Investment Stewardship

We are committed to advocating for stronger governance practices at the companies we invest in because we believe it can improve returns for our clients.

Stewardship at Dimensional is a global effort supported by many groups and departments. Under the oversight of our Investment Stewardship Committee, our team works to protect and enhance shareholder value through engagements, proxy voting, and advocacy efforts. These efforts are detailed in our Annual Stewardship Report.

Download 2020 Annual Stewardship Report

For questions about our stewardship and responsible investing approach and policies, please visit the resources below or contact our Investment Stewardship group at corporategovernance@dimensional.com.

Inside this year's report:
Explore Voting and Engagement Case Studies

Learn about the impacts of COVID-19 on corporate governance

Discover Dimensional’s approach to voting on environmental and social proposals
 

Policies

  • Investment Stewardship Statement

    This document describes Dimensional’s approach to investment stewardship.

    Download the Report

  • Responsible Investment Statement

    This document describes Dimensional’s approach to responsible investing.

    Download the Report

  • Statement on Investment in Controversial Weapons

    This document details Dimensional’s position with respect to investments in companies involved in the production of controversial weapons.

    Download the Report

  • Frequently Asked Questions

    Who is responsible for Investment Stewardship at Dimensional?

    Dimensional’s global investment stewardship activities are managed by the Investment Stewardship Group, which sits within Dimensional’s Portfolio Management department. The group implements policies, monitors day-to-day operations, and researches governance issues and industry trends. Our Investment Stewardship Committee, comprised of senior management, is responsible for overseeing the Investment Stewardship Group, formulating and recommending changes to policy, and making decisions on governance-related matters.

    What is Dimensional’s policy on proxy voting?

    Dimensional votes or refrains from voting proxies on behalf of mutual funds as well as those separate account mandates for which clients have given us the authority to vote according to its then current proxy voting policies and procedures. Our voting activities are intended to maximize shareholder value. This involves consideration of the feasibility, costs, and expected benefits of voting for each portfolio. Our proxy voting policies, summarized in the Statement of Additional Information (SAI) for the funds, further describe how we vote; answers to some specific questions are provided below.

    Does Dimensional vote proxies at every company meeting?

    Dimensional seeks to vote, or refrain from voting, proxies in a manner that we believe is in the best interest of each portfolio. In instances where the costs—including opportunity costs—of voting exceed the expected economic benefits, we may refrain from voting. Additionally, international market restrictions—such as share blocking, re-registration, and onerous power of attorney requirements—may preclude us from voting in certain markets or at certain company meetings.

    Does Dimensional utilize any third-party services in the proxy voting process?

    Yes. Dimensional has engaged Institutional Shareholder Services (ISS) to provide information on shareholder meeting dates, research on proxy proposals, and voting recommendations based on our proxy voting policies and procedures. ISS also provides vote execution through its proprietary voting platform. In addition to ISS, we may also review voting recommendations from Glass Lewis and other research providers for selected meetings. Third-party research is only one of several inputs into our voting decision on a given proposal. We retain final discretion on how to vote.

    Does Dimensional disclose its voting intentions or share ownership prior to voting?

    Dimensional generally does not disclose our voting intentions or the portfolios’ share ownership prior to voting, except as required by applicable laws and regulation.

    Does Dimensional make its proxy voting record publicly available?

    Yes. We disclose voting information for our US mutual funds on our public website. We also file form N-PX, containing the full voting record for our US-based mutual funds, with the US Securities and Exchange Commission on an annual basis.

    Is Dimensional a signatory to the United Nations Principles for Responsible Investment (UN-PRI)?

    Yes. Dimensional became a signatory to the UN-PRI in August 2012.

    How may I contact Dimensional’s Investment Stewardship Group?

    The group may be contacted via email: corporategovernance@dimensional.com.

  • Proxy Voting Guidelines

     

    Effective February 16, 2021

     

    General Approach to Corporate Governance and Proxy Voting


    When voting proxies, Dimensional1 seeks to act in the best interests of the funds and accounts we manage and consistent with applicable legal and fiduciary standards. We seek to maximize shareholder value subject to the standards of the relevant legal and regulatory regimes, listing requirements, corporate governance and stewardship codes, and any particular investment or voting guidelines of specific funds or accounts. Dimensional will evaluate management and shareholder proposals on a case-by-case basis, in the circumstances explained below.

    We expect the members of a portfolio company’s board to act in the interests of their shareholders. Each portfolio company’s board should implement policies and adopt practices that align the interests of the board and management with those of its shareholders. Since a board’s main responsibility is to oversee management and to manage and mitigate risk, it is important that board members have the experience and skills to carry out that responsibility.

    This document outlines Dimensional's global approach to key proxy voting issues and highlights particular considerations in specific markets.

     

    Global Evaluation Framework

     

    Dimensional’s Global Evaluation Framework sets out our general expectations for all portfolio companies. When implementing the principles contained in our Global Evaluation Framework in a given market, in addition to the relevant legal and regulatory requirements, Dimensional will consider local market practices. Additionally, for portfolio companies in the United States, Europe, the Middle East, Africa, Japan, and Australia, Dimensional will apply the market-specific considerations contained in the relevant subsection in these Guidelines.

