UK Stewardship Code

06 December 2013

Introduction

Lansdowne Partners Limited acts as the general partner of Lansdowne Partners Limited Partnership (together “Lansdowne”). Lansdowne is one of the world's leading alternative investment management organisations.

Lansdowne currently manages three fundamental equity strategies (Developed Markets, European and Global Financials), each with its own dedicated team of portfolio managers and analysts. Central to its investment philosophy is a rigorous process of fundamental research. The research process includes meeting with company management, as well as analysis of publicly available information and proprietary and independent research.

UK Stewardship Code

The UK Financial Reporting Council's Stewardship Code (“the Code”), published in July 2010, is a voluntary code which sets out a number of principles relating to engagement by investors with UK equity issuers.

Lansdowne welcomes the publication of the Code, is supportive of its objectives and has committed to the Code.

The principles of the Code, which is applied on a “comply or explain” basis, are that institutional investors should:

  1. Publicly disclose their policy on how they will discharge their stewardship responsibilities.
  2. Have a robust policy on managing conflicts of interest in relation to stewardship and this policy should be publicly disclosed.
  3. Monitor their investee companies.
  4. Establish clear guidelines on when and how they will escalate their activities as a method of protecting and enhancing shareholder value.
  5. Be willing to act collectively with other investors where appropriate.
  6. Have a clear policy on voting and disclosure of voting activity.
  7. Report periodically on their stewardship and voting activities.

The following is an outline of how Lansdowne applies the Code in its engagement with UK equity issuers.

Principle 1: Institutional investors should publicly disclose their policy on how they will discharge their stewardship responsibilities.

This policy is published so that investors and investee companies are aware of the way in which Lansdowne integrates stewardship activities into its investment process. Lansdowne has outlined in this statement each of the principles of the Code and how it complies with them or explains why it does not.

Engagement with investee companies is primarily the responsibility of the investment teams and the respective portfolio managers. Lansdowne’s proxy voting procedures and record-keeping are overseen by Lansdowne’s Operations team who, subject to Lansdowne’s policies and procedures designed to manage conflicts of interest, refer to the applicable portfolio manager for voting decisions. Lansdowne's Compliance team also carry out a quarterly review of the proxy voting log and follow up where necessary.

Principle 2: Institutional investors should have a robust policy on managing conflicts of interest in relation to stewardship and this policy should be publicly disclosed.

Lansdowne maintains a robust policy on managing conflicts of interest which is designed to ensure its decisions are taken wholly in the interest of its clients. Lansdowne aims to ensure that all potential and actual conflicts are identified, evaluated, managed, monitored and recorded.

As part of this policy, all members of staff must notify Lansdowne’s Chief Compliance Officer (CCO) if they become aware of any material conflict of interest arising, including in relation to voting proxies on behalf of clients. Where such a material conflict of interest is identified, voting instructions will be subject to assessment and approval by the CCO.

Our principal objectives when considering matters such as engagement and voting are always to act in the best interests of our clients and to treat them fairly. A summary of the Lansdowne’s conflicts of interest policy is available to clients upon request from the Lansdowne’s Chief Compliance Officer.

Principle 3: Institutional investors should monitor their investee companies.

Comprehensive and continuous research and monitoring of investee companies is fundamental to Lansdowne’s investment process. Lansdowne utilises various research and support tools to meet this principle. Monitoring includes meeting with senior management of the investee companies, analysing annual reports and financial statements, using independent third party and broker research and attending company meetings and road shows. The effectiveness of such monitoring is under constant review.

Lansdowne endeavours to identify problems at an early stage to minimise any loss of shareholder value. If investment teams have concerns, where appropriate, they will use their best efforts to ensure that the appropriate members of the investee company’s board are made aware of them. Such concerns may include, amongst other things, corporate governance issues where we believe they have an impact on shareholder value (including, where applicable, deviations from the UK Corporate Governance Code). However, in seeking to act in the best interests of its clients, Lansdowne may also consider it better to reduce or eliminate an investment rather than to continue such dialogue.

