The Norwegian Pension Fund Global made public a set of recommendations on May 5. Most are unremarkable in and of themselves. What draws attention is
what appears to be a difference in appears between the Ethics Council,
on the one hand, and Norges Bank, on the other., on the more sensitive issue of corruption (with respect to which I have written critically here, here, and here)
On 5 May 2017, the Council on Ethics issued four recommendations relating to gross corruption and one recommendation relating to serious environmental damage.
Norges Bank decided to place under observation two companies that the Council had recommended be excluded due to their involvement in cases of corruption. Furthermore, Norges Bank decided to exercise shareholder rights with respect to two companies involved in corruption cases, where the Council had recommended observation. Norges Bank decided to abide by the Council’s recommendation to exclude a company on the grounds of its involvement in serious environmental damage. (HERE)
This post considers some consequences of that rift and provides links to the decisions.
The differences between thr Ethics Council and Norges Bank now appear with greater clarity as the cultures within the Ethics Council--with a focus on the Ethics guidelines and normative objectives--and the cultures within Norges Bank, with a greater emphasis on more pragmatic approaches to objectives, appear to diverge. But the divergences do not suggest fundamental differences, more differences in approaches to the leveraging of Norwegian power through investment within a context in which that political agenda must also generate profits to the Norwegian Kingdom.
This is most apparent int he context of corruption--an area of increasing concern to the Pension Fund--Global. The Ethics Council went out of its way to provide a public explanation of its actions--and the institutional cultures that produced them, in contradistinction to the work of the Norges Bank to which it reports. The emphasis was on the constraints imposed by the nature of the Ethics Council's work, ""
New recommendations under the corruption criterion
On 5 May 2017, the Council on Ethics issued four recommendations relating to gross corruption and one recommendation relating to serious environmental damage.
Norges Bank decided to place under observation two companies that the Council had recommended be excluded due to their involvement in cases of corruption. Furthermore, Norges Bank decided to exercise shareholder rights with respect to two companies involved in corruption cases, where the Council had recommended observation. Norges Bank decided to abide by the Council’s recommendation to exclude a company on the grounds of its involvement in serious environmental damage.
Decisions regarding observation
In 2016, the Council on Ethics recommended that the companies PetroChina Co Ltd and Leonardo SpA be excluded from the Government Pension Fund Global (GPFG) due to the risk of gross corruption. However, Norges Bank has instead decided to place these companies under observation. During the observation period, the length of which has not been stipulated, the Council will follow up these companies with respect to the risk of corruption. The Council normally provides Norges Bank with an annual report on the companies under observation. The Council may also issue a new recommendation to exclude a company while it is under observation.
According to the guidelines, Norges Bank must make an independent assessment of the cases concerned, and assess measures other than those recommended by the Council on Ethics (ss 6(2) and 6(3)).
Section 6(4) of the guidelines states that “Observation may be decided when there is doubt as to whether the conditions for exclusion are met or as to future developments, or where observation is deemed appropriate for other reasons”.
All the companies that the Council on Ethics assesses under the corruption criterion have been involved in serious corruption cases. The crux of the matter in such cases is whether the company has done enough to avoid becoming involved in corruption once again. In general, this is a difficult judgement to make. In its 2016 annual report, the Council discusses its assessment of corruption risk in more detail.
Decisions regarding the exercise of shareholder rights
The Council on Ethics also recommended that the companies Eni SpA and Saipem SpA be placed under observation. However, Norges Bank has decided to ask Norges Bank Investment Management (NBIM) to discuss the risk of gross corruption with these companies. Section 6(3) of the guidelines states that “Before making a decision on observation and exclusion in accordance with section 6(1), the Bank shall consider whether other measures, including the exercise of ownership rights, may be more suited to reduce the risk of continued norm violations, or whether such alternative measures may be more appropriate for other reasons”.
Although the Council perceives the exercise of shareholder rights and observation to be extremely similar measures, it cannot recommend the exercise of shareholder rights. This is primarily because NBIM is responsible for the exercise of shareholder rights, while the Council on Ethics is responsible for observation. (HERE)
What emerges is a sense that the Ethics Council continues to develop a culture of formalist compliance built around the Ethics Guidelines. Their approach is more regulatory and bounded by the techniques of the administrator and the legislator,. There is little flexibility no sense of the value or utility of discretionary action. These naturally follow from the structures of their mandate and the character of their activities--quasi judicial and administrative. The Ethics Council is deeply embedded in the public law cultures of the state. The Norges Bank, on the other hand is more administrative and functional. It is grounded in in contextual flexibility and in the informal use of power to attain objectives. The Norges Bank is much more deeply embedded within the private law cultures of the enterprise.This makes for an interesting contrast between an institution that functions within the borders of politics and law, and another that functions within the constraints of economics and markets (as a general trend discussed here).
