Stewardship Norwegian-style: fragmented and state-dominated (but not without potential?)
Jukka Mähönen,* Beate Sjåfjell** and Monica Mee***
June Draft
An edited version of the paper will be published as a chapter in Global Shareholder Stewardship: Complexities, Challenges and Possibilities (Dionysia Katelouzou and Dan W Puchniak eds, Cambridge University Press, Forthcoming)
I. INTRODUCTION
The perceived shift in the corporate governance from the role of the board to the role of corporate shareholders,1 has emerged as principles ‘to ensure long-term stability and social responsibility’.2 This is partly due to the change in controlling structures from dispersed shareholdings to more concentrated ones with institutional shareholders. 3 Institutional investors, the mainly profit-maximising intermediaries that invest on behalf of their ultimate beneficiaries, foremostly mutual funds, pension funds and insurance companies, hold 41 per cent of the global market capitalisation of listed companies.4 For instance, the United States domiciled institutional investors alone account for 65 per cent of global institutional investor holdings.5 This major capital market shift, which Gilson
* Professor of Law, Faculty of Law, University of Oslo, Professor of Cooperative Law, University of Helsinki. Comments are welcome at [email protected]. ** Professor of Law, Faculty of Law, University of Oslo; Adjunct Professor, Faculty of Economics and Management, Norwegian University of Science and Technology. *** Senior Manager, KPMG Pure Sustainability. 1 Popularly denoted as ‘stewardship’, spearheaded by the UK Code 2010, see Financial Reporting Council, The UK Stewardship Code (July 2010)
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and Gordon have labelled as ‘agency capitalism,’ has important implications for both investor ‘activism’ and regulation.6 An important part of the trend has been shareholder ‘empowerment’, a policy shift making corporate managers accountable to the shareholders as perceived ‘owners’ of the company. 7 According to this policy thinking, the corporate boards should be ‘independent’ (whatever that means) and focus on monitoring on behalf of the shareholders, rather than managing the company independently. Instead, shareholders should ‘engage’ with companies on issues ranging from strategy to corporate responsibility, issues that company law assigns to the board.8 This trend has been reflected in corporate governance regulation. Since the early 1990s these shareholder engagement and empowerment policies have become increasingly embedded in corporate governance codes, listing rules, company legislation,
European Union directives and transnational regulatory standards.9 As a response to the global financial crisis of 2008−2009, in spite of doubts that it happened because of, rather than in spite of the shareholder empowerment trend, the influence of the stewardship trend has become even stronger. We see this especially in the 2017 reform of the 2007
Shareholders’ Rights Directive,10 and a number of European jurisdictions have seen the emergence of specific stewardship codes. The 2017 amended Shareholders’ Rights
Directive (SRD II)11 includes elements found in previous stewardship codes, such as a requirement for institutional investors to publicly disclose their policy for how they integrate shareholder engagement in their investment strategies or explain why they have chosen not to do so (‘comply or explain’).12 According to the arguments behind the codes
6 Ronald J Gilson and Jeffrey N Gordon, ‘Agency Capitalism: Further Implications of Equity Intermediation’ in Jennifer G Hill and Randall S Thomas (eds), Research Handbook on Shareholder Power (Edward Elgar Publishing 2015), 32-33; Hill, ‘Good Activist/Bad Activist’ (n 3) 500. 7 ‘Owners’ in quotation marks, as we do not know any jurisdiction in which the shareholders of a limited liability company are recognised as its owners under property law. Shareholders own shares, entitling their holders to rights and duties in a company. From property rights perspective, a company owns its own assets and owes its own responsibilities. Beate Sjåfjell, Andrew Johnston, Linn Anker-Sørensen and David Millon, ‘Shareholder Primacy: The Main Barrier to Sustainable Companies’ in Beate Sjåfjell and Benjamin J Richardson (eds), Company Law and Sustainability: Legal Barriers and Opportunities (CUP 2015), 79, 80. 8 Simon Deakin, ‘Against Shareholder Empowerment’ in Janet Williamson, Ciaran Driver and Peter Kenway (eds), Beyond Shareholder Value: The Reasons and Choices for Corporate Governance Reform (Trades Union Congress 2014), 36. 9 Deakin (n 8) 36. 10 Directive 2007/36/EC of the European Parliament and of the Council of 11 July 2007 on the exercise of certain rights of shareholders in listed companies [2007] OJ L184/17. 11 Directive (EU) 2017/828 of the European Parliament and of the Council of 17 May 2017 amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement [2017] OJ L132/1 (SRD II). 12 EY, ‘Q&A on Stewardship Codes’ (August 2017) 2
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(and also in stewardship regulation as the EU Directive), encouraging shareholders to act as ‘stewards’ is a way forward not only towards better corporate governance in the mainstream, economics-focused sense, but also towards more sustainable and responsible companies in light of the environmental and social challenges we as a global community face. The stewardship concept is widely connected to institutional investors, referring to the actions that asset managers can take in order to enhance the value of the companies that they invest in on behalf of their own beneficiaries. However, as seen in this volume, the nature of stewardship varies from jurisdiction to jurisdiction based on shareholder structures. In the Nordic region (similar to many Asian jurisdictions), the role of states, sovereign holding companies and wealth funds, other public market actors such as public pension funds, families, family-controlled investment companies and family-based foundations is significant compared to (other) national and international institutional investors.13 For this reason, we understand ‘stewardship’ in this chapter in its wider meaning, governing all controlling structures, not only those dominated by institutional investors.14 In this chapter, we discuss the peculiarities of Nordic stewardship before concentrating on Norway and Norwegian stewardship, which is dominated by the state and the municipalities, but also to some extent by private investors. The structure of the chapter is the following. In Part II we discuss the Nordic stewardship in light of international stewardship discussion, before concentrating on Norway and the current regulatory framework of stewardship there in Part III. Norway is an interesting case in the Nordic region, together with Denmark and its stewardship code.15 In comparison, there is nothing that resembles a stewardship code in Finland, Iceland and Sweden. Norway makes for a particularly interesting case study for stewardship, with strong public, semi-public and private institutional investors, notably its sovereign wealth funds, the state as direct shareholder, public pension funds, private foundations, and strong families. Further, the Norwegian version of a stewardship code are the peculiar principles of the
13 See Gen Goto, Alan K Koh and Dan W Puchniak, ‘Diversity of Shareholder Stewardship in Asia: Faux Convergence’ (2019) Vanderbilt Journal of Transnational Law (forthcoming)
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Industry Recommendation of Use of Ownership (Norwegian Recommendation 2019),16 issued by the board of the Norwegian Fund and Asset Manager Association (VFF).17 In Part IV, we reflect on the Norwegian choices on stewardship against global trends and especially jurisdictions in Asia with similar shareholder structures, with strong state and family shareholders. We also include comparisons with Denmark. Conclusions on why a stewardship code is not needed in Norway can be found in the end of Part IV.
