PROXY SERVICES AND GENERAL MEETINGS

WE PROVIDE PROFESSIONAL OPINIONS AND VOTING RECOMMENDATIONS FOR GENERAL MEETINGS.

OPINIONS TO INSTITUTIONAL INVESTORS

Entropy Financial Research Services engages in providing professional opinions and recommendations for voting in general meetings of public companies, in accordance with our voting policy. Our clients are institutional investors that constitute minority shareholders in public companies.

In the opinions we provide to our clients, we provide qualitative, professional and independent financial analyses through a large team of professionals, that include analysts and researchers of diverse expertise with vast experience in the capital markets and financial work.

SENIOR EXECUTIVE COMPENSATION POLICY

Entropy Financial Research Services provides its clients with opinions and recommendations on the matter of compensation packages for senior executives and office holders. This topic has made headlines and reached public awareness in recent years, and made its way into two amendments to the Israeli Companies Law, as Amendment No. 16 and Amendment No. 20 thereto.

Amendment No. 16 of the Companies Law, 5759-1999 regulates the approval of transactions with, and the compensation of controlling shareholders in particular, whereas, Amendment No. 20 (from August 2013) regulates the compensation of senior executives and office holders in public companies, in a manner that generally requires the public company to have the compensation policy for its’ senior executives and office holders approved by the general meeting, including the compensation of the chief executive officer and chairperson of the board of directors.

The compensation policy and remuneration of the chief executive officer stated in Amendment No. 20, are brought to the approval of the general meeting in a ‘Say on Pay’ vote, allowing the general meeting to take a stand. Thus, if the general meeting objects, the resolution will be returned back to the board of directors, that will be required to reconsider the matter and take into account the position of the general meeting, and who then, may or may not approve the compensation policy whilst providing detailed reasoning (and in a granddaughter company – the determination is made at the general meeting level and not at board of directors level).

 

GENERAL MEETING OPERATING SERVICES

Entropy Financial Research Services provides its clients that are institutional investors with operational services and representation at general meetings, in the framework of which it assists them in managing the process of participating in general meetings in an efficient and professional manner that is required of them in their capacity as public money managers. This service, includes providing a notice/opinion pertaining to the convening of a general meeting, its agenda, managing the documents needed to participate at the meeting, representing the client at the meeting, producing reports and providing the reporting infrastructure on the votes cast and the final results of the vote. We have a dedicated department that includes an operational team vastly experienced in this field. The general meetings operational services are provided utilizing a unique computerized platform that allows the institutional investor to manage the operational process in an optimized, accessible and audited manner.

PROXY RELATED FREQUENTLY ASKED QUESTIONS

Entropy Financial Research Services Ltd. (hereinafter, “Entropy Research”) was founded in late 2010, and it provides advisory services on regulatory matters solely to institutional investors, primarily on the following subject matters:

  • Proxy services – providing professional opinions and voting recommendations in general meetings of companies whose shares are listed for trading on the Tel Aviv Stock Exchange.
  • Operational services of representation at votes in general meetings.
  • Debt management and corporate bonds analysis services.
  • Diverse research services: credit examinations and due diligence on transactions and processes.

Entropy Research operates on the basis of guidelines and a policy for providing opinions at general meetings. This policy was shaped and formulated by a wide forum of external and internal professional persons, including, representatives of the largest institutional investors in the Israeli market, company clients, leading academics in the fields of corporate governance and other professional persons. This policy is transparent and available to all of the company’s clients, and to all of the public companies. All professional analyses we perform regarding matters being brought before general meetings are conducted according to said policy. This policy is also presented and approved by investment committees and boards of directors of clients of Entropy Research, as well as the institutional investors, on a periodic basis. The policy is re-visited and updated accordingly once a year.

Our analysts examine a proposed resolution on the agenda of a general meeting based on the matters detailed in the report about the meeting as well as on the basis of the guidelines laid down in our policy. The analysts have ongoing and regular communications with the public companies, to the extent necessary on their part or on our part, to ensure that our research based recommendations are formulated on the basis of the most precise and comprehensive foundations. The communications with the public companies are carried out after the notice of convening the general meeting was publicized, and are done through e-mail, telephone calls and/or meetings at the offices of Entropy Research, all, to the extent necessary to enable the companies to state their position, which in turn is reflected in the opinion we provide as well.

It is our belief that in this manner, we are able to produce research reports of the highest quality and professional level for our clients, based on worthy principles that we adopted and which guide our modus operandi. At times, these discussions are initiated by us or by the shareholder, and at times they are initiated by the public company. In controversial situations, we will ensure that our approach to the company’s representatives to obtain their clarifications or the position of their shareholders is done at a reasonable time prior to the general meeting being convened.

