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1、2024 Investment Stewardship ReportInvestor-led,expert-drivenApril 2025This report is as of December 31,2024 and includes information that was obtained at an earlier date during the course of engagements with companies or in the course of voting proxies.Such information has not been updated,verified

2、or audited.The case studies and examples are provided for illustrative purposes only and may not be updated in the future.While we view engagement as an important part of understanding the risks and opportunities facing companies held in our client portfolios,such engagement may not be effective in

3、identifying such risks and opportunities and we do not guarantee any particular results or company performance as a result of such engagement.The engagement statistics are approximations only and were derived from our internal research notes to help identify engagements related to specific engagemen

4、t priorities and sub-themes.Such information has not been audited and no assurance can be made with respect to the accuracy or completeness of such information.FOR INSTITUTIONAL/WHOLESALE/PROFESSIONAL CLIENTS AND QUALIFIED INVESTORS ONLY NOT FOR RETAIL USE OR DISTRIBUTIONContents3 Foreword4 J.P.Morg

5、an Asset Management Part 1 Engagement and voting in 2024 6 Engagement in 2024:a year in review9 Our approach to engagement21 Governance engagement and voting 202431 Strategy alignment with the long-term engagement and voting-202445 Climate change engagement and voting-202467 Natural capital and ecos

6、ystems engagement 202482 Social stakeholder engagement and voting 202491 Human capital management engagement and voting 202497 Stewardship in Alternative Markets101 Proxy voting how we utilized our rights in 2024Part 2 Structures and practices supporting stewardship 115 J.P.Morgan Asset Management W

7、ho we are121 Governance of stewardship126 People and resources130 ESG integration at J.P.Morgan Asset Management146 Client and beneficiary needs150 Structures,processes,policies and procedures supporting stewardship162 Appendix 1:Thought leadership publications 2024163 Appendix 2:Stewardship code ma

8、ppings166 Appendix 3:Assets Under ManagementJ.P.Morgan Asset Management|2024 Investment Stewardship Report 2Back to contentsForewordIn 2024,we saw a new economic era emerging and with it we saw a number of opportunities,despite often challenging headlines.So,how do we continue to navigate the spectr

9、um of opportunities and risks faced by our clients?As an active investment manager and a fiduciary,we have a deeply-held conviction that in-depth research and rigorous analysis byexperts across functions,sectors and regions are key to delivering long-term risk-adjusted returns for our clients.Our ap

10、proach to investment stewardship is aligned with this vision,and we consider active engagement as an important tool to maximize returns in our investment processes over time through constructive and open dialogue with investee company management and board of directors.Against this backdrop,we are pl

11、eased to launch J.P.Morgan Asset Managements fifth annual Investment Stewardship Report.In 2024,weleveraged the power of J.P.Morgan Asset Managements access and expertise across global markets and continue to deepen our commitment to fundamental research and expand the resources supporting our overa

12、ll investment stewardship programs.We seek to deliver stronger investment outcomes,including by focusing our engagement dialogue on the most financially material issues that we believe impact the long-term performance of companies in which we invest.Additionally,we advocate for robust corporate gove

13、rnance and sound business practices.We believe that understanding the breadth of financially material issues plays an important role in delivering long-term value creation for our clients.Our efforts are supported through one of the largest buy-side research networks of approximately 300 equity and

14、credit analysts globally,complemented by a dedicated stewardship team.During 2024,we engaged with hundreds of companies globally to better understand and encourage them to develop and adopt their own practices to manage risk and create long-term shareholder value.Our engagement continued to be shape

15、d by important medium-and longer-term material financial risks and opportunities faced by investee companies around our six stewardship priorities.These included climate change,natural capital and ecosystems,human capital management,social stakeholder management,governance,and strategy alignment wit

16、h the long-term.We engaged with companies in the artificial intelligence data center value chain,including data center operators,as the risks associated with the intensity of energy and water resource usage became increasingly apparent in this rapidly growing space.We assessed the merits of a series

17、 of high-profile activist investor campaigns at major companies in the U.S.and also in Japan.Additionally,we made a series of insightful field trips to experience matters on the ground and see the impacts of corporate practices first-hand.On behalf of J.P.Morgan Asset Management,we hope you find our

18、 reportuseful in understanding the important role our investment stewardship plays as part of managing risk and generating long-term returns for our clients.Thankyou for your continued feedback,trust and confidence.George GatchChief Executive Officer,J.P.Morgan Asset ManagementJ.P.Morgan Asset Manag

19、ement|2024 Investment Stewardship Report 3Back to contentsJ.P.Morgan Asset Management JPMorgan Chase&Co.JPMorgan Chase&Co.(“JPMorganChase”or the“Firm”)is a leading financial services firm based in the United States of America(“U.S.”),with operations worldwide.JPMorganChase had$4.0 trillion in assets

20、 and$344.8 billion in stockholders equity as of December 31,2024.The Firm is a leader in investment banking,financial services for consumers and small businesses,commercial banking,financial transaction processing and asset management.Under the J.P.Morgan and Chase brands,the Firm serves millions of

21、 customers,predominantly in the U.S.,and many of the worlds most prominent corporate,institutional and government clients globally.1 1 This report describes J.P.Morgan Asset Managements approach to investment stewardship.Please note that J.P.Morgan Asset Managements approaches are separate from JPMo

22、rgan Chase&Co.References to“we”or“our”in this document refer to J.P.Morgan Asset Management and not JPMorgan Chase&Co.J.P.Morgan Asset&Wealth ManagementJ.P.Morgan Asset&Wealth Management is a global leader in asset and wealth management services.TheAsset&Wealth Management line of business serves ins

23、titutional,ultra-high net worth,high net worth and individual clients.With combined overall client assets of USD 5.9 trillion and assets under management of USD 4 trillion as of December 31,2024,we are one of the largest asset and wealth managers in the world.J.P.Morgan Asset Management(JPMAM)is the

24、 marketing name for the investment management businesses of JPMorgan Chase&Co.and its affiliates worldwide.Unless otherwise noted,the focus of this report throughout is on J.P.Morgan Asset Management.JPMAM is a leading investment manager of choice for institutions,financial intermediaries,and indivi

25、dual investors,offering a broad range of core and alternative strategies,with investment professionals operating in every major world market providing investment expertise and insights to clients.J.P.Morgan Asset Management oversees more than USD 3.4 trillion in client assets under management global

26、ly as of December 31,2024.For more details,please see the section J.P.Morgan Asset Management Who we are.J.P.Morgan Asset Management|2024 Investment Stewardship Report 4Back to contentsPart 1Engagement and voting in 2024J.P.Morgan Asset Management|2024 Investment Stewardship Report 5Back to contents

27、In 2024,there continued to be significant interest in the stewardship practices of the asset management industry from clients and stakeholders worldwide.What continued to hold firm was our conviction that engagement and proxy voting should be shaped by in-depth active research,driven by investment o

28、utcomes and focused on the most financially material issues.This allows us to be stewards of capital in the best long-term interests of our clients.In our entire Global Stewardship Program,we engaged 1,135 companies in more than 50 markets around the world.We reviewed and upgraded our technology sys

29、tems to log and categorize our engagement activity through 2024 so,it may not be comparable directly with our engagement statistics from earlier years.These engagements include in-depth engagements as part of our Enhanced Engagement Program.Thisprogram continues to be a focus of our time and effort

30、and includes engagement with 412 companies in 2024.This included approximately 130 companies on our global focus list.For full details on the Enhanced Engagement Program,please refer to the section Our Approach to Engagement.We have continued engaging on financially material topics related to our st

31、ewardship priorities,includingincreasing our engagement on climate change-related risks where appropriate.In light of the sudden growth in the use of artificial intelligence(AI)and the expectation that this will drive huge increases in data center power demand,we have engaged companies across the va

32、lue chain on the environmental risks this presents.Details of this thematic engagement project can be found in our climate change chapter.From a thematic perspective,the top three areas of engagement by issues were Human Capital Management,Governance and Climate Change.Theseremain unchanged from the

33、 previous year.Moredetails are provided in the following sections,which report on our engagements by each stewardship priority theme area.We continually work to improve the transparency,quality and impact of our stewardship reporting.In the following thematic chapters,you will find three areas of fo

34、cus for improvement:1.Effective April 1,2024,we implemented a new section in our Global Proxy-Voting Guidelines,addressing our voting policies related to the management of financially material climate risks.The guidelines make clear that we encourage disclosures of minimum climate-related indicators

35、 for companies in sectors particularly exposed to financially material climate risks.In our climate change chapter,wereport on votes against directors related to this changein our voting guidelines for the first time.2.We have expanded our disclosure regarding stewardship in Alternatives.We include

36、greater detail on our stewardship activities for real estate investments,in addition to a case study demonstrating our stewardship of forestry assets at Campbell Global.3.In 2024,we have increased engagement on our newest theme,natural capital and ecosystems.In this chapter,you will find further det

37、ails on our engagements related to plastics and water scarcity risks,as well as details on our voting related to this important and emerging theme.Engagement in 2024:a year in reviewJ.P.Morgan Asset Management|2024 Investment Stewardship Report 6Back to contents2024 Engagement in numbers1,135 compan

38、ies engaged412 of which were in our Enhanced Engagement Program50+markets engaged globally130approximately which were 2024 Focus List companiesMore than 650 engagements with board directors(incl.chair)or senior executivesEngagement by investment stewardship priority issues Engagement by sectorGovern

39、anceStrategy alignmentwith the long termClimate changeNatural capital and ecosystemsSocial stakeholdermanagementHuman capitalmanagementOther themes22%34%17%9%9%7%1%Sector%Sector%ConsumerDiscretionaryEnergy14.4Industrials5.65.2Health Care17.7CommunicationServicesInformationTechnology4.712.4UtilitiesF

40、inancials4.612.0Real EstateConsumer Staples2.110.0Other(incl.Sovereigns)Materials1.510.0*Percentages may not add up to 100 due to rounding.Engagement in 2024:a year in review continuedJ.P.Morgan Asset Management|2024 Investment Stewardship Report 7Engagement in 2024:a year in review continued1234525

