Investment Stewardship and Sustainability

 

Policies

  • Investment Stewardship Statement

    Investment Stewardship Statement

    Effective as of October 31, 2020

    General Statement

    Dimensional’s1 investment philosophy is based on the belief that in liquid capital markets, prices reflect all publicly available information. This includes, but is not limited to, information about a portfolio company’s strategy, financial and non-financial performance, risk, capital structure, social and environmental impact, and corporate governance. As such, we believe that prices of securities markets reflect the aggregate risk and return expectations of investors and competition among market participants drives prices toward fair value.

    This belief in markets means that Dimensional expects any value or long-term profitability attributable to a company’s current business practices, including those related to environmental, social, and governance practices, to be reflected in a company’s price. A company can improve its governance practices by aligning company management with shareholder interests, such as by promoting strong board representation, as well as by putting in place robust risk management oversight, including risks related to environmental and social matters. Dimensional also believes efforts to improve governance may be reflected in increased valuations through a combination of lower discount rates and higher cash flows. For this reason, Dimensional’s investment stewardship activities are primarily focused on improving governance practices in companies within the investment portfolios it manages on behalf of its clients.

    As a long-term investor on behalf of its clients, Dimensional is well positioned to positively influence a company’s governance practices. We believe that shareholders have a right to be heard by company management and that it is our responsibility as an investment manager to judiciously exercise shareholder voting rights on behalf of the portfolios we manage, taking into account both the costs and potential benefits. Dimensional broadly incorporates governance considerations into the investment management process through its proxy voting, which incorporates practices to reflect shareholder interests, as well as engaging with portfolio companies to share Dimensional policies and areas of focus with regard to governance practices. Dimensional improves its own stewardship processes through selected projects, research and consistent review of those processes.

    Stewardship Resources

    Dimensional has established an Investment Stewardship Committee that reports to the Investment Committee. The Investment Stewardship Committee is composed of senior executives, officers, directors, and members of the portfolio management team and is responsible for administering Dimensional’s proxy voting policy, considering complex proxy voting cases, and overseeing the Investment Stewardship Group.

    The Investment Stewardship Group is a day-to-day working unit, which implements policies and oversees operations. This group includes dedicated analysts and resides within Portfolio Management. The group also utilizes investment management personnel in the Portfolio Management group.

    General Approach to Active Ownership

    At Dimensional, our efforts to add value do not end once the portfolios we manage invest in a company. Dimensional acts as a fiduciary to its clients. Our active ownership2 activity is an additional way that we seek to make a positive impact on the overall investment process, in line with our commitments as signatories to the UNPRI and relevant regional stewardship codes and as part of our services to our clients. Regional stewardship codes are discussed in more detail on the relevant Dimensional regional public websites.

    • Monitoring of Portfolio Companies

    Members of the research and portfolio management teams use information from multiple data sources and news feeds to aggregate and monitor information about portfolio companies’ financial performance and capital structure, as well as non-financial and ESG information regarding our portfolio companies. This information informs our engagement and proxy voting processes. For example, Dimensional monitors our portfolio companies for the presence of certain non-shareholder friendly governance features such as poison pills, staggered boards and excessive compensation arrangements, and through the close evaluation of announced merger activity, or corporate governance related news. Dimensional also believes there should be clear alignment between the company’s strategy and the incentives used in the company’s executive compensation plans, and Dimensional has developed a process to identify portfolio companies where there appears to be a misalignment between the interests of management and those of shareholders as indicated by pay plans that fail to align executive compensation to company performance. Dimensional’s portfolio management team also performs daily news checks and may escalate news of companies involved in significant controversies, including those related to environmental and social matters, to the Investment Stewardship Group. Dimensional may engage with companies for any of the above-cited reasons and/or may take action through proxy voting.

    • Engagement with portfolio companies and their stakeholders

    Dimensional’s Investment Stewardship Group will communicate directly with the board and management of portfolio companies to understand their approach to corporate governance, including management of material environmental and social factors. In all such communications with portfolio companies, Dimensional’s aim is to seek additional information in the interests of protecting and enhancing the value of the investments of Dimensional’s clients. During such conversations, Dimensional makes clear that material non-public information should not be disclosed to Dimensional in the course of such discussions. If the board or management is unresponsive to concerns raised during discussions, Dimensional may vote against appropriate members of the company’s board in accordance with our proxy voting guidelines.

    When prioritizing engagements, Dimensional takes a holistic approach by considering a variety of factors, including a portfolio company’s overall governance profile, recent public ESG controversies, the collective holdings of Dimensional’s clients in the company, recent or upcoming proxy votes, and follow-ups from prior engagements.

    For instance, many conversations with portfolio companies are prompted when the companies have not provided sufficient information in their disclosures for Dimensional to assess particular elements concerning the company’s proxy, including but not limited to, executive compensation, anti-takeover provisions, board composition and effectiveness, material sustainability factors, and shareholder proposals. In these conversations, Dimensional prioritizes its questions to hear from companies how the board aligns management and shareholder interests, and protects shareholder value.