    Uncontested Director Elections

    Dimensional may vote against individual directors, committee members, or the full board of a portfolio company, such as in the following situations:

    1. There are problematic audit-related practices;
    2. There are problematic compensation practices or persistent pay for performance misalignment;
    3. There are problematic anti-takeover provisions;
    4. There have been material failures of governance, risk oversight, or fiduciary responsibilities;
    5. The board has failed to adequately respond to shareholder concerns;
    6. The board has demonstrated a lack of accountability to shareholders;
    7. There is an ineffective board refreshment process2.

    If a director is a member of multiple boards of various portfolio companies, and one of those boards has one of the issues listed in 1-7 above, Dimensional may vote against that director with respect to the board of the portfolio company with the issue as well as any other portfolio company boards.

    Dimensional also considers the following when voting on directors of portfolio companies:

    1. Board and committee independence;
    2. Director attendance: Dimensional generally expects directors to attend at least 75% of board and committee meetings;
    3. Director capacity to serve;
    4. Board composition.

     

    Board Refreshment

    An effective board refreshment process for a portfolio company can include the alignment of directors’ skills with business needs, assessment of individual director performance and feedback, and a search process for new directors that appropriately incorporates qualification criteria. Dimensional believes information about a portfolio company’s assessment and refreshment process should be disclosed and should generally include:

    • The processes and procedures by which the company identifies the key competencies that directors should possess in order to ensure the board is able to appropriately oversee the risks and opportunities associated with the company’s strategy and operations;
    • How the performance of individual directors and the board as a whole is assessed;
    • The alignment between the skills and expertise of each board member and the key competencies identified in the board assessment process;
    • Board refreshment mechanisms;
    • Director recruitment policies and procedures; and
    • The extent to which diversity considerations are incorporated into board assessment and refreshment practices and director recruitment policies.

     

    In evaluating a portfolio company’s refreshment process, Dimensional may consider, among other information:

    • Whether the company’s board assessment process meets market best practices in terms of objectiveness, rigor, disclosure, and other criteria;
    • Whether the company has any mechanisms to encourage board refreshment; and
    • Whether the company has board entrenchment devices, such as a classified board or plurality vote standard.

     

    An additional consideration that may lead Dimensional to scrutinize the effectiveness of a portfolio company’s board refreshment process is a lack of gender, racial, or ethnic diversity on the board. In jurisdictions where gender, racial, or ethnic representation on a board is not mandated by law, Dimensional may consider whether a portfolio company seeks to follow market best practices as the portfolio company nominates new directors and assesses the performance of existing directors who have the diversity of backgrounds, experiences, and skill-sets needed to effectively oversee management and manage risk.


    Bundled/Slate Director Elections

    Dimensional generally opposes bundled director elections at portfolio companies; however, in markets where individual director elections are not an established practice, bundled elections are acceptable as long as the full list of candidates is disclosed in a timely manner.


    Contested Director Elections

    In the case of contested board elections at portfolio companies, Dimensional takes a case-by-case approach. With the goal of maximizing shareholder value, we consider the qualifications of the nominees, the likelihood that each side can accomplish their stated plans, the portfolio company's corporate governance practices, and the incumbent board's history of responsiveness to shareholders.

     

    Board Size

    Dimensional believes that portfolio company boards are responsible for determining an appropriate size of the board of directors within the confines of relevant corporate governance codes and best practice standards. However, Dimensional will generally oppose proposals to alter board structure or size in the context of a fight for control of the portfolio company or the board.

     

    Auditors

    Dimensional will typically support the ratification of auditors unless there are concerns with the auditor's independence, the accuracy of the auditor's report, the level of non-audit fees, or if lack of disclosure makes it difficult for us to assess these factors.

    In addition to voting against the ratification of the auditors, Dimensional may also vote against or withhold votes from audit committee members at portfolio companies in instances of fraud, material weakness, or significant financial restatements.

     

    Anti-Takeover Provisions

    We believe that the market for corporate control, which often results in acquisitions which generally increase shareholder value, should be able to function without undue restrictions. Takeover defenses such as shareholder rights plans (poison pills) can lead to entrenchment of management and reduced accountability at the board level.

     

    Related-Party Transactions

    Related-party transactions have played a significant role in several high-profile corporate scandals and failures. We believe related-party transactions should be minimized. When such transactions are determined to be fair to the portfolio company and its shareholders in accordance with the company’s policies and governing law, they should be thoroughly disclosed in public filings.

     

    Amendments to Articles of Association/Incorporation

    Dimensional expects the details of proposed amendments to articles of association or incorporation, or similar portfolio company documents, to be clearly disclosed. Dimensional will typically support such amendments that are routine in nature or are required or prompted by regulatory changes. Dimensional may vote against amendments that negatively impact shareholder rights or diminish board oversight.

     

    Equity Plans

    Dimensional supports the adoption of equity plans that align the interests of the portfolio company board, management, and company employees with those of shareholders.

    Dimensional will evaluate equity plans on a case-by-case basis, taking into account the potential dilution to shareholders, the portfolio company's historical use of equity, and the particular plan features.

