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As a responsible investor and fiduciary, PGIM Quantitative Solutions' policy is to vote proxies in the best long-term economic interests of our clients (the appreciation in value of the investment over time). In the case of pooled accounts, our policy is to vote proxies in the best long-term economic interest of the pooled account. To that end, we have adopted voting guidelines that reflect our general philosophy on corporate governance matters and our approach to governance and other issues that may commonly arise when voting ballots on the various securities held in client accounts.
Our guidelines are not intended to limit the analysis of individual issues at specific companies, nor do they indicate how we will vote in every instance. Rather, they express our views about corporate governance and other issues generally, and provide insight into how we typically approach issues that often appear on corporate ballots. They are applied with discretion, taking into consideration the range of issues and facts specific to the company and the individual ballot items. Because the guidelines are not absolute, context matters and may drive different outcomes for different companies.
While governance is the focus of many ballot items, our detailed, customized voting guidelines address a wide variety of matters, including:
- Boards and directors
- Audit-related issues
- Executive compensation
- Capital-related issues
- Mergers, acquisitions and other financial transactions
- Environmental issues, such as climate change
- Social issues
- Corporate governance issues
From time to time, ballot issues arise that are not addressed by our policy, or circumstances may suggest a vote not in accordance with our established guidelines. In these cases, our voting decisions are made on a case-by-case basis taking into consideration the potential economic impact of the proposal, as well as any circumstances that may result in restrictions on trading the security. Case-by-case, or manual, evaluation of a ballot item entails consideration of various, specific factors as they relate to a particular issuer and/or proposed action. For example, when performing manual evaluation of a ballot item relating to executive compensation (which will generally occur if PGIM Quantitative Solutions receives research suggesting a vote “against” the item), we consider such factors as stock performance, financial position and compensation practices of the issuer relative to its peers, change in control, tax gross-up and clawback policies of the issuer, pay inequality and other corporate practices, although not all factors may be relevant or of equal significance to a specific matter. With respect to contested meetings, which we always vote on a case-by-case basis, we consider research provided by PGIM Quantitative Solutions' proxy advisor as well as other sources of information available in the marketplace, in order to understand the issues on both sides of the contest and determine our view. With respect to mergers and acquisitions, we consider whether a fairness opinion as to valuation has been obtained.
With respect to non-US holdings, we take into account additional restrictions in some countries that might impair our ability to trade those securities or have other potentially adverse economic consequences. Further, we may be unable to vote proxies in countries where clients or their custodians do not have the ability to cast votes due to lack of documentation, operational capacity, or otherwise. We generally vote non-US securities on a best-effort basis when we determine that voting is in the best economic interest of our clients. In addition, when voting on ballots for companies in global markets, we may consider various market-specific nuances, along with applicable regional rules and practices, including codes of conduct and other guides.
We seek to actively monitor developments in the proxy voting arena based on a historical analysis of proxy issues and a continuing review of new proposals and legislative changes. Our policy and guidelines are reviewed annually and updated as needed to address new developments.
PGIM Quantitative Solutions' Corporate Governance
PGIM Quantitative Solutions' Senior Governance Officer (SGO) works collaboratively across business lines to enhance PGIM Quantitative Solutions' capabilities to analyze the corporate governance of issuers of securities in which we invest, to monitor market and other developments relating to active ownership and to helping enhance our collective engagement approach. The SGO also maintains oversight of data received and available including, but not limited to, data analytics and ballot issues relating to ESG matters.
The SGO is also responsible for coordinating PGIM Quantitative Solutions sustainability initiatives and PGIM Quantitative Solutions' adherence and reporting relating to the United Nations-supported Principles for Responsible Investment, the Task Force on Climate-Related Financial Disclosures (TCFD) and Japan’s Stewardship Code.
PGIM Quantitative Solutions also has a Proxy Voting Committee that includes representatives from our Investment, Operations, Compliance, Risk and Legal teams. This committee is responsible for updating and interpreting our proxy voting policy, identifying conflicts of interest and periodically assessing the effectiveness of our policy and procedures. We currently use the services of a third-party proxy voting advisor. The committee also oversees the services provided by our proxy advisor by reviewing management reports and performing periodic reviews of the proxy advisor.