    Portfolio companies have multiple stakeholders, including other investors, employees, vendors, customers, and the communities in which they operate. Decisions made by the board of a portfolio company can impact a variety of stakeholders and the effect on stakeholders can impact the value of the company. As a fiduciary to our clients, we believe that our role is to be an active owner of our portfolio companies, which includes engagement with portfolio company boards and management. As a long-term investor on behalf of its clients, Dimensional is well positioned to engage with portfolio company boards and management to understand how the effects on these stakeholders are being considered and the policies and procedures the portfolio company has adopted to mitigate potential materials risks.

    • Interaction with other stakeholders

    Dimensional is open to dialogue with management and dissident groups. While regulatory concerns may prevent us from acting collectively with other investors, we will consider communicating with other investors (and may consider communicating with other stakeholders) in relation to specific portfolio companies when we believe that doing so is in the best interest of our clients, is likely to maximize the value of their investment, is consistent with our policies and guidelines and is permissible under applicable laws and regulations. If we believe that other investors have valid concerns, we may communicate with them to understand their concerns; this may help inform our view of company management.

    Dimensional also maintains open lines of communication to listen to dissidents and management, maintaining a monitored email address (corporategovernance@dimensional.com) where these and other stakeholders may contact Dimensional with corporate governance related material or meeting requests. Dimensional’s Investment Stewardship Group members are available to respond to engagement requests, as appropriate, and also to reach out to portfolio companies to gather information necessary to make informed proxy voting decisions. Dimensional spoke with hundreds of portfolio companies in proxy year 2020 to better understand their governance practices and to explain our proxy voting policies.

    • Dimensional may join or participate in events with relevant industry groups.

    Dimensional is a signatory to the UN PRI, member of the Council of Institutional Investors, a voice for corporate governance practices for US companies and strong shareholder rights and protections, the Harvard's Institutional Investor Forum, which co sponsors the Harvard Law School Forum on Corporate Governance and Financial Regulation, and the International Corporate Governance Network. In March 2020, Dimensional also became a supporter of the Taskforce for Climate-related Financial Disclosures (TCFD).

    • Exercise of voting rights and other rights attaching to shares

    Dimensional’s stewardship efforts also include extensive use of proxy voting, through which we seek to remove non-shareholder friendly governance features such as poison pills, staggered boards and excessive compensation arrangements. We also use our proxy votes to support portfolio management investment decisions through the close evaluation of announced merger activity, or corporate governance related news.

    Proxy voting is the act of exercising shareholder voting rights on behalf of clients, and Dimensional views proxy voting as an integral part of its investment management process. As Dimensional believes that stronger corporate governance practices will be reflected in higher security prices, Dimensional seeks to make proxy voting decisions consistent with the goal that boards and management of portfolio companies are focused on protecting and enhancing shareholder value.

    When voting (or refraining from voting) proxies, Dimensional seeks to act in the best interests of the funds and accounts we manage. We seek to maximize shareholder value, considering the standards of relevant legal and regulatory regimes, listing requirements, regional stewardship codes, and any social and sustainability guidelines of specific funds or accounts. Dimensional will evaluate management and shareholder proposals on a case-by-case basis.

    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.

    Dimensional believes that portfolio company boards are best positioned to address environmental & 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 support shareholder proposals related to E&S issues and may also vote against or withhold voting from directors individually, committee members, or the entire board on such issues. Dimensional may also engage with portfolio companies to better understand the alignment of the interests of boards and management with those of shareholders on E&S topics.

    For sustainability-focused funds, Dimensional may support shareholder proposals aimed at enhancing the disclosure around certain environmental issues. For socially-focused funds, Dimensional may also support shareholder proposals aimed at enhancing the disclosure around certain social issues. In limited circumstances, for all funds, Dimensional may support proposals requesting companies take specific steps to address material risks from environmental or social issues.

    To supplement its internal research and analysis, Dimensional has engaged proxy advisory firms to provide information on shareholder meeting dates, research on proxy proposals, voting recommendations based on our proxy voting policies and procedures, and vote execution; however, Dimensional retains final discretion on how to vote. Dimensional’s Investment Stewardship Committee reviews the capacity and competency of these firms at least annually.

    Dimensional takes into consideration the costs associated with voting and generally will vote in instances where the expected economic benefit of doing so outweighs the costs for a given portfolio, including revenue from securities lending. For securities on loan, Dimensional will balance the revenue-producing value of loans against the value of casting votes. Dimensional does intend to recall securities on loan if, based upon information in Dimensional’s possession, it determines that voting the securities is likely to materially affect the value of a client’s investment and that is in the client’s best interests to do so.

    Dimensional prepares Proxy Voting Policies and Procedures (“Proxy Voting Policies”) which include Proxy Voting Guidelines containing principles on how proxies will generally be voted (“Guidelines”) and generally will instruct voting of proxies in accordance with the Guidelines. Dimensional has determined that, generally, voting proxies in accordance with the Guidelines should be in the best interests of clients. The Guidelines provide a framework for analysis and decision making but do not address all potential issues. The Guidelines are published on our website and are updated at least annually and additionally as needed, and Dimensional’s Proxy Voting Policies are available to our clients on request.

