Proxy Voting Principles And Guidelines
Introduction
Morula Capital Partners (Morula) is a long-term, valuation-oriented investor that seeks to maximise client returns whilst minimising risk. We believe that proxy voting and management engagement are an essential part of our long-term investment strategy and the overarching objective of long-term value preservation and creation.
Economic, Social and Governance (ESG) factors play a role in determining risk and return profile of investments. Part of our fundamental analysis includes an assessment of the ESG practices of a company, with greatest emphasis being placed on governance matters.
Good governance acts as a screening tool in our investment process. We are comfortable not investing in companies that have weak governance structures even if they may be performing well financially, generating high return on investments, or attractive from a valuation standpoint. Our view is that a well-governed business with ethical practices will be able to sustain shareholder value in the long run.
Transparency, Reporting and Guidelines Review
- Morula recognises that transparency supports accountability and continuous improvement. Morula reports proxy voting activity to clients and, where appropriate, may produce aggregated reporting on stewardship activities. Records of our proxy voting are maintained.
Vote Execution and Operational Matters
- Where resolutions are unclear or disclosure is insufficient, Morula may seek clarification from the subject Company before voting and may abstain where it cannot form a considered view.
Voting Governance and Accountability
- Morula seeks to exercise its voting authority at all meetings where it has the right to vote and timely access to the relevant meeting documentation. Proxy voting decisions are made in a consistent, well‑documented manner and are subject to appropriate oversight.
- Morula records voting instructions and, where applicable, the rationale supporting each decision, including any engagement undertaken, the key factors considered, and how the vote is expected to protect or enhance long‑term value.
Conflicts of interest
- Morula seeks to identify and appropriately manage any actual or potential conflicts of interest that could influence proxy voting. All voting decisions are made in the best long‑term interests of clients.
- Where conflicts of interest may exist, these are disclosed to clients to enable them to make informed final decisions.
These guidelines are reviewed periodically to reflect regulatory developments, best market practice, and learnings from engagement and voting outcomes.
Approach To Proxy Voting
Ownership Of Voting Rights
All voting rights belong to our clients by virtue of their economic interest. Morula makes all proxy voting resolutions recommendations on the sole basis to protect our client interests as shareholders and maximize long-term returns. Whilst Morula is authorised to act on behalf of our clients with regard to proxy voting through the investment management agreements, clients reserve the right to vote or instruct Morula to vote in any manner that they deem fit.
Proxy Voting Principles and Guidelines
Morula’s voting principles and guidelines are focused primarily on our fiduciary duties to preserve and enhance our clients long-term value.
In exercising our fiduciary duties, we consider various guidelines such as King Code (current and past versions), or other widely accepted global best practices in markets such as in South Africa, United Kingdom or United States of America, domestic regulations and laws such as Companies Act 42:0, Botswana Accountancy Oversight Authority Regulations and the Botswana Stock Exchange Listing Rules.
Scope of Participation
Morula does not believe in a tick-box approach to proxy voting, instead, all resolutions are assessed on a company-by-company basis, with a focus on achieving what we believe is in our clients’ long-term best economic interests.
Morula’s policy is to exercise all our voting rights on behalf of our clients, irrespective of the size of our representative economic interest in the Company.
Management Engagement and Escalation Framework
We are active stewards of our client capital. We continuously engage management and where required the board of directors of our investee companies on ongoing operational matters and arising material issues tabled for shareholders attention at shareholder meetings.
The objective of these engagements is to evaluate ESG practices, engage management on areas of improvement and encourage the adoption sustainable business practices where we identify deficiencies. We consider proxy voting as a lever/tool available to us to drive desired change in our investee companies.
Morula may escalate its stewardship approach in a manner proportionate to the issue and consistent with client mandates.
- Engage privately with management and/or the board to seek explanation, additional disclosure, or changes.
- Vote against (or abstain on) relevant resolutions where concerns are not adequately addressed.
- Communicate expectations in writing and request time-bound remedial actions and improved disclosures.
- Consider collaborative engagement with other shareholders where appropriate and permissible.
