3 The State’s ownership administration

3.1 The various roles of the State

The State performs many different roles in society. It is important to have a conscious attitude to the differences between the State’s roles as a policy maker, market regulator and exerciser of authority and the role that the State performs as owner. The State must be clear over its role and the fact that different opportunities and limitations lie within the various roles. The State normally exercises its authority through legislation (statutes and regulations), by imposing conditions on concessions authorised by law, by granting licences, by signing contracts and by making executive decisions in individual cases. A related form of authority exercising is the use of economic instruments such as the procurement of services and levying of taxes and duties. The State is also able to exert its influence through dialogue with both public and private sector companies, with regard to expectations concerning corporate self-regulation and corporate social responsibility for example. The State also performs the roles of supervisory body and appeal body within society. These roles are often separate from other authority tasks in order to create more trust in the decision-making process.

The government believes that this separation is important in order to secure the legitimacy of these roles and to create trust in the State as owner. If sector-regulating authority, responsibility for sector supervision and ownership of companies were to be placed under the same ministry, this would create an opportunity to pursue a holistic policy. However, it could also increase the risk of roles becoming mixed. Centralisation of the aspect of corporate governance where the aim behind the State ownership is largely commercial, combined with transparency within the administration, has helped to reduce the conflict in roles, and makes the corporate governance more refined, effective and professional. The majority of the State’s commercial shareholdings are currently administered by the Ministry of Trade and Industry. There are important exceptions, such as Statoil ASA and Posten Norge AS, which for different reasons are administered by the sector ministries.

Within the companies with commercial objectives, the State exercises its role of owner through the annual general meeting whilst respecting the distribution of roles between owner, board and general management on which company legislation is based. The key principles for the State’s corporate governance are described in 5.4.7.

For many of the companies in which the State has a shareholding, sectoral policy goals are however important. Many of these companies are given responsibility for natural monopolies (Avinor AS, Statnett SF) or regulatory monopolies (AS Vinmonopolet, Norsk Tipping AS). Other companies are entirely financed via the State budget (Enova SF, Petoro AS) or via separate charges (NRK AS). In such cases, where the element of market control is more limited and where non-financial goals are linked to the requirement for efficient resource use, more complex governance problems can arise, and separating the role of political sector administrator from that of owner can be more problematic. Nevertheless, the decision to place these companies in their own legal entities (limited companies, State agencies) outside the administration indicates that the principles for corporate governance (cf. 5.4.7) must also form the basis for corporate governance here1.

3.2 Framework for the State’s ownership administration

3.2.1 Constitutional framework

Article 3 of the Constitution of the Kingdom of Norway prescribes that executive power is vested in the King, which in practice means the Government. However, the Storting has a mandate to issue general guidelines and to instruct the Government in individual cases by means of plenary resolutions of the Storting or enactments of bills.

State ownership of enterprises is also regulated by Article 19 of the Constitution:

”The King shall ensure that the properties and prerogatives of the State are utilised and administered in the manner determined by the Storting and in the best interests of the general public”.

It is thus the Government that administrates the State’s shares and exercises a proprietorial role in State-owned enterprises and special law companies etc. This provision expressly gives the Storting a mandate to instruct the Government in matters pertaining to State ownership.

Pursuant to Part 3 of Article 12 of the Constitution, administration of State ownership is delegated to the ministry under which the company sorts. The minister’s administration of ownership is exercised under constitutional and parliamentary responsibility.

The Parliament’s funding mandate means that the consent of the Storting must be obtained in the event of changes in the State’s shareholdings in a company (buying and selling of shares) and decisions concerning capital increases.

State companies will normally be able to buy and sell shares in other companies and acquire or dispose of parts of companies when this represents a natural part of the process of adapting the company’s object-specific operations, without needing to obtain the consent of the Storting. However, in State limited companies (companies where the State is the sole shareholder), the consent of the Storting must be obtained in respect of decisions which would significantly change the State’s commitment or the nature of the business. In part-owned companies, issues are occasionally considered which must be brought before the shareholders’ general meeting (e.g. mergers or demergers). Depending on the State’s shareholding in the company, it may be necessary to submit such matters to the Storting; cf. Recommendation to the Storting no. 277 (1976 – 1977).