II. STEWARDSHIP IN THE NORDIC REGION
In the Nordic region, including Denmark, Finland, Iceland, Norway and Sweden, the issue of ‘stewardship’ in its wider meaning is highly relevant as its shareholder structures in both non-listed and listed large companies are highly concentrated.18 There is nothing strange in that as such; even at a global level, fully dispersed ownership is today a rather rare phenomenon: almost 85 per cent of the world’s largest listed companies have a single shareholder holding more than 10 per cent of the company’s capital, and the three largest shareholders hold more than 30 per cent of the capital in three fourths of all listed companies and above 50 per cent of the capital in half of the listed companies worldwide. In only 1 per cent of the listed companies worldwide, do the three largest shareholders hold less than 10 per cent of the company’s equity capital.19 However, albeit the public sector is an important owner of shares in listed companies all over the world, reaching 14 per cent of market capitalisation globally,20 in the Nordic countries its role is even stronger, reaching its peak in Norway with 35 per cent.21 Besides the public sector (Nordic states, sovereign wealth funds, and state, regional and municipal public pension funds), shareholdership is dominated not by institutional investors but by individual entrepreneurs and families, and private foundations.22 Almost two thirds of
16 Verdipapirfondenes Forening, ‘Bransjeanbefaling for medlemmene i Verdipapirfondenes forening: Utøvelse av eierskap [Industry Recommendation for the Members of the Norwegian Fund and Asset Management Association: Exercise of Ownership Rights]’ (1 January 2020)
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Nordic listed companies only have one dominant shareholder,23 although the dominant shareholder varies from country to country and from company to company. However, what we see typically are bank-based business groups in Sweden, pension funds in
Iceland,24 state-controlled enterprises in Norway, institutional investors such as a Finnish occupational pension insurance company (a domestic type of institutional investor),25 and civil law foundation share ownership in Denmark and Sweden. Generally, foundations controlling business companies are more common in the Nordic area than elsewhere in the world.26 However, foreign ownership in Finnish listed companies is also quite high, at 44 per cent.27 The institutional investors that own shares in Nordic listed companies are generally also mostly foreign. The exception is Iceland and Sweden. In Denmark, 25 per cent of total market capitalization is foreign (19 per cent domestic); in Finland 24 per cent (11 per cent domestic), and in Norway 19 per cent (10 per cent domestic). In Iceland, 55 per cent of total market capitalization is in the hands of domestic institutional investors (compared to 6 per cent foreign) and in Sweden 20 per cent is domestic (18 per cent foreign).28 Concentrated share ownership brings dominating shareholders to the forefront of Nordic corporate governance. This gives rise to the question of whether they are friends or foes of sustainable governance. We understand sustainable governance as governance that ensures the contribution of business to sustainability, to securing the social foundation for humanity now and in the future within planetary boundaries.29 In the international
23 Thomsen (n 18) 6. 24 Jón Bjarni Magnússon, ‘Investment stewardship of institutional investors in Iceland’ (Reykjavik University, May 2018)
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discussion there are two dominant views of institutional investors’ role. Hill describes these views as narratives of the ‘bad activist’ versus the ‘good activist.’30 The first is a negative perception of investors’, asset managers’ and proxy adviks’ role in corporate governance as predatory, myopic and prone to a destructive short-termism role. 31 In many discussions, this view is culminated in the activist role of hedge funds and acquisitions on their role in causing the financial crisis.32 The second is a positive perception, emphasising the increased shareholder power and engagement in corporate governance as a solution to the financial crisis, not a cause of it. According to this analysis, the problem during the crisis was not too much shareholder pressure on management but too little. 33 Accordingly, shareholder power and engagement should be increased as they can do good.34 For this reason shareholders should be granted stronger rights, encouraged to make greater use of their existing powers to engage with the companies in which they invest, or both.35 The proponents of the negative perception emphasise the need to protect companies from shareholders.36 They require more mandatory regulation, emphasising a broader societal purpose of the enterprise and the need for strengthening the role of corporate boards and their independence from the shareholders, with the duties of the board being
Robert Corell, Victoria Fabry, James Hansen, Brian Walker, Diana Liverman, Katherine Richardson, Paul Crutzen and Jonathan Foley, ‘Planetary Boundaries: Exploring the Safe Operating Space for Humanity’ (2009) 14 Ecology and Society
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to the company itself.37 Some aspects of the European Commission Sustainable Finance initiative reflect this perception, 38 while the belief in shareholders and notably institutional investors as potential drivers for sustainability is also reflected in the initiative. The positive perception is most clearly reflected in the stewardship codes, firstly the UK Stewardship Code, the OECD Principles of Corporate Governance,39 and also in SRD II and the earlier Dodd-Frank Act40 in the US.41
III. STEWARDSHIP NORWEGIAN STYLE
A. NO STEWARDSHIP CODE
The Norwegian Recommendation 2019 does not constitute a proper stewardship code and covers only fund and asset managers as a ‘steward’ type/group. In this Section we will consider how the Norwegian Recommendation is developed further in practice, and we will contrast it with rules and guidelines on more important Norwegian shareholders, especially on the one hand the Norwegian state’s own principles for responsible ‘ownership’, and, on the other, the principles, policies and fund management of one of the world’s largest sovereign wealth funds: the Norwegian Government Pension Fund
Global, managed by Norges Bank Investment Management (NBIM).42
B. THE FRAGMENTED REGULATORY PICTURE OF STEWARDSHIP IN NORWAY
The lack of a Norwegian institutional investor stewardship code is natural as domestic
