Corporate governance

The French model for the exercise of voting rights by investment management companies.

Legal framework for the exercise of voting rights in France

Legal framework

The Law on Financial Security (loi de sécurité financière), which was adopted in France in the summer of 2003, makes it compulsory for investment management companies to exercise the voting rights attached to the shares they hold on behalf of third parties.

Investment management companies must justify their decision if they do not vote.

The exercise of the voting right in the client's best interest thus becomes an act of management in its own right.

The French Financial Markets Authority's (Autorité des Marchés Financiers – AMF) general regulations

The market supervisory body requires the utmost transparency.

Investment management companies must:– Put in place the necessary structures for the appraisal and analysis of resolutions

submitted during general meetings (e.g., specialised committees)

– Define their voting universe (index, geographic region, etc.).

– Draw up guiding principles for exercising voting rights.

Matters that must be reported to the AMF each year: – Votes 'against' and abstentions

– Any conflicts of interest

Making this information available at the investment management companies' head offices and on their websites.

Exercise of voting rights by AGF AM

Our organisation

Since 2003, AGF AM has applied its principles of voting rights (revised early 2006 and 2007). Our philosophy is based on a central premise:

''one share, one vote''

For example:– AGF AM recommends:

• That at least one third of the Board of Directors consist of independent directors• Separation of executive and non-executive roles

– AGF AM is opposed to:• Multiple voting rights• Anti-takeover mechanisms• Resolutions that aim to limit shareholders' powers• The granting of discounted stock options

Establishment of a Corporate Governance Committee responsible for :– drawing up guiding principles for voting rights– studying the texts of resolutions and deciding on positions to be adopted

Our voting universe comprises companies:– that belong to the Eurostoxx 324 index, or– in which AGF AM's combined portfolios hold more than 0.5% of the capital

The 2007 changes mainly concern companies' remuneration policies

More stringent conditions apply for allocation of remuneration:

– July 2005: Clément-Breton law on modernisation of the economy– November 2006: law on employee profit sharing– July 2007: 'Tax package'

AGF AM demands greater transparency concerning the amounts and calculation of remuneration

AGF AM emphasises the role, commitment and responsibility of the remuneration committee

The granting of stock options must be incentive-based and should inspire company loyalty (i.e., non-discounted)

Golden parachutes submitted to the general meeting for approval must not exceed two years' total remuneration

Our involvement

AGF AM is:

– A founder shareholder and administrator of the shareholder activism SICAV*, Proxy Active Investors (PAI)

– A founder member of EAI (Enhanced Analytic Initiative), which aims to develop, improve and promote research in extra-financial issues.

– A member of the French Financial Management Association (Association Française de la Gestion financière – AFG) Corporate Governance Commission.

* (Société d'Investissement à Capital Variable – Investment Company with Variable Capital)

2007 ACTIVITY

336 general meetings dealt with (equivalent to 4,800 resolutions analysed as at 30 September 2007)

• Including 70 general meetings where all resolutions were passed (21%),

and 266 with at least one vote against or abstention (79%)

• 199 French companies (59%) and 137 foreign companies (41%)

Principal reasons for votes against or abstentions:

– Increases in capital with withdrawal of preferential subscription rights

– Share buybacks during public offering

– Excessive remuneration

– Board of directors' lack of independence

– Granting of discounted stock options

– Issuing of preferential shares

Progress in relationships between investment management companies and issuers

Since 2003 the dialogue between issuers and investment management companies has broadened.

There is increasing demand for dialogue from issuing companies:– prior to general meetings;– directly, or through issuers' associations.

Our approach remains constructive rather than aggressive.

Rather than seeking to supplant the Board of Directors, we want to be committed shareholders:

– the Board of Directors retains all of its prerogatives;– general meetings must do more than just 'rubber stamp' resolutions.

We emphasise a ''best efforts'' approach:– As with social and environmental issues, good corporate governance can only be

assessed over the medium term.

Our commitment in respect of the Proxy Active Investors (PAI) SICAV AGF AM has filed draft resolutions in partnership with PAI since 2005.

The first campaign focused on CAC 40 companies whose Memorandum and Articles of Association

(statuts) place limitations on voting rights (Vivendi, Lafarge, Schneider, Alcatel, Société Générale, Total and Danone).

Through the PAI SICAV, it has been possible to channel and optimise the efforts of all involved to make steady advances in corporate governance best practices.

Some of our achievements:

– Vivendi Universal and Alcatel: removal of limitations on voting rights enshrined in Memorandum and Articles of Association.

– Casino, Thomson and Sodexho: increase in the number of independent directors.

– Thales, Michelin and Casino: end of discrimination on grounds of nationality for entitlement to double voting rights.

– Société Générale and Renault: increase in threshold for declaration required by Memorandum and Articles of Association from 0.5% to 1.5% and 2%.

– Bouygues: reduction in duration of directors' appointments to three years.

 AGF AM PRINCIPLES OF VOTING RIGHTS 

www.agf-am.comSection: Sustainable development

Corporate governance charter