41、68912101314151116181920212223272425281726303132343536373941403842434445294647484950505171Australia1.8%2Austria0.4%3Belgium0.3%4Bermuda0.4%5Brazil2.6%6Canada0.7%7Cayman Islands3.5%8Chile0.1%9China3.2%10Colombia0.3%11Czech Republic0.1%12Denmark0.8%13Finland0.2%14France3.0%15Germany2.6%16Greece0.4%17Gu

42、ernsey0.1%18Hong Kong1.1%19Hungary0.1%20India5.4%21Indonesia0.4%22Ireland0.6%23Israel0.1%24Italy1.3%25Japan13.5%26Jersey0.6%27Kazakhstan0.2%Engagement by market28Luxembourg0.6%29Marshall Islands0.1%30Mexico1.4%31Netherlands1.5%32Norway0.6%33Other1.4%34Philippines0.3%35Poland0.9%36Portugal0.2%37Qatar

43、0.1%38South Korea3.7%39Saudi Arabia1.6%40Singapore0.5%41South Africa1.3%42Spain0.9%43Sweden0.8%44Switzerland1.5%45Taiwan1.8%46Thailand1.6%47Turkey1.6%48United Arab Emirates0.4%49United Kingdom12.4%50United States20.7%51Vietnam0.3%52Virgin Islands(British)0.3%Back to contentsJ.P.Morgan Asset Manageme

44、nt|2024 Investment Stewardship Report 8Back to contentsJ.P.Morgan Asset Management has deeply-held convictions that in-depth investment research and rigorous analysis by experts are key to delivering long-term,risk-adjusted returns for our clients.Our approach to engagement is aligned with this visi

45、on and is an important part of our investment processes.Engaging investee companies in dialogue and encouraging sound corporate practices(including around managing financially material environmental,social and governance(ESG)issues)is an important component of how we deliver our investment stewardsh

46、ip strategy.Our engagement is based on our in-depth investment research on companies,alongsideour assessment of macroeconomic drivers,sector-specific factors and financially material themes.This research insight enables us to act proactively and encourage investee companies to acknowledge issues and

47、 improve practices before risks are realized and opportunities are missed.This is how we seek to drive impact in our investment stewardship activity and advocate for sound practices at our investee companies.We believe this will ultimately preserve and enhance asset value.Our engagement is based on

48、these four principles:Intentionality:We are determined to act in the best interests of our clients by encouraging investee companies to focus on prudent allocation of capital and long-term value creation.Materiality:We strive to understand how factors impacting sustainability are financially signifi

49、cant to individual companies over time,understanding that the regions,cultures,and organizations in which we invest differ greatly.Additionality:We focus on strategic issues that are most urgently in need of our focus in order to deliver better long-term returns to our clients.We believe that as lar

50、ge investors,we have the ability to put our resources to work towards achieving the outcomes we seek on behalf of our clients.Transparency:We seek to be clear about the investment stewardship work we do and take steps to be transparent to our stakeholders,as we expect the same from investee companie

51、s.Alongside the ongoing dialogue that we have with investee companies throughout the year,proxy voting at annual general meetings is another key tool we utilize in our investment stewardship activities.Demonstrating our views through proxy voting is increasingly relevant across our Investment Stewar

52、dship Priorities.Investor-led,expert-driven engagement Our engagement model is built on an investor-led,expert-driven approach and leverages the knowledge of more than 1,000 investment professionals around the world,working in close collaboration with investment stewardship specialists.Our engagemen

53、t process benefits from the longstanding relationships our investment teams have with local investee companies,through regular interactions with board directors and chairs,senior executives and CEOs.We believe this collaborative,well-resourced approach enables us to recognize significant risks early

54、 and identify new opportunities,supporting our goal of generating attractive risk-adjusted returns.Combining our ESG research capability with the experience and skill of our investment teams and the expertise of our investment stewardship specialists gives us a deep understanding of the risks and op

55、portunities facing different sectors,industries,andgeographies.By integrating this expertise into a global common platform,we seek to maintain a consistently high standard of engagement,consideringthe myriad of nuances a responsible investor needs to embrace.Through engagement,weseek to encourage lo

56、ng-term sustainable outcomes in investee companies.Ultimately,the objective is tobuild stronger and more resilient portfolios for ourclients.Our approach to engagement J.P.Morgan Asset Management|2024 Investment Stewardship Report 9Back to contentsJ.P.Morgan Asset Management Engagement Model Top-Dow

57、n-Investment Stewardship TeamSustainability focused research and focus-list engagement Bottom-Up 1,000+investment professionalsFinancial materiality focused research and portfolio constructionEscalationIdentification of issuesEngagementProxy votingOutcome monitoringFeedback LoopFeedback LoopSource:J

58、.P.Morgan Asset Management,as of December 31,2024.J.P.Morgan Asset Managements six Investment Stewardship Priorities We have identified six Investment Stewardship Priorities that we believe can be broadly applied in our engagement efforts and will remain relevant through market cycles.These prioriti

59、es address the ESG issues that pose the most significant long-term material financial risks to our investments,while also presenting the greatest opportunities.Engaging on these topics is therefore important to delivering value to our clients.This combination of priorities and evolving themes provid

60、es a structured and targeted framework for engagement for our investors and Investment Stewardship team globally.The priorities are:Governance Strategy alignment for the long term Climate change Natural capital and ecosystems Social stakeholder engagement Human capital managementAs we delve deeper i

61、nto each of the six priorities in this report,we highlight specific engagement case study examples that address the key areas of material change we seek to encourage at our investee companies to manage risk and improve investor value.We also provide examples of how our proxy voting activity is infor

62、med by these issues.Its important to note that while we believe these six priorities to be relevant across asset classes,strategies,and geographies,we acknowledge that our engagement activity will reflect material differences between industries,regions,and financial markets.For example,in the area o

63、f human capital management,U.S.engagements have focused on labor practices at technology and consumer-facing services companies;in Asia,the focus has been on the global supply chain.The same issue can differ by industry:We may ask a clothing retailer to provide its Tier 1 supplier list due toconcern

64、s regarding supply chain risk,but we wouldrarely request this information from an insurancecompany.Similarly,within climate change engagements with extractive industries,methane emissions figure more prominently in discussions with North American companies.Discussions in emerging markets where there

65、 may be less regulation,on the other hand,may focus on providing meaningful transparency on emissions performance.Within long-term alignment engagements,engagement in the U.S.emphasizes pay for performance alignment given the quantum,and increasing complexity,of compensation plans.In the UK,compensa

66、tion discussions have focused on equity and the generous pension terms granted to executives versus regular employees.In many other markets,we still seek meaningful information on establishing basic good practices around executive pay.Our approach to engagement continuedJ.P.Morgan Asset Management|2

67、024 Investment Stewardship Report 10Back to contentsOur Investment Stewardship Program In 2024,there were thousands of meetings between our investment team members(e.g.,research analysts and stewardship experts with board directors,seniormanagement,and operational experts from investee companies)as

68、they engaged with 1135 companies.The focus and purpose of our discussions are shaped and informed by our in-depth analysis of investee companies strategy,financial performance,and key practices on ESG issues with material financial impact(please refer to the section on ESG Integration for full detai

69、ls).Through our regular and ongoing interactions with companies,we discuss a range of issues including financially material ESG factors,andwe highlight areas of good practices we believe they should aspire to.Wesystematically track and monitor these interactions as part of our Core Stewardship Progr

70、am.Throughthis program,we focus on issues that we believe investee companies should address to protect value by minimizing risk and to create value by capitalizing on opportunities.We assess companies responses to engagement and monitor the progress being made over time,including around the transpar

71、ency of sustainability practices.Alongsideour dialogue with investee company representatives,proxyvoting is also an important component of ourapproach.However,we also recognized that there is a need for a program of in-depth engagements.These are cases where we allocate more of our time and resource

72、s to engaging a narrower group of companies which our research and analysis have identified to be of need.OurEnhanced Engagement Program aspires to meet the expectations of our global investment teams across asset classes,and of our clients and stakeholders around the world,to manage risk and promot

73、e long-term shareholder value at investee companies that most merit our time and attention.The three key pillars of our Enhanced Engagement Program are:Focus list:This is a list of companies in our portfolios held in equities and corporate credit,which includes companies that issue no public equity

74、and are bond-only issuers,where we have meaningful investment exposure,and our research has identified areas of financially material ESG risks and opportunities.Thislist is agreed upon with the relevant JPMAM investors.We assess our ability to drive improvement through engagement with these companie

75、s,considering issues such as our previous track record,the companys acknowledgement of the issue and broader regulatory factors shaping the circumstance.We then establish clear objectives up front and seek to encourage companies to develop and implement their own plans to address our concerns over t

76、he course of 18-36 months,depending on the complexity of our concerns.Key focus issues are largely around our six Investment Stewardship Priorities where we have in-house expertise,but we are not limited to such topics,as companies may face unique issues and risks.The focus list in 2024 consisted of

77、 approximately 130 companies.Progress of engagement is regularly monitored to assess next steps and is a key component in the periodic review of the inclusion of the companies on the list.Thematic projects:Alongside the focus list,we run engagement initiatives on specific themes aligned with the six

78、 Investment Stewardship Priorities,where we target a broader number of investee companies on the same set of issues.The aim is to engage around 3040 companies throughout the lifetime of aparticular project.For example,in 2024,we started a thematic project with regard to data centers and environmenta

79、l resource use impact.More details on this project are to be found in the climate change engagementsection.Our approach to engagement continuedJ.P.Morgan Asset Management|2024 Investment Stewardship Report 11Back to contents Reactive engagements:While we endeavor for our proactive engagement to enco

80、urage our investee companies to be more resilient to financially material ESG risks and more alert to capitalizing on opportunities,there are always corporate actions,notable events,major developments,controversies,norms breaches and matters arising from the proxy voting process that require reactiv