    The Guidelines have been formulated to encourage our portfolio companies to adopt and maintain corporate governance policies that are consistent with our clients' best interests and the preservation of the value of their investments. Proxy advisory firms provide analysis and vote recommendations in accordance with our Guidelines for portfolios for which we have proxy voting authority. The Investment Stewardship Group may contact proxy advisory firms in the event we question the analysis provided and regularly communicates with personnel from these firms. Although Dimensional may consider the proxy voting recommendations, we remain ultimately responsible for all proxy voting decisions. Dimensional also reserves the right to instruct votes counter to the proxy voting Guidelines if we believe that the best interests of our clients would be served by such a vote.

    Dimensional regularly monitors for, and strongly opposes, the enactment or renewal of poison pills and/or staggered boards. We have a publicly stated view in opposition to the implementation of poison pills and staggered boards and generally any management or governance practices that may limit shareholder ownership rights. Dimensional has a practice to notify portfolio companies that enact these types of provisions that it will vote against all of the members of that company’s board of directors, and those same individuals that are directors at other portfolio companies, since the act of adopting any of these provisions is an act that we believe no director representing the interests of its shareholders should endorse.

    In cases of mergers, the Investment Stewardship Group will work with portfolio managers to assess whether a proposed merger is in the best interest of shareholders and take appropriate action. Such action may include the selling of shares, voting for or against a merger and/or sending correspondence reminding the board of directors of the portfolio company to consider the best interests of shareholders.

    Dimensional also monitors for related party transactions and executive compensation arrangements that are misaligned with company performance, combining internal screens with analysis from leading proxy research firms and, where appropriate, obtaining explanatory information by communicating with portfolio companies. Dimensional has an established track record of voting against compensation arrangements that fail to align pay with performance, and will vote against the re-election of compensation committee members deemed to be not properly fulfilling the role of pay oversight.

    We are generally not willing to become insiders and do not seek to control the companies our clients invest in. In our corporate governance discussions, we instruct that we should not receive any material non-public information.

    Our portfolios are generally managed with long investment horizons and hold companies for many years. These long holding periods, strengthens Dimensional’s ability to monitor and follow up with companies.

    Key engagements and proxy votes are reviewed quarterly by the Investment Stewardship Committee.

    Dimensional discloses information concerning its proxy voting records on its website and in other governance-related materials as appropriate and updates such information as new information becomes available from time to time. We disclose summary voting results for our US mutual funds (“Dimensional Investment Companies”), Irish UCITS, UK OEICs, and Australian trusts on our regional websites. Summary voting results include number of votes cast by region and topic, as well as percent of management and shareholder proposals supported. A complete history of our voting for the Dimensional Investment Companies, Irish UCITS, UK OEICs, as well as for the Canadian funds and Australian trusts, is disclosed on our regional websites. For separate account clients we provide reports concerning our proxy voting activity as specified in the client's agreement with us and in accordance with applicable regulation.

    Information on Dimensional’s portfolio company communications by topic and geographic region is available on Dimensional’s public website.

    Escalation of Stewardship Activities

    Dimensional may use one or more escalation mechanisms in the event it has a concern about a portfolio company's corporate governance practices. If Dimensional has concerns that the corporate governance practices of a portfolio company are not consistent with our clients' best interests , we will vote accordingly and have often dissented from the recommendations of management on proxy matters. As Dimensional's clients together can constitute a large shareholding, we believe that our votes have a voice that portfolio company boards and management are sensitive to.

    If negative corporate governance practices persist following the exercise of proxy voting in accordance with Dimensional's Proxy Voting Policies and Guidelines, our Investment Stewardship Group may follow up directly with management or the company board to ensure that the company understands the importance we place on good corporate governance.

    Another method of escalation is that if we think that the actions of the directors of a portfolio company are not in the best interests of shareholders, we may vote against those directors not only in any proxy for the portfolio company but also in any election for directors at any other company they are, or may attempt to be, directors. We may also communicate this decision to the portfolio company and its board.

    Separately, we may also escalate directly through letter campaigns directed to portfolio companies on specific corporate governance concerns. In general, our priority is to escalate in situations where we believe a conflict of interest exists between management and shareholders.

    On a broader scale, we escalate general governance matters through our participation at industry conferences sponsored by the Council of Institutional Investors, the Harvard Corporate Governance Roundtable, and the International Corporate Governance Network, among others. We believe this platform allows our voice to be heard in a broader manner and may have more impact at an industry level.

    Management of Conflict of Interests

    Conflicts of interest may exist in the course of communicating with a portfolio company or voting on a proxy. For example, there can be a potential conflict of interest if Dimensional is actively soliciting investment advisory business from a client or potential client which is also the company soliciting a proxy or if Dimensional retains the services of a third-party service provider which is also the company soliciting a proxy.

    To address the limited instances in which a potential conflict may arise, with respect to a proxy vote, Dimensional maintains an explicit policy on managing potential conflicts which is focused on the principle of preserving shareholder value. The procedures Dimensional follows in the event a potential conflict of interest arises with respect to a vote are set out in a specific section of Dimensional’s Proxy Voting Policies and are summarized below.