     

    Executive Remuneration

    Dimensional supports remuneration for executives that is clearly linked to the portfolio company’s performance. Remuneration should be designed to attract, retain and appropriately motivate and serve as a means to align the interests of executives with those of shareholders. To the extent that remuneration is clearly excessive and not aligned with the portfolio company’s performance or other factors, Dimensional would not support such remuneration. Additionally, Dimensional expects portfolio companies to strive to follow local market practices with regards to the specific elements of remuneration and the overall structure of the remuneration plan.

    Therefore, Dimensional reviews proposals seeking approval of a portfolio company’s executive remuneration plan closely, taking into account the quantum of pay, company performance, and the structure of the plan.

     

    Director Remuneration

    Dimensional will generally support director remuneration at portfolio companies that is reasonable in both size and composition relative to industry and market norms.

     

    Mergers & Acquisitions (M&A)

    Dimensional's primary consideration in evaluating mergers and acquisitions is maximizing shareholder value. Given that we believe market prices reflect future expected cash flows, an important consideration is the price reaction to the announcement, and the extent to which the deal represents a premium to the pre-announcement price. Dimensional will also consider the strategic rationale, potential conflicts of interest, and the possibility of competing offers.

    Dimensional may vote against deals where there are concerns with the acquisition process or where there appear to be significant conflicts of interest.

     

    Capitalization

    Dimensional will vote case-by-case on proposals related to portfolio company share issuances, taking into account the purpose for which the shares will be used, the risk to shareholders of not approving the request, and the dilution to existing shareholders.

    Dimensional opposes the creation of share structures that provide for unequal voting rights, including dual class stock with unequal voting rights or mechanisms such as loyalty shares that may skew economic ownership and voting rights within the same class of shares, and will generally vote against proposals to create or continue such structures. Dimensional may also vote against directors at portfolio companies that adopt or maintain such structures without shareholder approval.

     

    Shareholder Proposals

    Dimensional’s goal when voting on shareholder proposals to portfolio companies is to support those proposals that protect or enhance shareholder value through improved board accountability, improved policies and procedures, or improved disclosure.

    When evaluating shareholder proposals, Dimensional will consider the portfolio company’s current handling of the issue (both on an absolute basis and relative to market practices), the company’s compliance with regulatory requirements, the potential cost to the company of implementing the proposal, and whether the issue is better addressed through legal or regulatory action.

     

    Virtual Meetings

    Dimensional does not oppose the use of virtual-only meetings if shareholders are provided with the same rights and opportunities as available during a physical meeting, including:

    • The ability to see and hear company representatives;
    • The ability to ask questions of company representatives; and
    • The ability to see or hear questions submitted to company representatives by other shareholders, including those questions not answered by company representatives.

     

    Disclosure of Vote Results

    Dimensional expects detailed disclosure of voting results. In cases where vote results have not been disclosed within a reasonable time frame, we may vote against individual directors, committee members, or the full board of a portfolio company.

     

    Voting Guidelines for Environmental and Social Issues3

     

    Dimensional believes that portfolio company boards are responsible for addressing material environmental and social (E&S) issues within their duties. If a portfolio company is unresponsive to material E&S risks which may have economic ramifications for shareholders, Dimensional may vote against directors individually, committee members, or the entire board. We may communicate with portfolio companies to better understand the alignment of the interests of boards and management with those of shareholders on these topics.

    Dimensional evaluates shareholder proposals on environmental or social issues consistent with its general approach to shareholder proposals, paying particular attention to the portfolio company’s current handling of the issue, current disclosures, the financial materiality of the issue, market practices, and regulatory requirements. Dimensional may vote for proposals requesting disclosure of specific environmental and social data, such as information about board oversight, risk management policies and procedures, or performance against a specific metric, if we believe that the portfolio company’s current disclosure is inadequate to allow shareholders to effectively assess the portfolio company’s handling of a material issue.

     

    Evaluating Disclosure of Material Environmental or Social Risks

     

    Dimensional generally believes that information about the oversight and mitigation of material environmental or social risks should be disclosed by portfolio companies. Dimensional generally expects the disclosure regarding oversight and mitigation to include:

    • A description of material risks.
    • A description of the process for identifying and prioritizing such risks and how frequently it occurs.
    • The policies and procedures governing the handling of each material risk.
    • A description of the management-level roles/groups involved in oversight and mitigation of each material risk.
    • A description of the metrics used to assess the effectiveness of mitigating each material risk, and the frequency at which performance against these metrics is assessed.
    • A description of how the board is informed of material risks and the progress against relevant metrics.

     

    In certain instances where Dimensional determines that disclosure by a portfolio company is insufficient for a shareholder to be able to adequately assess the relevant risks facing a portfolio company, Dimensional may, on a case-by-case basis, vote against individual directors, committee members, or the entire board, or may vote in favor of related shareholder proposals consistent with Dimensional’s general approach to such proposals.

     

    Political and Lobbying Activities

    Dimensional expects boards of portfolio companies to exercise oversight of political and lobbying-related expenditures and ensure that such spending is in line with shareholder interests.

