Trade Union Share Owners

1. Trade Union Share Owners Janet Williamson TUC Senior Policy Officer and Trustee of the TUC Pension Fund

2. Context - increased union interest in shareholder activity • Financial crisis - highlighted importance of shareholders’ engagement role and risks if not carried out properly • Public policy developments – Stewardship Code • UNISON capital stewardship programme since 2007 • Union campaigns on private equity • Union shareholder resolutions: • Unite shareholder resolution at Tesco AGM in 2009 • UNISON and PCS support for Tar Sands resolution at BP and Shell AGMs in 2010

3. TUC/union group on workers’ capital • From 2008, TUC led a group of union officers and discussing ‘workers’ capital’ issues • Group strongly supported idea of collaboration between union pension funds on voting and engagement • TUC keen to lead in this direction – natural coordination role for TUC • Reflects the principle of ‘collectivism’ that is at the heart of trade unionism

4. Collaboration on voting and engagement • Unions’ own funds should come together to: • Vote in line with trade union values at AGMs • Engage with companies in line with union values • Benefits: • Speak with one voice in capital markets • More effective and cost-efficient than unions acting individually

5. Voting according to trade union values • Trade unions engaged in public policy debates • Detailed policy on employment relationships • Also take a strong stand on executive pay • quantum and relationship between directors and other workers • sceptical about over reliance on performance-related pay • Challenge: gap between union values and fund manager voting

6. Fund manager voting on union-backed resolutions – First Group (2006) • Filed by a group of investors including trade union funds about anti-union activity in its US operations • Supported: Co-op, Hendersons and PIRC • Abstained: Aviva, Blackrock, F&C, HSBC • Opposed: Fidelity, Hermes, Insight, JP Morgan, L&G, M&G, Newton, Risk Metrics, Shroder, Standard Life, State Street

7. Fund manager voting on union-backed resolutions – Tesco (2009) • Organised by Unite and concerned the treatment of agency workers in the company’s meat supply chain • Supported: CCLA, PIRC • Abstained: Baillie Gifford, Co-op, F&C • Opposed: Aberdeen, Aviva, Axa, Barings, Blackrock, Fidelity, Hermes, JP Morgan, Lazard, L&G, M&G, Newton, Risk Metrics, Royal London, Scottish Widows, Standard Life, State Street, UBS

8. Fund manager voting on union-backed resolutions – BP and Shell (2010) • Organised by ShareAction (Fair Pensions as was) and sought to address development of tar sands in Canada – co-filers included UNISON and PCS • Supported: Co-op, CCLA (BP only) • Abstained: Aviva, CCLA (Shell only), F&C (BP only), PIRC • Opposed: Aberdeen, Aviva, Aegon, Baillie Gifford, Blackrock, F&C (Shell only), Fidelity, Hermes, JP Morgan, L&G, M&G, Martin Currie, Newton, Royal London, Scottish Widows (Shell only), Standard Life, Threadneedle, UBS

9. Trade Union Voting and Engagement Guidelines • No one fund manager or adviser supported all three of these union-backed resolutions • Conclusion – to vote in line with trade union values required development of bespoke guidelines • Trade Union Voting and Engagement Guidelines – available on the TUC website • Based on TUC and trade union policies

10. Trade Union Share Owners • Launched end of March 2013 • Initial participation of staff pension funds of TUC, Unite and UNISON • Over £1 billion assets • All unions funds welcome to join at any time • pension funds and general funds • Other funds also welcome if happy to follow our voting guidelines

11. Voting template and implementation • Appointed PIRC – worked with us to create voting template from our guidelines • Generate voting recommendations for FTSE 350 • PIRC can executive the votes • Or TUSO members can mandate fund managers to follow voting recommendations

12. Voting policy - examples • Ratio between top and average company pay is over 20:1 – vote against remuneration reports • Pay increases for executives do not reflect pay increases for other staff – vote against remuneration report • Vote against long-term incentive schemes that do not include all staff on the same terms • Equal opportunities in terms of board recruitment – vote against Chair of nomination Committee

13. Engagement • National Express – anti-union activity in US subsidiary Durham School Services • TUSO signed investor letter • Attended AGM on behalf of TUSO • Develop further engagement activities after voting bedded in

14. Governance principles • Each participating fund gets an equal voice and vote • So far, all decisions made by consensus • Individual funds can opt out of any voting recommendation they want – retain final say on how their fund casts their votes • TUSO does not take positions onstock selection or divestment issues

15. Next steps • Grow - reaching out to more union funds • Develop engagement strategy – possible focus on advertising all directors’ positions publicly • Interested in collaborative engagements with other investors where we share concerns