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Proxy voting rights in investee companies are the most important right granted to shareholders in order to increase investee companies’ medium to long-term corporate value. Nikko AM Group exercises proxy voting rights independently and solely in the interests of our clients and beneficiaries in order to fulfill our fiduciary responsibilities. We believe that the three core factors behind sustainable, responsible investing - environmental, social, and governance (“ESG”) - are inherent to long-term value creation.
Nikko AM Group is an active owner, through its proxy voting process and engagement with its invested companies. As a long term investor, we believe an active dialogue and engagement with the management team, where appropriate, can both improve ESG performance and sustainability, and help an investor to more fully understand these efforts. Where we invest through passive strategies, we strive to incorporate ESG through the voting of proxies and the engagement process, where appropriate.
When conducting appropriate engagement or exercising voting rights, for example, if Nikko AM Group invests in an affiliated company, an supplier or a client (including companies with connections to a client), the possibility of conflicts of interest cannot be ruled out.
Nikko AM Group has established appropriate risk management and compliance frameworks to ensure that the interests of clients and beneficiaries are the top priority and that such conflicts of interest are appropriately managed if they arise. Portfolio managers, research analysts and governance specialists aim to avoid the occurrence of any conflicts of interest in compliance with our internal regulations.
In order to manage conflicts of interest and enable objective decision making in our exercise of voting rights, Nikko AM Group companies have established the control framework by combining means such as the advice of an independent third party, disclosure of proxy voting results to a customer (and obtaining of customer’s consent, as the case may be), segregation of divisions (seclusion of information), and management by installation of monitoring organization etc. to maintain appropriate voting decisions.
Nikko AM Group focuses in particular on the following criteria when exercising voting rights in order to conduct appropriate monitoring of corporate governance at each investee company and to increase shareholder value.
- Shareholder Return
With regard to the disposition of surplus, Nikko AM Group places emphasis on ways to provide sufficient returns to shareholders over the medium to long-term and to provide adequate accountability to shareholders, taking into consideration not only total return ratio levels, such as shareholder dividends and stock purchase plans, but also the extent of internal reserves and investment plans based on future business plans. - Directors’ Execution and Supervisory Functions
The separation of execution and supervisory functions in management is necessary to realize good corporate governance. A company's board of directors must be appropriate in size and composition so as to ensure that thorough, balanced discussions take place and that appropriate decisions are made. Some of the directors should be independent directors. - Executive Compensation System
Nikko AM Group positively assesses executive compensation systems that offer incentives and increase shareholder value, such as those linked to company performance. At the same time, appropriate levels of compensation in terms of company performance and profit distribution to shareholders should be required while the system itself should ensure sufficient accountability to shareholders. - Company Control and Takeover Defenses
Nikko AM Group is basically opposed to resolutions aimed at maintaining company control or preventing the acquisition of company control. On the other hand, because acquisition proposals that may damage shareholder value cannot be assessed positively, takeover defenses may be assessed positively to the extent that the existence of such acquisition risks are clear and existing shareholder value would not be damaged. - Business Restructuring
Nikko AM Group scrutinizes whether or not the restructuring of business through mergers and acquisitions is the best option for a company from the view point of consistency with its management strategy and enhancement of shareholder value in the medium to long-term. In addition, the valuation of a company's acquisition price must be a fair price calculated by a neutral third party. - Capital Policy
Whether or not resolutions on the issuing of company stock are appropriate capital policy should be determined cautiously, taking into account the investee company's management strategy, financial standing and market environment. In particular, Nikko AM Group does not evaluate such capital increases positively if there is a possibility that they will significantly dilute the equity of existing shareholders and place them in a disadvantageous position overall. - Other Resolutions
Other resolutions shall be examined and considered from the standpoint of maximizing shareholder value.