37 Beate Sjåfjell and Mark B Taylor, ‘A Clash of Norms: Shareholder Primacy vs. Sustainable Corporate Purpose’ (2018) 13 International and Comparative Corporate Law Journal 40; Beate Sjåfjell, Andrew Johnston, Linn Anker-Sørensen and David Millon, ‘Shareholder Primacy: The Main Barrier to Sustainable Companies’ in Beate Sjåfjell and Benjamin J Richardson (eds), Company Law and Sustainability: Legal Barriers and Opportunities (CUP 2015). 38 See European Commission, ‘Sustainable Finance’
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institutional investors own only 10 per cent of shares in Norwegian listed companies, foreign institutional investors following their own codes or recommendations owning 19 per cent.43 Instead of institutional investors, the Norwegian investor scene is dominated by public actors, foremostly the Norwegian state, being a controlling shareholder in major
Norwegian listed companies such as Equinor and Telenor.44 The Norwegian Government Pension Fund Global, although not a part of the Norwegian investor scene as it does not invest in Norway, may be perceived as a standard-setter for other investors also in Norway. Additionally, there are other strong public investors such as Argentum Fondsinvesteringer AS, a Norwegian government investment vehicle for private equity fund investments, Norwegian sovereign wealth fund Folketrygdfondet investing in Norway and other Nordic countries, managing the assets of Government Pension Fund Norway, and Kommunal Landspensjonskasse Gjensidig Forsikringsselskap (KLP), a mutual insurance company responsible for the management of municipal and county pensions and insurances. As a private counterforce, there are strong private institutional investors as Storebrand ASA, with, however, public investors as major shareholders. In many ways the Norwegian shareholder structure resembles Asian economies, such as Singapore. 45 Yet, unlike Singapore, Norway may be said to have addressed the ‘stewardship puzzle’ by abandoning the idea of a stewardship code. The other uniquely
Singaporean phenomenon, the Stewardship Principles for Family Businesses, 46 developed for family companies, can, however, be compared with Norwegian state guidelines for use of its shareholder rights in companies it controls, encouraging the state to be a good ‘steward’ of its companies.47
Typically, the Norwegian investors each follow their own sets of guidelines.48 These
43 De La Cruz, Medina and Tang (n 4) 39. 44 Norwegian Ministry of Trade, Industry and Fisheries, ‘State Ownership Report 2018’ 8 guidelines emphasise elements of stewardship: active engagement, better corporate governance, requirements of sustainability and responsibility and response to environmental and social challenges, albeit they do not mention the word stewardship.49 The guidelines endorse the Norwegian Corporate Governance Board (NCGB) Code of Practice for Corporate Governance (Norwegian Corporate Governance Code), 50 and international standards such as the G20/OECD Principles of Corporate Governance,51 the OECD Guidelines for Multinational Enterprises, 52 the UN Guiding Principles on Business and Human Rights, 53 the PRI 54 and the UN Global Compact. 55 They emphasise elements regarded as central to stewardship: the role of active shareholdership, 56 especially to reduce environmental, social and governance (ESG) associated financial risks,57 boards’ commitment to long-term shareholder value,58 and shareholders’ rights, including those concerning takeovers. f> accessed 17 June 2020 (Norwegian Government Pension Fund Global); Argentum, ‘Samfunnsansvar [Social Responsibility]’ 9 C. THE NORWEGIAN RECOMMENDATION The board of the VFF issued in 2003 its ‘industry recommendation’ for its fund and asset manager members for ‘use of ownership’.59 The Norwegian Recommendation was revised in 2012 and again in 2019.60 The Recommendation is only in Norwegian. Unlike an ordinary VFF ‘industry standard’ that is adopted by the VFF general meeting with an obligation to be followed by the VFF members, a recommendation is issued by the VFF board. It is non-binding guidance and advice for the VFF members, and there is no ‘comply or explain’ either. In that sense it is more a type of a ‘preliminary stewardship initiative’ than a ‘stewardship code’ proper, 61 although it is (somewhat misleadingly) internationally listed as such.62 The Norwegian Recommendation 2012 was intended as an implementation of the original 2011 EFAMA Stewardship Principles,63 the VFF being a member of EFAMA.64 The 2019 revision takes into consideration SRD II, and the 2018 revision of the EFAMA Stewardship Principles, the EFAMA Stewardship Code,65 itself revised based SRD II. SRD II has not been implemented yet in Norway, but the Norwegian Recommendation 2019 takes into consideration the proposed amendments in the Norwegian Act on Securities Funds (the Securities Funds Act).66 59 Verdipapirfondenes Forening, ‘Bransjeanbefaling for medlemmene i Verdipapirfondenes forening: Utøvelse av eierskap’ [Industry Recommendation for the Members of the Norwegian Fund and Asset Management Association: Exercise of Ownership Rights]’ (7 June 2012) 10 The Norwegian Recommendation 2019 says that it is ‘compatible’ with the UK Code 2012 – but not its most recent revision, UK Code 2020 – and does not follow it.67 Unlike the EFAMA Stewardship Code, the Norwegian Recommendation 2019 emphasises creditor rights in the investee companies. Additionally, the Recommendation follows the Norwegian Corporate Governance Code and is applied only to Norwegian companies.68 In addition to the Norwegian Recommendation 2019 not being a stewardship code but a preliminary stewardship initiative, it is also a hybrid between a list of references to Norwegian national law and a Norwegian language summary of the EFAMA Stewardship Code, with references to the 2011 EFAMA Principles as revised in 2017-2018. Additionally, as it is only in Norwegian it is excluded from the empirical textual comparison in this volume, which only considers stewardship codes that are available in English.69 The Norwegian Recommendation 2019 has two parts. The first part concentrates on referring to Norwegian law, mostly the Norwegian Act on Securities Funds (the Securities Funds Act)70 and the Securities Funds Regulation.71 The provisions referred to in the Recommendation concern the rules of conduct for a securities fund management company (Section 2-15 of the Act and Section 2-24 of the Regulation), election of board and general manager in a securities fund management company (Section 2-5 of the Act), and the management company’s competence to make dispositions on the funds under