From this year, Robeco will actively exercise its voting rights at General Meetings of Shareholders (GMSs). In 2004, this concerns five retail funds that together represent around 70% of the assets invested in equity mutual funds (Robeco, Rolinco, Robeco Economic Recovery, Robeco Duurzaam and Robeco Young Dynamic Fund). From this year Robeco will also exercise its voting rights for a number of institutional funds and discretionary mandates.
Robeco is the first Dutch provider of investment funds to make use of this possibility on a large scale. The criteria are: the provision of transparent and relevant information to and equal control by shareholders, the remuneration structure of top management and the company's position in society.
Robeco is convinced that good corporate governance leads to higher share prices in the long term, and has thus fully integrated this issue in its investment process. Corporate governance is now an important criterion in stock selection.
Robeco has formulated a corporate-governance policy as the basic principle for its voting behavior. An external party, Institutional Shareholder Services (ISS), advises Robeco on how it should vote for all its portfolio holdings. Robeco's sector specialists assess this advice and take the final decision. ISS then takes care of the administration.
A summary of Robeco's voting behavior will be published annually on www.robeco.nl.
ROBECO'S CORPORATE GOVERNANCE PRINCIPLES
Transparency
Principle 1
Information distributed by a company should be transparent, relevant and reliable, and give an accurate and fair picture of its operations.
All facts that could have a material impact on the share price should be available to investors. The management should not withhold or obscure important information, for example by either communicating it in an overly complex manner or burying it in a flood of other information. Consistency over time will enable shareholders to compare achievements over time. The GRI guidelines provide a useful framework of reporting.
Principle 2
Information for shareholders is to be distributed in a timely fashion and evenly, and made accessible to everyone at low cost.
All shareholders should be able to receive all relevant information at the same time in order to keep a level playing field. In addition, all distribution of information by the company should be done keeping the costs of monitoring in mind. The lower these costs are for shareholders, the greater the incentive to actually exercise control.
Empowering shareholders
Principle 3
Each shareholder has the right to vote on all important matters in a convenient and economical way.
Important matters include the remuneration packages of (non)-executive members of the board, the periodical (re-)election of non-executive (or supervisory) board members, anti-takeover mechanisms, the company's long-term strategic plan, and the effecting of mergers, acquisitions or takeover bids by third parties, friendly or hostile.
Convenient and economical voting reduces the direct costs of exercising power. A company makes voting easier if it allows proxy voting at the annual meeting. Through proxy voting the combination of dispersed small shareholders effectively becomes a substitute for large shareholders. In addition, a company makes voting cheaper by allowing electronic voting. This is a powerful tool to reduce the monitoring costs that are related to actually exercising voting rights.
Principle 4
Each share represents voting power proportional to its economic stake.
Voting rights proportional to the economic stake is also known under the slogan: 'One vote for each share of stock'. This is the most important tool for shareholders to exercise power over their assets. This principle determines that each shareholder has voting power equal to their proportionate economic stake. Issuing shares that have less (or more) voting rights than their proportionate economic stake is not acceptable. This applies for example to dual share classes and preference shares.
The principle of proportional voting rights also bans any anti-takeover devices. These devices make life a lot easier for management. Even when the company gets into financial distress and the share price slumps due to repeated blunders, a corporate raider cannot compete for 'control' and oust the incumbent management team. For example in the case of a poison pill, management can issue a very large amount of (voting) shares to friendly parties below market prices. Shareholders interested in maximizing their returns would
rather sell their shares to a hostile bidder at a nice premium than see their stake diluted by a share issue to an unrelated party.
Board and management
Principle 5
Align the remuneration packages of board members, executive and non-executive, with shareholders' interests as measured by the company's long-term financial performance.
The remuneration packages of all top executives and non-executive board members need to be designed to align their respective interests with those of the shareholders. Remuneration packages address the principal-agent problem on the agent side. A good set of mechanisms will encourage management to act in the interests of the shareholders. A close analysis of an incentive system tells us how far a company management's interests are aligned with ours. Linking management remuneration to a company's financial performance over several years leads to the closest harmonization of interests.
Still, the problem is only partly solved as long as just a fraction of the total cash flow is involved. The manager bears all the efforts of maximizing (shareholder) wealth, but only receives a part of the benefit. Leveraging the incentive structure through options can help but is not ideal either due to their one-sided risk characteristics, which encourage managers to take on extra risk.
Principle 6
The non-executive board members represent the shareholders and act in their best interests.
A non-executive board member is a special sort of manager who is 'hired' by the shareholders to do the monitoring work for them. There are various ways to let non-executive board members function as a truly independent controlling body. Among the most important mechanisms:
1. The CEO is not the chairman of the board of directors;
2. Non-executive board members have a majority in a one-tier board;
3. Non-executive board members meet periodically without the executive management.
External environment
Principle 7
Display and encourage good corporate citizenship.
The best way to display good citizenship is to keep the company's charter up to date with the best practices of the countries it operates in. A company charter therefore could have as a standard rule that it should be rewritten every 5 to 10 years. This is particularly important when one remembers that a dynamic and flexible system has more chance of survival than a rigid and inflexible one.
Good corporate citizenship should create favorable national sentiment towards shareholders' rights. Not only should a company follow best practices, it should also strengthen these practices by openly applying them. By doing so it sets an example for other companies as well as politicians, judges and employees.
About Robeco
Robeco provides discretionary asset management products and services, as well as a complete range of mutual funds to a large number of institutional and retail clients worldwide. Robeco's product range encompasses fixed-income and equity investments, as well as balanced accounts, money-market funds and alternative investments.
Robeco distributes its funds for the retail market directly, and through other financial institutions. Several of its mutual funds, including the flagship Robeco N.V., are listed on major European stock exchanges such as Amsterdam, Paris, Frankfurt and London.
As well as from its head office in Rotterdam, Robeco services its clients from its European offices in Belgium, France, Luxembourg, Switzerland, Germany and Spain. In the United States, Robeco has offices in New York, Chicago and San Francisco (Weiss, Peck & Greer), Boston (Boston Partners), White Plains (Sage Capital Management) and Toledo (Harbor Capital Advisors).
Robeco is the center for asset management with full operational independence within the Rabobank Group. The combination of the highest credit ratings from the major international rating agencies and the highest Sustainability Cluster Score within the banking sector reflects the high added value Rabobank has always offered its investors, members, clients and employees.