The Office of the Auditor General conducts audits of the minister’s (ministry’s) administration of State ownership and reports on the outcome of its audits to the Storting.

3.2.2 The minister’s mandate within the company

The legal basis for the minister’s proprietorial mandate in a State limited company is Article 5-1 of the Limited Liability Companies Act, which reads:

“Through the general meeting, the shareholders exercise supreme authority in the company.”

A similar provision applies to public limited companies, State-owned enterprises and special law companies. In relation to State-owned enterprises, the term “general meeting” is replaced by “corporate assembly”, but is in effect identical. The term “general meeting” is used hereinafter as a common term to refer to both forms of meeting.

A general meeting is a meeting that is held in accordance with detailed rules laid down in company law. The company’s general manager, board members, any members of the corporate assembly and the company’s auditor must be summoned and have the right to attend and speak at the general meeting. The chair of the board and general manager have a duty to attend. In addition, the Office of the Auditor General is notified of general meetings and is entitled to attend such meetings. Minutes must be taken of the general meeting. Any general manager, member of the board or member of the corporate assembly who disagrees with a decision made by the person(s) representing the company’s shareholders shall require his/her dissent to be recorded in the minutes.

The rules regarding minute-taking and notification of the Office of the Auditor General provide the basis for constitutional supervision of the administration of the State’s ownership.

Provisions in Article 5-1 of the Limited Liability Companies Act/Public Limited Companies Act entail that the minister, through the general meeting, has supremacy over the board in State limited companies and may issue instructions by which the board is bound. These may consist of general instructions or special instructions concerning an individual matter. The State has traditionally been cautious about instructing companies with regard to individual matters. This is firstly linked to the fact that it breaks with and undermines the distribution of roles and responsibilities set out in company legislation; cf. 3.2.3. An instruction at a general meeting could result in the board resigning instead of acceding to the instruction. Secondly, active use of the instruction mandate at a general meeting could clash with the constitutional responsibility that the government has with respect to the Storting in that the government would take more responsibility for appropriations which would normally rest with the boards of the companies. Active use of the instruction mandate could also clash with any liability to pay compensation to third parties.

Another consequence of Article 5-1 of the Limited Liability Companies Act/Public Limited Companies Act is that the minister, in the capacity of the general meeting, has no authority within the company if the general meeting form is not utilised.

In part-owned companies, there are, in addition to those referred to above, additional restrictions out of consideration for the other shareholders and the principle of parity in the Limited Liability Companies Act; cf. Article 5-21 of the Limited Liability Companies Act/Public Limited Companies Act. This means that, even if it is the majority shareholder, the State may not serve its own interests at the expense of the other shareholders in the company. The requirement regarding the equal treatment of shareholders imposes a restriction for example on access to the free exchange of information between the company and the ministry. The company legislation also prescribes clear guidelines regarding the State’s management dialogue with listed companies. However, this does not prevent matters outside the ordinary owner dialogue that are in the public interest from being addressed in the ownership dialogue that the State pursues with the company, as it does with other shareholders and other stakeholders generally.

3.2.3 Administration of the company

The companies’ management consists of the board of directors and a general manager. The corporate form of limited company and the other corporate forms utilised for State-owned enterprises are based on a clear-cut division of roles between the owner and the corporate management. According to Article 6 -12 of the Limited Liability Companies Act/Public Limited Companies Act and similar provisions in legislation governing companies, administration of the company is vested in the board and the general manager, i.e. the company’s management. This means that the commercial management of the company and the responsibility for this is vested in the corporate management. The board and general manager are required to practise their administration in the best interests of the company and the owners. Within the general and special frameworks prescribed by the Storting for the company, the State as owner safeguards its interests through the annual general meeting/corporate assembly. In connection with their administration of the company, the members of the board and the general manager are personally liable under compensation and criminal law as set out in applicable company legislation.