81、e engagement.This can also include long-running issues being uncovered with regard to controversial corporate practices,products and services.For more details on this,please refer to the Reactive Engagement section of this report.Establishing objectives and evaluatingprogressThe objectives for engag

82、ements are set using a variety of inputs and guidelines,ranging from proprietary analysis and guidance provided by our investment teams to our proxy voting guidelines and the expectations set in the six Investment Stewardship Priorities.For example,with collaboration from JPMAM investors,we may iden

83、tify problematic features incorporated in,or absent from,a companys executive remuneration plan.We may define the objective as the removal or inclusion of such features.Monitoring of progress on engagements is facilitated by setting engagement objectives and systematically using our documentation sy

84、stem to identify the status of the engagement.Further discussion on engagement tracking can be found in the Engagement Progress,Milestones and Failures section.How we engage with companiesEngagement with investee companies can be conducted through in-person meetings,video or phone calls,speaking eng

85、agements,formal letters or emails,and field trips.This is largely done on a one-to-one basis,but we may collaborate with other asset managers,where permitted and in accordance with applicable regulation,where we consider it to be an effective approach to progress the engagement.Please refer to the s

86、ection on Collaborative Engagement for more details.We enjoy good access to companies and,as a result,many of our engagements are conducted with representatives at senior levels of the company.Thisincludes the board of directors,senior executives,general counsel,and operational specialists from the

87、company who have subject matter expertise,such as heads of compensation,or investor relations.Increasingly,our interactions with companies in the Core Stewardship Program on ESG issues are led by investment research analysts responsible for primary coverage of the company in equity and corporate bon

88、ds.They are supported by the thematic expertise onESG issues by the Investment Stewardship team.We consider it to be a key part of our approach to ESG integration that the investors should play an active and visible role in driving stewardship,which shapes the long-term investments they seek to have

89、 with investee companies.This is critical to our investment success,in the quality of engagements and the focus on clear outcomes in a time-bound fashion.Generally,itcan take several years before our engagements yield tangible results;we expect an engagement timeframeof about three years before our

90、milestones are achieved.We believe that,for the majority of significant ESG matters,our JPMAM equity and fixed income investors typically share a common perspective on what serves the companys best long-term interests.This alignment is increasingly supported by collaborative engagement efforts betwe

91、en our Fixed Income and Equities teams.However,we acknowledge that there are certain issues,like capital structure or the scale of buybacks,where their views may differ.This is now backed up by experience where there is growing collaboration on engagement between our colleagues in Fixed Income and E

92、quities teams.We note that there are some issues on which they may diverge,such as capital structure or magnitude of buybacks.Engagements involving voting issues related to annual stockholder meetings,also referred to as annual general meetings(AGMs),are attended by equity investors in addition to m

93、embers of the Investment Stewardship team.Our approach to engagement continuedJ.P.Morgan Asset Management|2024 Investment Stewardship Report 12Back to contentsEscalationEngagements with targeted companies are documented,allowing us to monitor the stage of engagement.There will be times when,despitep

94、rolonged engagement,our concerns aroundmanaging risks and increasing and preserving the long-term value of our client accounts have not been addressed.Under such circumstances,we may undertake the following forms of escalation depending on the circumstances:meetings with non-executive directors,a le

95、ad independent director or chair;voting against management and the non-executivedirectors;communication to the chair or lead independent director disclosing our voting rationale;collaboration with other investors or public statements with other investors as appropriate;and reduction in holdings or d

96、ivestment in certain cases.It is important to note that securities of companies may be purchased and retained for financial reasons,irrespective of the level of success of engagementactivity.Having reviewed the potential benefits of such action on our objectives,We will escalate concerns,whileacting

97、 in the best long-term interests of our clients.Our approach to escalation considers the facts and circumstances of each specific case.However,we note that voting escalation is principally aimed at equity holdings rather than other asset classes where the opportunity to vote is far rarer.We do not g

98、enerally differentiate our approach to escalation based on geography or fund type unless there is a valid reason(e.g.,our approach to proxy voting for Russian companies following the 2022 invasion of Ukraine or certain votes specific to sustainable strategies).Collaborative engagement Collaborative

99、engagement is defined by JPMAM as when we have joint dialogue alongside other institutional investors with investee companies on financially material issues.Such collaborative engagement can occur,for example,throughdirect meetings with a company,via joint written communication to a company requesti

100、ng more information on a given topic or investor calls.Most of our engagements are one-on-one dialogues with companies.Even though we make our own independent investment and proxy voting decisions,there are cases where we also consider that collaborative engagements can be an effective way to impres

101、s upon companies common concerns shared by investors and understand individual company situations with respect to their exposure to financially material risks and opportunities,and how these affect investor value.We find collaborative engagement to be effective when one-to-one engagement does not re

102、sult in a meaningful response or progress over time.The focus for us on collaborative engagement is no different than one-to-one engagement;it is to utilize our investor rights and meet our fiduciary duty to deliver the best long-term outcome for our clients.It is based on understanding risks that a

103、re financially material to investee companies and stating our expectations for the robust and rigorous management of these risks so that they do not harm investor value.This includes assessing how companies are taking advantage of competitive opportunities to innovate in response to consumer demand

104、and regulatory requirements around the world.Collaborative engagement is supported by and encouraged by regulators,in certain markets,on certain issues.For example,in the UK,climate change industry collaboration is seen as important and expected.While adhering to all applicable rules and regulations

105、,such as antitrust and competition laws,webelieve that collaborative engagements can facilitate effective communication of investor concerns to companies.Our approach to engagement continuedJ.P.Morgan Asset Management|2024 Investment Stewardship Report 13Back to contentsWith attention on collaborati

106、ve engagements,it is important for clients to understand what“collaborative engagement”entails and what it does not.Forexample,while collaborative engagements involve multiple investors(such as other asset managers)who share common concerns around risks and opportunities facing individual companies,

107、each investor makes their own investment and proxy voting decisions.JPMAMdoes not share competitively sensitive information regarding its client accounts or its investment decisions with other investors.It does not work in concert with other investors on investment matters and makes its own independ

108、ent decisions concerning investee companies,including how to vote proxies and whether to change its allocations,invest in,or divest from an investee company.Investeecompanies make their own strategic decisionsbased on their own assessment of the balance of views from various parties.Human rights ris

109、ks We believe the effective management of human rights risks can mitigate reputational,regulatory and legal risks amongst others and,ultimately,is in the best interest of shareholders and our clients.We view respect for human rights as important to the long-term value of companies in which we invest

110、,considering the evolving human rights due diligence regulatory framework and their legal,reputational and financial implications.Governance initiatives In 2024,we were members of governance-focused initiatives such as the UK 30%Club Investor Group,Japan 30%Club Investor Group and its Best Practice

111、Working Group and its Thought Leadership Working Group and a member of 30%Club Hong Kong Investor.In2024,we participated in the Next Generation Leaders Development Program in the Financial Industry,anevent where female board members from corporations are invited.This event was hosted by the 30%Club

112、Japan Investor Group and supported by the Asset Management Womens Forum.Established in 2022,the Forum aims to promote the advancement of women in the asset management industry in Japan.Our Japan Asset Management unit became a member of this Forum in 2023.In 2024,we worked with the Asian Corporate Go

113、vernance Association(ACGA)on corporate governance issues in Asia.We are a member of its China Working Group,Korea Working Group and Japan Working Group.Meeting with investee companies to discuss their governance issues,including their governance of material issues,is a key activity of these countrie

114、s working groups.In 2024,in addition to engaging with investee companies through these three working groups,wehave also participated in the ACGA Member Delegations to Korea in April and Japan in September.Alongside other institutional investors,we had constructive dialogues with regulators and indus

115、try bodies,as well as investee companies.Our approach to engagement continuedJ.P.Morgan Asset Management|2024 Investment Stewardship Report 14Back to contentsFelix Lam,Asia ex Japan Head of Investment Stewardship,speaking in a panel discussion at ACGA Conference in Singapore about transparency and e

116、xecutive compensation structures in Asia.In recent years,Japanese companies have undertaken reforms to enhance corporate value,a key factor in the stock markets strong performance.Effective resource allocation is crucial for Japans economic revival,benefiting all stakeholders.However,“strategic shar

117、eholdings,”2 remain entrenched.These are often criticized for inefficient capital use and hindering corporate reforms.Despitesome divestments and guidance from Japans Financial Services Agency for insurance companies to divest,progress has been slow,especially outside the financial sector.In collabo

118、ration with other investors and ACGA,we issued an open letter urging the acceleration of strategic investment reductions where it is an inefficient use of capital.The letter,which includes governance recommendations,can be found here.A full list of industry group memberships can be foundon our websi

119、te.2 Strategic shareholdings,which include allegiant and cross-shareholdings,serve to form business relationships between group companies and their suppliers and customers.3 SpectrumTM is J.P.Morgan Asset Managements common technology platform.For more information please see the Resources we share a

120、cross the JPMAM system section in Part 2.Engagement progress,milestones,andfailures We have implemented an approach to tracking engagement progress and recording milestones where objectives have been achieved.The aim is to make sure our engagements have a positive impact on risk and value at individ

121、ual companies and investee companies are responding in a constructive fashion over time.Italso allows us to identify areas where progress is slow and enable constant improvement of our engagement methodology and framework to achieve better outcomes effectively for our clients.Wehave established an E

122、SG engagement recording system in our Spectrum technology platform3 with the aim of enabling the systematic tracking of engagementprogress.In 2024,we continued to evolve and strengthen our approach to tracking engagement progress and recording milestones and engagement failures.We identify financial

123、ly material ESG issues at investee companies held in our portfolios and then initiate our engagement by discussing our concerns with companies and subsequently asking them to identify actions to address issues we believe are important for our client accounts.In most cases,engagement can take time to

124、 progress.It takes time before a board or management acknowledges an issue and starts to define and implement a roadmap of action to deliver meaningful change.Sometimes,issues we raise in our engagements can lead to the investee companies determining to make structural and organizational changes tha