    In evaluating a portfolio company’s policies related to political and lobbying expenditure, we expect the following practices:

    • The board to adopt policies and procedures to oversee political and lobbying expenditures;
    • The details of the board oversight, including the policies and procedures governing such expenditures, to be disclosed publicly; and
    • That board oversight of political and lobbying activities, such as spending, should include ensuring that the portfolio company’s publicly stated positions are in alignment with its related activities and spending.

     

    Human Capital Management

    Dimensional expects portfolio company board oversight of human capital management issues. We expect portfolio companies to disclose sufficient information for shareholders to understand the policies, procedures, and personnel a company has in place to address issues related to human capital management. This disclosure should include the company’s human capital management goals in key areas, such as compensation, employee health and wellness, employee training and development, and workforce composition, as well as the metrics by which the company assesses performance against these goals.

     

    Climate Change

    Dimensional expects portfolio companies to disclose information on their handling of risks from climate change, to the extent those risks may have a material impact on the company. Climate change risks may include physical risks of climate change from changing weather patterns and/or transitional risks of climate change from changes in regulation or consumer preferences. Disclosure should include the specific risks identified, the potential impact those risks could have on the company’s business, operations, or strategy, the individuals responsible for managing these risks, and the metrics used to assess the handling of these risks. The methodology for measuring performance against these metrics should be clearly disclosed, particularly in instances where a recognized third-party framework, such as Task Force for Climate-related Financial Disclosures (TCFD) or Sustainability Account Standards Board (SASB), is not being used.

     

    Evaluation Framework for U.S. Listed Companies

     

    Director Elections

     

    Uncontested Director Elections

    Shareholders elect the board of a portfolio company to represent their interests and oversee management and expect boards to adopt policies and practices that align the interests of the board and management with those of shareholders and limit the potential for conflicts of interest.

    One of the most important measures aimed at ensuring that portfolio company shareholders’ interests are represented is an independent board of directors, made up of individuals with the diversity of backgrounds, experiences, and skill-sets needed to effectively oversee management and manage risk. We expect portfolio company boards to be majority independent and key committees to be fully independent.

    Dimensional believes shareholders should have a say in who represents their interests and portfolio companies should be responsive to shareholder concerns. Dimensional may vote against or withhold votes from individual directors, committee members, or the full board, and may also vote against such directors when they serve on other portfolio company boards, in the following situations:

    • The continued service of directors who failed to receive the support of a majority of shareholders (regardless of whether the company uses a majority or plurality vote standard).
    • Failure to adequately respond to majority-supported shareholder proposals.

     

    Contested Director Elections

    In the case of contested board elections at portfolio companies, Dimensional takes a case-by-case approach. With the goal of maximizing shareholder value, we consider the qualifications of the nominees, the likelihood that each side can accomplish their stated plans, the portfolio company's corporate governance practices, the incumbent board's history of responsiveness to shareholders, and the market’s reaction to the contest.

     

    Board Structure and Composition

     

    Age and Term Limits

    Dimensional believes it is the responsibility of a portfolio company’s nominating committee to ensure that the company’s board of directors is composed of individuals with the skills needed to effectively oversee management and will generally oppose proposals seeking to impose age or term limits for directors.

    That said, portfolio companies should clearly disclose their director evaluation and board refreshment policies in their proxy. Lack of healthy turnover on the board of a portfolio company or lack of observable diversity on a portfolio company board may lead Dimensional to scrutinize the rigor of a portfolio company’s board refreshment process.

     

    CEO/Chair

    Dimensional believes that the portfolio company boards are responsible for determining whether the separation of roles is appropriate and adequately protects the interests of shareholders.

    At portfolio companies with a combined CEO/Chair, Dimensional expects the board to appoint a lead independent director with specific responsibilities, including the setting of meeting agendas, to seek to ensure the board is able to act independently.

    Recent environmental, social, and governance controversies resulting from inadequate board oversight may be taken into account when voting on shareholder proposals seeking the separation of the roles of CEO and Chair at a portfolio company.

     

    Governance Practices

     

    Classified Boards

    Dimensional believes that shareholders should be given the right to vote on the entire slate of directors at a portfolio company on an annual basis. Therefore, we encourage portfolio company boards to conduct annual elections for all sitting directors.

    Dimensional will generally support proposals to declassify existing boards at portfolio companies and will generally oppose efforts by portfolio companies to adopt classified board structures, in which only part of the board is elected each year.

    Dimensional will generally vote against or withhold votes from incumbent directors at portfolio companies that adopt a classified board without shareholder approval.  Dimensional may also vote against or withhold votes from directors at portfolio companies that adopt classified boards prior to or in connection with an IPO.

     

    Dual Classes of Stock

    Dual class share structures are generally seen as detrimental to shareholder rights, as they are accompanied by unequal voting rights. Dimensional believes in the principle of one share, one vote.

    Dimensional opposes the creation of dual-class share structures with unequal voting rights at portfolio companies and will generally vote against proposals to create or continue dual-class capital structures.

    Dimensional will generally vote against or withhold votes from directors at portfolio companies that adopt a dual-class structure without shareholder approval after the company’s IPO. Votes against or withheld votes from directors for implementation of a dual-class structure prior to or in connection with an IPO will be considered on a case-by-case basis.

