In accordance with the law, management entities of Collective Investment Undertakings (CIU) carry out all acts on behalf of the CIU’s participants and acting as fund managers, should exercise all rights and all acts that directly or indirectly relate to the CIU's portfolios. Said entities are responsible, namely, for representing said participants, regardless of mandate in the exercise of rights arising from the respective stake.
Furthermore, in carrying out their duties, the management entities act independently and in the exclusive interest of participants and should avoid conflicts of interest with the CIU and give preference to the interests of same. This takes place whether it is in relation to its own interests or companies with which same are in a control or group relationship and whether it is the interests of members of the corporate boards or others.
In this context, the said legal principles should govern the exercise of rights arising from shareholdings of the CIU, namely, participate in General Meetings, submit proposals and exercise the right to vote.
Likewise, this matter also concerns the regulatory level, with strategies to be pursued by the management entity as regards the assistance and exercise of voting rights in investee companies being enshrined in the CIU's management contract/regulations.
The general guidelines on the policy of exercising the right to vote, minimum content of which is laid down by regulation, information on how it was exercised specifically with regard to the right to vote and the reasons therefor in circumstances where there was a departure from overall policy and mandatorily included in the CIU's Annual Report, are available through the CMVM Information Disclosure System and published on the website of the CIU or its management entity.
In addition to the legal and regulatory framework applicable herein, the Portuguese Securities Market Commission deems it appropriate to recommend a set of actions which it considers as good practices for encouraging participation in General Meetings and the exercise of associated rights and promoting transparency as to the manner wherein same were exercised.
It is understood that the diligent and competent exercise of said rights by institutional investors may represent a considerable role in stepping up good corporate governance practices in investee companies and contributing to the resultant possible increase in the value of shareholdings.
The shareholder activism of institutional investors can play a major role in the management of investment risk and the control of harmful information asymmetries for shareholders and the company. Moreover, the exercise by management entities of voting rights attached to the stake held by the CIU can have a decisive influence on the investee companies, by assisting in maximising the value of the assets of these undertakings and, thereby, furthering the interests of its participants.
Thus, comparing the current regulatory framework, particularly Article 31/2/a)/iii) and Article 33/1 -/3 of Decree-Law No. 252/2003 of 17 October and Article 81 of CMVM Regulation No. 15/2003, with the practices adopted by management entities of CIU with regard to participation in General Meetings of investee companies pursuant to the provisions of Article 370/1 of the Securities Code, the CMVM hereby issues the following
:
RECOMMENDATION
1. The management entities of Collective Investment Undertakings (CIU) should actively assume their responsibilities as to the diligent, competent and discerning exercise of the rights attached to shares held by the CIU, the management of which is entrusted to said entities, particularly with regard to participation in General Meetings of investee companies and the exercise of voting rights.
2. Participation, by the management entity, in the general meeting of the investee company and the exercise of voting rights attached thereto, should comply with the following:
a) The strategies to be pursued with regard to speaking and the exercise of voting rights as defined in the CIU's instrument of incorporation;
b) The document containing the general guidelines on policy for exercising the voting rights, where the adoption of other specific strategies concerning the exercise of voting rights is not favourable to the interests of participants.
3. The strategies defined in the CIU's instrument of incorporation and the document containing the general guidelines on the policy for exercising the voting rights should not enshrine a general policy of systematic non-participation in General Meetings.
4. The document comprising the general guidelines on the policy for exercising the voting rights, whether it is the prospectus or the separate document published on the CMVM's website, should clearly define the criteria to be used, on a case-by case basis, in determining the voting outcome on corporate matters regarded as of great importance. It should state, namely, the circumstances and factors which prompted, in principle, the objection to or approval of the draft resolutions related to said matters.
5. The decision by the management entity to participate or not to participate in the general meeting of the investee company should be based on the following:
a) Importance and nature of the matters included in the Agenda; and,
b) Relative weighting of the costs involved in said participation and the benefits that could be acquired.
6. Close attention should be paid when considering the decision to participate and same should also be duly substantiated in a clear and distinct weighting of costs against the benefits of the decision not to participate in General Meetings where the Agenda includes issues of great importance, such as:
a) Approval of financial statements and reports;
b) Dividend distribution;
c) Amendment to the Memorandum and Articles of Association;
d) Composition of corporate boards;
e) Increase or reduction of capital;
f) Acquisition or disposal of own shares;
g) Policies on remuneration and compensation;
h) Acquisition, merger, division and conversion of the company;
i) Adoption, amendment or removal of countermeasures;
j) Transactions with related parties.
7. The following should be particularly taken into account when weighing up the potential benefits in deciding whether to participate or not participate in the General Meeting:
a) The actual influence that the exercise of voting rights of the managed CIU may take in the context of a resolution of the investee company and the positive or negative projection of said resolution in the CIU's objectives;
b) The importance of participating in General Meetings and exercising voting rights in the control of risks attached to the CIU's investment;
c) The type of information that will be acquired by participating in a General Meeting and the importance of said information for managing the investment and risks of the managed CIU;
d) The redoubling of good corporate governance practices in investee companies and the consequent possible increase in the value of the shareholding of the represented CIU.
8. The following should be particularly taken into account when considering the costs of participating in the General Meeting referred in the preceding paragraph:
a) Additional costs related to the analysis of information concerning the investee company and its business and also the continuous monitoring required for accountabilities and explanations in the respective General Meetings;
b) Remuneration of experts that may be hired for assessing the draft proposals tabled at the General Meeting;
c) Logistic expenses related to participation at General Meetings of the investee company;
d) Non-specified costs for the allocation of human resources, logistics and technology.
9. In addition to mere presence and voting, the participation by management entities in General Meetings should include the tabling of draft resolutions where such entities have said right and where this is the proper way to obtain solutions consistent with protecting the interests of those represented.
10. The management entities should provide the necessary mechanisms in order for the represented parties to request and promptly obtain objective clarification as to the rationale underlying the actual exercise of the rights attached to shares held by the CIU, the management of which is entrusted to said entities.
11. The management entities are encouraged to establish, particularly through the respective representative associations, mechanisms which comply with the legal framework on competition and data protection that would decrease overhead expenses including those related to obtaining information and the monitoring of investee companies and thereby promoting shareholder activism.