ISS: THE GLOBAL LEADER IN GOVERNANCE Santa Barbara County Employees - PowerPoint PPT Presentation

ISS: THE GLOBAL LEADER IN GOVERNANCE Santa Barbara County Employees’ Retirement System January 24, 2018 Now more than ever, Governance Matters www.issgovernance.com

AGENDA › Corporate Governance Evolution › Proxy Voting Policy Options at ISS › Trends in Governance

ISS at the Forefront of Corporate Governance Evolution THE CORPORATE GOVERNANCE INDUSTRY HAS EVOLVED SIGNIFICANTLY IN THE LAST 30 YEARS 2016 CalPERS’ 1988 1999 2003 2011 Global Industry Developments DOL issues Avon OECD releases SEC adopts Proxy Voting Rule under SEC adopts rules for Governance 1985 Letter Principles of the Investment Advisers Act of 1940 “Say on Pay” and 2015 Principles Council of Corporate golden parachutes U.S. Sees Call for Institutional 2014 Governance (Dodd-Frank) Market-Wide Comply-Or- Investors Japan Push To Explain formed; 2010 launches 1992 Facilitate Approach Delaware U.K. Stewardship Stewardship Cadbury Code (U.K.) Private on Long- court cases Code is published / \ Ordering On Tenured lay 2005 Governance 2013 1994 Proxy Access Directors foundation UN develops 2001 “Say on Pay” Codes\ General Motors \ for the Principles of Collapse of initiatives in Corporate Responsible corporate Enron Switzerland & Governance governance Investment Israel Guidelines 1985 1988 1992 1994 1997 1999 2001 2002 2003 2004 2005 2008 2010 2011 2013 2014 2015 2016 2015 Launch of 2002 1992 2013 2016 Governance 1997 First to Launched First to market: 2014 Launch ISS Risk Report Agency Voting ICS founded as market: Governance Launched Analytics, 2004 separate business Corporate Services QuickScore Powered by Equity Plan \ Launched ISS Innovations entity from ISS Governance 2010 Scorecard DataDesk 2015 Governance \ Ratings and \ Launched ISS QuickScore Analytics Securities ProxyExchange coverage Class Action expansion Services 2016 ISS acquires 2000 2008 2011 2013 2015 2014 iiWisdom’s ISS launches Global Launched ExecComp Launched Governance Launched Acquired Acquired Ethix Interactive 2003 Proxy Distribution Analytics Suite PolicyEngine Exchange Incentive SRI Advisors to Governance Service (GPD) First to market: Vote expand ESG Lab Portal Disclosure Services Solutions ISS | Institutional Shareholder Services Inc. 3

Rigorous & Inclusive Policy Formulation Process Balancing global principles and local market specificity, ISS brings a transparent and inclusive approach that includes ongoing market feedback, surveys, roundtables and an open industry comment period. ISS EVOLVES ITS PROCESS › Global In-person Discussion Forums and roundtables frame the policy process. › Annual Policy Survey brings in perspectives from institutional investors, corporate issuers and governance experts. Offers all market constituents the ability to actively participate in ISS’ policy development process. › Numerous Viewpoints are considered to develop guidelines that strike the right balance between shareholder interests and economic practicality. ISS | Institutional Shareholder Services Inc. 4

ISS Provides More Governance Research & Policy Options ISS covers a spectrum of shareholder interests, to align with client philosophies as they serve their underlying clients. ISS Benchmark Specialty Custom Special Situations Research Research Research Research • Global coverage and • 5 thematic policies, • Bespoke implementation of • Comprehensive, principles, ISS market specific including Sustainability, client philosophy independent research on policies and expertise SRI, Faith-based, Taft- high-profile economic • High-touch approach where Hartley, Public Fund proposals, including M&A • Cover 39,000 company custom analyst partners with and contests for corporate • Designed to fill specific meetings annually, across client control 115+ markets investor needs and • Fastest growing area of mandates (e.g. meet PRI • Viewed as the industry research, as governance requirements) standard and market best matters globally practice ISS | Institutional Shareholder Services Inc. 5