     

    Supermajority Vote Requirements

    Dimensional believes that the affirmative vote of a majority of shareholders of a portfolio company should be sufficient to approve items such as bylaw amendments and mergers. Dimensional will generally vote against proposals seeking to implement a supermajority vote requirement and for shareholder proposals seeking the adoption of a majority vote standard.

    Dimensional will generally vote against or withhold votes from incumbent directors at portfolio companies that adopt a supermajority vote requirement without shareholder approval. Dimensional may also vote against or withhold votes from directors at portfolio companies that adopt supermajority vote requirements prior to or in connection with an IPO.

     

    Shareholder Rights Plans (Poison Pills)

    Dimensional generally opposes poison pills. As a result, we may vote against the adoption of a pill and all directors at a portfolio company that put a pill in place without first obtaining shareholder approval. Votes against (or withheld votes from) directors may extend beyond the portfolio company that adopted the pill, to all boards the directors serve on. In considering a poison pill for approval, we may take into account the existence of ‘qualified offer’ and other shareholder-friendly provisions.

    For pills designed to protect net operating losses, we may take into consideration a variety of factors, including but not limited to the size of the available operating losses and the likelihood that they will be utilized to offset gains.

     

    Cumulative Voting

    Under cumulative voting, each shareholder is entitled to the number of his or her shares multiplied by the number of directors to be elected. Shareholders have the flexibility to allocate their votes among directors in the proportion they see fit, including casting all their votes for one director. This is particularly impactful in the election of dissident candidates to the board in the event of a proxy contest.

    Dimensional will typically support proposals that provide for cumulative voting and against proposals to eliminate cumulative voting unless the portfolio company has demonstrated that there are adequate safeguards in place, such as proxy access and majority voting.

     

    Majority Voting

    For the election of directors, portfolio companies may adopt either a majority or plurality vote standard. In a plurality vote standard, the directors with the most votes are elected. If the number of directors up for election is equal to the number of board seats, each director only needs to receive one vote in order to be elected. In a majority vote standard, in order to be elected, a director must receive the support of a majority of shares voted or present at the meeting.

    Dimensional supports a majority (rather than plurality) voting standard for uncontested director elections at portfolio companies. The majority vote standard should be accompanied by a director resignation policy to address failed elections.

    To account for contested director elections, portfolio companies with a majority vote standard should include a carve-out for plurality voting in situations where there are more nominees than seats.

     

    Right to Call Meetings and Act by Written Consent

    Dimensional will generally support the right of shareholders to call special meetings of a portfolio company board (if they own 25% of shares outstanding) and take action by written consent. 

     

    Proxy Access

    Dimensional will typically support management and shareholder proposals for proxy access that allow a shareholder (or group of shareholders) holding three percent of voting power for three years to nominate up to 25 percent of a portfolio company board. Dimensional will typically vote against proposals that are more restrictive than these guidelines.

     

    Amend Bylaws/Charters

    Dimensional believes that shareholders should have the right to amend a portfolio company’s bylaws. Dimensional will generally vote against or withhold votes from incumbent directors at portfolio companies that place substantial restrictions on shareholders' ability to amend bylaws through excessive ownership requirements for submitting proposals or restrictions on the types of issues that can be amended.

     

    Exclusive Forum

    Dimensional is generally supportive of management proposals at portfolio companies to adopt an exclusive forum for shareholder litigation.

     

    Executive and Director Compensation

     

    Stock-Based Compensation Plans

    Dimensional supports the adoption of equity plans that align the interests of portfolio company board, management, and company employees with those of shareholders.

    Dimensional will evaluate equity compensation plans on a case-by-case basis, taking into account the potential dilution to shareholders, the portfolio company’s historical use of equity, and the particular plan features.

    Dimensional will typically vote against plans that have features that have a negative impact on shareholders of portfolio companies. Such features include single-trigger or discretionary vesting, an overly broad definition of change in control, a lack of minimum vesting periods for grants, evergreen provisions, and the ability to reprice shares without shareholder approval.

    Dimensional may also vote against equity plans if problematic equity grant practices have contributed to a pay for performance misalignment at the portfolio company.

     

    Employee Stock Purchase Plans

    Dimensional will generally support qualified employee stock purchase plans (as defined by Section 423 of the Internal Revenue Code), provided that the purchase price is no less than 85 percent of market value, the number of shares reserved for the plan is no more than ten percent of outstanding shares, and the offering period is no more than 27 months.

     

    Supplemental Executive Retirement Plans

    Dimensional will generally support shareholder proposals that ask the portfolio company to put to shareholder vote extraordinary benefits such as credit for years of service not actually worked, preferential benefit formulas, or accelerated vesting of pension benefits contained in supplemental executive retirement plan (SERP).

     

    Advisory Votes on Executive Compensation (Say on Pay)

    Dimensional supports reasonable compensation for executives that is clearly linked to the portfolio company’s performance. Compensation should serve as a means to align the interests of executives with those of shareholders. To the extent that compensation is excessive, it represents a transfer to management of shareholder wealth. Therefore, Dimensional reviews proposals seeking approval of a portfolio company’s executive compensation plan closely, taking into account the quantum of pay, company performance, and the structure of the plan.