Lansdowne maintains records of votes cast, of reasons for voting against the investee company’s management or for abstaining. It is not always administratively possible to record whether such votes were cast in respect of contentious issues due to the inherent subjectivity this entails or to record details of every engagement with management of investee companies. Lansdowne may attend General Meetings of companies in which its clients have a major holding where this is considered appropriate and practicable.

Lansdowne does not generally wish to be made insiders in normal circumstances, and therefore expects investee companies and their advisers to ensure that information that could affect Lansdowne’s ability to deal in the shares of the company concerned is not conveyed to Lansdowne without its prior agreement.

Principle 4: Institutional investors should establish clear guidelines on when and how they will escalate their activities as a method of protecting and enhancing shareholder value.

As part of Lansdowne’s investment strategy, it seeks to build effective relationships with boards and management at the companies in which it invests. Lansdowne will generally look to invest in companies that it believes to be well managed. As part of the research and monitoring process, Lansdowne may look to intervene by holding meetings with management and/or directors to express Lansdowne’s concerns or express its views through other channels. Should concerns persist, Lansdowne will consider, on a case by case basis, whether to intervene jointly with other institutions but will only do so where this is considered appropriate and in the best interests of its clients.

In general, Lansdowne is unlikely to make public statements, submit resolutions or requisition an EGM. Lansdowne typically believes that any escalation is best carried out on a confidential basis.

Principle 5: Institutional investors should be willing to act collectively with other investors where appropriate.

Lansdowne has no objection in principle to collective action by investors and will consider any specific action on a case by case basis. However, in normal circumstances, Lansdowne will tend to act on its own when engaging with or expressing concerns to investee companies.

Whilst Lansdowne may communicate with other shareholders regarding a specific proposal, it will not agree to vote in concert with another shareholder without approval from Lansdowne’s Chief Compliance Officer.

Other investors wishing to approach Lansdowne should contact Lansdowne’s Chief Compliance Officer, using the following contact details:

Email: financeandcompliance@lansdownepartners.com

Telephone: +44 (0)20 7290 5500

Principle 6: Institutional investors should have a clear policy on voting and disclosure of voting activity.

Lansdowne maintains proxy voting policies and procedures that are designed to ensure that it makes a best efforts attempt to vote proxies in the best interests of its clients. Lansdowne generally votes in favour of routine corporate housekeeping proposals, including election of directors (where no corporate governance issues are implicated). Generally, Lansdowne will vote against proposals that make it more difficult to replace members of a board of directors. For all other proposals, Lansdowne will assess what is in the best interests of its clients and, in doing so, may take into account a variety of factors, including:

  • whether the proposal was recommended by management and Lansdowne’s opinion of management;
  • whether the proposal acts to entrench existing management; and
  • whether the proposal fairly compensates management for past and future performance.

Lansdowne does not publicly disclose voting records as it considers that such information belongs to its clients on whose behalf it has voted and not the general public. A summary of this Proxy Voting Policy and Procedures is included in Lansdowne’s Form ADV Part 2A.

Lansdowne generally does not lend securities on behalf of its clients.

Principle 7: Institutional investors should report periodically on their stewardship and voting activities.

Subject to underlying client confidentiality and investment strategy reasons, where requested (or as required by law), Lansdowne may disclose to a client or a client’s fiduciaries the manner in which Lansdowne exercised voting rights on behalf of the client. However, it may not always be appropriate to disclose voting actions at a detailed level.

Lansdowne will not normally disclose its voting intentions, but may inform parties of the provisions of this policy.

Lansdowne’s processes relating to its corporate governance activities are included within the scope of annual internal controls testing performed by an independent accounting firm which Lansdowne has engaged to perform an outsourced internal audit function. The results of such testing are not generally made available but clients wishing to obtain further information should contact Lansdowne’s Chief Compliance Officer.