management (Section 2-14 of the Act). Further included are the proposed rules on active shareholding (then proposed and later in 2019 adopted, but not yet in force, Section 8-8 of the Act,72 to implement Article 3g regarding engagement policy, as does the ESMA Stewardship Code), and rules on exercise of voting rights in the investee companies 11 (Section 2-24 of the Regulation). An important part of these rules is the board’s duty to supervise, on behalf of the funds managed, the use of voting rights in the target companies. The board of VFF has given a separate Recommendation on board conduct in securities fund management companies, including the use of the voting rights.73 The second part concentrates on referring to the EFAMA Stewardship Code, with summaries of the background, the scope and Principles 1-6 translated in Norwegian.74 In addition, the Recommendation includes an endorsement to the management companies to ensure that the Norwegian Corporate Governance Code is followed in the companies within which they invest, and a recommendation on ‘an industry practice beyond what is stated in current legal rules for active (discretionary) management’.75 The Norwegian Corporate Governance Code does not mention institutional investors, but the Norwegian Institutional Investor Forum is a member of the NCGB issuing the Norwegian Corporate Governance Code.76 The members of the Institutional Investor Forum are Alfred Berg Kapitalforvaltning, DNB Kapitalforvaltning, Folketrygdfondet, Holberg Fondsforvaltning, KLP, Nordea Fondene, Odin Forvaltning, Oslo Pensjonsforsikring, the Ministry of Trade, Industry and Fisheries (Department of Ownership), Equinor Kapitalforvaltning and Storebrand. The strong emphasis on the Norwegian Corporate Governance Code both in the Norwegian Recommendation 2019 and the individual investors’ guidelines show how Norwegian stewardship is reflected strongly through corporate governance, confirming the complementarity between stewardship and the corporate governance codes, a relationship emphasised by the UK stewardship codes of 2010 and 2012, but not in the UK Code 2020.77 Additionally, according to the Norwegian Recommendation 2019, in client agreements for active (discretionary) management, it should be stated whether it is the asset manager or the customer who exercises voting rights in connection with the client’s managed funds.78 Furthermore, it should be stated whether it is the manager or customer who follows up on the need for, and possibly implements other forms of, ‘ownership’ influence in connection with the customer’s managed funds. 73 Verdipapirfondenes Forening, ‘Bransjeanbefaling for medlemmene i Verdipapirfondenes forening: Styrearbeid i fondsforvaltningsselskap [Industry Recommendation for the Members of the Norwegian Fund and Asset Management Association: Board Conduct in Fund Management Companies]’ (22 August 2019) especially para 9.2 12 All in all, the true scope of the Norwegian Recommendation 2019 is narrow as it concentrates on the investment side of stewardship only, the relationship between a securities fund and asset management company and the unit-holders in its funds, seen as passive end-investors, not as actively engaging participants in governance. According to Norwegian law referred to in the Recommendation, unit-holders have only a very limited effect on the voting on specific companies in a fund. Accordingly, the influence of unit- holders is even more distant from any ability to impact the companies in the fund they are invested in – which would be the true purpose of a stewardship code. Additionally, the Recommendation is applicable to fund and asset managers only, not to other institutional investors or direct shareholders as the public sector important to Norway, especially the Norwegian sovereign fund, the Government Pension Fund Global and the Norwegian state. However, KLP Kapitalforvaltning AS, a subsidiary of KLP and Storebrand are members, and Folketrygdfondet is an ‘associate member’. This emphasis on the ‘investment side’ of stewardship, rather than on the corporate governance side, covered by references to the corporate governance code only and without an independent idea of governance, indicate a lack of anything in the direction of a full-fledged stewardship code. This is natural. Norwegian corporate governance relies on the Norwegian company law and the Norwegian Corporate Governance Code, so there is no need for a specific stewardship regulation besides the relationship between the investor and its customers. Secondly, the investors already follow their firm-specific guidelines, inspired often by international standards and recommendations. In the following we discuss them, starting with NBIM, which governs the Norwegian Government Pension Fund Global. D. THE PRINCIPLES FOR THE MANAGEMENT OF THE NORWEGIAN GOVERNMENT PENSION FUND GLOBAL The Norwegian Government Pension Fund Global is the Norwegian sovereign wealth fund, with 1.03 trillion euros of assets under management. 79 According to NBIM managing the Fund, it80 79 Norges Bank Investment Management, ‘Market Value’ (11 October 2019) 13 exists to help finance the Norwegian welfare state for future generations and must therefore have a long investment horizon. We want companies to be equipped to deal with long-term global challenges. We aim to promote good governance, increased profitability and responsible business practices. Our work on generating a long-term return is enhanced by investing in companies that act responsibly and create long- term value. As a ‘long-term and responsible’ steward, NBIM’s ‘single objective’ is ‘the highest possible return with a moderate risk’, 81 which, according to the Fund’s investment mandate,82 is ‘dependent on sustainable development in economical, environmental and social terms [and] well-functioning, legitimate and efficient markets’.83 In fulfilling its objective, the NBIM sees its role as promoter of principles and standards to the target companies for ‘well-functioning markets and good corporate governance’.84 From 2012, NBIM has set requirements on what the Fund expects from its global portfolio companies in terms of corporate governance practices. According to Aguilera, Bermejo, Aguilar and Cuñat, this caused improvements in the Fund’s portfolio companies, adding influence to corporate practices to the traditional influence tools of ‘exit’ (divesting) and ‘voice’ (engagement).85 The NBIM promotes the G20/OECD Principles of Corporate Governance, the OECD Guidelines for Multinational Enterprises, the UN Global Compact, the UN Guiding Principles on Business and Human Rights (UNGP) and the UNCTAD Principles on Promoting Responsible Sovereign Lending and Borrowing.86 Global Compact and the OECD Principles and Guidelines are mentioned also in the NBIM investment mandate.87 The NBIM also promotes national corporate governance codes in the countries it invests in, especially in Africa and Asia as well as in Europe. Besides supporting the recent Japanese corporate governance and stewardship reforms, 88 the Japanese government initiatives with the aim of reforming Japan’s traditional lifetime employee, risk-averse, and stakeholder-oriented governance system towards a more shareholder-oriented, profit maximizing, and less risk-averse governance system,89 the NBIM has supported also the 81 ibid 7, 11. 