    Certain practices, such as:

    • multi-year guaranteed bonuses
    • excessive severance agreements (particularly those that vest without involuntary job loss or diminution of duties or those with excise-tax gross-ups)
    • single, or the same, metrics used for both short-term and long-term executive compensation plans may encourage excessive risk-taking by executives at portfolio companies and are generally opposed by Dimensional.

     

    At portfolio companies that have a history of problematic pay practices or excessive compensation, Dimensional will consider the company’s responsiveness to shareholders’ concerns and may vote against or withhold votes from members of the compensation committee if these concerns have not been addressed.

     

    Frequency of Say on Pay

    Executive compensation in the United States is typically composed of three parts: 1) base salary; 2) cash bonuses based on annual performance (short-term incentive awards); 3) and equity awards based on performance over a multi-year period (long-term incentive awards).

    Dimensional supports triennial say on pay because it allows for a longer-term assessment of whether compensation was adequately linked to portfolio company performance. This is particularly important in situations where a company makes significant changes to their long-term incentive awards, as the effectiveness of such changes in aligning pay and performance cannot be determined in a single year. 

    If there are serious concerns about a portfolio company's compensation plan in a year where the plan is not on the ballot, Dimensional may vote against or withhold votes from members of the Compensation Committee.

     

    Clawback Provisions

    Dimensional typically supports clawback provisions in executive compensation plans as a way to mitigate risk of excessive risk taking by executives at portfolio companies.

     

    Executive Severance Agreements (Golden Parachutes)

    Dimensional analyzes golden parachute proposals on a case-by-case basis.

    Dimensional expects payments to be reasonable on both an absolute basis and relative to the value of the transaction. Dimensional will typically vote against agreements with cash severance of more than 3x salary and bonus.

    Dimensional expects vesting of equity to be contingent on both a change in control and a subsequent involuntary termination of the employee (“double-trigger change in control”).

     

    Corporate Actions

     

    Reincorporation

    Dimensional will evaluate reincorporation proposals on a case-by-case basis.

    Dimensional may vote against reincorporations if the move would result in a substantial diminution of shareholder rights at the portfolio company.

     

    Capitalization

     

    Increase Authorized Shares

    Dimensional will vote case-by-case on proposals seeking to increase common or preferred stock of a portfolio company, taking into account the purpose for which the shares will be used and the risk to shareholders of not approving the request.

    Dimensional will typically vote against requests for common or preferred stock issuances that are excessively dilutive relative to common market practice.

    Dimensional will typically vote against proposals at portfolio companies with multiple share classes to increase the number of shares of the class with superior voting rights.

     

    Blank Check Preferred Stock

    Blank check preferred stock is stock that can be issued at the discretion of the board, with the voting, conversion, distribution, and other rights determined by the board at the time of issue. Therefore, blank check preferred stock can potentially serve as means to entrench management and prevent takeovers at portfolio companies.

    To mitigate concerns regarding what we believe is the inappropriate use of blank check preferred stock, Dimensional expects portfolio companies seeking approval for blank preferred stock to clearly state that the shares will not be used for anti-takeover purposes.

     

    Share Repurchases

    Dimensional will generally support open-market share repurchase plans that allow all shareholders to participate on equal terms. Portfolio companies that use metrics such as earnings per share (EPS) in their executive compensation plans should ensure that the impact of such repurchases are taken into account when determining payouts.

     

    Shareholder Proposals

    Dimensional’s goal when voting on shareholder proposals is to support those proposals that protect or enhance shareholder value through improved board accountability, improved policies and procedures, or improved disclosure.

    When evaluating shareholder proposals, Dimensional will consider the portfolio company’s current handling of the issue (both on an absolute basis and relative to market practices), the company’s compliance with regulatory requirements, the potential cost to the company of implementing the proposal, and whether the issue is better addressed through legal or regulatory action.

    In instances where a shareholder proposal is excluded from the meeting agenda but the SEC has declined to state a view on whether such proposal should be excluded, or when the SEC has verbally permitted a portfolio company to exclude a shareholder proposal but there is no written record provided by the SEC about such determination, we expect the portfolio company to provide shareholders with substantive disclosure concerning this exclusion and/or no-action relief. If substantive disclosure is lacking, Dimensional may vote against or withhold votes from certain directors on a case-by-case basis.

     

    Evaluation Framework for Europe, the Middle East, and Africa (EMEA) Listed Companies

     

    Continental Europe

     

    Director Election Guidelines

    • Portfolio company boards should be majority independent (excluding shareholder or employee representatives as provided by law); however, lower levels of board independence may be acceptable in controlled companies and in those markets where local best practice indicates that at least one-third of the board be independent.
    • A majority of audit and remuneration committee members (excluding shareholder or employee representatives as provided by law) should be independent; the committees overall should be at least one-third independent.
    • Executives should generally not serve on audit and remuneration committees.

     

    Remuneration Guidelines

    Dimensional expects annual remuneration reports published by portfolio companies pursuant to the Shareholder Rights Directive II to disclose, at a minimum:

    • The amount paid to executives;
    • Alignment between pay and performance;
    • The targets used for variable incentive plans and the ex-post levels achieved; and
    • The rationale for any discretion applied.