In the instance where Morula votes to abstain or against tabled resolutions, we strive to engage management ahead of casting our vote to ensure that there is clear understanding of our position.
Proxy Voting Guidelines
ANNUAL GENERAL MEETING KEY RESOLUTIONS
Capital Allocation
Management capital allocation decisions regarding acquisitions or disposals, research and development, new business lines, equity issuance or share buybacks, dividend distributions play a significant role in long -term shareholder value creation or destruction.
Some management teams have capital allocation skills, whilst others simply do not. We have no prescriptive policy regarding capital allocation but observe certain basic principles.
We evaluate capital allocations decisions on a case-by-case basis based on information available, our view of the management team and what we think is in the long-term interest of shareholders of that business.
Share issuances and repurchases can be value accretive or destructive if executed at the wrong time or under the wrong circumstances.
Share issuances are dilutive on existing shareholders by nature and should only be undertaken if they are expected to add value. Generally, we would support share issues if we have had an assessment and consideration of the contemplated transaction and assess that the corporate action has potential value add.
We have seen instances where management executed share buybacks when the company’s financial position was constrained, and in our view retention of capital would have been more prudent.
Dividend distributions are a form of capital allocation. Companies should strive for balance sheet resiliency before distributions. They may be instances where priority of cashflows should be for debt reduction, reinvestment for growth or building an equity base for resiliency against shocks.
We will assess the solvency, operating environment outlook and other unique factors of the company before supporting or objecting to the distribution. Where appropriate, we support the use of special dividends as a means of returning excess cash to shareholders and managing the company’s capital structure.
Management with a proven track record of success in capital allocation will likely get our support for such capital allocation frameworks proposals brought for shareholder approval.
Common Resolutions:
- Issuance of shares
“… Resolved that the directors of the company be and are hereby authorised, by way of a general authority, to allot and issue any of the company’s unissued shares for cash as they in their discretion may deem fit, without restriction, subject to the provisions of the Companies Act….’’
‘… To place shares equal to an aggregate of x% of the number of shares in issue at any time under the control of the directors for allotment and issue for acquisition until the next annual general meeting.’
- Share Buy Back
“Resolved, as a special resolution, that the company and the subsidiaries of the company be and are hereby authorised, as a general approval, to repurchase any of the shares issued by the company, upon such terms and conditions and in such amounts as the directors may from time to time determine
…the Company be and is hereby authorized to the fullest extent permitted by law, to buy back at any time such amount of ordinary shares of no par value in the Company as may be determined by the Directors of the Company from time to time through the BSE, upon the terms and conditions that may be deemed fi t and expedient in the interest of the Company
- Dividends
‘…To approve the interim dividend declared on XXX and final dividend on XXX, as authorised, and recommended by the Director
Director Appointments
Non-Executive Directors Appointments, Re-elections and Retirements
Evaluating the value-add of a non-executive director is one of the most challenging endeavors that a shareholder can undertake. We do not have the benefit of sitting in board meetings and experiencing first-hand how directors participate in discussions, guide and challenge management views, plans and make decisions, how they vote on matters requiring board approval, and how they hold management accountable. Further, we do not have access to board meeting minutes.
While we evaluate each director on their individual merits, we generally take the following factors into account when voting:
- Qualifications, skills and expertise of the board member
- Other board commitments they have and any senior executive roles they hold as these directly influence the time directors can commit to fulfilling their responsibilities.
- Level of independence within the board’s composition, with a majority of non-executives members being independent
- how their inclusion on the board affects the balance of skills (improves, diversifies, concentrates skill set etc).
- how their inclusion will affect the size of the board
- The board should have independent directors who have technical expertise in the core industry/ies of the business
- Board and sub-committee meeting attendance. Persistent absence could be indicative
of inability to commit time to board responsibilities. - Board tenure: The length of time each director has served on the Board. Best practice guidance as per King IV is 9 years. We are flexible to support companies that wish to have a longer period of more than 9 years subject to continued independence test and value add
Risk screening assessments to identify any prominence or political affiliations or relevant misconduct that could impair their ability to act in the best interests of shareholders
Common Resolutions:
- To ratify and confirm the appointment of Ms Y who was appointed to fill in a casual vacancy on the board in accordance the Constitution on DD MMM YYYY
- To confirm the re-election of Mr X who retires in accordance with the Constitution and, being eligible, offers himself for re-election.