125、t are not easy or quick to achieve,whichhave impacts on business models,strategy,andinvestments.Generally,it can take several years before our engagements yield tangible results;weexpect an engagement timeframe of about three years before our milestones are achieved.Our approach to engagement contin

126、uedJ.P.Morgan Asset Management|2024 Investment Stewardship Report 15Back to contentsOur approach to engagement progress and milestone tracking In order to check that our engagements are on track and progressing over time,we have established four stages in our engagement journey.The progress stagesar

127、e:1 Issues raised to the company2 Issues acknowledged by the company3 The company develops a strategy to address the issues4 The company implements changes and milestone areachievedWe have also identified scenarios where we have concluded that no positive outcomes can be expected in the given timefr

128、ame:0 Engagement failedOur engagement progress in2024 The chart below shows the stage of different engagements at the end of 2024.Engagement progress by stage02004006008001,0001,2001,400Stage 04Stage 183Stage 21,292Stage 3178Stage 424Source:J.P.Morgan Asset Management,as of December 31,2024.Note:In

129、cases where there are several engagement themes for one company,engagement milestone for the company is measured against the theme where there was the most progress.In 2024,we observed more than 200 cases where engagements progressed from stages 1 and 2 to stages3 and 4,moving engagements to their o

130、bjectives as shown in the chart above.We recorded engagement progress and milestones in each area of our priorityacross all regions(see the Engagement progress by stage chart below for examples).This included the engagement priority of natural capital and ecosystems,which was added to our priorities

131、 in December 2022,and engagements ramped up through 2023 and 2024.Some successful cases are explained in more detail in the engagement case studies section.We have observed successful engagements with investee companies taking steps to manage financially material risks and promote long-term value te

132、nd to have concrete objectives,such as,where applicable,reducing Greenhouse Gas(GHG)emissions,improving board structure,orrevising the remuneration scheme.We have also found that companies are proactive in improving disclosures when asked for more transparency,bypublishing reports on sustainability,

133、human capital,human rights,TCFD or remuneration policy.There was also a case where,despite our long-term efforts in engagement to understand how the company protected the rights of minority shareholders,our purpose was not achieved.Our approach to engagement continuedJ.P.Morgan Asset Management|2024

134、 Investment Stewardship Report 16Back to contentsTable of 2024 engagement success examplesCompanyCountryPriorityMilestone detailSaudi Electricity Company Saudi ArabiaClimate ChangeEstablished a long-term decarbonization target by announcing a net zero by 2050 ambition,in line with the Kingdom of Sau

135、di Arabias aim to achieve net zero emissions by 2060.Thecompany also set a grid emissions intensity target.Valero Energy CorpUSClimate changeThe company updated the waterfall chart showing its emissions reductions/displacements on its website to clearly separate the categories of actions(i.e.,emissi

136、ons reductions,fuel displacements,and carbon capture/storage)and had three different outside firms evaluate their presentations for greenwashing risk before proceeding with their updated presentation.We had encouraged the company through multiple engagements to clearly define the different categorie

137、s,as we believed the former presentation may expose the company to greenwashingrisk.Lenovo Group LtdHKSocial stakeholder engagementIncorporated responsible AI as a social material topic in its FY23/24 ESG report and committed to UNESCOs AI ethics recommendations in February 2024.The company has also

138、 detailed its responsible AI principles and guidelines in its latest ESG report.Additionally,Lenovo appointed a Chief Security and AI officer to lead AI governance,reportingdirectly to the CEO.After initial discussions in March 2022,Lenovo has made significant progress in its commitment to responsib

139、le AI.China Construction Bank CorpChinaHuman capital managementFollowing our letter of recommendations sent in 2022,thebank disclosed its employee satisfaction survey results in its latest semi-annual ESG report.The results reflect issues including the need for continuous optimization of incentive p

140、olicies,alleviation of work pressure,and ongoing strengthening of employee development.Tokyo Electron Ltd.JapanGovernanceAt the June AGM,a new independent director and a female independent director were appointed.After several years of our engagement,the board has achieved a majority of independent

141、directors,and its diversity has improved in terms of both nationality and gender.Prologis IncUSAStrategy alignment with the long termThe company has made significant changes to its equity compensation plans in response to concerns about outsized pay levels.Starting in 2024,executives will no longer

142、receive grants from the Prologis Outperformance Plan(POP),and the compensation pool for the Prologis Promote Plan(PPP)will be reduced from 40%to 25%of incentive fees.Additionally,theCEOs pay will be capped at$25 million,with equity awards valued at the target payout.These changes were announced foll

143、owing engagement with the company,addressing many of the expressed concerns.Our approach to engagement continuedJ.P.Morgan Asset Management|2024 Investment Stewardship Report 17Back to contentsCase study unsuccessful engagement The Kansai Electric Power Co.JapanEquityIssueKansai Electric Power Co.,I

144、nc.(KEPCO)is a Japanese electric utility company primarily operating in the Kansai region.In November 2024,the Company decided to raise additional equity through a public offering,resulting in significant share dilution.This decision was made without providing transparent explanations toinvestors.Ac

145、tion Since 2020,our stewardship team in Japan has been actively engaging with KEPCO to enhance its governance practices,following repeated reports of controversies,including bribery and cartel activities.Our engagement objectives for the Company included enhancing oversight of compliance and protect

146、ing shareholder rights by ensuring a clear separation between management and the Board,and improving the independence of the Board and its committees to strengthen management monitoring.In response to the Companys controversies,KEPCO implemented several corporate governance reforms,includingthe tran

147、sition to a company with three committees and adoption of a majority-independent Board to better reflect shareholders interests and provide greater oversight of management.Despite these reforms,KEPCOs decision in November 2024 to raise equity through a public offering significantly diluted sharehold

148、er rights.Due to limited disclosure on this matter,we conducted a follow-up engagement meeting with the Company to gain a better understanding of the rationale behind this decision.Unfortunately,our efforts were unsuccessful,as the Company failed to justify the necessity for additional capital.They

149、were unable to provide clear answers to several questions:whether debt financing had been explored,if the cost of capital was evaluated before the public offering,whether there are clear M&A or capex plans necessitating the equity raise,and what was discussed by the Board of Directors.Inresponse,we

150、advocated for greater transparency regarding the use of proceeds,how the capital raised would contribute to sustainable mid-to long-term growth,and the perspectives of outside directors on this dilution.Outcome We concluded that the governance reforms implemented in recent years did not contribute t

151、o enhancing shareholder value and we consider this engagement to be unsuccessful.Our approach to engagement continuedJ.P.Morgan Asset Management|2024 Investment Stewardship Report 18Back to contentsReactive engagements Our engagement program is largely based on proactive engagement;however,we also e

152、ngage on a reactive basis in response to real-world events.These events can include corporate actions,notable events,major developments,scandals,norms breaches and matters arising from the proxy voting process.Thiscan also include instances when new information becomesuncovered about long-running co

153、ncerns with regard to controversial corporate practices,productsand services.When controversies arise,we assess the severity of the issues and consider whether engagement can play a role in improving our understanding the situation for the company and investors,as well as the probability of success.

154、When engaging reactively around particularly high-profile and controversial events,we have tended to engage multiple times and with greater intensity than we do for other engagements.We engage with companies where corporate controversies have arisen and governance and management practices are called

155、 into question.Inthese types of cases,we tend to engage at the C-suite level and often with theCEOs themselves.This year,we continued our engagement with companies whose business practices have been identified as violating international norms.Inparticular,we are engaging with companies that have bee

156、n associated with severe social and environmental controversies to assess their board oversight,duediligence,and remediation efforts.Theseengagements are important to obtain a more accurate picture of ongoing developments around controversies than that which may be portrayed in the media or by third

157、-party data providers.Theseengagements may inform investment decisions across all assets,but in particular some of our sustainable funds,where we exclude issuers who havebeen identified as violating international norms.Finally,we engage in a number of high-profile voting-led engagements,typically wh

158、ere the company has lost a major voting resolution and we have carried out follow-up engagements,or cases ahead of a high-profile vote.Our approach to engagement continuedJ.P.Morgan Asset Management|2024 Investment Stewardship Report 19Back to contentsJ.P.Morgan Asset Management|2024 Investment Stew

159、ardship Report 20Our six investment stewardshipprioritiesGovernance engagement andvoting 2024Back to contentsAs long-term investors,we seek to encourage and advocate for the prudent allocation,management,and oversight of capital by companies,with the aim of generating value for our clients portfolio

160、s.We anticipate that companies will adeptly deploy the various forms of capital at their disposal through their business models to create long-term value.JPMAM believes that good governance is about safeguarding the integrity of the decision-making processes to enable a company to fulfill its missio

161、n through responsible allocation of capital,which can ultimately determine its success or failure.The efficacy of corporate governance is contingent upon the quality and functionality of the board.Independence,diversity of perspectives,anda comprehensive array of skills are desirable attributes of a

162、 board that promote transparent and constructive decision-making.Furthermore,it is imperative that key committees,such as those responsible for nominations,compensation,andoversight,areproperly structured and operate cohesively to fulfilltheir objectives.This is achieved through adequate supervision

163、 of management and by facilitating constructive discourse during boardmeetings.In 2024,JPMAM carried out 451 engagements globally with regards to governance.As investors,we consider whether board directors are fulfilling their responsibilities by evaluating outcomes against achievements and assessin

164、g the boards effectiveness from multiple perspectives.Shouldwe find governance lacking,we communicate our concerns to management and,if necessary,by voting against management proposals at general meetings to urge for anticipated refreshment of the board of directors.This section demonstrates how we

165、are advancing engagement with investee companies on these topics.Engaging with companies on governance451Number of issuers engaged on governance 45Number of markets engaged on governance Top markets engaged on governance Country%United States25.0%Japan18.9%United Kingdom11.4%S.Korea5.0%China4.0%Caym

166、an Islands3.8%Germany2.7%France2.0%Italy2.0%India1.8%Top sectors engaged on governance Sector%Industrials16.6%Consumer Discretionary15.7%Financials13.3%Information Technology11.5%Materials9.7%Energy7.0%Consumer Staples6.1%Health Care5.8%Communication Services4.9%Utilities4.7%Real Estate2.5%Other(inc