    Engagements are generally handled by the Investment Stewardship Group, and in certain cases portfolio managers are involved. When engaging, Dimensional seeks to handle any communications with portfolio companies in accordance with a standard protocol and consistent with Dimensional’s Proxy Voting Policies regarding conflicts.

    As proxies that Dimensional receives on behalf of its clients generally will be voted in accordance with the predetermined Proxy Voting Guidelines, we expect that the vast majority of proxies voted should not be affected by any conflicts of interest. Furthermore, as Dimensional is privately-held, we do not have conflicts of interests that may arise from being a subsidiary of a publicly-traded entity.

    In the limited instances where (i) the Investment Stewardship Group is considering voting a proxy not prescribed or perceived to be contrary to the Guidelines, or (ii) the Investment Stewardship Group believes a potential conflict of interest exists, the Investment Stewardship Group will disclose the potential conflict to a member of the Investment Stewardship Committee. As a matter of practice, the Chief Compliance Officer is also notified. Such disclosure will describe the proposal to be voted upon and disclose any potential conflict of interest, including but not limited to any potential personal conflict of interest (e.g., familial relationship with company management) relating to the proxy vote, in which case the conflicted individual will remove himself or herself from the proxy voting process.

    If a Committee member has actual knowledge of a conflict of interest and recommends a vote not prescribed or perceived to be contrary to the Proxy Voting Guidelines, the Committee member will bring the vote to the Committee which will determine how the vote should be cast, keeping in mind the principle of preserving shareholder value, or to abstain, unless abstaining would be materially adverse to the client’s interests. An annual report on any such determination is provided to the board of trustees/directors of the Dimensional Investment Companies.

    Internal Projects and Research

    Dimensional may conduct research on the implications of certain governance practices and what it means for a company to have good governance policies and practices.

    Monitoring of Service Providers

    To assist with our internal evaluation of proxies and operational processing of proxy voting, we use services from leading third-party proxy advisory firms. We monitor services provided by these proxy advisory firms to consider whether they have the capacity and competency to adequately analyse proxy issues and can make their recommendations in an impartial manner and in the best interests of Dimensional’s clients. Purchasing research from multiple proxy advisory firms in certain circumstances assists us in monitoring the quality of the research provided by the service providers and also serves as a source against which to check our own assessments. Monitoring of proxy advisory firms may include some or all of the following:

    • periodic sampling of votes cast by the proxy advisory firm to seek to confirm that the Guidelines adopted by Dimensional are being followed,

    • onsite visits to the proxy advisory firm office and/or discussions with the proxy advisory firm to determine whether the proxy advisory firm continues to have capacity and competency to carry out its proxy obligations,

    • a review of the proxy advisory firm’s policies and procedures, with a particular focus on those relating to identifying and addressing conflicts of interest and ensuring that current and accurate information is used in creating recommendations,

    • inquiring as to the proxy advisory firm’s compliance with relevant regulatory regimes, including the European Union Shareholder Rights Directive II,

    • requesting the proxy advisory firm to notify Dimensional if there is a change in the firm’s material policies and procedures, particularly with respect to conflicts, or material business practices (e.g. entering or exiting new lines of business), and reviewing any such change, and

    • participating in the proxy advisors’ annual policy formulation processes.

    1. “Dimensional” and “we” refers to the Dimensional separate but affiliated entities generally, rather than one particular entity. These entities are Dimensional Fund Advisors LP, Dimensional Fund Advisors Ltd., DFA Australia Limited, Dimensional Fund Advisors Canada ULC, Dimensional Fund Advisors Pte. Ltd. and Dimensional Japan Ltd.

    2. Dimensional can discuss governance matters with portfolio companies to represent client interests, though Dimensional does not, on behalf of its clients, acquire securities with the purpose or intended effect of changing or influencing the control of a portfolio company and is an investment-only investor.

  • Responsible Investment Statement

    Responsible Investment Statement

    Effective as of October 31, 2020 

    Introduction

    Dimensionalhas been providing value-added investment solutions for its clients since 1981. While our investment strategies, clients and assets have grown significantly since our founding, there have been several principles that we have followed throughout our firm’s history. We refer to these as our guiding principles:

    1. Act in the best interests of clients

    2. Act in a way that is ethical and legal

    3. Compete aggressively to succeed

    4. Base our investment strategies on scientific methodology

    5. Emphasize financial sustainability

    6. Create opportunities for our people to contribute both to our success and to their own

    Adherence to these principles have served us well, and we believe they have been the key to creating long-term client satisfaction and consequently, to our success as a firm. We apply these principles to our approach to responsible investment -- from the investment strategies that we provide to our clients as well as to how we conduct business as a firm.

    Investment Strategies

    Team-based approach

    Consistent with our team-based approach to all investment processes, we also apply a team-based approach when implementing responsible investment for our investment strategies. Responsible investment activities comprise a significant amount of effort at Dimensional and are performed by members of our Strategy Investment Research, Investment Analytics & Data, Investment Stewardship and Portfolio Management teams. We have a Head of Responsible Investment that helps coordinate ESG activities across these various groups. The Head of Responsible Investment reports to our Global Head of Portfolio Management, with a dotted line to one of our Co-CEOs.

