Magni votes company proxies on behalf of clients and is guided in its votes by applying corporate governance best practices as described in Magni’s Sustainable Value Creation principles.
When Magni is voting a proxy, it means that one or more Magni clients have the associated security in an account. These accounts use a Magni Corporate Governance strategy so that the resulting portfolio contains the best governed companies, according to Magni research. Hence, the companies are already well run, and Magni is inclined to vote for proforma proposals. Each Magni vote on a company proxy is documented in a post published on Magni’s proxy blog.
No company is perfect, and all companies have opportunities for improvement. If the improvement areas overlap with a proposal, then Magni may vote against the board recommendation.
Company proxies for securities listed on U.S. exchanges have proforma proposals regarding:
This document identifies the conditions where Magni will vote consistent with the board recommendation on the election of directors. Two basic conditions need to be met: (1) directors have independence and (2) director interests are aligned with shareholder interests.
Magni seeks overall independence of a company board. An independent board helps assure that the management team is working for the interests of the shareholders. The independence of a board is a bigger topic than the question of whether the chairperson is independent. While Magni prefers an independent chairperson, it votes for directors even when the chairperson is not independent. At the same time, Magni supports almost all shareholder proposals for an independent chairperson.
Magni wants all directors to stand for election annually, though votes for nominees even when the board is classified. At the same time, Magni supports shareholder proposals to declassify a board.
The nominees for the board should be more than independent in the strict sense of NYSE or NASDAQ listing requirements. When a company acquires a business, sometimes a key person from the acquired firm becomes a director of a company. This situation can make sense for a period; however, the value of the person’s unique contribution typically decreases over time and the person should not be considered independent.
Sometimes a family with a legacy connection to the founding of a company or a major share position expects multiple positions on a board. These situations require scrutiny. Multiple board positions representing a family or large shareholder rarely are justified.
Alignment of directors with shareholders
Compensation is a powerful incentive. One of the best ways to assure the alignment of interests is to have a compensation system for directors that is based on equity. In addition, the compensation system needs long-term components so that the incentive is for sustainable shareholder value. Magni looks for a significant percentage of the compensation to come in the form of equity. In addition, Magni looks for ownership guidelines for non-executive officers.
If the board is independent and the incentives of the directors are aligned with the shareholders, Magni votes for the slate of candidates.