Vulnerability to Reputational Harm

Asset management firms such as Brookfield can suffer heightened negative consequences from events that damage their reputation. Brookfield has stated:

Poor performance of any kind could damage our reputation with current and potential investors in our managed entities, making it more difficult for us to raise new capital…

Our reputation also could be negatively impacted if there is misconduct or alleged misconduct by our personnel or those of our portfolio companies in which we and our managed entities invest…

Using Clawback Policies to Mitigate Reputational Harm

• CalPERS believes clawback policies should cover “misconduct including harassment of any kind such as sexual harassment, or gross negligence, which impacted or is reasonably expected to impact financial results or cause reputational harm.”1

• BlackRock favours “recoupment from any senior executive whose behavior caused direct financial harm to shareholders, reputational risk to the company, or resulted in a criminal investigation”, even if the actions did not result in a financial restatement.2

• Mylan M.V. shareholders supported a discussion item similar to this Proposal, despite Mylan’s position that its existing clawback policy was adequate.

• TD Bank’s clawback policy states that certain compensation may be recouped where an employee is disciplined/dismissed for breaching the code of ethics or for behaviour that could have a negative impact on the bank’s reputation.

Key Risk to the Asset/Investment Management Industry – Sexual Harassment

Institutional investors are increasing their due diligence inquiries about sexual harassment. In response to a survey conducted by the Investment Management Due Diligence Association it was reported that “[n]ot only are more firms making possible sexual harassment at investment managers a focus of due diligence, but those inquiries are intensifying.”3 The survey found that 76% of investors review social media and conduct legal due diligence for indications of sexual misconduct. 4

In its acquisitions of Forest City Realty and a controlling interest in Oaktree Capital Management, Brookfield obtained confirmation of the absence of sexual harassment allegations. Clearly, Brookfield is aware of and has taken steps to mitigate risk.

Brookfield’s Clawback Policy

The Corporation’s clawback policy requires disgorgement of certain profits in the case of a significant restatement or materially detrimental conduct. Detrimental conduct includes fraud, theft and embezzlement.

Brookfield’s clawback policy is not triggered by misconduct breaching law or Brookfield policy which could result in significant reputational harm to Brookfield, including misconduct that constituted sexual harassment.

RESOLVED that the Corporation amend its clawback policy to provide that the Compensation Committee will determine whether to seek recoupment of incentive or equity-based compensation from an executive officer if

(i) there has been misconduct (including, but not limited to, sexual harassment) resulting in a material violation of law or Brookfield policy that causes or may cause significant financial or reputational harm to Brookfield, and

(ii) the executive officer committed the misconduct or failed in their responsibility to manage or monitor conduct or risks.

These amendments should operate prospectively and be implemented in a way that does not violate any contract, compensation plan, law or regulation.

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1 https://www.calpers.ca.gov/docs/proxy-voting-guidelines.pdf

2 https://www.blackrock.com/corporate/literature/fact-sheet/blk-responsible-investment-guidelinesus.pdf

3 https://www.investmentexecutive.com/news/research-and-markets/sexual-harassment-a-duediligence-issue/

4 https://www.prnewswire.com/news-releases/imddas-second-annual-survey-on-sexual-harassment-inthe-95-trillion-global-investment-management-industry-reveals-progress-in-uncovering-harassmentbut-challenges-remain-300970298.html

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