82 Norges Bank Investment Management, ‘Investment mandate Government Pension Fund Global’ (29 April 2020) < https://www.nbim.no/en/organisation/governance-model/executive-board- documents/investment-mandate---government-pension-fund-global/> accessed 17 June 2020. 83 ibid para 2.1. 84 Norges Bank Investment Management (n 80) 20. 85 Ruth V Aguilera, Vicente J Bermejo, Javier Capapé Aguilar and Vicente Cuñat, ‘Firms’ Reaction to Changes in the Governance Preferences of Active Institutional Owners’ (2019) ECGI Finance Working Paper No 625/2019 14 German and UK corporate governance reforms, emphasizing in both board independence, board diversity and long-termism in executive remuneration.90 Albeit endorsing international and national corporate governance codes, the NBIM does not follow or endorse any specific stewardship code or codes. What is important, as NBIM invests only outside the Nordic countries, is that it cannot and does not endorse the Norwegian Corporate Governance Code. The NBIM, however, sees the OECD Principles of Corporate Governance as a part of its basis because they apply in many countries the Fund invests in.91 For the same reasons, it cannot endorse the Norwegian Recommendation 2019. Additionally, NBIM is sceptical to stewardship codes generally. In its letter to the OECD Corporate Governance Committee in 2014 it stated this scepticism, and especially the stewardship codes’ requirements for institutional investors to disclose their policies with respect to corporate governance. Although the NBIM understood and supported the desire for relevant and predictable conduct by investors in their role as shareholders, it emphasised that for institutional investors to play an adequate role in corporate governance, they must have incentives and flexibility to do so. The NBIM believed that authorities can most effectively strengthen the incentives by focusing on transparency, the practicality of shareholder rights, the mechanisms by which boards are accountable to shareholders, and the room shareholders have to coordinate governance efforts with each other.92 Codified stewardship encouragement can, according to the NBIM, bring only limited results in lieu of effective corporate governance tools for investors. There may be a risk that the disclosure requirements for institutional investors will lead to more box- ticking, not less. In its 2016 letter to the Council of Experts concerning the Japanese stewardship code, NBIM makes clear that stewardship is best practice – but indicate a reticent attitude to stewardship codes, because one size does not fit all, and investors are different, in terms of size, strategies and portfolios.93 NBIM has followed up in this line, 90 Norges Bank Investment Management, ‘Responsible Investment: Government Pension Fund Global’ (2018) 25-26 < https://www.nbim.no/contentassets/e1632963319146bbb040024114ca65af/responsible- investment_2018.pdf> accessed 17 June 2020. 91 Yngve Slyngstad and William Ambrose, ‘OECD Principles of Corporate Governance’ (Norges Bank Investment Management, 30 December 2014) 15 with its 2016 report on responsible investment setting its own definition of stewardship,94 which it then goes on to explain how it follows up, without reference to any stewardship codes. In comparison, the 2019 report on responsible investment does not mention ‘stewardship’ once.95 Although NBIM, in its independent role, is seen by many as a leading star in responsible investment, an in-depth analysis of its investment policies and results give reason to question the efficacy of its approach. The positive results are too incremental, and its follow up of the around 9,000 companies it is invested in too superficial.96 This is, however, not a result of lack of stewardship principles, but rather reflective of a general criticism, to which we return in the concluding Part IV. E. THE NORWEGIAN STATE AND ITS PRINCIPLES FOR RESPONSIBLE INVESTMENT In Norway the state is the only shareholder,97 a controlling shareholder (over 50 per cent of the voting rights) or a major shareholder (over 33 per cent of the voting rights, which gives a veto right, for instance to amendments of articles, mergers and divisions) of some of the country’s largest listed and non-listed companies, usually together with Folketrygdfondet (Norwegian Government Pension Fund Norway), itself a 100 per cent state-controlled company.98 According to the Norwegian view, this gives the state an obligation to strive to be a role model when it comes to corporate governance.99 The state’s guidelines regarding governance are documented in ‘Diverse and Value-Creating Ownership’, a recommendation of the Ministry of Trade, Industry and Fisheries approved 94 ‘We define stewardship as the role and responsibility of an investor to oversee and safeguard the long- term value of the equity holdings in a portfolio’ (Norges Bank Investment Management, ‘Responsible Investment: Government Pension Fund Global’ (2016) 43 16 by the Council of State in 2014 (Norwegian State Guidelines).100 The Norwegian State Guidelines covers both public and private enterprises with a state interest. The Norwegian State Guideline has a stewardship starting point, focusing on shareholder primacy as its ultimate goal:101 The main objective of the state’s commercial ownership (companies in categories 1 – 3) is to achieve the highest possible return on invested capital over time. The return is made up of the sum total of the increase in market value of a company’s equity and yield in the form of dividends and any share buybacks. According to the Norwegian State Guidelines, the Norwegian government has both general and more specific expectations of companies in the field of ‘corporate social responsibility’ (CSR). Generally, the government102 expects all Norwegian companies should demonstrate corporate social responsibility, whether under private-sector or public-sector ownership and regardless of whether their undertaking