167、l.Sovereign)2.2%Governance engagement andvoting 2024J.P.Morgan Asset Management|2024 Investment Stewardship Report 21Back to contentsEngaging companies on board composition and board effectiveness The independence of the board and its committees is crucial for ensuring fair decision-making.Ourvoting

168、 guidelines stipulate voting against boards that are notcomposed of a majority of independent directors,asa matter of principle,across all regions.Additionally,it is important to assess the independence of its key committee,and the skill set includes the necessary expertise for the business to opera

169、te effectively and achieve its objectives.While this establishes a foundation for promoting the quality of decision-making,it is not sufficient on its own for the board to function effectively.Boardassessments can often provide investors with valuable insights related to board functionality.We encou

170、rage the board to conduct regular evaluations to promote greater accountability and transparent communication,ultimately enhancing trust and improving decision-making.(see Techtronic case study).Case study Techtronic Industries Co Ltd Hong KongEquityIssueTechtronic Industries is a global producer of

171、 power tools and floor care appliances,with a strong brand portfolio that includes Milwaukee,Ryobi and Hoover.We have been engaging with this Company for the past years on various material issues,including the independence and effectiveness of the Board.Action In our previous engagements with one of

172、 the Boards independent directors,we expressed our requests for the Company to have a majority independent Board and a fully independent audit committee.We also raised our concern that the audit committee lacked audit expertise.In April,the Company appointed an additional independent director and a

173、member of the audit committee.This director had previous experience as an auditor with Deloitte before they joined Shell Group.Most recently they were CFO at Shell Drilling.Together with changes in 2022-2023,the Boards overall independence increased from 33%to 50%.We consider directors with long ten

174、ure as non-independent directors.In October,Techtronic announced the appointment of another two independent directors who have years of professional experience in financial and investment.Following these changes,Techtronic has a majority independent Board and a fully independent audit committee with

175、 a director having an audit background.We reiterated our suggestion for a board evaluation,which could help the Company identify areas where the Board can enhance its effectiveness in governance.Through evaluation every three to five years,we hope the Company can pinpoint areas for improvement to ma

176、ke the Board more effective.The Company indicated that they would take our suggestion of board evaluation into consideration.Outcome We welcome the changes to the Board and expressed our support through our votes at the Companys annual general meeting.We shared examples of what we believe to be good

177、 practices and disclosures regarding board evaluation and executive compensation,which is another focus of our engagement.Wewillfollow up on these recommendations.Governance engagement andvoting 2024 continuedJ.P.Morgan Asset Management|2024 Investment Stewardship Report 22Back to contentsBoard eval

178、uation-a tool to assess board effectivenessContinuous board evaluation fosters a culture of self-reflection and openness to constructive criticism.Weencourage boards to discuss how to measure their own effectiveness by considering key issues facing the company and how the board is addressing these i

179、ssues,the boards functionality as a group,the effectiveness of individual board directors,the collegiality among directors and between the board and the management team,theeffectiveness of board committees,and whether the full board is adequately informed about their work.4 While internal assessment

180、s are essential for improving the boards processes in a timely manner,regular external assessments conducted by an experienced and independent third party can provide a more accurate picture alerting the board to take developmental actions when necessary.We believe that the evaluation of the boards

181、performance should be reported to shareholders particularly in relation to nominations.(see Shionogi case study).Last year,we engaged to understand whether the right governance practices and board effectiveness evaluations are in place for a newly spun-off company,as these issues could present chall

182、enges for a newly incorporated entity.(see Sandoz case study).Case study Sandoz Group AG SwitzerlandEquityIssueSandoz Group is a Switzerland-based pharmaceutical company that was spun off from Novartis in October 2023 and listed on the SIX Swiss stock exchange.Following the Companys first annual mee

183、ting this year,we met with the Company to discuss Board composition and key committees,Board effectiveness,andevaluation of Board and committee performance in line with Swiss market practice.Action The Company explained that,following the spin-off,the was Board composed entirely of new members with

184、due consideration given to the background,skill set,and experience of each of the candidates.TheCompany does not anticipate any significant changes to the Board in the short term.We explained the importance of ensuring the Board is operating effectively and cohesively and sought to understand how th

185、e newly-formed Board was addressing these challenges.The Company explained that the Board and each of its key committees conduct an annual self-assessment of their oversight and effectiveness.They further explained that the assessment covers several different topics including Board composition,purpo

186、se,scope and responsibilities,processes and governance,meetings and pre-reading materials as well as team effectiveness,leadership and culture.The Company also noted that the evaluation would be undertaken by an external expert periodically although no timeline was disclosed for this.TheCompany indi

187、cated that Board members received appropriate ongoing training and consulted external experts on specific topics where necessary.Outcome We welcomed the Companys commitment to ensuring strong governance practices,which can be particularly difficult for newly spun-off companies.We highlighted the imp

188、ortance of robust board effectiveness and board evaluation programs in identifying areas which require action.We will monitor these issues as the Company continues its journey as a stand-alone company.4 https:/ engagement andvoting 2024 continuedJ.P.Morgan Asset Management|2024 Investment Stewardshi

189、p Report 23Back to contentsCase study Shionogi JapanEquityIssueWe have engaged with Shionogi,a Japanese pharmaceutical company specializing in antibiotics,over many years concerning the effectiveness of its Board and the succession plan for the CEO,who has presided over the Company for more than two

190、 decades.We have raised concerns regarding the Boards effectiveness and independence and the skill set of its external directors.Due to our concerns,we have encouraged the Board to conduct a board evaluation by a third party who could offer advice on the functioning of the Board.Action The CEO expla

191、ined that the nomination committee conducted a CEO performance review for the first time,initiated by the CEO.This review assessed performance over one year and identified key issues.Regardingsuccession planning,the CEO submitted a 3-4 year plan to the committee outlining how his current responsibil

192、ities would be transitioned to potential candidates.The CEO highlighted the plans effectiveness,which was also affirmed by external board evaluation professionals.We pointed out that we believe such initiatives should ideally be led by the nomination committee and independent directors,rather than b

193、y the CEO.In addition,to help align with long-term interests of shareholders,we believe that the performance should be considered from a much longer term perspective,and that the performance of independent directors should also be assessed.The CEO concurred and explained that the roles of the CEO an

194、d independent directors would be redefined moving forward,withassessment criteria for both to be established by March 2025.We expressed our belief that as the Company is transitioning from a business model focused on drug discovery to one that provides healthcare as a service,such experience should

195、be included as important factors in the new criteria.Redesigning the Company structure is currently under consideration,as the Company continues to explore the ideal model.The CEO explained that he has engaged in discussions with investors and governance professionals and that the new model is expec

196、ted to be proposed at the 2025 general meeting.Outcome Based on the Companys disclosures and feedback we provided,we will continuously review the progress of the Board structure reform,the experience and skill of Board directors,and the CEO succession plan.Governance engagement andvoting 2024 contin

197、uedJ.P.Morgan Asset Management|2024 Investment Stewardship Report 24Back to contentsSupporting Strategic Board Refreshment for Shareholder Value Concerns about the effectiveness of the board of directors reach their peak,particularly when a company fails to deliver the results expected by investors

198、and does not generate the long-term value anticipated.When we strongly perceive that management is not running the company effectively,we may express our dissatisfaction through voting against them on appointment proposals.However,merely casting votes for dismissal may be insufficient to bring about

199、 positive change within the company.In such cases,a more assertive stance can be taken by evaluating and supporting activist proposals.This is especially pertinent in the United States,where activist activities are prevalent and various activists engage in proxycontests.As demonstrated in the follow

200、ing case study,if we determine that these actions can generate long-term corporate value,supporting them can be one of the means of advancing governance improvements.(see Norfolk Southern case study).Case study Norfolk Southern U.S.EquityIssueNorfolk Southern,one of the largest railroads in North Am

201、erica,has lagged peers on financial metrics and total shareholder return over the past five years.This underperformance attracted the interest of an activist investor.The activist wanted to take control of the Board,remove the CEO and COO,and institute a different operating strategy.Action We held s

202、everal meetings to learn more about the Company and the activists point of view.First,we met with the Companys Board of Directors and its management(including the Board Chair and the CEO).Theyhighlighted that the railroad was in the midst of a turnaround that was stalled by a major accident in early

203、 2023(East Palestine,Ohio derailment).They further contended that their operating strategy would lead to both margin improvement and better performance if rail volumes improved.Next,we met with the activist investor.They contended that the Company needed new management and a new operating strategy t

204、o unlock significant margin improvement.They sought seven board seats on a 13-member Board.Outcome We chose to vote for five of the seven directors nominated by the activist.We believed the Company could benefit from fresh perspectives,tighter oversight of management,and a compensation plan better a

205、ligned to long-term interests of shareholders.We were disappointed in the compensation committee for excluding accident-related costs from managements long-term compensation thus we chose to withhold our vote on all the members of the compensation committee.The election resulted in three activist-no

206、minated candidates gaining board seats.We will continue to closely monitor this situation to determine whether we see the need for additional board change.Governance engagement andvoting 2024 continuedJ.P.Morgan Asset Management|2024 Investment Stewardship Report 25Back to contentsGovernment initiat

207、ives on corporate governance reform in Asia 5 In this context,a treasury share refers to shares that a company in South Korea has repurchased and holds in its own treasury.These shares are not considered when calculating earnings per share or dividends,as they are essentially stock that the company

208、has brought back from the public.Treasury shares can be used for various purposes,such as reissuing them to raise funds,fulfilling employee stock options,or reducing the number of outstanding shares to increase the value of remaining shares.6 The Korean Value-up Program supports SMEs and startups by

209、 enhancing competitiveness through financial aid,mentorship,and resources,fostering innovation and market expansion.While investors prioritize securing investment returns as a cornerstone in evaluating the effectiveness of governance,many governments also focus on corporate value creation as a prima