    Investment philosophy and principles

    Dimensional’s investment philosophy is based on the belief that in liquid capital markets, prices reflect all publicly available information. This includes, but is not limited to, information about a portfolio company’s strategy, financial and non-financial performance, risk, capital structure, social and environmental impact, and corporate governance. As such, we believe that prices of securities reflect the aggregate risk and return expectations of investors, and competition among market participants drives prices toward fair value.

    Even though we believe that market prices do reflect a company’s ESG practices, we also believe that ESG criteria can still be used to manage risk and/or improve investment returns for our clients. In particular, we believe that:

    • Portfolios should integrate ESG considerations to manage risks. In addition, where clients desire investment solutions that also target measurable ESG outcomes, investment managers should carefully integrate ESG so that the loss of diversification due to ESG considerations does not materially impact expected returns
    • Stewardship activities may improve realized returns through higher future cash flows to shareholders or a lower discount rate applied by the market.
    • ESG encompasses a broad range of issues. We seek to understand the research and available data on these issues to assess which ones are relevant to consider in our investment strategies.
    • ESG risks and their potential impact on the future cash flow of companies are reflected in current market prices. We know of no compelling evidence that suggests companies with better ESG profiles offer higher expected returns than companies with worse ESG profiles, after controlling for known drivers of return. This does not, however, preclude us from using ESG data to add value for our clients.

    ESG investment processes and strategies

    We reflect the above beliefs about ESG by integrating ESG considerations broadly across our investment strategies as well as by offering dedicated equity and fixed income strategies that seek to accomplish specific ESG-related outcomes.

    ESG Integration

    Our investment processes integrate ESG considerations for risk management purposes. We start by designing our portfolios using the following investment principles:

    • target drivers of return supported by robust research;
    • diversify across issuers, sectors and countries where applicable;
    • consider information on prices every day; and
    • systematically implement portfolios by thoughtfully balancing expected returns, costs and risks.

    While the above approach uses diversification to reduce idiosyncratic risks, including ESG-related risks, we also apply an additional layer of ESG-specific risk management. For instance, we may exclude closely-held companies from our universe of eligible securities, since companies with large strategic shareholders may not represent the interests of a broad set of shareholders. We may also choose not to purchase companies where, based on public information, we believe there is a heightened concern of fraudulent or other behavior or situations that may make company financial statements no longer reliable. We also conduct daily news checks to identify portfolio companies involved with controversies, including with respect to environmental or social issues, that may have a significant impact on company financials. These companies may be placed on temporary halt from further purchases and/or referred to our Stewardship team for engagement. We believe these additional processes provide another element of risk management that incorporates ESG considerations.

    Active Ownership

    Our role as investment advisors for clients does not end once we invest in a security. Rather, our Investment Stewardship team advocates for best-in-class governance practices, including oversight of material ESG-related risks, as we believe that improved governance practices may result in higher realized returns through higher future cash flows to shareholders or a lower discount rate applied by the market. Our stewardship efforts include engagement,2 proxy voting, and participation in industry events and organizations. See our Investment Stewardship Statement and Annual Stewardship Report for more information on our active ownership activities.

    Targeted ESG strategies

    We offer targeted sustainability and social strategies that use ESG integration and also add a greater level of focus on ESG criteria by pursuing specific ESG outcomes. These strategies use innovative processes to incorporate ESG considerations into broadly diversified, value-added systematic investment solutions.3 This is demonstrated by our track record managing sustainable and socially-screened strategies, now covering over a decade since the launch of our first socially-screened strategy in 2006.

    Our sustainability strategies seek to lower exposure to companies that may have a detrimental impact on the environment while continuing to seek higher expected returns by focusing on known drivers of expected returns. We learn from leading climate researchers on which issues are most relevant to environmental impact or which impose significant external costs to be borne by future generations. Currently, most of these issues are related to greenhouse gas (GHG) emissions, which is why our sustainability strategies focus heavily on reducing exposure to companies with significant GHG emissions or which have fossil fuel reserves that enable future GHG emissions. Using data collected by Dimensional and research from independent third-party vendors on company business practices, companies are systematically evaluated with regard to sustainability. Investment in those companies is emphasized, reduced, or excluded based on how they fare on key sustainability metrics, including the primary sustainability impact considerations of high greenhouse gas emissions or reserves that may produce those emissions. Dimensional’s approach to sustainability can offer investors the ability to pursue their sustainability and investment goals simultaneously.

    Our social strategies seek to incorporate specific social considerations by identifying and screening companies to reflect the values of clients that invest in those strategies. Dimensional may utilize research from independent third-party vendors, depending on the requirements of each portfolio, to systematically exclude restricted securities.

    We regularly evaluate the potential launch of additional sustainability or social strategies that may help meet client needs.  In 2020, we launched three new sustainability portfolios. Please see the offering documents for our sustainability and social strategies for more details on their ESG-related goals.

