One of the most important ways in which shareholders can exercise their rights is to vote at annual general meetings (AGMs) of shareholders.
PGGM, which manages pension assets of E52.9bn for the Dutch health and social welfare sector, has been exercising its voting rights on shares in its portfolio for several years. Why? Because studies have shown repeatedly that companies which are well managed perform better and thus produce higher returns for their shareholders. So it is important for shareholders to engage in dialogue with companies on their management techniques.
It is impossible for a large institutional investor which is active worldwide to attend every annual general meeting (AGM). We therefore participate only in the AGMs of the larger Dutch companies in its portfolio, of which it attends around 10 a year. In the other cases, we appoint another pension fund as its proxy. Conversely, PGGM is appointed as proxy by other pension funds for the AGMs which it attends.
In other countries, we cast our votes remotely by means of proxy voting via the internet system operated by Citibank, PGGM’s custodian. External asset managers are also affiliated to this system, so that they can coordinate their voting behaviour with ours.
We use the following sources and resources to arrive at a balanced judgement as to how it should vote:
q Research and analyses by various corporate governance research houses, including Deminor in Europe and ISS in the United States;
q Dutch SCGOP (see panel) and international (GIGN) networks;
q Websites of pension funds which state in advance how they intend to vote (CalPERS and Ontario Teachers);
q Commentaries on the voting behaviour of external portfolio managers in the various regions.
As one of the founders, we have been involved in SCGOP (Foundation for Corporate Governance Research for Pension Funds) from the start.
Around 25 pension funds are now working closely together within SCGOP on their corporate governance. Roderick Munsters, our CIO, was appointed chairman of the foundation in January. He says: “In the past, people have often talked about a ‘Dutch discount’ when referring to the difference between the price of Dutch companies’ shares and those of their peers in other countries. The low corporate governance ratings of Dutch companies, reflecting the many anti-takeover defences they have erected, make their shares worth 5-10% less than comparable foreign shares.
As chairman of the SCGOP, my goal is to contribute to raising corporate governance standards in the Netherlands, in the expectation that, by 2008, they’ll be talking about a 10% ‘Dutch governance premium’’’.
A recurring topic at the AGMs attended by the Dutch pension funds in 2004 has been remuneration policy for top management. One major criticism has been that top salaries bear no relation to the company’s long-term strategic objectives. Another has been that, in many cases, top-level pay is not related to performance or is based on performance criteria which are less than transparent. A third is that a remuneration system should respect current social standards and values, especially now, at a time of economic malaise, when the employers and trade unions in the Netherlands have agreed on a policy of pay restraint for the next two years. It is difficult in that situation to justify a supervisory board decision to award excessive pay rises to top managers, in some cases of several tens of per cent.

At its AGM in September 2003, Ahold announced details of the pay package for Andreas Moberg, its new president and chief executive officer. Ahold was going through a bad patch at the time and needed a ‘new face’ in that post. In the circumstances, a generous - but fair - pay package was not unreasonable, but Moberg’s remuneration was clearly excessive.
The ratio between fixed and variable pay was seriously skewed, no targets, criteria or peer group had been defined and, on top of that, he would receive a guaranteed bonus as well as a ‘bonus for failure’ of two years’ salary plus a double bonus, which could potentially be worth over e10m.
Although PGGM voted in favour of Moberg’s appointment at the AGM, it did so under protest because remuneration policy (and thus Moberg’s pay) was not on the agenda and hence was not voted on. Remuneration policy will not be submitted to the shareholders’ approval until the 2004 AGM.
The day after the AGM, ABP and PGGM wrote a joint letter to Ahold, expressing their dissatisfaction with the state of affairs and with Moberg’s pay deal. Under pressure from many quarters, including the threat of a consumer boycott, Moberg decided to revise certain elements of his remuneration in order to establish closer links between performance and pay.
One of the key principles of the Dutch corporate governance code, often referred to as the ‘Tabaksblat code’, is that institutional investors should play a more active role, which in practice means making active use of voting rights and disclosing their voting behaviour. We do this by posting a report on its voting behaviour
and motivation on its website ( the day after the AGM. W also publish a quarterly report on our proxy voting activities. PGGM’s corporate governance code, which informs its voting behaviour, can also be found at the website.
Sylvia van Waveran is manager, corporate governance, at PGGM,Zeist