SECTION 33.45. Proxy Voting Policy

The State Board of Education (SBOE) recognizes its fiduciary obligations with respect to the voting of proxies of companies with securities that are owned by the Texas Permanent School Fund (PSF). Because the issues related to proxy voting are complex and directly impact investment values, the SBOE believes the PSF is best suited to vote the proxies of shares held in the PSF portfolio. Therefore, as part of the PSF investment policy, the SBOE instructs the PSF executive administrator and investment staff to vote all of the PSF proxies of companies according to the following guidelines. The executive administrator may delegate voting of proxies of securities not held in internally managed portfolios to external investment managers or proxy voting companies, provided voting is in accordance with the following guidelines.

(1) Routine matters. Routine proxy proposals shall be voted in support of company proposals unless there is a clear reason not to do so. Routine matters include:

(A) electing directors;

(B) determining the size of a board;

(C) changing a corporate name;

(D) appointing an auditor;

(E) splitting stock;

(F) amending articles of incorporation that are required to comply with federal or state regulation; and

(G) changing the date, time, or location of an annual meeting.

(2) Business matters. Business proposals that do not eliminate the rights of shareholders, especially minority shareholders, or the status of securities held, including ownership status, shall not be treated as routine; rather, they shall be carefully analyzed. These issues may be voted with management. However, business proposals that are nonroutine or would impair the economic interests of shareholders shall be voted against management. Examples of such proposals include:

(A) requests to alter bylaws to require a super majority to approve mergers;

(B) anti-takeover proposals that could restrict tender offers or deny majority owners from exercising judgment;

(C) proposals to dilute existing shares by issuing substantially more stock without adequate explanation by management; and

(D) proposals that would enrich management excessively or substantially increase compensation awards or employment contracts to senior management that become effective when ownership of the company changes (also known as "golden parachute" awards).

(3) Other matters. On all other matters, the PSF executive administrator, investment staff, and external investment managers shall vote proxies judged to be in the best interests of the PSF.

(4) Reporting to SBOE. At each regularly scheduled SBOE meeting, the PSF executive administrator shall advise the SBOE of all instances in which the PSF executive administrator or external investment managers voted against management. External investment managers shall provide written reports monthly to the executive administrator according to procedures and a format established by the executive administrator.

Source Note: The provisions of this §33.45 adopted to be effective September 1, 1996, 21 TexReg 4609; amended to be effective September 1, 1998, 22 TexReg 11671; amended to be effective March 31, 2004, 29 TexReg 3174