At the same time, our analysts are in constant discussions and communications with our clients, the institutional investors, be it on the matter of a specific general meeting or other significant issues that arise every now and then at various general meetings.

In our operations, we strive to achieve the most professional examination and research possible, whilst maintaining transparency vis-à-vis our clients.

Generally, in our research reports, our analysts include information that is openly revealed to the general public of shareholders. Therefore, in non-controversial instances, it is within the discretion of the analysts whether to expand the information made available on a specific transaction beyond that which is contained in the transaction report, and they will ordinarily do so for the purpose of clarifying the issues as to which they have questions.

As the research analyses of Entropy Research are based on public information, where information is lacking in the original transaction report and the company desires to complete such information to allow the analysts and shareholders to form their position, then we would request that such information is included in an amendment report sufficient time in advance so that it may be included in the research report for the benefit of formulating a recommendation.

A similar request is made where Entropy Research gave a recommendation to the shareholders, and the additional information forms the basis of an additional discussion that may overturn the recommendation or the vote of the shareholders.

Entropy Research’s research reports and work are accessible to its institutional investor clients prior to the general meeting. According to the operation method formulated with our clients, the public companies may not review the research reports and work papers prior to convening the general meeting. Having said that, the public companies do have available to them the possibility of understanding the rational underlying the analysis, as our research work and recommendations are based on the voting policy of Entropy, which is public, transparent and accessible to anyone. Additionally, as the application of the policy is carried out for each specific case, it is our practice, that Entropy Research’s analysts convey to the companies, at their request, the problematic issues and reservations made with respect to each proposed resolution, to enable them, if they so desire, to carry out changes in the transaction outline or terms. The salient points that are required in order to formulate a positive recommendation, to the extent the same align with the policy of Entropy Research, will be conveyed to the companies at their request even prior to publicizing the research work to Entropy’s clients.

The analyses reports of Entropy Research are based on public information, so that any information that a public company desires be taken into account and/or be reflected in the opinion, should be publicized to all the shareholders in advance.

Entropy Research operates on the basis of strict rules and procedures, including a policy to prevent potential conflicts of interests, an ethical code, work procedures for analyzing and operating general meetings, procedures for dialogs with public companies, information security procedures and the like. Among other things, we took upon ourselves, within our ethical code of conduct, rules for prevention of use of insider information that is similar to those that apply to investment advisors, whilst obtaining written undertakings from our employees and executives to refrain from carrying out investments in the Israeli stock exchange for so long as they are employed by the company (with the exclusion of those investments that are permissible to investment advisors).

Our contact information is detailed on the website together with the general contact information of the company’s offices.

The qualifications and experience required of them are as follows: relevant academic education in the finance fields, experience in capital markets, training as analysts, including by way of mentorship and training by a senior analyst.

We hold instructional sessions and workshops for our research team, on relevant topics, within the organization, and to the extent necessary, we send them to participate in external and complementary trainings.

The frequency of the update is once a year at the beginning of each year and it is conducted in a joint and wide-spanned discussion vis-à-vis representatives of the public companies operating in the market, representatives from the academia as well as representatives of the institutional investors.

Entropy Research operates according to a detailed policy that is designed to handle the dealing with potential conflicts of interest that are inherent in its activity, which policy has been conveyed in full to our clients. This policy is updated as necessary to accommodate any relevant change, including, regulatory guidelines, client demands, changes in the company’s activities or structure, and more. We update our clients with every change for the sake of full disclosure and transparency. Possible sources of potential conflicts of interest are as follows:

  • Clients that receive additional services from Entropy Research
  • Clients of sister companies like Entropy Advisors, Entropy Corporate Governance, Entropy Organizational Development, Entropy Finance.
  • Shareholders of Entropy Advisors

The measures Entropy Research takes to deal with such potential conflicts of interest are, among other things:

  • Refraining from providing an opinion to general meetings that are related to One Ltd. or companies controlled thereby, which is a public company that holds Entropy Advisors, a sister company of Entropy Research.
  • Full disclosure at the heading of each opinion that covers a public company that owns a client of Entropy Advisors or the client itself, pertaining to the nature of the conflict of interest and the level of impact it may have on the review.
  • Obtaining an opinion from an external advisor where the resolution at hand is a sensitive one, such as on the matter of compensation or an interested party transaction, where the company calling for the general meeting is a client of Entropy Research
  • An internal structural division between the departments that provide different services to the group’s clients