210、ry objective of governance reform.For instance,when the Japanese government initiated governance reform by implementing both the Stewardship Code and the Governance Code a decade ago,the fundamental aim was to encourage companies to create long-term value,benefiting the national wealth.Recognizing t

211、hat merely formalizing governance structures is insufficient to achieve this goal,there has been a shift from form to substance.In this respect,the Japan Exchange Group has urged all listed companies to be managed with an awareness of capital costs,thereby influencing capital allocation in 2023.Over

212、 the past two years,shareholder returns have increased,and management teams that previously disregarded capital costs have been compelled to heed the Japan Exchange Groups educational initiatives,incentives,and mechanisms of encouragement and accountability,as well as engage in dialogue with various

213、 investors.Japans success has served as a reference for other Asian countries,with other Asian markets rolling out initiatives which could improve corporate governance.In 2023,China undertook significant amendments to its Company Law,with the changes set to take effect in July 2024.These reforms int

214、roduce several positive developments aimed at enhancing corporate governance.Notably,companies are now empowered to transition from a Supervisory Committee,whichtraditionally held limited authority,to an Audit Committee within the Board structure.Thisshift is expected to strengthen oversight and imp

215、rove financial transparency.Additionally,the amendments grant minority shareholders,holding 1%or more of the companys shares,the right to nominate board directors,thereby promoting greater inclusivity and representation in corporate decision-making.While not all measures are considered as beneficial

216、 to the minority shareholder,the amendments are seen as a step forward in enhancing Chinas corporate governance framework,balancing the need for improved oversight and shareholder rights.In South Korea,the Financial Services Commission(FSC)has introduced measures aimed at enhancing shareholder right

217、s and corporate transparency,thoughthey are seen as only a partial step forward.In2022,the FSC implemented regulations requiring more disclosure about corporate restructuring plans and granting shareholders the right to request companies to purchase their shares when a split-off resolution is reache

218、d.While these measures are welcomed for strengthening shareholder rights in split-off actions,they are viewed as insufficient in addressing broader governance challenges.The issue of treasury shares5 remains a significant concern,as companies often use them in ways that may not align with minority s

219、hareholders interests.In 2024,the FSC proposed regulatory changes to impose stricter restrictions on the use and disclosure of treasury shares,aiming to protect minority shareholders.However,the Korea Value-up program,6 initially met with optimism,has left investors disappointed due to a lack of con

220、crete actions from government bodies.Withguidelines encouraging voluntary compliance,there are doubts about the programs effectiveness without more robust enforcement.Whilethe FSCs initiatives mark progress,theirultimate impact will depend on continued commitment andimplementation.In response to the

221、 challenges posed by the Korea Value-up program,we engaged with regulators in Seoul to address these issues.Our discussions focused on the programs shortcomings and explored potential improvements.These meetings were part of the Korea delegation event organized by the Asia Corporate Governance Assoc

222、iation,in which we are an active member and co-lead the Korea Working Group.Governance engagement andvoting 2024 continuedJ.P.Morgan Asset Management|2024 Investment Stewardship Report 26Back to contentsAssessing the Board and senior executives through Annual General Meeting:KiwoomSecurities South K

223、orea,Equity In many Western markets,it is common practice for companies to provide investors with access to their board of directors and chief executives,facilitating open communication and engagement.However,thislevel of access is not universally available,and in some Asian markets,minority shareho

224、lders often face significant challenges in securing meetings with company leadership.To address this issue and enhance our engagement opportunities,we have been actively attending Annual General Meetings(AGMs)over the past few years.These events have proven invaluable in fostering dialogue with the

225、Board and C-suite executives.Notably,in 2024,we seized the opportunity to engage directly with Kiwoom Securities,a South Korean financial services company that provides a range of investment and brokerage services and is one of the leading online brokerage firms in the country,furthering our commitm

226、ent to shareholder advocacy and effective communication.Kiwoom Securities was involved in a share price manipulation scandal in 2023.Both the CEO and Chairman resigned.While a new CEO was appointed in January 2024,the Company has yet to provide a proper explanation about the scandals or offer a reme

227、dy for investors affected by the scandals.We are concerned about the Companys governance.In the March 2024 AGM,the Company sought shareholder approval to elect two executive directors onto the Board.We voted against the election of two executive directors to the Board as we would like to seek greate

228、r independence and oversight responsibility for the Board as part of promoting long-term value for theCompany.We attended the Companys AGM in person to address our concerns.The CEO,a newly appointed executive director,and the Chair of the audit committee who is an independent director,were the only

229、Board members at the meeting.At the meeting,we raised our concerns as shareholders of the Company.In particular,wenoted the historical lack of communication with investors and the regulators investigation of the Chairman over the alleged stock manipulation.The new CEO acknowledged our concerns and s

230、tated that Kiwoom Securities plans to improve its investor relationships this year.The newly appointed executive director further indicated that the Company aims to reach out to foreign investors.We welcomed the positive feedback from the Board and will remain engaged with the Board going forward.Al

231、so,as part of the Korea Value-up program,Kiwoom Securities has been proactive in supporting the programs objectives or advising companies on strategies to boost their marketvalue and attract more investors.We will continue to monitor Kiwoom as part of our routine stewardship activities.Governance en

232、gagement andvoting 2024 continuedJ.P.Morgan Asset Management|2024 Investment Stewardship Report 27Back to contentsEngaging companies on capital allocation We seek to invest in companies that are allocating capital efficiently,generating long-term returns for shareholders and making timely interest a

233、nd principal payments to bondholders.We believe companies should demonstrate financial discipline around investor returns relative to the cost of capital and long-term value creation.Capital allocation decisions can be affected by traditional factors,such as interest rates,but also regulatory requir

234、ements,climate change,nature risks,social movements and other financially material ESG issues.We encourage companies to think ahead and implement capital allocation strategies that incorporate material risks and opportunities into their business models.Boards should disclose a clear policy on the co

235、mpanys approach to its capital structure,whichcould address the demands of differentstakeholders.Where the costs and return of capital are not adequately considered by corporate management,corporate value may stagnate or be destroyed.Companies may hold shares in other companies to strengthen busines

236、s relationships.In some markets(e.g.,Japan),these types of arrangements,knownas cross-shareholdings,have been used to protect corporate management by creating a loyal shareholder base and diluting minority shareholder rights,leadingto potential conflicts of interest among company and shareholders.We

237、 are concerned about poor corporate governance and lack of financial discipline at companies where their capital is allocated to equities,with returns far below their costs of capital.In recent years,Japanese companies have implemented significant reforms to enhance corporate value over the medium t

238、o long term.However,the practice of“strategic shareholdings,”or“allegiant shareholdings,”remains deeply entrenched.These shareholdings,intended to foster business relationships,have been criticized for inefficient capital use,hindering corporate reforms,and sometimes promoting anti-competitive behav

239、ior.In such cases,weengage to encourage the company to develop capital allocation policies and encourage them to optimize capital by resolving cross-shareholding ownership to return to shareholders,or to invest for growth and to protect minority shareholder rights.Despite some divestments and recent

240、 guidance from Japans Financial Services Agency(FSA)for general insurance companies to divest these shares,progress in unwinding these investments has been slow.Toemphasize the need for accelerated reduction of these shareholdings,we,along with other investors and the ACGA,issued an open letter urgi

241、ng faster strategic investment reductions.The letter,which includes governance recommendations,can be found here.Rising Shareholder Activism in Asia:Aligning for Enhanced Capital Returns As we delve into corporate governance reform in Asia with a focus on capital allocation,it is important to note t

242、he rise of shareholder activism.Activists have leveraged government reform initiatives,creating a growing movement that highlights the need for improved capital returns for shareholders.Wefind common ground with some of these activists proposals,as they align with our commitment to enhancing shareho

243、lder value through more effectivecapital management.For example,in Japan,there has been an increase in shareholder proposals regarding capital allocation,leveraging these governmental intentions.We have increasingly supported such proposals,asshown below.Looking ahead to next year,we intend to close

244、ly monitor activist trends as we analyze their proposals to see if they effectively contribute to long-term value creation.(see Kinden case study)Governance engagement andvoting 2024 continuedJ.P.Morgan Asset Management|2024 Investment Stewardship Report 28Back to contentsCase study Kinden Corporati

245、on JapanEquityKinden Corporation is a Japanese company specializing in integrated electrical systems and facilities engineering.At this years annual shareholder meeting,an investor proposed a resolution requesting an additional dividend payment and the continuation of a fixed annual dividend for ten

246、 years as a strategy to achieve sustained improvement in return on equity(ROE).The proposal specifically called for a total return ratio of 150%,with 75%to be distributed through dividends.The investor also requested that the Company provide a fixed-sum annual dividend over the next ten years to enh

247、ance ROE.In response,the Company adjusted its medium-term plan to reflect an annual dividend payout ratio of 40%and a total return ratio of 50%.After reviewing the resolution carefully with investors,weconcluded that the shareholder proposal was not primarily focused on establishing a fixed dividend

248、 amount as a top priority,but rather aimed to support sustained ROE improvement and additional income allocation to shareholders.As a result of our review of the shareholder proposal and analysis of the Companys position,we decided to support the shareholder resolution,which garnered 27%approval.We

249、will continue to engage with the Company regarding the outcome of the shareholder resolution and will monitor their ongoing efforts to improve ROE,address the issue of an oversized Board,and unwind cross-shareholdings.When engaging with companies on capital allocation,we frequently discuss key issue

250、s such as capital structure,dividends and share buybacks.These are fundamental aspects of how companies manage their resources.Although mergers and acquisitions(M&A)are less frequently addressed,they remain a critical area of focus.Its essential to understand how a company governs its capital use an

251、d that any transaction benefits all shareholders,including minority shareholders.In some instances,companies pursue acquisitions merely for growth,without clearly articulating the value and returns for shareholders.Conversely,some companies engage in M&A for strategic partnerships,where the strategy