is located in Norway or abroad. Besides this general obligation to all Norwegian undertakings, the government expects companies in which the state has a holding ‘to work systematically on their CSR and to be exemplary in their respective fields’. The specific expectations relate to four thematic key areas: climate and environment, human rights, employee and worker rights and anti-corruption. The government’s expectations are informed by and are based on national and international standards, conventions and reporting norms. Boards of the investee companies are responsible for assessing how expectations from the state in its capacity as an owner may best be honoured and implemented effectively.103 As relevant standards the Norwegian State Guidelines mentions the UNGP, the ILO’s eight core conventions as the foundation for corporate activities, the Global Reporting Initiative (GRI), UN Global Compact, OECD Guidelines for Multinational Enterprises, ILO’s eight core conventions, OECD guidelines on taxation, the standards of the Global Forum on Transparency and Exchange of Information for Tax Purposes. 104 Specific attention is given to the UNGP, seen as an integrated part of the Global Compact and incorporated to the OECD Guidelines for Multinational Enterprises. The UNGP are perceived as a ‘precautionary approach in risk identification and prevention’.105 Besides that, the government emphasizes the investee companies’ boards’ responsibilities ‘in 100 Norwegian State Guidelines (n 47). 101 Norwegian State Guidelines (n 47) 75 (para 8.3.1). 102 Norwegian State Guidelines (n 47) 74 (para 8.2.11). 103 Norwegian State Guidelines (n 47) 80 (para 8.3.3). 104 Norwegian State Guidelines (n 47) 80-88. 105 Norwegian State Guidelines (n 47) 81. 17 respect of CSR’.106 In spite of the Norwegian state’s strong position as shareholder, facilitating in theory an active engagement as a sustainability-oriented ‘steward’, there is no evidence of the Norwegian state as shareholder acting as such a steward. The Norwegian state is satisfied with making public its expectations of the companies, without being willing to follow these up actively in ways that are observable, notably in the general meetings.107 F. REFLECTIONS ON NORWEGIAN STEWARDSHIP IN THE CROSS-FIRE BETWEEN SHAREHOLDER PRIMACY AND SUSTAINABLE CORPORATE GOVERNANCE Norway, with one of the largest sovereign wealth funds in the world, and other institutional shareholders as the state and public pension fund, seems to have coped well without a stewardship code. This gives rise to the question: Do we need a stewardship code? Like Germany, Norway has not joined the stewardship code club, in the same way that it has been reluctant to implement SRD II (albeit the national legislation has finally been given). The ‘engagement’ that has been the basis of the UK Code 2012 and SRD II has not been in the focus of Norwegian investors. The engagement level is even lower in Norway than in Germany, with average shareholder turnout in annual general meetings in Norway at 50.90 per cent, compared to 64.86 per cent in Germany (both in 2010- 2011).108 The reason may very well be the concentrated control in both countries’ listed companies.109 Norwegian company law, with its clear hierarchical structure,110 gives room for a stronger role for active shareholders, even to the extent that the general meeting can, within certain limits, give direct instructions to the board. In this sense the controlling shareholder could perhaps be perceived as a ‘good steward’, but for the benefit of minority shareholders and contractual parties and not for the society as a whole or the 106 Norwegian State Guidelines (n 47) 82-83. 107 Indeed, not much has changed in this regard over the last decade, compare Beate Sjåfjell, ‘Towards a Sustainable Development: Internalising Externalities in Norwegian Company Law’ (2011) 8 International and Comparative Corporate Law Journal 103. 108 Paul Hewitt, ‘The Exercise of Shareholder Rights: Country Comparison of Turnout and Dissent’ (2011) OECD Corporate Governance Working Papers No 3, 15 18 environment.111 This is not possible to that extent in German company law, emphasising the autonomy of the management board,112 which therefore provides an incentive for ‘engagement’. On the other hand, the principle of shareholder equality, which is held dear in both Norwegian113 and German114 law, requires a balance between engagement of the controlling shareholders and protection of the minority institutional investors and the creditors. Further, in Norwegian company law, protection of creditors and minority shareholders from the abuse of controlling shareholders is strongly emphasised, setting an obligation to the board to promote the interests of the company as a whole and not its shareholders. There have been no proposals for a Norwegian stewardship code so far. To pursue the question of whether there is a need for a code in Norway, we first discuss the potential benefits continuing with the solution Norway has today, before considering the possible benefits from a code. Firstly, Norway has (finally) implemented SRD II,115 making a stewardship code at least partly superfluous. The amendments required by SRD II have been given,116 but not all have entered into force.117 Articles 3g and 3h of SRD II have been implemented in the Act on Financial Institutions and Financial Groups, 118 Act Relating to the Management of Alternative Investment Fund,119 the Securities Funds Act and the Act on Securities Trading, 120 including rules on guidance for active shareholdership and publication of investment strategy. Article 3i has been implemented in the Securities Funds Act, the Act Relating to the Management of Alternative Investment Funds, and the 111 Beate Sjåfjell, ‘Sustainable Companies: Possibilities and Barriers in Norwegian Company Law’ (2015) 11:1 International and Comparative Corporate Law Journal 1; Jukka Mähönen and Guðrún Johnsen ‘Law, Culture and Sustainability; Corporate Governance In The Nordic Countries’ in Beate Sjåfjell and Christopher M Bruner (eds), Cambridge Handbook of Corporate Law, Corporate Governance and Sustainability (CUP 2019), 218. 112 Aktiengesetz [German Stock Corporation Act] § 76(1); see Ringe (n 109). 113 Norwegian Public Companies Act § 5-21 and 6-28; see Sjåfjell and Kjelland (n 107). 114 German Stock Corporation Act § 53(a); see Ringe (n 109). 