3.2.4 Other frameworks

Besides the frameworks that ensue from the Constitution, general public administration legislation and company legislation, the exercising of ownership is chiefly governed by company legislation, competition legislation and stock exchange and securities legislation which impose requirements on corporate governance. Other central legal frameworks ensue from EEA regulations, including the rules regarding State aid.

Public ownership and the EEA Agreement

The EEA Agreement is essentially neutral on the question of public and private sector ownership; cf. Articles 125 and 59 (2). The ban on State aid in Article 61 (1) of the EEA Agreement thus also applies to public undertakings. This bars the Government from favouring non-commercial interests in the exercising of State ownership. In order to determine when public funds with which an enterprise is furnished constitute aid, the European Court of Justice and the European Commission have devised the so-called “market investor principle”. If the public sector invests capital subject to conditions that differ from what a comparable private investor could be expected to impose, it may indicate that the investment results in a financial advantage for the enterprise concerned, which could be in breach of the rules concerning public sector aid. This means that the State is required to demand a normal market return on capital invested in an enterprise operating in competition with others. The EFTA’s Surveillance Authority (ES) monitors Norwegian compliance with the rules regarding State aid.

The competition regulations

As a general rule, changes in State ownership may also cover circumstances that will be considered by Norwegian or other competition authorities. This applies for example to enterprise cooperatives which the competition authorities must supervise in accordance with the competition rules for enterprises. In such cases, the government will propose to the Storting that reservations be issued concerning the consideration of such issues by such authorities, so that they are not considered in any special way as a result of the State ownership2.

Regulations for Financial Management in Government

Article 10 of the Regulations for Financial Management in Government state that:

“Undertakings with executive responsibility for State limited companies, State-owned enterprises, special law companies or other independent legal entities wholly or partly owned by Government shall produce written guidelines on the manner in which control and supervisory authority shall be exercised vis-à-vis each company or group of companies. A copy of the guidelines shall be filed with the Office of the Auditor General.

The State must, within applicable laws and rules, administrate its ownership interests in conformance with general principles of good corporate governance with special emphasis on ensuring:

1. that the corporate form, the company’s articles of association, financing and composition of the board are appropriate for the company’s objects and ownership

2. that exercise of ownership guarantees the equal treatment of all shareholders and underpins a clear division of authority and responsibility between the owning parties and the board

3. that goals set for the company are achieved

4. that the board functions satisfactorily

Management, monitoring and supervision and associated guidelines must be made commensurate with the State’s shareholding, the characteristics of the company, risk and significance.”

An important principle with regard to limited companies, State-owned companies and special law companies is that the State’s financial liability is limited to subscribed equity.

3.2.5 How owner control is influenced based on different shareholdings

Once the Storting has decided that the State is to engage on the owner side in an undertaking organised as an independent legal entity, there will be consequences for the way in which political policies and other aims are to be communicated and how and to what extent interference may be allowed in the company’s operations.

The management of a State-owned enterprise, limited company or special law company is distinct from the that of entities within the State administrative system. The owners (including the State as a shareholder) must respect the statutory division of roles between the general meeting/corporate assembly, the board and general management. By organising companies as independent legal entities, as State-owned companies or limited companies, the State essentially waives its options for influencing day-to-day operations.

Through its involvement in nomination processes and election to governing bodies, determination of the company’s objects clause and other articles of association, and by laying down frameworks for the undertaking at the general meeting, the State as owner can however still exercise an influence over the company’s operations. Such influence will depend on the size of the State’s shareholding.

A discussion is presented below of what a shareholder achieves in the way of influence in a company with a number of relevant shareholdings and how this affects corporate governance.

3.2.5.1 Wholly owned companies

Limited companies wholly owned by the State are referred to as State limited companies (statsaksjeselskaper) or State public limited companies (statsallmennaksjeselskaper)3. The ordinary rules of Norwegian company law also apply to State limited companies. In addition, certain special rules are prescribed which provide the State with extended control of its ownership; cf. Articles 20-4 to 20-7 of the Limited Liability Companies Act/Public Limited Companies Act. A number of wholly owned State companies are also organised as State-owned companies or special law companies. The State-owned companies are to all intents and purposes regulated in the same way as State limited companies.