     

    Other Market Specific Guidelines for Continental Europe

    • In Germany, Dimensional will generally vote against the appointment of a former CEO as chairman of the supervisory board.

     

    United Kingdom & Ireland

    Dimensional expects portfolio companies to follow the requirements of the UK Corporate Governance Code with regards to board and committee composition. When evaluating the methods used by a portfolio company to review and establish board composition, including determining female representation on the board, Dimensional intends to apply the board evaluation process as outlined in our Global Evaluation Framework.

    Dimensional also expects companies to align their remuneration with the requirements of the UK Corporate Governance Code and to consider best practices such as those set forth in the Investment Association Principles of Remuneration.

     

    South Africa

    Dimensional expects portfolio companies to follow the recommendations of the King Report On Corporate Governance (King Code IV) with regards to board and committee composition.

     

    Turkey

    Dimensional expects the board of directors of a portfolio company to be at least one-third independent; at minimum two directors should be independent.

    Dimensional expects the board of a portfolio company to establish an independent audit committee.

    Dimensional expects the board of a portfolio company to establish a board committee with responsibility for compensation and nominating matters. This committee should be chaired by an independent director.

     

    Framework for Evaluating Australia-Listed Companies

     

    Uncontested Director Elections

    Shareholders elect the board of a portfolio company to represent their interests and oversee management and expect portfolio company boards to adopt policies and practices that align the interests of the board and management with those of shareholders and limit the potential for conflicts of interest.

    One of the most important measures aimed at ensuring that portfolio company shareholders’ interests are represented is an independent board of directors, made up of individuals with the diversity of backgrounds, experiences, and skill-sets needed to effectively oversee management and manage risk. We expect portfolio company boards to be majority independent.

    Dimensional believes that key audit and remuneration committees should be composed of independent directors. Dimensional will generally vote against executive directors of the portfolio company who serve on the audit committee or who serve on the remuneration committee if the remuneration committee is not majority independent.

     

    CEO/Chair

    If a portfolio company’s board chair is not independent, the board should have a lead independent director with specific responsibilities, including the setting of meeting agendas. Dimensional may vote against executive board chairs if such measures are absent.

     

    Auditors

    Australian law does not require the annual ratification of auditors; therefore, concerns with a portfolio company's audit practices will be reflected in votes against members of the audit committee.

    Dimensional may vote against audit committee members at a portfolio company if there are concerns with the auditor's independence, the accuracy of the auditor's report, the level of non-audit fees, or if lack of disclosure makes it difficult to assess these factors.

    Dimensional may also vote against audit committee members in instances of fraud or material failures in oversight of audit functions.

     

    Share Issuances

    Dimensional will evaluate requests for share issuances on a case-by-case basis, taking into account factors such as the impact on current shareholders and the rationale for the request.

    When voting on approval of prior share distributions, Dimensional will generally support prior issuances that conform to the dilution guidelines set out in ASX Listing Rule 7.1.

     

    Share Repurchase

    Dimensional will evaluate requests for share repurchases on a case-by-case basis, taking into account factors such as the impact on current shareholders, the rationale for the request, and the portfolio company's history of repurchases. Dimensional expects repurchases to be made in arms-length transactions using independent third parties.

    Dimensional may vote against portfolio company plans that do not include limitations on the company's ability to use the plan to repurchase shares from third parties at a premium and limitations on the use of share purchases as an anti-takeover device.

     

    Constitution Amendments

    Dimensional will evaluate requests for amendments to a portfolio company's constitution on a case-by-case basis. The primary consideration will be the impact on the rights of shareholders.

     

    Non-Executive Director Compensation

    Dimensional will support non-executive director remuneration at portfolio companies that is reasonable in both size and composition relative to industry and market norms.

    Dimensional will generally vote against components of non-executive director remuneration that are likely to impair a director's independence, such as options or performance-based remuneration.

     

    Equity Plans

    Dimensional supports the adoption of equity plans that align the interests of the portfolio company board, management, and company employees with those of shareholders.

    Companies should clearly disclose components of the plan, including vesting periods and performance hurdles.

    Dimensional may vote against plans that are exceedingly dilutive to existing shareholders. Plans that permit retesting or repricing will generally be viewed unfavorably.

     

    Framework for Evaluating Japan-Listed Securities

     

    Uncontested Director Elections

    Shareholders elect the board of a portfolio company to represent their interests and oversee management and expect portfolio company boards to adopt policies and practices that align the interests of the board and management with those of shareholders and limit the potential for conflicts of interest.

    One of the most important measures aimed at ensuring that portfolio company shareholders’ interests are represented is an independent board of directors, made up of individuals with the diversity of backgrounds, experiences, and skill-sets needed to effectively oversee management and manage risk.

    At portfolio companies with a three-committee structure, Dimensional expects at least one-third of the board to be outsiders. Ideally, the board should be majority independent. At portfolio companies with a three-committee structure that have a controlling shareholder, at least two directors and at least one-third of the board should be independent outsiders.

