We carry into 2021 the reminder that we are stronger together.

Strategic oversight

The Board provides our perspective, advice, evaluation, and oversight of the development and implementation of company strategy. We meet with the management team quarterly and during an annual strategy retreat to discuss and debate topics critical to the company’s long-term success. In 2020, much of the conversation focused on pandemic response, capital planning, and sustainable growth strategies. This involved an in-depth look at key challenges, opportunities, and risks created by the COVID-19 pandemic, changing customer expectations, demographic shifts, further expansion of a global middle class, technology (including Principal’s data strategy and digital transformation), the competitive environment, and industry regulation. Management continues to evolve and refine company strategy, capitalize on areas of growth (including the continued integration of the Institutional Retirement & Trust business which Principal acquired in 2019), pursue areas for future growth, guide new and existing strategies for fostering greater financial access and inclusion, and take appropriate actions to further strengthen the company’s long-term competitive positioning.

Risk oversight

The Board has a coordinated, comprehensive approach to overseeing the company’s enterprise risk management. We regularly review strategic threats, opportunities, and key risks, including financial, product, cybersecurity, data management and privacy, regulatory, climate, and reputational. We also stay vigilant for emerging risks. Both the Board and management have made this crucial oversight a fundamental aspect of company strategy, operations, and culture. Management was agile in responding to the pandemic—leveraging existing resources and moving swiftly to innovate and distribute new technology and processes that will endure for years.

Social responsibility

Principal has long understood the importance of making a positive impact on the global communities in which it operates. Management reports to the Board of Directors regularly on environmental, social and governance (ESG) focus areas. In 2020, the Board Nominating and Governance committee approved an enterprise ESG vision, approach and core strategic pillars that are aligned with UN Sustainable Development Goals. These efforts guide Principal in creating meaningful change today and for future generations.

In 2020, a year that brought a pandemic, social unrest, political division, and turbulent financial markets, Principal reinforced its commitment to the environment and to financial inclusion. The company also reaffirmed its commitment to advancing diversity, equity, and inclusion within their workforce, their business, and the community.

Principal’s commitment to social responsibility continues to be recognized by the financial press, human rights campaigns, representatives of the military, gender-equality associations and advocates, and other third-party organizations. In 2020, these included being named to the Bloomberg Gender-Equality Index, recognized as a Climate Leader for Insurance by the CDP for the 8th year in a row (with an overall score of A-), and named one of World’s Most Ethical Companies by the Ethisphere Institute for the 10th year among other accolades.

Talent and succession planning

The Board plays an instrumental role in talent and succession planning for both the company leadership and the Board. In 2020, Principal welcomed six new members to the executive leadership team, including two external hires and four internal promotions.

Principal has found the right leaders to fill each position. They bring diverse backgrounds, skills, and experiences to their roles, while providing a healthy mix of institutional knowledge and third-party experience.

As we facilitated the seamless succession of these new executive team members, we celebrated the well-deserved retirement of long-tenured colleagues: Karen Shaff (38 years of service), Gary Scholten (40), Julia Lawler (36), and Tim Dunbar (34).

Additionally, we appointed two new members to the Board of Directors: Clare Richer, former chief financial officer at Putnam Investments, and Alfredo Rivera, president of the North America Operating Unit at The Coca-Cola Company.

As of December 31, 2020, the Board is composed of 12 directors, 11 of whom are independent, with broad expertise, skills, and viewpoints that help the company advance and execute its strategy. We remain committed to regular board refreshment and value the diversity reflected in the Board, which includes five women (45%) and three people of color (27%) as of the end of 2020.

Company performance

The Board remains focused on sustainable performance and efficient deployment of capital. Principal entered 2020 in one of the strongest financial positions in company history. While unfavorable market and economic conditions (spurred by the global pandemic) had a short-term negative impact on company performance, long-term growth and earnings potential remain strong.

In 2020, total company AUM increased more than $70 billion, or 10%, to a record $807 billion at the end of the year, including $14 billion of net cash flow and strong investment performance. We delivered $1.4 billion of non-GAAP operating earnings, or $4.94 per diluted share in 2020. Through strategic investments, the company continues to achieve greater scale, talent, and technology innovation that position Principal to better meet customer needs and succeed in the long term.

We carry into 2021 the reminder that we are stronger together, and that together we can make a tremendous difference in the lives of Principal shareholders, employees, customers, and communities. I appreciate your support and am thankful for the opportunity to serve as your lead director.

Sincerely,

Scott Mills

Lead director, Principal Financial Group