252、 might be sound,but the structure may not align with the best interests of all shareholders.(see Lenovo case study).Case study Lenovo ChinaEquityLenovo is a leading global technology company known for its innovative products in personal computing and smart devices,including the iconic ThinkPad lapto

253、ps and Yoga series.In May 2024,Lenovo announced a strategic partnership with Alat,a subsidiary of Saudi Arabias Public Investment Fund(PIF),which focuses on transforming global industries and aims to deliver sustainable manufacturing to help reduce global emissions.While we think there may be benefi

254、ts of this partnership,we have concerns about the financial arrangement proposed by Lenovo,which includes the issuance of convertible bonds and warrants.Given the structure and potential for dilution,we believe these financial arrangements are not in the best interests of shareholders and voted agai

255、nst the associated resolution tabled at Lenovos AGM.Governance engagement andvoting 2024 continuedJ.P.Morgan Asset Management|2024 Investment Stewardship Report 29Back to contentsJ.P.Morgan Asset Management|2024 Investment Stewardship Report 30Our six investment stewardshipprioritiesStrategy alignme

256、nt with the longterm engagement and voting 2024Back to contentsLong-term thinking leads to enduring business models.We believe executive compensation plans should be structured to create long-term alignment between shareholders and the management of the companies in which we are invested.As long-ter

257、m investors,we see the importance of incentive awards,designed to encourage management to perform at the highest levels.These programs need to align with appropriate performance criteria that are both challenging and reflective of the companys strategy and objectives over the long term.They should r

258、eward executives for long-term value creation rather than short-term gains.Meeting these goals is easier in theory than in practice.Given the rising pace of innovation,disruption,anduncertainty,compensation committees face several challenges in designing plans that are in long-term alignment with sh

259、areholders.We are,therefore,not prescriptive in our evaluations and recognize that boards need flexibility when formulating a compensation plan.We also recognize that some discretion is needed when evaluating management performance towards realizing long-term outcomes.Another challenge that boards f

260、ace in designing compensation plans is the diversity of views and changing preferences of market participants,and the continuous assessment and reassessment of what constitutes a well-designed plan.Some changes in market preference have included an advocacy for performance share units versus restric

261、ted share units,a rejection of options,or a desire for inclusion of ESG metrics in the plan.Market participants have also advocated for a shift in PSU metrics away from measures of share price to operational and financial metrics.The choice of peer group has also been heavily debated,especially in i

262、nternational markets which have significant presence in or competition from the U.S.While we acknowledge these challenges in creating a compensation plan that aligns executive compensation with shareholder experience,we frequently come across practices we find problematic.The specifics can change fr

263、om year to year for example,adjustments to plans following the onset of COVID-19 took center stage in 2020 and 2021 but the general themes stay consistent.In this chapter,we discuss some of those problematic practices that we encountered in 2024,along with some notable compensation programs that we

264、did support.We discuss these in the context of the bigger picture trends we observed.In some cases,we also elaborate on the role engagement played in assessing compensation and seeking to bring about changes in plans we found were not in alignment with the interests of long-term shareholders.Strateg

265、y alignment with the long term engagement and voting 2024J.P.Morgan Asset Management|2024 Investment Stewardship Report 31Back to contentsStrategy alignment with the long term engagement and voting 2024 continuedEngaging with companies on strategy alignment with the long-term 162Number of issuers en

266、gaged on strategy alignment with the long-term29Number of markets engaged on strategy alignment with the long-term Top markets engaged on strategy alignment with the long-term Country%United States50.8%United Kingdom9.8%Japan7.1%Germany6.0%Australia4.4%France2.7%Netherlands1.6%Jersey1.6%S.Korea1.1%C

267、hina1.1%Sectors engaged on strategy alignment with the long-term Sector%Consumer Discretionary18.0%Industrials17.5%Financials12.6%Information Technology11.5%Health Care8.7%Communication Services7.1%Materials6.6%Consumer Staples4.9%Utilities4.9%Energy4.4%Real Estate3.8%J.P.Morgan Asset Management|202

268、4 Investment Stewardship Report 32Back to contentsStrategy alignment with the long term engagement and voting 2024 continuedChallenges of Performance SharesA long-term trend in executive compensation has been the adoption of performance-based metrics in equity grants.In the S&P 500,for example,the p

269、ercentage of companies that include Performance Share Units(PSUs)in their compensation program has grown from 50%in 2009 to 95%in 2022.7 The major proxy advisors have also been advocates for majority performance-based equity awards in executive compensation.While some view the preponderance of PSUs

270、in a companys compensation plan as a panacea,we are more nuanced in our view,and take into account a host of factors in determining whether PSUs are indeed in the shareholders best interest.These factors include whether the selected performance metrics and achievement of targets(or falling short of

271、targets)are likely to be correlated with long-term shareholder returns,the vesting conditions,and the degree to which metrics and targets are a barometer of management performance relative to peers.Advantages and disadvantages of using PSUs rather than than Restricted Stock Units(RSUs)Advantages Str

272、uctured properly PSUs can lead to strong pay for performance alignment,conferring on the recipient additional shares(relative to an equivalent RSU grant),thereby rewarding performance or forfeiting shares and thereby penalizing underperformance,Tracking towards big payouts(above target)can have moti

273、vational and retentive value.Disadvantages May be difficult to select one or two metrics,with appropriate weightings that will correlate well with share price performance over the short term such as the three year performance cycle.Adding more metrics can also make the plan very complicated.Can be c

274、hallenging to set targets as they can be highly affected by factors outside managements control.Can lead to short-term behavior inconsistent with long-term strategy if there are closing cycle PSUs every year.May lead to unwanted executive turnover if PSUs are tracking towards not paying out.Recent r

275、esearch suggests that companies that do not use performance shares outperformed their sector peers that do.8 Research also suggests that for the vast majority of industries,the average PSU has paid out meaningfully above target,calling to question the rigor of target setting.These findings have prom

276、pted a debate among investors,with many investors questioning the efficacy of PSUs and some advocating a return to RSUs.While we would not advocate for companies to drop all use of PSUs,we strongly urge compensation committees to review their PSU plans and examine their payouts in context of long-te

277、rm stock performance.By incorporating PSUs that correlate well with shareholder value,the Compensation Committee can design an long term incentive plan(LTIP)plan that leads to better pay for performance alignment by paying out more than target number of shares if the company performs well,or convers

278、ely below target if the company underperforms.We also encourage compensation committees to evaluate whether alternative structures might be more appropriate for their managers.These are discussed in more detail later in this chapter.Below,we highlight examples of companies where we believe the PSU m

279、etrics and targets are and are not contributing to creating shareholder value.7 https:/ https:/ Asset Management|2024 Investment Stewardship Report 33Back to contentsCASE STUDY Middleby vs TransDigm9 What do Middleby,a U.S.kitchen equipment company,and TransDigm,a U.S.aerospace and defense company,h

280、ave in common?The answer is a reliance on the same metric for their long-term incentive compensation plan,which calculates an implied share price based on earnings before interest,taxes,depreciation and amortization(EBITDA),net debt,and share count.We believe,however,that the metric has been used mu

281、ch more successfully at TransDigm than at Middleby,where it has contributed to poor relative total shareholder return over the last few years.In this case study,we examine why we believe that to be the case.MiddlebyU.S.EquityDespite relative total share return at only the 12th percentile of Middleby

282、s peer group over the five years ending in December 2023,performance shares tied to the implied share price metric paid out at 188%of target for the 2021-23 cycle,and 200%for 2021-22.This discrepancy led us to vote against the say-on-pay proposal at the 2024 annual meeting.This is resulting in signi

283、ficant rewards for management despite deteriorating returns on capital(which is driving the poor performance).Middleby has actively sought to acquire other companies,and the long-term incentive is rewarding that,but the financial returns of its acquisitions have declined.In an engagement with the Co

284、mpany,they acknowledged that acquisitions made 10-20 years ago were made at low multiples,with room to compress that multiple even further through raising prices or by other operational improvements.In that context,a metric that incentivized M&A worked well.But more recent deals have not been as suc

285、cessful.Meanwhile,the proxy contained no disclosure about how they calculate the metric(what EBITDA multiple they use)and what the targets are.Thus it is hard for investors to assess the rigor.We encouraged Middleby to use metrics that properly account for the balance sheet growth,such as return on

286、capital invested.But even beyond that,we encouraged them to modify their strategy and adopt a more explicit financial framework for their M&A strategy and to communicate it to investors.Given the more challenging M&A environment,adopting such a framework becomes even more important.And should they i

287、mprove or even stabilize the return on capital invested trend,it would likely help them trade at a higher multiple and drive significant stock appreciation.9 While this case study discusses two companies that were engaged on similar topics,they are considered separately for engagement and investment

288、 purposes.Strategy alignment with the long term engagement and voting 2024 continuedJ.P.Morgan Asset Management|2024 Investment Stewardship Report 34Back to contentsTransDigm10 U.S.EquityTransDigms relative total share return vs its peer group,on the other hand,is at the 96th percentile of its peer

289、group over the last five years,and is tops in the peer group over longer time periods.The Company is transparent about the required achievement of the metric,which they call“Annual Operating Performance.”While they do not disclose the multiple they use,they disclose that grants require 10%compounded

290、 annual growth over five years,a longer performance period than the typical three we see.A 17.5%compound annual growth rate is required for the maximum vesting.Much more significantly,these grants are in the form of options,not full shares.Executives may earn large amounts of options,but unless the

291、stock appreciates above the grant date value,the realized value will be zero.The option structure creates an extra safeguard of alignment with shareholders.In addition,the Company has consistently articulated a shareholder-friendly framework for M&A that prioritizes shareholder value over“strategic”

292、purposes like market share or diversification.They have stressed in our engagements that the M&A framework is not changing.Because of the alignment with the compensation plan and the strategy,which we consider sound,we have voted in favor of the say-on-pay proposals at the Company.In our engagements

293、 we articulate support for the plan.10 https:/transdigmgroupinc.gcs- alignment with the long term engagement and voting 2024 continuedJ.P.Morgan Asset Management|2024 Investment Stewardship Report 35Back to contentsCase study IQVIA HoldingsU.S.EquityIssueIn assessing the say-on-pay vote for the U.S.