    At portfolio companies with an audit committee structure, Dimensional expects at least one-third of the board to be outsiders. Ideally, the audit committee should be entirely independent; at minimum, any outside directors who serve on the committee should be independent. At portfolio companies with an audit committee structure that have a controlling shareholder, at least two directors and at least one-third of the board should be independent outsiders.

    At portfolio companies with a statutory auditor structure, Dimensional expects the board to include at least two outside directors.  At portfolio companies with a statutory auditor structure that have a controlling shareholder, at least two directors and at least one-third of the board should be independent outsiders.

     

    Statutory Auditors

    Statutory auditors are responsible for effectively overseeing management and ensuring that decisions made are in the best interest of shareholders. Dimensional may vote against statutory auditors who are remiss in their responsibilities.

    When voting on outside statutory auditors, Dimensional expects nominees to be independent and to have the capacity to fulfill the requirements of their role as evidenced by attendance at meetings of the board of directors or board of statutory auditors.

     

    Director and Statutory Auditor Compensation

    Dimensional will support compensation for portfolio company directors and statutory auditors that is reasonable in both size and composition relative to industry and market norms.

    When requesting an increase to the level of director fees, Dimensional expects portfolio companies to provide a specific reason for the increase.  Dimensional will generally support an increase of director fees if it is in conjunction with the introduction of performance-based compensation, or where the ceiling for performance-based compensation is being increased. Dimensional will generally not support an increase in director fees if there is evidence that the directors have been remiss in effectively overseeing management or ensuring that decisions made are in the best interest of shareholders.

    Dimensional will typically support an increase to the statutory auditor compensation ceiling unless there is evidence that the statutory auditors have been remiss in effectively overseeing management or ensuring that decisions made are in the best interest of shareholders.

    Dimensional will generally support the granting of annual bonuses to portfolio company directors and statutory auditors unless there is evidence the board or the statutory auditors have been remiss in effectively overseeing management or ensuring that decisions made are in the best interest of shareholders.

    Dimensional generally supports the granting of retirement benefits to portfolio company insiders, so long as the individual payments, and aggregate amount of such payments, is disclosed.

    Dimensional will generally vote against the granting of retirement bonuses if there is evidence the portfolio company board or statutory auditors have been remiss in effectively overseeing management or ensuring that decisions made are in the best interest of shareholders.

     

    Equity Based Compensation

    Dimensional supports the adoption of equity plans that align the interests of the portfolio company board, management, and company employees with those of shareholders.

    Dimensional will typically support stock option plans to portfolio company executives and employees if total dilution from the proposed plans and previous plans does not exceed 5 percent for mature companies or 10 percent for growth companies.

    Dimensional will generally vote against stock plans if upper limit of options that can be issued per year is not disclosed.

    For deep-discounted stock option plans, Dimensional typically expects portfolio companies to disclose specific performance hurdles.

     

    Capital Allocation

    Dimensional will typically support well-justified dividend payouts that do not negatively impact the portfolio company's overall financial health.

     

    Share Repurchase

    Dimensional is typically supportive of portfolio company boards having discretion over share repurchases absent concerns with the company's balance sheet management, capital efficiency, buyback and dividend payout history, board composition, or shareholding structure.

    Dimensional will typically support proposed repurchases that do not have a negative impact on shareholder value.

    For repurchases of more than 10 percent of issue share capital, Dimensional expects the company to provide a robust explanation for the request.

     

    Shareholder Rights Plans (Poison Pills)

    We believe the market for corporate control, which can result in acquisitions that are accretive to shareholders, should be able to function without undue restrictions. Takeover defenses such as poison pills can lead to entrenchment and reduced accountability at the board level.

     

    Indemnification and Limitations on Liability

    Dimensional generally supports limitations on liability for directors and statutory auditors in ordinary circumstances.

     

    Limit Legal Liability of External Auditors

    Dimensional generally opposes limitations on the liability of external auditors.

     

    Increase in Authorized Capital

    Dimensional will typically support requests for increases of less than 100 percent of currently authorized capital, so long as the increase does not leave the portfolio company with less than 30 percent of the proposed authorized capital outstanding.

    For increases that exceed these guidelines, Dimensional expects portfolio companies to provide a robust explanation for the increase.

    Dimensional will generally not support requests for increases that will be used as an anti-takeover device.

     

    Expansion of Business Activities

    For well performing portfolio companies seeking to expand their business into enterprises related to their core business, Dimensional will typically support management requests to amend the company's articles to expand the company's business activities.

     


    1“Dimensional” refers to any of Dimensional Fund Advisors LP, Dimensional Fund Advisors Ltd., DFA Australia Limited, Dimensional Fund Advisors Pte. Ltd. or Dimensional Japan Ltd.

    2As used in these guidelines “board refreshment process” means the method for reviewing and establishing the composition of the board of the portfolio company (e.g., assessments or self-evaluation, succession planning, approach for searches for board members, criteria for qualification of board members).

    3For considerations in connection with ERISA-covered clients, see the Policy and its references to requirements under ERISA.

     

Voting

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    This report includes details on how Dimensional’s Sustainability Funds voted on environmental proposals during the previous proxy year.

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