    Contribution to the industry

    In conjunction with our investment work on behalf of clients, we also seek to improve how the investment industry functions. These efforts include, but are not limited to, working with regulators to improve market mechanisms, supporting transparency and protecting the interests of our clients throughout the investment process. We have provided input to regulators on many occasions in an effort to help improve market mechanisms. For instance, we provided feedback to the U.S. Securities and Exchange Commission (“Commission”) on a pilot program for wider bid-ask spreads for small-cap issuers, strongly advocating against the proposed practice. After the pilot program, the Commission discontinued the proposed changes, recognizing that lower bid-ask spreads were ultimately beneficial to investors. More recently, we advocated strongly against proposed changes that would have delayed reporting of certain larger bond trades through TRACE4 as we believe these changes would hurt investors by decreasing market transparency. We participated in calls with the ICI (Investment Company Institute) as well as in a meeting with the Commission to voice our opposition. While the issue is not yet officially settled, it was reported that the proposal was put on hold. We believe we were able to make a difference by representing the interests of bond investors on this matter. We also wrote the Commission to oppose proposed regulations that would undermine the delivery of accurate, transparent and independent proxy voting advice without undue delay or cost to market participants. The Commission ultimately carved back from its original proposals, which we believe would otherwise have had a negative effect on the ability of investors to receive independent and timely information from proxy research.

    We have also dedicated significant time and resources to participating in the efforts of the Investment Company Institute, the largest global organization representing investment companies. Senior officers at Dimensional have served on the Board of Governors of the ICI as well as participated in the ICI’s ESG working groups to help improve regulation on ESG disclosure, both in the U.S. and abroad.

    In addition, we have regularly increased transparency through our own stewardship activities. We provide regular reporting on our proxy voting activities and began producing an Annual Stewardship Report in 2019. We also monitor portfolio companies and, where appropriate, support efforts to increase their disclosure on how they oversee material risks, including those related to environmental or social matters.

    Corporate Social Responsibility

    We also take corporate social responsibility into account for our own activities as a business. This applies to stakeholders such as our clients, employees, facilities, operations, and the local communities and overall industry that we operate in.

    Clients

    Dimensional’s success is predicated on providing excellent services and investment solutions to our clients. We invest significantly in our clients’ experience and have regularly been recognized for providing outstanding client service. There is a reason this is our first guiding principle and we believe it has been the key to our success as a firm.

    Employees

    Another of our guiding principles is to create opportunities for our people to contribute both to our success and to their own. Dimensional continues to invest heavily in its employees, from recruiting to training and development and retention.

    In particular, we are committed to creating and fostering an environment that attracts, develops, and retains the most talented, qualified employees from different backgrounds -- from both inside and outside the financial services industry. We take active measures to continually expand the depth and breadth of our professional talent pool. For example, in 2019, approximately 25% of our campus outreach events targeted diverse audiences.

    In addition to targeted outreach, Dimensional also aims to provide an inclusive experience for those candidates who seek out the firm themselves. We use gender-neutral language and focus on specific qualifications in job descriptions to help ensure applicants from diverse backgrounds are not dissuaded from applying. In 2019, Dimensional began using software to analyze job descriptions to ensure neutral and inclusive language. Online training for interviewers and hiring managers also includes anti-bias training and interview best practices for consistent and equitable evaluation across all candidates. We conduct ongoing reviews of new technologies and platforms that help reach diverse audiences, such as focusing on women returning to the workforce or other underrepresented populations.

    Additionally, we remain focused on fostering a meritocratic, inclusive environment that further helps us attract and ultimately retain top talent from all backgrounds. In September 2019, Dimensional created a Diversity and Inclusion Executive Council under the sponsorship of our Co-CEOs. The Council is comprised of senior-level executives across Dimensional’s global organization and is chaired by our Deputy Head of Global Human Resources. The Council is charged with assessing the firm’s needs, examining best practices, and helping form a strategy that aims to identify means of increasing awareness and ensuring an inclusive work environment. Our gender statistics (as of December 31, 2019):

    • 44% of global hires were female for calendar year 2019
    • In 2019, females represent 27% of our executive population, 36% of our total population, and 40% of employees with <5 years tenure

    Another initiative we have undertaken to invest in our employees is establishing “Dimensional University”, a formal education curriculum to further the education of our employees and prepare them for continued future success within our organization. The Dimensional University curriculum includes courses in investments, sales, and management and leadership and firm culture and history and includes almost 100  hours of education provided by senior leaders and external consultants.

    Facilities and operations

    We seek to understand the impact of our business operations on the environment and develop offices, plans and processes that minimize those impacts. A majority of Dimensional’s employees are based in our corporate headquarters in Austin and our office in Charlotte. These two offices are the only sites owned by Dimensional and have each received awards for sustainability excellence. Dimensional’s Austin headquarters received a three-star rating by Austin Energy Green Building and our Charlotte office was certified LEED Gold.

    As part of our continuing efforts to improve our sustainability practices, we have been reviewing our own carbon footprint and exploring ways to reduce our footprint. We also became public supporters of the Taskforce for Climate-Related Financial Disclosures (TCFD) in March 2020.

    Local Community and Industry Involvement

    As part of our commitment to the communities that we serve and in which we operate, we actively seek opportunities to make a positive difference by working with local organizations as well as industry-wide organizations.