115 Høring om ny lov om røystingsrådgjevarar og endringer i aksjelovgivningen mv. [Consultation on Act on Proxy Advisors and Amendments to the Company Legislation etc ] (19 November 2019) 19 Act on Securities Trading, including rules on information obligations of life insurance undertakings and pension undertakings. As Birkmose and Madsen evaluate in this volume, SRD II is unlikely to have much of an effect on Danish stewardship due to the many parallels to the existing Stewardship Code.121 The same would apply vice versa in Norway, there is no need for a code as the engagement rules have been implemented in the law. On the other hand, SRD II and a stewardship code might be seen complementing each other, as noted by Van der Elst and Lafarre on the Dutch Stewardship Code in this volume.122 This might be been achieved by the new Norwegian Recommendation 2019 referring to the amended provisions in the Securities Funds Act, referred to above. Secondly, an advantage with the lack of a code to Norwegian investors is the flexibility for them to adapt to the latest changes in international standards of conduct, without lagging behind with outdated and weak comply-or-explain-based stewardship codes as those copying the UK Code 2012, now obsolete in the UK after the totally new apply-and-explain-based UK Code 2020. 123 As an example can be mentioned the adaptation of NBIM to the OECD Guidelines for Multinational Enterprises124 and the UN Sustainable Development Goals.125 This flexibility makes it possible for investors both to ensure good corporate governance and to adjust to changes in stewardship practices in a timely manner, which is essential for keeping up the pace in the transition to sustainability. Following the Norwegian Recommendation 2019 would not make this possible, as it is lagging behind international developments as illustrated in its reference 121 See Birkmose and Madsen (n 15). 122 See Christoph Van der Elst and Anne Lafarre, ‘Shareholder Stewardship in The Netherlands: The Role of Institutional Investors in a Stakeholder Oriented Jurisdiction’ in Katelouzou and. Puchniak (n 13). 123 See of the progress of the stewardship codes Dionysia Katelouzou and Peer Zumbansen, ‘The New Geographies of Corporate Law Production’ (2020) University of Pennsylvania Journal of International Law (forthcoming). 124 The adaptation started in 2013 when the Norwegian National Contact Point for the OECD Guidelines for Multinational Enterprises concluded that NBIM had violated the OECD Guidelines, firstly by refusing to cooperate with the Contact Point, a violation of the OECD Guidelines Procedural Guidance, and second, by not having any strategy on how to identify and handle possible human rights violations in the companies in it invests, in that case from child labour: The Norwegian National Contact Point for the OECD Guidelines for Multinational Enterprises, ‘Final Statement: Complaint from Lok Shanti Abhiyan, Korean Transnational Corporations Watch, Fair Green and Global Alliance and Forum for Environment and Development vs POSCO (South Korea), ABP/APG (Netherlands) and NBIM (Norway)’ (27 May 2013) 20 to the now outdated UK Code 2012. Thirdly, we see that most UN and EU initiatives increasingly become clearer in their expectations and calls for action from companies. This has been especially visible after the climate meeting in New York in the end of September 2019.126 In addition, the EU is preparing proposals for harmonising European law to ensure a higher speed towards sustainable investment, as is clear from the European Commission Sustainable Finance Initiative, emphasised further in the European Green Deal. 127 This ramping up is informed by the lack of progress through merely relying on voluntary standards and guidelines. In this respect, it could be argued that having the flexibility to adapt can be an even bigger advantage going forward for investors who wish to be frontrunners. In many initiatives, such as the EU Commission Sustainable Finance Initiative128 and the Commission Guidelines on non-financial reporting,129 much trust is placed on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) established by the G20's Financial Stability Board, 130 giving them a status of a benchmark of expectations towards companies regarding governance of sustainability strategy and risks (albeit limited to climate). 131 The recommendations set clear expectations and responsibilities for the company boards regarding what actions to take and what information to disclose in their reporting. The recommendations have been embraced and incorporated in a number of UN standards and EU initiatives, in addition to several countries (Belgium, Canada, France, Sweden and the UK), and by investors representing $34 trillion asset under management as well as 36 central banks. The recommendations seem to have a bigger impact on the behaviour of investors and companies than stewardship codes. As an example, the EU Commission Sustainable Finance Action Plan Action 7 126 See e.g. Fiona Reynolds, ‘Asset owners step up to take unprecedented action on climate change’ (UNPRI, 24 September 2019) 21 proposes a clarification of institutional investors’ and asset managers’ duties in relation to sustainability. It does so by suggesting requiring them to integrate sustainability considerations over time in the investment decision-making process and to increase transparency towards end-investors on how they integrate such sustainability factors in their investment decisions, in particular as concerns their exposure to sustainability risks.132 We find the first implementation of Action 7 in the EU Disclosure Regulation.133 As we see, Norway may not need a stewardship code. What Norway does need, is a clear and mandatory regulation to ensure that Norwegian business and finance contribute to the transition to sustainability. A stewardship code would not be a sufficiently strong measure. Conversely, it could hold Norwegian business and finance back in the face of the rapid developments on EU and international level. IV. CONCLUDING REFLECTIONS During the last decade there has been a perceived shift in the corporate governance role of major institutional shareholders in listed companies, popularly denoted as ‘stewardship’, leading to a flux of similar stewardship codes in various countries. At the same time, there has been a trend of voluntary guidelines from the UN, the OECD and the EU. This gives rise to the question of whether shareholder stewardship is the best way to ensure the needed integration of sustainability into business? The Asian chapters in this volume are illustrative. The Japanese government adopted a stewardship code with the aim of reforming its traditional lifetime employee, risk-averse, and stakeholder-oriented governance system towards a more shareholder-oriented, profit maximizing, and less risk-averse governance system.134 The Singapore chapter shows that even in economies in which the role of institutional investors is minor compared to domestic public sector investors and private investors as families, stewardship has a marketing function, a form of ‘halo signalling’. We see this in the Singapore Stewardship Code, introduced to demonstrate Singapore’s ‘commitment to the Anglo-American-cum-global norms of ‘good’ corporate governance’. 