The basic philosophy of the state in operating as a private shareholder is simple and quite consonant with general private institutional shareholder objectives, with the exception of the sort of transparency one would expect from a governmental agency:
Shareholder meetings are an important opportunity for investors to exercise ownership rights Our objective is to vote in a manner that supports long-term shareholder value Our voting shall be predictable, transparent and in line with the fund’s long-term strategy Our vote decisions are continuously published on www.nbim.no ( Global Voting Guidelines, p. 1)
But there is a twist--the objectives are not purely economic--that is strictly focused on shareholder wealth maximization. Rather, voting is grounded in long term shareholder value enhancement through assessments of environmental and social risk.
Our voting seeks to further the long-term economic performance of our investments and reduce financial risks associated with the environmental and social practices of companies. (Ibid.).
We vote in the fund’s long-term interests. Accordingly, we will vote in a principled and consistent manner to maximise the long term performance of the fund. As a starting point, and where appropriate, we will base our principles and voting decisions on internationally recognised standards, such as the G20/OECD Principles of Corporate Governance, UN Global Compact, UN Guiding Principles for Business and Human Rights, and the OECD Guidelines for Multinational Enterprises. (Global Voting Guidelines, p. 3).
How do these translate into specific conduct norms for risk mitigation and business behaviors? That is what is taken up in the bulk of the Global Voting Guidelines, pp. 4-9). These are divided into four action areas: (1) the board (pp. 4-5); (2) shareholder rights and equitable treatment of shareholders (pp. 6-7); (3) reporting, accounts and audit (pp. 8-9); and (4) sustainable business practices (p. 9).
The relationship with the board is framed in terms of mutual obligation built around substantial spaces for discretionary decision making by by the board. That is, the expectation is that shareholders determine the overall objectives and the board has substantial discretion to ensure that the enterprise meets them.
Most decision-making authority must therefore be delegated to the board of directors. For this delegation to function effectively there need to be a high degree of board accountability towards shareholders. Boards should demonstrate commitment to creating long-term shareholder value, ensure business execution in line with communicated strategy, satisfactory financial outcomes, and company communication to the market in a timely, adequate and transparent manner. Boards should also demonstrate that they have considered the interests of all shareholders in their decision making and that they seek to treat shareholders equally. (Global Voting Guidelines, p. 6).
This translates into a set of specific objectives categories. The first touches on director nomination and election. These processes must reflect the commitment to the internationalized standards of corporate governance that has been identified as fundamental by the SWF. The second touches on board composition. These include the requirement of separation of the functions of CEO and Board Chairs, and the independence of the board, in non-controlled companies, "from management, major owners and related third parties." (Ibid). It also includes a requirement of a minimum level of board expertise in the business of the enterprise and the avoidance of board member over commitment and thus of inattention. Board accountability is also an important element of oversight. SWF voting will be used to hold board members accountable for a variety of actions:
• Failed to act on material requests from shareholders,
• sought to circumvent shareholder proposals or has implemented governance changes limiting shareholders’ rights to a larger extent than those already approved by shareholders,
• retained board members that failed to receive a majority of shareholder votes at the previous board election,
• implemented poor governance structures and practices, including anti-takeover measures, without submitting it to shareholder approval
More widely, unsatisfactory financial and strategic results, mismanaged risk taking, the unacceptable treatment of affected stakeholders or other undesired outcomes will be taken into consideration. (Global Voting Guidelines, p. 5).
This will include the right to:
• appoint and remove directors,
• approve changes to articles of association,
• approve changes concerning capital structure.In order for voting rights to have the intended effect, shareholders must also have the right to:
• receive timely and adequate disclosure,
• file proposals to shareholder meetings,
• ask for a shareholder meeting to be called,
• vote by proxy to the same effect as being present at the shareholder meeting, with equal information, and without unnecessary
costs or other distortions. (Ibid., p. 6).
Lastly, the SWF as shareholder would advance notions of equal treatment of capital, moving away form differential rights structures, promoting equal treatment in acquisitions and divestitures, the allocation of income and preemptive rights (Ibid., p. 7).In addition to traditionally recognized anti-takeover structures and “poison pills” we include:
• Excessive capital authorisations,
• classified boards,
• differentiated voting rights,
• supermajority vote requirements, and
• other control-enhancing mechanisms. (Ibid).
The company must address the impact of its activities on society and the environment. Business strategy and policies should secure business practices that are consistent with sustainable development. We expect companies to include relevant social and environmental risk factors in their long term strategic business planning, as these can have a significant effect on the value of a company’s assets over time, and its ability to generate long term returns for shareholders. Companies should also work against corruption in all its forms, including extortion and bribery. (Ibid.)