ISS’ Multiple Policy Perspectives Sustainability ISS Policy SRI Policy Catholic Policy Public Fund Policy Taft-Hartley Policy Policy Policy Focus Investment firms and UN PRI Signatories or SRI investment firms, Catholic faith-based Public pension fund Taft-Hartley pension large institutional similarly aligned religious groups, investors, including managers & public plan funds & investment investors investment managers & charitable foundations & dioceses & Catholic sponsors/trustees managers (ERISA) asset owners university endowments healthcare systems Orientation “Best practice” standards United Nations Principles The "triple bottom line" Economic gain, social Long-term best interests Worker-owner view of that promote total for Responsible value creation justice, environmental of public plan participants long-term corporate value shareholder value & risk Investment (UN PRI) stewardship, ethical & beneficiaries based on the AFL-CIO mitigation conduct & teachings of proxy voting guidelines the Catholic Church (USCCB) Key Policy Highlights: Board competence, Board competence, Board competence, Board competence, Board competence, Board competence, 1. Board performance, and performance - including performance - including performance - including performance, & performance, & independence (50%) on ESG topics, and on ESG topics, diversity, on ESG topics, diversity independence (50%) independence (67%) independence (50%) and independence (50%) and independence (50%) 2. Compensation Alignment of pay and Alignment of pay and Alignment of pay and Alignment of pay and Alignment of pay & Alignment of pay & performance, presence of performance, presence of performance including on performance - including performance, presence of performance, presence of problematic problematic ESG topics, presence of on ESG topics, presence problematic problematic compensation practices, compensation practices, problematic of problematic compensation practices, compensation practices, shareholder value shareholder value compensation practices, compensation practices, voting power dilution voting power dilution transfer (SVT) transfer (SVT) shareholder value shareholder value (15%) (10%) transfer (SVT) transfer (SVT) 3. Social & Environmental Consider shareholder Generally support Generally support Generally support Generally support Generally support proposals on social, shareholder proposals shareholder proposals on shareholder proposals on shareholder proposals on shareholder proposals on environmental and advocating ESG disclosure social, environmental and social, environmental and social, environmental & social, environmental & labor/human rights issues or universal norms/codes labor/human rights issues labor/human rights issues labor/human rights issues labor/human rights issues on a case-by-case basis of conduct Board Opposition 3% 3% 4% 4% 32% 39% Auditor Ratification Opposition 0% 0% 9% 9% 87% 87% Equity Pay Plans 6% 6% 6% 6% 69% 75% Say on Pay Opposition 9% 9% 11% 11% 18% 18% Gov. Shareholder Proposal Support 78% 79% 90% 90% 91% 91% E&S Shareholder Proposal Support 69% 81% 96% 96% 91% 91% ISS | Institutional Shareholder Services Inc. 6

TRENDS IN GOVERNANCE › Director Elections › Executive Compensation › “ESG” Considerations › One Share, One Vote

Director Support Remains High – “Failed” Elections Down 2017 Average Support for R3k Nominees: 95.8% (Votes Cast) 1.2% 0.8% 0.2% 3.0% 6.0% 90%+ 80-90% Approx. 9 out of 10 70-80% directors receive 90% 60-70% support or greater 50-60% <50% 88.8% Majority Withhold/Against Director Votes Number of Directors Concerns Raised by ISS Receiving <50% Support Elections held January-June of each year Board Responsiveness 13 85 Poor Attendance 10 Unilateral Board Action 6 52 Overboarded 4 45 45 43 40 Non-Independent Member of Key Committee 4 38 33 Shareholder Inability to Amend Bylaws 4 Poison Pill Concerns 4 Compensation Concerns 3 Risk Oversight Issue 1 2010 2011 2012 2013 2014 2015 2016 2017 *All statistics on slide for Russell 3000 8 ISS | Institutional Shareholder Services Inc.

Non-Binding Vote on CEO Pay – Support Generally Up Average Say-on-Pay Support Level - Russell 3000 Average shareholder support at an all-time high 92.1% 91.7% 91.4% Vote Results for 2017 Season 91.5% 91.3% 5.2% 1.3% 90.7% 2012 2013 2014 2015 2016 2017 14.2% Say-on-Pay Failure Rate - Russell 3000 2.6% 2.4% 79.3% 2.2% 2.2% 1.5% 1.3% >90% 70-90% 50-70% <50% 2012 2013 2014 2015 2016 2017 Failed say-on-pay votes at an all-time low *All statistics on slide for Russell 3000 9 ISS | Institutional Shareholder Services Inc.