The main differences for State limited companies as compared with ordinary limited companies is firstly that the general meeting appoints shareholder-elected members to the board even if the company has a corporate assembly; cf. Article 20-4(1) of the Limited Liability Companies Act/Public Limited Companies Act4. Furthermore, the King in Council of State is granted access to review the decisions of the corporate assembly/board with regard to matters where significant public interests may call for a reversal of the decision; cf. Article 20-4(2) of the Limited Liability Companies Act/Public Limited Companies Act. In State limited companies, the general meeting is also not bound by the board’s or the corporate assembly’s proposal for the distribution of dividends; cf. Article 20-4(4) of the Limited Liability Companies Act/Public Limited Companies Act.

There is an obligation for both genders to be represented on the boards of State limited companies and their wholly owned subsidiaries; cf. Article 20-6 of the Limited Liability Companies Act. There is a corresponding obligation on State companies and public limited companies generally; cf. Article 19 of the Act relating to State-owned enterprises and Articles 6-11a and 20-6 of the Public Limited Companies Act. The Office of the Auditor General also has an extended right to audit the minister’s administration of the State’s share interests; cf. Article 20-7 of the Limited Liability Companies Act/Public Limited Companies Act.

In the case of wholly owned companies, shareholders may, through resolutions made by the annual general meeting, impose obligations on the company which could adversely affect the company’s financial results without conflicting with Article 5-21 of the Limited Liability Companies Act/Public Limited Companies Act (misuse of the annual general meeting’s powers), cf. also Article 6-28 of the Limited Liability Companies Act/Public Limited Companies Act (misuse of position in the company etc.).

The State’s financial liability with regard to limited companies, State-owned companies and special law companies is generally limited to subscribed equity. However, if an owner exceeds its power of control over the company with regard to commercial matters, creditors could raise a claim against the State by invoking law of tort or the doctrine of corporate law concerning piercing of the corporate veil. It is partly for this reason that it is a precondition that companies must be compensated if they are instructed to make investments or undertake other activities which their board does not consider to be commercially sound. This must take place within the framework that is established through relevant legislation and other regulations.

3.2.5.2 Part-owned companies

In cases where the State is a joint shareholder in a company, company law imposes restrictions on the types of resolutions that may be passed at the annual general meeting; cf. Article 5-21 of the Limited Liability Companies Act/Public Limited Companies Act (misuse of the annual general meeting’s powers). The purpose of the provision is to safeguard the rights of minority shareholders in relation to the majority. The provision prohibits the general meeting from passing any resolution that is likely to give certain shareholders or others an unreasonable advantage at the expense of other shareholders or the company. In most companies in which it has owner interests, the State is a dominant shareholder and is unable to exercise its part-ownership of the companies without taking into consideration the interests of the minority shareholders. This is of particular relevance in the case of companies where the State’s ownership may be justified on the basis of non-commercial objectives and also where the State imposes tasks on companies that do not naturally fall within the remit of the company. Whether or not the realisation of other State objectives constitutes an unreasonable advantage over other shareholders in the company will rest on a comprehensive assessment that must take into account many considerations. The point of departure is therefore the existence of explicit limits to what political aims may be furthered through the corporate governance of part-owned companies.

Depending on the size of the State’s shareholding, it will still be possible to pursue a number of important objectives, such as safeguarding the functions of headquarters, control over natural resources, etc.

The following shareholding limits are key in the company legislation:

9/10

If a shareholder has nine-tenths of the share capital and voting rights in a limited company, this majority interest can acquire the remaining shares by way of a compulsory buyout of the other shareholders in the company.

2/3

A shareholding of more than two-thirds of the share capital affords control over decisions requiring a corresponding majority in conformance with company legislation. Resolutions to amend a company’s articles of association require a majority of at least two-thirds of the votes/shares. The same applies to decisions concerning mergers or demergers, the raising/reduction of share capital, the raising of convertible loans, conversions and winding up. This is a key threshold if it is important to ensure control over such resolutions.

1/2

A shareholding of more than half of the votes ensures control over resolutions that require an ordinary majority at the general meeting. These include resolutions such as approval of the annual accounts and resolutions concerning the distribution of dividends. Election of members to the board and corporate assembly also require an ordinary majority. However, the board will be elected by the corporate assembly if such a body exists.