We direct the proxy advisor, upon receipt of proxies, to vote in a manner consistent with our established proxy voting guidelines (assuming timely receipt of proxy materials from issuers and custodians). Our proxy advisor also makes available analyses of ballot issues and voting recommendations to its clients. Our voting guidelines include instructions to vote certain ballot issues consistent with recommendations made by the proxy advisor. In these cases, we periodically assess the consistency of our view along with that of the proxy advisor and retain ultimate responsibility for the voting decision. We conduct regular due diligence on our proxy advisor.
We provide disclosure of our proxy voting policy, guidelines and procedures to our clients who authorize us to vote proxies, generally at the time that we are negotiating our investment management agreement. Any client may obtain a copy of these items, as well as the proxy voting records for that client’s securities, by contacting the client service representative responsible for the client’s account. We also make our Proxy Voting Overview and proxy voting results publicly available in the Stewardship & Governance section of our website: www.pgimquantitativesolutions.com.
Conflicts of Interest
The Proxy Voting Committee establishes the criteria to identify any issuers as to which we believe there may be a potential conflict between the respective interests of PGIM Quantitative Solutions and those of our clients (each, a "Conflict Issuer"). Proxies with respect to Conflict Issuers, including our ultimate parent company, Prudential Financial, Inc. (PFI), will be voted in accordance with the proxy advisor's policy.
PGIM Quantitative Solutions does not perform securities lending on behalf of their clients, since we are not the legal owner of the funds which offer security lending for client accounts. Rather, our firm subadvises certain funds that are managed, sponsored and distributed by affiliated and unaffiliated firms. Certain PGIM Quantitative Solutions clients may participate in securities lending programs in their accounts. PGIM Quantitative Solutions does not control or participate in any way in these programs and does not know when or which securities in our clients’ accounts have been loaned. PGIM Quantitative Solutions cannot vote securities that are out of our clients’ portfolios on loan or are otherwise excluded from voting privileges. If a client who was responsible for voting their own proxies asked PGIM Quantitative Solutions for advice regarding a particular ballot issue for a specific holding, we could share our analysis of the issue based on our rankings of SASB materiality, carbon emissions, and other sources of data, including the comprehensive research reports compiled by our proxy advisor.
Advocating for More Accountability
As stated previously, our proxy voting policy is to vote proxies in the best long-term economic interests of our clients. We believe that strong governance leads to improved management of social and environmental issues, and we consider shareholder proposals in this area carefully, with a focus on adding economic value. In addition, through our collective engagement with ESG-related organizations and data providers, we advocate for greater disclosure of ESG data, which we view as essential to identifying potential sources of risk that might not be reflected in market valuations, and to the further assimilation of ESG into mainstream investment practices.
When voting proxies, our analysis of various Shareholder Proposals that deal with ESG issues also provides us with an opportunity to vote for those Shareholder Proposals that we believe will help support better overall corporate governance, as well as better disclosures of industry-specific and systematic risks. In situations where we believe there are no negative financial implications, we have voted, and will continue to vote against management in certain circumstances, including if they continue to demonstrate an inability to correct whatever issue(s) we view as deficient.
Consistent with the commitment PGIM Quantitative Solutions made when becoming a signatory to the United Nations-supported Principles of Responsible Investment (PRI) in 2015, we are focused on improving the quality and consistency of ESG reporting and data. PGIM Quantitative Solutions has contractually agreed to adhere to Japan’s Stewardship Code since 2016. In 2017, we became a member of the Sustainability Accounting Standards Board (SASB) Investor Advisory Group, through which we encourage companies to disclose information on their carbon emissions and other ESG-related factors. In 2018, PGIM Quantitative Solutionsbegan supporting the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD), and in 2019, PGIM Quantitative Solutions became a signatory to the Investor Stewardship Group (ISG).
PGIM Quantitative Solutions also participates in various educational and collaborative events with other stewardship and governance organizations. We are members of the Council of Institutional Investors (CII) and we maintained membership in the International Corporate Governance Network (ICGN) through 2020. We also work with the Investor Network on Climate Risk (INCR)/CERES through memberships held by PGIM, the global investment management business of PFI, as well as those held directly by PFI, our ultimate parent.