- To note/ratify the resignation of Ms D from the board with effect from DD MMM YYYY
Board Committee
Morula continuously monitors the composition of board committees, which may also inform proposed appointments and re-elections. Key qualities of board sub-committees typically include the following:
- Committee members should possess the relevant skills, knowledge, and experience to effectively execute the duties of the respective committee.
- The chairperson of all committees should be an independent non-executive directors.
- The Remuneration and Audit Committees should be wholly comprised of independent non-executive directors, with executive directors’ attendance by invitation only
Non-Executive Directors Remuneration
Non-executive directors remuneration should be set at levels adequate to attract non-executive directors with requisite skills and experience in the industry, strategy, governance, audit amongst others skill sets necessary to effectively oversee the affairs of the company.
Fees should be reviewed continuously to ensure they remain attractive and competitive to retain the talent on the board.
We benchmark fees across industry peers and broader market peers of a similar size and complexity as a test for reasonability of the subject company fees.
We typically favour remuneration structures that incorporate a sitting fee and retainer fee for compensation for attendance to issues outside of the normal board and committee calendar.
Common Resolutions:
- To approve the non-executive directors’ remuneration for the year ended DD MMM
YYYY
Executive Remuneration and Remuneration Policy
We seek to invest in companies with management teams that think and act as owners, and ARE owners.
Executive remuneration should at a minimum have three elements;
- guaranteed pay
- Short Term Incentives and
- Long Term Incentives with a vesting period of at least three years and malus and clawback
provisions.
We examine the executive management remuneration policy to ensure that the guaranteed remuneration is competitive enough to attract and retain talented managers, while the incentive structure aligns management to achieving shareholder long-term value growth. Long-term incentive structures that award shares in the company are highly desirable and favoured.
The performance metrics used to assess executive managers should be transparent and objective, enabling a clear determination of the manager’s value addition over a 3 to 5-year period.
We vote for remuneration policies that create alignment between shareholders and management by rewarding long-term value creation and conversely penalize management for value destruction or underperformance.
Common Resolutions:
- To approve the remuneration of the Executive Directors
Auditor Appointments
Fundamental analysis, which forms part of our investment process relies on accurate financial statements that report on the true and fair performance of a company over a period. We rely on the independence of auditors in providing reasonable assurance on the reliability of financials of companies.
King IV Report on Corporate Governance encourages the rotation of auditors and appropriate disclosure to support independence, while leaving the specific requirements to applicable legislation. We expect periodic auditor rotation. as per regulation 9 (3) of the Financial Reporting Regulations of BAOA, to appoint an auditor for a term not exceeding 5 years and may be reappointed for another term not exceeding 5 years.
Common Resolutions:
- To appoint Firm XYZ as auditors for the ensuing year
- To re-appoint Firm XYZ as auditors for the following year
- To appoint auditors for the ensuing year
Auditor Remuneration
We evaluate reasonability of fees based on scope of work and comparability to firms of a similar size and complexity.
Common Resolutions:
- To approve the remuneration of the external auditors for the year
Special/Extraordinary General Meetings
Extraordinary general meetings (EGMs) are typically convened with a focus on ensuring that such meetings are called only when necessary and that the issues raised are significant to the shareholders.
We carefully review the rationale behind any special EGM, considering whether the issues at hand are truly extraordinary and warrant immediate attention outside of the regular annual general meeting (AGM) cycle.
We vote in favor of special EGMs when they involve critical corporate actions, such as mergers, acquisitions, changes in company constitutions or significant changes in governance that are likely to impact the value of the investment.
Due diligence and responsibility to engage with the company prior to the meeting is essential and seeking clarity on the proposals is a process we undertake