1/3

A shareholding of more than one third of the votes and the capital gives so-called negative control over decisions requiring a two-thirds majority. A shareholding of this size ensures that the holder can oppose significant decisions such as the relocation of headquarters, the raising of share capital, amendments to the articles of association etc., cf. the section on a two-thirds majority.

3.2.5.3 Bid obligation

According to Article 6-1(1) of the Securities Trading Act5 any person who through acquisition becomes the owner of shares representing more than one third of the voting rights in a Norwegian listed company is obliged to offer to purchase the remaining shares in the company. Any party who through acquisition becomes the owner of shares representing 40 per cent or more of the company will become subject to another such obligation. The same will apply again at 50 per cent or more6. This means that any decision to increase the State’s shareholding in a company above these thresholds would trigger the bid obligation, with the result that the State could acquire an unintentionally large shareholding.

3.3 Corporate governance principles

Good corporate governance is vital for the nation’s overall economic efficiency and competitiveness. The principles of good corporate governance entail, among other things, a clear distinction between roles and ensure the transparency of decision-making processes. Good corporate governance helps to reduce the risks to which the company is exposed and is of importance as regards the market’s confidence and trust in the companies. Long-term value creation within companies is best achieved through sound, transparent processes between the management, board and shareholders where the parties are aware of their roles and responsibilities.

The State is a major shareholder in Norway and companies with State shareholdings constitute a considerable proportion of the Norwegian capital market and Norwegian value creation. The manner in which the State acts as an owner can therefore have a strong influence on public and investor confidence in the Norwegian capital market.

3.3.1 The State’s principles for good ownership

The State has formulated its own main principles for good corporate governance. These principles are aimed at all State-owned companies, whether wholly or part-owned. These principles are in line with generally accepted corporate governance principles. The principles concern key aspects such as the equal treatment of shareholders, transparency, independence, composition and role of the board, etc. Reference is also made to the discussion in section 5.4.7.

3.3.2 The Norwegian Code of Practice for Corporate Governance

The Norwegian Corporate Governance Board (NCGB)7 is a board which consists of various stakeholder groups for owners, share issues and Oslo Stock Exchange8. The aim of the board is to prepare and regularly update a code of practice for corporate governance which can help to maximise value creation within listed companies to the benefit of shareholders, employees, other stakeholders and other interests within society. The Code of Practice is intended to strengthen confidence in Norwegian companies and the Norwegian stock market. On 21 October 2010, the NCGB presented a revised version of the Norwegian Code of Practice for Corporate Governance.

Oslo Stock Exchange requires companies that are listed on Oslo Stock Exchange to annually prepare a report in accordance with the Norwegian code of practice. The report must be based on a principle of “comply or explain”, which means that the individual points in the code of practice must either be followed or an explanation must be given as to why the company has adopted a different approach. As owner, the State expects listed companies with a State shareholding to adhere to the principles set out in NCGB.

3.3.3 The OECD’s guidelines for State-owned companies

In 2005, the OECD published guidelines for State-owned companies9. The Ministry of Trade and Industry actively contributed to the preparation of these guidelines. The guidelines were prepared on the grounds that good corporate governance of State companies leads to stronger financial growth and it was considered that a common standard for good practice for State corporate governance would be appropriate. In 2010, the OECD followed this up with a practical guide to the guidelines in selected areas10.

The primary aim behind the guidelines was to help to ensure that State-owned companies have a clearer legal status and form of governance equivalent to corresponding private undertakings. Another important aim is to distinguish between the various roles of the State as a political authority, supervisory/control body and as the owner of companies. A third aim was to reinforce the role of the board within State companies, where competence and integrity are pivotal. Transparency concerning the ownership and respect for minority shareholders are also key areas that are covered by the guidelines.

3.4 Contact with the companies

The remit of the ministries exercising State ownership involves monitoring the companies’ financial results and general status. The monitoring of companies with sectoral policy objectives will also cover whether financial resources are being used effectively in relation to frameworks and objectives, but will often have a broader focus linked to each individual company’s sectoral policy objectives and tasks.

