the final ordinance against excessive remuneration for listed companies, called the Minder Ordinance. The key aspect of the ordinance which needs to be implemented in 2015 requires companies to put their executive pay up for a (binding) vote for the first time. In our engagement with the bank's chairman we were looking to get a better understanding of the work done in preparation for the vote. Most specifically we were looking to get a better understanding of any potential changes the bank was looking to implement in relation to the pay of their executives and the key risk takers. Directly linked to the discussion we wanted to understand how the link between pay and performance is captured given the operating environment and the challenges that the bank is facing is relation to some of its business segments. We also questioned the choice of performance targets for executive pay. We will continue this engagement in advance of the 2015 shareholder meeting.. 16

17 Voting Highlights 79 and Statistics United EMEA including Kingdom the Voting United Statistics Kingdom 8 Voting Statistics 10 Number of meetings voted Number of proposals % of meetings voted against one or more management recommendations % of proposals voted against management recommendation % 9% 1% 7% 1 This quarter was marked by a high level of transactions that shareholders were called to approve. Large industrial groups are rationalizing their portfolios in order to focus on their core business and/or to deleverage their balance sheets. The below are examples of some of our voting highlights to provide more transparency into the scope of our work. Shareholders of a French power and transportation company were called this quarter to approve the disposal of their energy business to an American issuer. The transaction was extensively covered in the media due to the government s involvement during the negotiations and the fear of the French industry s jewels being sold to foreign interests. It led to the enactment of a new regulation extending the State s veto power regarding takeovers in strategic sectors. After lengthy negotiations, the acquirer committed to invest and create employment in France as well as the creation of three joint ventures between the two firms. A large shareholder which is going to sell a part of its stake to the French government, agreed to lend 20% of its voting rights to the French government to vote during this meeting. The agreement was criticized as it gave the French State influence on the decision-making which outweighed its economic exposure. As this transaction will allow the company to focus on its transport activity and will provide the financial strength to accelerate its growth, we decided to support the transaction which seems to be in shareholders best interests. 9 The companies discussed are for illustrative purposes only and not as a recommendation of any particular securities and are not a complete list. 10 The EMEA excluding the United Kingdom Voting Statistic Report is a reflection of 4 th Quarter 2014 and sourced from ISS Proxy Exchange, January 2,

18 2 3 We have voted at the shareholder meeting of the large Israeli global industrial holding company. The company was looking for shareholder approval of a transformational transaction that involves the separation and restructuring of its holdings. Under the proposed strategic separation, the company will maintain its holdings in its largest subsidiary which is the world s leading integrated potash fertilizer and value added specialty chemicals company, as well as one of Israel s largest integrated refining and petrochemicals companies. The company will transfer its current holdings in energy, auto, shipping services, semiconductor manufacturing and its renewable energy subsidiaries to a newly-formed company. The new company shares will be distributed to the existing shareholders on a pro rata basis as a dividend in-kind, so each shareholder as of the ex-dividend date will receive a proportional share in the new company. We have considered the terms of the transaction as well as the broader rationale for the separation and concerned with the board s view that the transaction would enable better focus by management and would reduce the conglomerate discourse. We therefore decided to approve the proposed separation/spin-off. We voted in a special meeting of a leading provider of fixed and mobile telecommunication solutions in the Czech Republic. The company also has operations in Slovakia. An investment company incorporated in Netherlands (the Parent) bought 65.93% of the company in November 2013, therefore becoming a controlling shareholder. During the last quarter of 2014 shareholders were asked to approve a proposal to allow the company to take out a syndicated loan to refinance its Parent s already completed acquisition of its shares. The proposal was put forward by the Parent. The proposal quoted strengthening the financial ties between the company and the Parent and potential lowering of cost of capital for both as reasons behind the transaction. The share price of the company decreased significantly following the announcement of this proposal. The proposed loan equals to 30% of the company market capitalisation and would increase its long term debt ratio from 6% to 42%. In the view of a recent year on year 16% decline in net profit we believe that depleting the company s debt raising capacity to refinance an already completed transaction presents little strategic rationale and little value to shareholders other than the Parent. Although this proposal might be seen as a matter for management to decide on, on this occasion we voted against it, due to potential negative impact on minority shareholders and questionable commercial rationale.. 18

19 To learn more about how we are shaping global governance and protecting our clients assets, visit This document contains general information only and is not intended to be relied upon as a forecast, research, investment advice, or a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of December 31, 2014 and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by BlackRock, Inc. and/or its subsidiaries (together, BlackRock ) to be reliable, are not necessarily all inclusive and are not guaranteed as to accuracy. There is no guarantee that any forecasts made will come to pass. Any investments named within this material may not necessarily be held in any accounts managed by BlackRock. Reliance upon information in this material is at the sole discretion of the reader. The information does not take into account individual financial circumstances. An assessment should be made as to whether the information is appropriate for an investor having regard to one s objectives, financial situation and needs. Investing involves risk, including possible loss of principal. This material is not intended to provide, and should not be relied on for, accounting, legal or tax advice or investment recommendations. No part of this document may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written consent of BlackRock. No material non-public information was solicited, offered or received in the course of the engagements described in this material. 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