    In 2019, our employees participated in numerous local community events with such organizations as the Salvation Army, food banks (including Second Harvest and Central Texas), Junior Achievement and the Red Cross. In total, Dimensional employees volunteered over 1,400 hours to these events, helping to improve their local communities.

    Outside of local organizations, we also continued to expand our support for, and participation in several industry programs that focus on underrepresented talent. This may be through specific universities, such as Cornell’s Women in Investing Conference or Chicago Booth Women in Investment Management. Or, it may be through an organization such as the Robert S. Toigo Foundation, which focuses on career advancement and increased leadership of underrepresented talent in the financial services industry. Dimensional has been working with the Toigo Foundation since 2013. In addition to annually participating in Toigo’s spring Catapult event, Dimensional has also hosted Toigo’s Fall Apex, their marquee annual leadership conference, in 2014, 2016, 2019 and is in discussions about hosting in 2021.

    Dimensional also established a Women in Wealth Community in 2015, which continues to grow in membership, reach and impact. The Community’s purpose is to help financial advisors better address the needs of women clients and incorporates women-centered workshops, key industry events, customized strategy and communication sessions and educational collateral. The Community had approximately 500 participants across the US as of December 31, 2019 and in calendar year 2019, the Community hosted over 30 workshops, webinars, strategy sessions, discussion groups and other industry events.

    1. “Dimensional” refers to the Dimensional separate but affiliated entities generally, rather than to one particular entity. These entities are Dimensional Fund Advisors LP, Dimensional Fund Advisors Ltd., Dimensional Ireland Limited, DFA Australia Limited, Dimensional Fund Advisors Canada ULC, Dimensional Fund Advisors Pte. Ltd. and Dimensional Japan Ltd.

    2. Dimensional acquires securities on behalf of its clients solely for the purpose of investment and not with the purpose or intended effect of changing or influencing the control of any portfolio company.

    3. The implementation of certain of Dimensional’s sustainability strategies is protected by U.S. Patent Nos. 7,596,525 B1, 7,599,874 B1 and 8,438,092 B2. 

    4. FINRA’s Trade Reporting and Compliance Engine (TRACE) provides information to investors and other market participants about secondary market trades in corporate bonds and other debt securities.

  • Shareholder Engagement / Shareholder Rights Directive II

    Engagement policies

    Dimensional Fund Advisors Ltd.’s engagement policy can be found here

    Dimensional Ireland Limited’s engagement policy can be found here.

    Dimensional Funds plc and Dimensional Funds II plc, joint engagement policy can be found here

    Further disclosure is also contained in the Responsible Investment Statement and in the Investment Stewardship Statement (see "Responsible Investment Statement" and “Investment Stewardship Statement” above).

    Other information

    Details of how the engagement polices have been implemented during 2020, including a general description of voting behaviour, an explanation of the most significant votes and reporting on the use of the services of proxy advisers can be found here and here.

    To view a Fund’s performance history, please click here. Please note that the performance information disclosed is as of the date noted on the webpage.

    To view a Fund’s investment objective, please click here to reference its Key Investor Information Document.

    To view a Fund’s portfolio composition, please click here and refer to the Holdings document in the Fund Documents tab. Please note that the composition information disclosed is as of the date noted on the Holdings document.  

    To view a Fund’s portfolio costs, please reference Dimensional Fund Advisor Ltd’s European MiFID Template (EMT). If you would like a copy of the EMT please email your request to EMEAmailbox@dimensional.com.

  • Sustainable Finance Disclosure Regulation

    Article 3
    Dimensional's statement on the integration of sustainability risks in investment decision-making processes.

    Dimensional Ireland
    Dimensional Funds PLC / II PLC

    Article 4
    Dimensional's due diligence statement with respect to principal adverse impacts of investment decisions on sustainability factors.

    Dimensional Ireland
    Dimensional Funds PLC / II PLC 

    Article 5
    Dimensional's statement on how our remuneration policies are consistent with the integration of sustainability risks.

    Dimensional Ireland
    Dimensional Funds PLC / II PLC

  • Statement on Investment in Controversial Weapons

    The production and use of certain types of weapons have been deemed to be controversial or even illegal within certain jurisdictions because they cause severe harm to civilians for years following the end to armed conflict.

    Dimensional seeks to exclude from investment across the Dimensional UK OEICs and Irish UCITS funds securities of companies that are involved in the production of cluster munitions, anti-personnel mines, chemical and biological weapons, nuclear weapons and depleted uranium ammunition and armour (collectively, “controversial weapons”). The implementation of this exclusion is governed internally by the Investment Committee.

    Dimensional has established, with the support of data and analysis provided to us by third parties, a list of companies that we believe qualify for exclusion due to their involvement in the production of controversial weapons. Companies that qualify for exclusion include those that:

    (1) manufacture cluster munitions or anti-personnel mines or their key components; or
    (2) are involved in the production of chemical and biological weapons or depleted uranium ammunition and armour; or
    (3) manufacture nuclear weapons or their key components in breach of the Treaty on the Non-Proliferation of Nuclear Weapons (1968).