135 ‘Halo signalling’ refers to the strategic adoption of 132 European Commission (n 38). 133 Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector [2019] OJ L317/1. 134 Goto, Koh and Puchniak (n 13). 135 Stewardship Asia Centre, Singapore Stewardship Principles For Responsible Investors (November 2016) 22 regulation to attract foreign investment notwithstanding the apparent practical irrelevance of such regulation to the jurisdiction’s corporate environment.136 The Danish Chapter shows that the Danish stewardship code, the only stewardship code proper in the Nordic countries, is parallel to the Danish Corporate Governance Code; the two codes share a mutual purpose in their aim to support listed companies’ long-term value creation.137 Why is there then in Norway only an ‘industry recommendation’ for asset managers, not important enough to have even an English translation, not even for the most recent revision? As Katelouzou and Siems show,138 stewardship means different things for different types of companies and investors. The existence and contents of stewardship regulation varies from jurisdiction to jurisdiction. There are separate codes for different kinds of investee companies as for family businesses in Singapore, and as there is also investor specific self-regulation as the Santiago Principles for sovereign wealth funds by the International Forum of Sovereign Wealth Funds.139 Interestingly, the major Norwegian Government Pension Fund Global is not a member of this Forum140 The fundamental characteristics of Norwegian (and generally Nordic) company law is protection of creditors and minority shareholders from the abuse of controlling shareholders, a problem also pinpointed in Asian controlled shareholder systems.141 The company law is in essence based of an idea of controlling shareholder as a ‘good steward’ for the benefit of minority shareholders and contractual parties, albeit not to the society as a whole or the environment.142 According to Norwegian and Nordic company law the power to run the company is vested with the board.143 As shareholders are heterogenous groups as far as their goals are concerned and therefore impossible to regulate through voluntary and flexible stewardship codes, we cannot make a definitive conclusion as to whether concentrated share ownership is a friend or a foe for sustainable governance. What does seem clear is that the responsibility of sustainability focus and conduct should be of the duty of the boards, instead of relying on voluntary actions and guidelines. The focus on sustainable governance would be independent from the shareholders (whatever nationality, type, 136 See Puchniak and Tang (n 45). 137 See Birkmose and Madsen (n 15). 138 See Katelouzou and Siems (n 61). 139 International Forum of Sovereign Wealth Funds, ‘Santiago Principles’ 23 shape or size). 144 This resonates also with the EU Sustainable Finance Initiative’s reference to the board in its Action 10. Further, the most important Norwegian investor, the Norwegian Government Pension Fund Global, does not need a Norwegian stewardship code. Nor have the most important domestic Norwegian investors, the Norwegian state and Folketrygdfondet, demonstrated any interest in a Norwegian stewardship code either. There is thus no demand for a Singapore-style signalling that Norway is part of the global shareholder stewardship movement.145 The question may also be raised that even if a stewardship code is needed, who would introduce it? The Norwegian regulatory framework is fragmented with many regulatory and private actors taking a more or less active interest in stewardship. The Norwegian legislation, even before full implementation of SRD II, includes stewardship-related rules. As in many other jurisdictions both in the EU and beyond,146 legal rules cover the key concerns of shareholder engagement usually addressed by stewardship codes. As far as sustainability in investments is concerned, a regulatory approach as introduced in the European Sustainable Finance initiatives such as the Taxonomy Regulation and Disclosure Regulation, can be seen as a more efficient regulatory approach.147 Unlike regulation, the codes do not include efficient enforcement mechanisms.148 Most importantly, voluntary stewardship seems not to be a strong enough management tool for handling an issue as important as that of securing the contribution of business to sustainability, in a world with increasingly rapid changes in their surroundings and greater uncertainty and volatility in the global markets.149 To handle 144 See for instance the proposals of the Sustainable Market Actors for Responsible Trade (SMART) project: Beate Sjåfjell, Jukka Mähönen, Mark B Taylor, Eléonore Maitre-Ekern, Maja van der Velden, Tonia A Novitz, Clair Gammage, Jay Cullen, Marta Andhov and Roberto Caranta, ‘Supporting the Transition to Sustainability: SMART Reform Proposals’ (13 December 2019) University of Oslo Faculty of Law Research Paper No 2019-63 24 this the there is a need for a responsible body, which can demonstrate fast decisions and ensure corporate flexibility. The boards of the investee companies stand out as the right governance structure to place such responsibility, not the shareholders. The heterogeneity of investors and voluntary actions make stewardship weak and uncertain. Additionally, the stewardship codes mainly focus on shareholder value. As a Nordic example can be seen the Danish Stewardship Code, which is an integrated part of the corporate governance framework, with the aim to ‘promote the companies’ long-term value creation and thereby contribute to maximising long-term return for investors’.150 As Birkmose and Madsen conclude in their chapter in this volume, instead of working with two parallel codes, it would be better to seek a closer integration of the duties of the institutional investors and asset managers and of the boards of the investee companies themselves.151 In summary, stewardship must not be allowed to misdirection attention that instead should be focused on core company law issues including duties of the board, if the aim is to ensure the contribution of companies to the necessary transition to sustainability. Potential’ in Katelouzou and Puchniak (n 13), also available at 25