Regular meetings with the company’s executive management are a key aspect of the monitoring process within most ministries exercising State ownership. As regards the Ministry of Trade and Industry, quarterly meetings are held, along with annual meetings concerning social responsibility with all the companies. The issues considered at these meetings with the companies may concern the appraisal of financial trends, communication of the State’s expectations regarding return on investment and dividends, briefings concerning strategic issues involving the companies and problem areas relating to social responsibility. Such meetings with a company’s executive management take place along similar lines to those usually held between listed companies and major investors. The meetings are conducted within the framework prescribed by company and securities legislation, particularly as regards the criterion for the equal treatment of all shareholders.

The external frameworks for corporate governance do not prevent the State, like other shareholders, from raising matters that should be considered by the companies in relation to their business and growth. The opinions expressed by the State at such meetings are to be regarded as ‘input’ for the company’s administration and board. The board is responsible for managing the company in the best interests of all shareholders and is required to undertake specific deliberations and decisions. Matters that require the endorsement of shareholders must be raised at the general meeting and be decided on through shareholder democracy in the normal manner.

The State as shareholder is generally not privy to more information than is publicly available to other shareholders. However, in extraordinary circumstances where the State must contribute to the execution of transactions such as divestments, mergers, etc., it will on occasions be necessary to give the ministry inside information. The provision of such information must be based on an assessment by, and at the initiative of, the company. In such instances, the State is subject to the ordinary rules in the legislation relating to securities regarding the treatment of such information.

Special considerations concerning the follow-up of corporate social responsibility

In Report to the Storting no. 13 (2006 - 2007) Active and Long-term Ownership, the government set out a number of general expectations regarding the work of companies relating to corporate social responsibility, as well as expectations within nine specific areas referred to as ‘cross-cutting considerations’. This was done on the basis of a belief that in the long term these factors would influence the company’s opportunities for growth and profitability, as well as the shareholders’ return on investment. The State’s position as regards corporate social responsibility in the case of companies in which the State is a shareholder is expressed as expectations rather than absolute requirements.

The State has not used the annual general meeting or corporate assembly of companies as an arena for considering matters relating to corporate social responsibility. It is considered more appropriate for the government’s expectations in this area to be monitored and communicated in the owner dialogue which the ministries exercising State ownership pursue with companies in which the State is a shareholder. The work of the companies relating to corporate social responsibility forms a natural part of the monitoring of companies in which the State has a shareholding, which is in addition to the attention directed at financial results and commercial growth. The Ministry of Trade and Industry has established a practice whereby, in addition to the discussions concerning such matters at ordinary quarterly meetings, a separate annual meeting is also held which concentrates on the follow-up of corporate social responsibility.

The State’s guidelines concerning executive salaries

The applicable guidelines which set out the State’s position as regards executive salaries were adopted and published in December 2006. They express the State’s position concerning executive salaries in companies in which the State has a shareholding. On 1 January 2007, the Ministry of Trade and Industry distributed the new guidelines concerning the State’s position on executive salaries to all companies in which the ministry administers shareholder interests. At the annual general meetings and corporate assemblies in spring 2007 of the wholly owned companies administered by the Ministry of Trade and Industry, additions to the minutes were adopted in connection with the consideration of the annual accounts for 2006 which noted that the government had prepared guidelines concerning the position of the State with regard to executive salaries and that these guidelines had been distributed to the companies concerned in January 2007. The additions to the minutes stated that the guidelines are intended as guidance to the companies’ boards as regards the policy for executive salaries that the State as owner wishes to see applied by the companies.

As a result of the trends in executive salaries in recent years as well as other factors, the government revised the State’s guidelines concerning executive salaries with effect from 1 April 2011. The formal status of the new guidelines is that they are still intended as guidelines to the companies’ boards as regards the policy for executive salaries that the State as owner wishes the companies to apply.

The ministries administering State ownership follow up the State’s guidelines concerning executive salaries in connection with the preparations for and holding of the annual general meetings and corporate assemblies of companies in which the State has a shareholding.