  • UK Stewardship Code

    On 1 January 2020, the UK Stewardship Code 2020 (the “Code”) took effect.  The Code substantially updates the UK Stewardship Code 2012 and consists of twelve principles, which are supported by reporting expectations, with a strong focus on the activities and outcomes of stewardship.

    In accordance with the new Code, Dimensional Fund Advisors Ltd. (‘Dimensional UK’) is pleased to share its 2020 Annual UK Stewardship Code Report.  This report is intended to provide investors with greater transparency regarding our investment stewardship activities and highlight outcomes from our efforts to add value for shareholders.

    Download Dimensional UK Stewardship Report 2020.

    Rationales for specific votes deemed significant by Dimensional can be found in the Vote Rationale Disclosure Report available here.

  • Proxy Voting Guidelines

     

    Effective February 14, 2020

     

    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. We seek to maximize shareholder value subject to the standards of the relevant legal and regulatory regimes, listing requirements, regional 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

     

    Uncontested Director Elections

    Dimensional may vote against individual directors, committee members, or the full board of a portfolio company 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 independence;

    2. Director attendance;

    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.

    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 diversity on the board. In jurisdictions where gender 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 that 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.

     

    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.  

     

    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 and will generally vote against proposals to create or continue such structures.

     

    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.

     

    Voting Guidelines for Environmental and Social Issues

     

    Dimensional believes that portfolio company boards are responsible for addressing material environmental & 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.

     

    Proxy Voting Principles for the United States


    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 may vote against or withhold votes from individual directors, committee members, or the full board of a portfolio company in the following situations:

    1. Problematic audit-related practices

    2. Problematic compensation practices or persistent pay for performance misalignment

    3. Problematic anti-takeover provisions

    4. Material failures of governance, risk oversight, or fiduciary responsibilities

    5. Failure to adequately respond to shareholder concerns

    6. Lack of accountability to shareholders

    7. There is an ineffective board refreshment process.

     

    If a director is a member of multiple boards of various portfolio companies, and one of those boards has one of the issues above, Dimensional may vote against or withhold votes from 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 at portfolio companies:  

    1. Director attendance - Board members should attend at least 75% of meetings.

    2. Director commitments - Board members should ensure that they have the capacity to fulfill the requirements of each board membership.

     

    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:

     

    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 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.

     

    Board Size

    Dimensional believes that portfolio company boards are responsible for determining an appropriate size of the Board of Directors. 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.

     

    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.

     

    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 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.

     

    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”).

     

    Compensation of Directors

    Dimensional will support director compensation at a portfolio company that is reasonable in both size and composition relative to industry and market norms.

     

    Corporate Actions:

     

    Mergers and 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.

     

    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.

     

    Director Election Guidelines for Europe, the Middle East, and Africa (EMEA)

     

    Dimensional will leverage its global framework when evaluating EMEA portfolio companies, but will apply the following market-specific considerations when voting on directors.

    When voting on the election of directors of portfolio companies, Dimensional applies the following standards across EMEA unless otherwise specified below:

    • 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 at controlled companies provided at least one-third of the board is independent.
    • A majority of audit committee members (excluding shareholder or employee representatives as provided by law) should be independent; the committee overall should be at least one-third independent.
    • Executives should generally not serve on audit and remuneration committees.
    • Board terms generally should not exceed four years.
    • Directors should generally not serve on the boards of more than five publicly traded companies.
    • Dimensional generally expects executive directors to avoid serving in leadership roles (e.g. board chair) on outside boards.  

     

    United Kingdom

    Dimensional expects portfolio companies to follow the requirements of the UK Corporate Governance Code with regards to board and committee composition.

    France

    Dimensional prefers the role of chairman and CEO of a portfolio company to be separated; however, Dimensional may support a combined role if the board has a lead independent director with specific responsibilities, including the setting of meeting agendas.

    Dimensional will typically vote against the election of censors, but may consider providing support if the censor is to serve on an interim basis.

    Dimensional may vote against directors of a portfolio company if such company’s bylaws do not currently prohibit loyalty shares and there has been no commitment to put such structures to a vote.

    Germany

    Absent exceptional circumstances, Dimensional expects the role of chairman and CEO of a portfolio company to be separated and will generally vote against the election of a director to serve in a combined role. Dimensional will generally also vote against the appointment of a former CEO as Chairman.

    Dimensional will typically vote against directors of a portfolio company whose board term exceeds five years.

    Greece

    Dimensional expects all portfolio company boards to be at least one-third independent.

    Italy

    At portfolio companies electing directors through the voto di lista system, Dimensional expects that names of candidates to be disclosed in a timely manner.

    Portugal

    Dimensional expects all portfolio company boards to be at least one-third independent.

    Switzerland

    Dimensional expects the remuneration committee of a portfolio company to be majority independent and may vote against the election of non-independent directors if their election would result in a less than majority independent board.

    Dimensional expects the role of chairman and CEO of a portfolio company to be separated and will generally vote against the election of a director to serve in a combined role. 

    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.

     

    Proxy Voting Principles for Australia

     

    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, other than the CEO, 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 thirdparties.

    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.

     

    Proxy Voting Principles for Japan

     

    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 onethird 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).

Voting

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