This is particularly apparent in the quite distinct approaches of the Ethics Council and Norges Bank with respect to Eni SpA and Saipem SpA, with respect to both of which the Ethics Council recommended formal observation. This recommendation was essentially institutional and political--it was grounded on the role of the Pension Fund Global as a regulatory actor demanding oversight over conduct. Instead, Norges Bank chose the mechanics of private shareholding to move toward what one can expect to be a similar objective. The Ethics Council put the best face on it that it could--noting that there was little functional difference between observation and exercise of shareholder power. And yet that functional similarity does little to hide the substantial formal difference between a regulatory approach grounded in normative political frameworks, and a managerial approach grounded in normative economic frameworks. From the perspective of the construction of regulatory frameworks for conduct, the consequences could be quite substantial. The former constructs corruption as a political issue with legal effects disciplined by the institutions of state; the later constructs corruption as an economic issue with compliance effects disciplined by the market.
The decisions with links follow:
This is particularly apparent in the quite distinct approaches of the Ethics Council and Norges Bank with respect to Eni SpA and Saipem SpA, with respect to both of which the Ethics Council recommended formal observation. This recommendation was essentially institutional and political--it was grounded on the role of the Pension Fund Global as a regulatory actor demanding oversight over conduct. Instead, Norges Bank chose the mechanics of private shareholding to move toward what one can expect to be a similar objective. The Ethics Council put the best face on it that it could--noting that there was little functional difference between observation and exercise of shareholder power. And yet that functional similarity does little to hide the substantial formal difference between a regulatory approach grounded in normative political frameworks, and a managerial approach grounded in normative economic frameworks. From the perspective of the construction of regulatory frameworks for conduct, the consequences could be quite substantial. The former constructs corruption as a political issue with legal effects disciplined by the institutions of state; the later constructs corruption as an economic issue with compliance effects disciplined by the market.
The decisions with links follow:
On 5 December 2016, the Council on Ethics recommended the exclusion of the Indian company Bharat Heavy Electricals Limited from the GPFG. The company is building a coal-fired power plant close to areas with universally unique environmental qualities in the Sundarbans, the world’s largest mangrove forest, in southern Bangladesh. The Council on Ethics finds that there is an unacceptable risk of the company contributing to or being responsible for severe environmental damage.Please find the Council’s recommendation here:Norges Bank announced its decision to exclude Bharat Heavy Electricals Limited on May 5, 2017.* * * *On 8 December 2016, the Council on Ethics recommended the exclusion of PetroChina Co. Ltd. from the GPFG due to the risk of gross corruption. Around 65 senior executives and middle managers formerly employed by the company and its subsidiaries have been under investigation for allegedly receiving bribes in China, Canada and Indonesia.Please find the Council’s recommendation here:Norges Bank did not follow the Council’s recommendation, but announced its decision to place the company under observation on 5 May 2017. The Council on Ethics will follow up on the risk of corruption with the company while it is under observation.* * * *On 8 December 2016, The Council on Ethics recommended the exclusion of Leonardo SpA from the GPFG due to the risk of gross corruption. The company has been involved in serious cases of corruption, alleged to have taken place in four countries between 2009 and 2014.Please find the Council’s recommendation here:Norges Bank did not follow the Council’s recommendation, but announced its decision to place the company under observation 5 May 2017. The Council on Ethics will follow up on the risk of corruption with the company while it is under observation.* * * *On 20 December 2016, the Council on Ethics recommended that Eni SpA be placed under observation due to the risk of gross corruption. Several current and former senior executives, as well as the company itself, are under investigation for corruption alleged to have taken place in Nigeria in 2011. Eni as a company, its former CEO and the former subsidiary Saipem SpA have also been indicted in Italy for gross corruption alleged to have taken place in Algeria in 2010.Please find the Council’s recommendation here:On 5 May 2017, Norges Bank announced its decision to ask NBIM to follow up on the risk of corruption in its ownership dialogue with the company. Eni is therefore not included on the Fund’s observation list.* * * *On 20 December 2016, the Council on Ethics recommended that Saipem SpA be placed under observation due to the risk of gross corruption. Saipem has been involved in corruption cases in several countries, e.g. in Algeria.Please find the Council’s recommendation here:On 5 May 2017, Norges Bank announced its decision to ask NBIM to follow up on the risk of corruption in its ownership dialogue with the company. Saipem is therefore not included on the Fund’s observation list.* * * *Please find an explanation of the outcome of the recommendations that were made public today here:
No comments:
Post a Comment