294、healthcare services company IQVIA Holdings,we noticed that pay was in the 90th percentile versus peers whereas five-year total shareholder return was in the 40th percentile.The pay percentile was notable,given the inclusion of several significantly larger mega-cap companies in its chosen peer group,

295、while IQVIA is only a mid-cap company.We further noted that the three most recent PSU cycles had paid out at 180%of target,187%of target and 200%of target,respectively,which meant that realized pay was significantly higher than the pay figures in the Summary Compensation Table.PSUs were based upon E

296、PS growth(75%of the grant)and TSR versus the S&P 500(25%of the grant).We had concerns about whether EPS growth was the right measure for this company.We also believe it would be more appropriate to compare TSR versus a healthcare or pharmaceuticals index,instead of the total S&P 500.A sector or indu

297、stry specific index would more accurately capture the companies against which IQVIA was competing and against whom IQVIAs performance was judged.ActionWe engaged with members of the Companys management team,who justified the payouts by saying that the CEO was a flight risk to another company in the

298、industry or to a company in another sector in which he had previously worked.We hear this justification frequently,which is discussed in further detail in the next section.In this case,we had difficulty accepting the justification when the Company had slightly underperformed its peer group.We believ

299、e that makes the flight risk less likely to materialize,and/or less impactful if it does.OutcomeAfter discussion with JPMAM investors,we chose to vote AGAINST this pay package.We did not like the misalignment of pay versus performance,the PSUs paying out well above target despite below peer group st

300、ock performance,or the choice of a peer group that had the effect of inflating pay.The say-on-pay proposal received 84%support overall.Strategy alignment with the long term engagement and voting 2024 continuedJ.P.Morgan Asset Management|2024 Investment Stewardship Report 36Back to contentsStrategy a

301、lignment with the long term engagement and voting 2024 continuedAlternatives to Annual Cycle Performance SharesWe have seen some companies explore approaches different from the three-year majority-PSU annual equity grant that has become market norm.These can include the use of options as well as upf

302、ront restricted share grants.In the latter case,because the number of shares is spelled out upfront,the ultimate value of the grant will be much more aligned with share price performance than it would be for an annual dollar-denominated grant.In our 2023 Investment Stewardship Report,we highlighted

303、three companies that we believe have used these types of structures successfully:1.U.S.auto-parts retailer AutoZone,which uses options as the sole form of equity2.U.S.online car auction company Copart,which grants upfront options awards meant to cover four years of equity pay3.U.S.retailer and techn

304、ology company Amazon,which granted new CEO Andy Jassy an upfront$225million time-based RSU award in 2021,with 80%of the shares vesting in years five through ten.We continue to support these companies approaches to executive compensation.This year,we would like to highlight another unique structure w

305、e have seen to promote long-term alignment.W.R.Berkeley:The U.S.insurance company grants its executives annual cycle performance shares with performance periods covering five years,divided into three tranches measured over years 1-3,years 2-4,andyears 3-5.The five-year measurement period for these g

306、rants is longer than the typical three years.However,the Company also has a mandatory deferral policy where earned shares are not actually delivered to executives until after they are no longer working for the Company.That means that executives cannot immediately monetize their shares,but rather tha

307、t the realized value is ultimately tied to the performance of the stock over their entire career.This deferral policy was first disclosed in the 2004 proxy,related to grants made on April 4,2003.Since that date,WRBs stock has compounded at 14.0%per year,assuming reinvested dividends.That compares to

308、 11.4%for the S&P 500.We believe this compensation feature has contributed to the Companys long-term outperformance.Accordingly,we have expressed our support for this structure in our engagements with the Company.Country30 June 202430 June 202530 June 202630 June 202730 June 2028Tranche 1 Performanc

309、e Period2023 Grant DateYear 1Year 2Year 3 Vests if Earned,Mandatory DeferralTranche 2 Performance PeriodYear 1Year 2Year 3 Vests if Earned,Mandatory DeferralTranche 1 Performance PeriodYear 1Year 2Year 3 Vests if Earned,Mandatory DeferralJ.P.Morgan Asset Management|2024 Investment Stewardship Report

310、 37Back to contents“Superstar”CEOsWhile the“pay for performance”mission of executive compensation gets most of the attention,the role it plays in retention should not be ignored.Thevalue created by strong executives,ordestroyed by poor ones,is many multiples of the executivescompensation.As an examp

311、le,consider Starbucks,which hired very well-regarded CEO Brian Niccol away from Chipotle,whose stock price had increased by almost 800%during his tenure.The day the hire was announced,Starbuckss stock price increased from$77 to$96,which corresponded to a$21 billionn increase in market cap.That pales

312、 in comparison to the special compensation package the Company offered him to take the role,which was$85 million(a$75 million equity award,and a$10 million cash bonus).In that context,a board may be justified in either dramatically increasing an executives target compensation or granting a supplemen

313、tal package,ifthat executive is critical to the companys success and there is a credible retention threat.That can apply either to a competitor or to retirement before the companys succession plan is ready.Boardsneed to have the flexibility to make judgments on who constitutes critical talent and ho

314、w to retain them.We will not automatically support or oppose these compensation decisions but will use our own judgment regarding the value of the specific CEO and the quantum/structure of the compensation package.Below,we present case studies demonstrating how we view this issue.Strategy alignment

315、with the long term engagement and voting 2024 continuedJ.P.Morgan Asset Management|2024 Investment Stewardship Report 38Back to contentsCase study BroadcomU.S.EquityIssueIn 2023,we voted against compensation at U.S.semiconductor company Broadcom(AVGO)because of concerns over the terms/disclosures ar

316、ound a$160 million grant which the CEO received in the Companys fiscal year 2023,which was previewed in that years proxy.The grant,intended to be$32 million per year over five years,vests in three tranches based on the achievement of absolute stock price goals.Our concerns with the grant included:1)

317、the lack of a disclosure in the proxy statement about whether the grant was intended to be the CEOs only equity for the ensuing five years and 2)the stock price having to be sustained for only 20 days for the shares of each tranche to be earned.ActionWe engaged with the AVGO Compensation Committee C

318、hairman to discuss compensation and succession planning.In that engagement,we communicated the concerns that had led us to vote against compensation last year.This year,the proxy included language about how the Board does not intend to grant the CEO any more equity.In addition,the stock grant goals,

319、judged at the time of the grant,were sufficiently challenging,requiring stock price CAGRs of 12%,15%,and 19%for the shares to vest.Since then,all three stock price goals have been achieved following the acquisition of VMWare and strong operational performance.But there are terms in the grant structu

320、re such that the shares can only be earned in Years 4 and 5 of the period,so no shares have actually been earned yet.In addition,any shares that are earned do not actually vest until the end of the five-year performance period.It was also clear from our engagement that the grant is intended to incen

321、tivize the CEO to stay in the role long enough for the Company to finalize its CEO succession plan.The Compensation Committee Chairman noted how other executives who are being considered for CEO received grants with the same terms.Outcome We supported the executive compensation at the 2024 annual me

322、eting.The updated disclosures in the proxy statement,including details about the terms of the grant,showed improved alignment with long-term shareholder value creation.Meanwhile,we believe managing succession planning has become one of the Boards top priorities.Inanother engagement with the Compensa

323、tion Committee Chairman,he discussed how the Chairman and Lead Director serve as the primary liaisons between the Board and the CEO on this issue,though the full Board is involved.The Board has directed the CEO to invest more time in developing succession planning.The say-on-pay proposal at the 2024

324、 annual meeting received 62%support overall,indicating that a significant minority of shareholders disagreed with our view of the package.Strategy alignment with the long term engagement and voting 2024 continuedJ.P.Morgan Asset Management|2024 Investment Stewardship Report 39Back to contentsCase st

325、udy Palo Alto NetworksU.S.EquityIssueIn 2023,U.S.cybersecurity company Palo Alto Networks(PANW)made two compensation decisions designed to retain the CEO:1.They increased his annual equity award,from$17 million to$40 million,which brought his total target compensation to the 92nd percentile of the p

326、eer group,by the Companys own reckoning2.They granted him a special$114 million performance share award that would pay out based on the Companys relative total share return vs the S&P 500 over the ensuing five years.ActionWe engaged with the PANW Lead Independent Director several times,both before a

327、nd after the vote,todiscuss compensation and retention.The Board discussed their retention concerns,and the need to make it more expensive for another company to poach the CEO.We expressed our concern that the special award only required 55th percentile performance to pay out at target.We would have

328、 liked to see something higher to promote strategic alignment in the long term.The Board acknowledged that feedback,while also noting that the award also required 40th percentile performance for any payout,and 90th percentile payout for max payout.Both of those numbers are much higher than is typica

329、l for relative TSR-based grants.OutcomeUltimately,we voted against compensation at the 2023 annual meeting due to the combination of both decisions being made in a relatively short period of time.We acknowledged the strong performance of the Company during the CEOs tenure(30%stock price CAGR from wh

330、en he started up to the most recent fiscal year-end in October 2024).But we were unable to look past the dramatic increase in annualized compensation value,which went up by$46 million after accounting for the annualized value of the specialgrant.Meanwhile,we have continued to engage with the Board o

331、n compensation,retention and succession planning.They believe that their CEO is largely irreplaceable,especially during a critical time for the Company given the increasing complication of the business and the changes that are coming from the emergence of artificial intelligence.That said,they also

332、acknowledge the need for the Board to be firm in negotiations over pay.Strategy alignment with the long term engagement and voting 2024 continuedJ.P.Morgan Asset Management|2024 Investment Stewardship Report 40Back to contentsCompensation plans in a globally competitive environmentA continuing trend

333、 in Europe has been the competitiveness of executive compensation packages of European companies in a globally competitive environment for talent.Companies prioritize addressing the perceived growing gap between European executive pay with their counterparts in other markets and particularly the U.S.Feedback from these companies,typically those which had a more global operational footprint or whos