Proxy Voting Policy

The voting of proxies is a central to the ownership of public equities. Public equities are managed by external investment advisors on behalf of the North Carolina Retirement System. The advisors are expected to establish and maintain proxy policies, and vote proxies. In establishing policies and voting proxies, these equity managers are expected to follow the following general policies set forth by the State Treasurer:

• Proxies should be voted in order to maximize long-term shareholder value for the beneficiaries of the North Carolina Retirement Systems;
• Equity managers should consider the individual facts and circumstances of each issue, and exercise appropriate discretion in establishing policies and voting proxies;
• Equity managers should evaluate proxies based upon their knowledge of the company, its current management, and management’s past record. Equity managers may contract for services to supplement their internal expertise;
• Equity managers shall develop a specific policy for resolving potential conflicts of interest, and identify all proxy matters involving a potential conflict of interest between the equity manager and the company. A potential conflict of interest exists when the equity manager has a relationship or potential relationship with the company; the equity manager has a business relationship with the proponent of the proxy proposal, or principals, employees or consultants of the equity manager have a personal or business relationship with the company, its directors or potential directors,
• Although management, subject to oversight by the board of directors, is generally in the best position to serve the interest of shareholders, the State Treasurer generally expects equity managers to vote against management if the equity manager perceives there is conflict between the interests of management and shareholders, especially where the proxy item appears to insulate management or diminish shareholder rights.Although the equity manager must ultimately weigh all the facts and circumstances in voting proxies on behalf of the North Carolina Retirement System, the State Treasurer expects managers to adhere to the following general positions:
• Corporate governance: The State Treasurer supports strong corporate governance. The State Treasurer expects equity managers to vote against proposals that serve as anti-takeover devices, or diminish shareholder rights (e.g., poison pill plans, supermajority votes) and support proposals that encourage responsiveness to shareholders (e.g., declassification of board members, confidential voting, honoring simple majority votes). Proposals involving mergers and acquisitions, reincorporations and other corporate restructurings should be reviewed on a case-by-case basis.
• Capital structure: The State Treasurer supports increases in capital stock when they are for legitimate financing needs. The State Treasurer expects managers to vote against proposals involving changes in capital stock that can be used as anti-takeover devices (e.g., creation or increase in blank check preferred stock, dual class structure with differential voting rights).
• Compensation plans: The State Treasurer supports compensation plans that align employee and shareholder interests. However, the State Treasurer expects equity managers to vote against compensation plans, where interests are not adequately aligned. The State Treasurer expects equity managers to closely evaluate all such proposals, including options plans and golden parachutes, in order to ensure that the proposals are not overly dilutive and meet the needs of the company and its shareholders. The State Treasurer supports options and restricted stock plans that have appropriate performance hurdle rates tied to benchmarks, pre-established composites of competitors or a company’s cost of capital. While equity managers may support options or restricted stock plans that do not include specific performance hurdles, the State Treasurer expects equity manager to establish specific guidelines for acceptable levels of dilution for these types of grants.
• Directors: While the equity manager should generally support management recommendations in situations where a slate of directors is unopposed, the State Treasurer expects managers to closely scrutinize the slate of directors where the company has experienced substantial underperformance or mismanagement, or where directors already serve on more than three publicly listed companies or more than five boards overall.