7 The Government’s ownership policy

7.1 Background and introduction

The Government’s political platform, the Soria Moria Declaration, states that:

«A diversity of ownership in Norwegian industries is a strength for providing access to capital and skills. There is a need for diverse ownership, private and governmental, national and foreign. National ownership is important to ensure that the businesses have the head office and research activities in Norway. Foreign ownership, for its part, assists in ensuring growth and the build-up of competence.

The State is a major owner of Norwegian business. State ownership guarantees our control over our shared natural resources and provides revenues for the common good. State ownership can be decisive in ensuring national ownership and ensuring national head-office activities of key businesses in Norway in years to come. Public ownership is important to safeguard key political goals within district, transport, cultural and health policies.

We are seeing an increasing trend for Norwegian knowledge businesses to be sold as soon as they achieve international standing. Norway depends on good contacts with strong international capital and competency environments, but in many cases, selling out means that we do not build up long-term knowledge industries and expertise in Norway. We risk undermining the results of long-term research and development, which are simply not reflected in short-term stock-market values. A better strategy must therefore be developed for ensuring national ownership of key businesses in the knowledge society.

The Government aims:

• to secure strong public and national ownership to achieve key political objectives and ensure returns and revenues for the common good.

• for public companies to be ensured professional ownership and a predictable dividend policy. State ownership should be far more active than at present. Research and development will be aggressively targeted. State-owned companies shall lead the way in equal opportunities for gender, and measures shall be implemented to achieve greater transparency and awareness regarding executive salaries in companies where the State is a major owner.

• for our energy resources to be the property of the entire population. We will therefore maintain strong public ownership of our hydro-power resources and our petroleum deposits.

• to ensure continuing strong state ownership of petroleum resources through the State’s direct financial interest (SDFI). SDFI must continue to be able to acquire shares on the Norwegian Continental Shelf, and SDFI’s overall ownership shall be maintained at present levels.

• to maintain State shareholdings in major companies such as Telenor, Norsk Hydro and DnB NOR. Telenor shall remain a Norwegian company, with its head office and most significant research and development functions in Norway. Statnett and Statskog shall not be sold or part-privatised and the current level of ownership of Statoil shall be maintained.

• for Statkraft to be retained as a wholly-owned State company.»

Companies with State shareholdings manage substantial economic and socially beneficial assets. The State is an owner of some of the country’s largest companies in order to ensure that national ownership of key activities that contribute to the centres of excellence associated with head office functions and research and development activities remain and develop in Norway. This makes the State an owner of undertakings that are highly significant in Norwegian industry and society. Ownership of companies such as Statoil and Norsk Hydro has made a considerable contribution to industrial growth, research and development, as well as skills building on a broad basis in Norway. State ownership in industry helps to ensure the right of disposal over shared natural resources. The State’s ownership of important infrastructure companies, of cultural institutions, hospitals, Vinmonopolet and Norsk Tipping goes towards achieving important sectoral policy objectives.

Textbox 7.1 Telenor: From administrative agency to world-class mobile operator

Twenty years ago there was still a waiting list to get an ordinary telephone line installed in Norway. In the intervening years we have experienced a revolution in information and communications technology, with access to mobile telephony in particular seeing massive growth over the last decade across the world. Through its conversion of the Televerket telecommunications agency into a public limited liability company in 1994 and the part-privatisation and stock exchange listing of Telenor in 2000, the State has enabled Telenor to capitalise on its high-level of communications technology expertise by taking an active role in this development. In 1995, Telenor had just over half a million mobile customers. After the stock-exchange listing in December 2000, the number of subscribers grew to nearly 6 million mobile customers. Adding together all the mobile subscriptions in all the companies Telenor has ownership interests in, by March 2006, the company had some 90 million mobile subscriptions. Telenor gained its 100 millionth mobile customer in September 2006, making the Telenor group one of the world’s leading mobile operators in terms of subscriber numbers. This strong growth has come from the mobile phone markets in Ukraine, Russia, Thailand, Malaysia and Bangladesh. Together with Pakistan and Serbia, these markets may be capable of producing similar strong growth in subscriber numbers for Telenor in the years ahead.

Source Telenor and the Ministry of Trade and Industry

A number of Norwegian companies have enjoyed solid industrial growth and value creation with the State as a shareholder. The Government believes knowledge development, innovation and research in Norwegian industry are important, and that this can be promoted through active, industrial state ownership.

The Government is committed to raw materials produced in Norway being processed here as well, where economically justified. Where Norway has access to high-quality raw materials, it is important to see the entire value chain in context.

The Government will maintain robust public, national ownership in order to ensure solid industrial growth and achieve returns and revenues for the common good. Companies where the State is an owner shall be ensured of professional and active ownership and a predictable dividend policy. The State as an owner has the capabilities required for this. It can be a long-term and stable shareholder.

The State’s direct ownership interest in companies is large in financial terms, but restricted in the number of companies. A diversity of ownership, as we have here in Norway, is a strength in terms of access to capital and skills for Norwegian companies. This interaction between Norwegian and foreign private capital and public capital is important for developing Norwegian companies, as we have seen, for example, in Norsk Hydro, Statoil and Telenor.

In simplified terms, types of ownership can be characterised along two primary axes: Time frame and economic orientation; see Table 7.1. The State shall be a long-term industrial owner.

State ownership contributes to a greater degree of long-term engagement and hence to greater stability on the part of the owners. This contributes to ensuring national ownership of some of the largest companies in the country. The importance of long-term engagement, stability and permanence of ownership in Norway means that the State, through its direct ownership, also plays an important economic policy role in the country.

A challenge of long-term ownership can be excessive patience and a passive relationship with the companies’ executive management. Passive ownership allows room for executive management dominance, and for companies to be managed with different goals from those of the owners. A sound state ownership commitment is dependent upon the State being active in its ownership. The State must be as active and professional in the exercise of its ownership as private owners of a similar type. Such an active ownership role must be exercised within the framework of recognised regulations for corporate governance and commercial management. Three areas are of particular importance in following up ownership: the election of boards of directors and corporate assemblies, clarification of the State’s objectives for its ownership, and follow-up of the enterprise’s finances in a broad sense.

As an owner, the State will be active in appointing boards and corporate assemblies with an appropriate mixture of the relevant skills. The appropriate composition of governing bodies varies depending on the type of the enterprise and the objectives the owners have for the company. Active industrial ownership relies on a combination of market expertise and commercial insight and efficiency. For the State as owner, it is important for the companies to have industrially and financially competent boards, which are capable of exercising effective supervision of the enterprises. The boards should also lead the companies’ strategic work. A sound understanding of the company’s role in society and of the individual company’s significance for overall industrial development is therefore important. The boards’ competence and independence of the company’s management is an important requirement. The boards must also be required to provide wide-ranging and transparent information to shareholders and other stakeholders about the companies’ activities. The State as a shareholder expects that employees and local authorities are brought into the process at an early stage when there are questions of major restructuring of activities.

One important precondition for active ownership is that the objective of state ownership is clear. Companies operating commercial activities have to respect the requirement that profitability is fundamental. This is however not synonymous with a goal of short-term profit maximisation. The State will normally have a longer perspective in which the companies’ roles are viewed in a broader context. Companies can be important actors in local society, represent key national centres of excellence, manage national natural resources, be central in the development of future-oriented business or have crucial significance for an entire value-chain. Through their recruitment and employment policies, the companies play an important role in equal opportunities and integration. Through their trade and activities at home and abroad, the companies have a role in terms of issues concerning sustainable growth, the environment and human rights.

The companies’ interactions with their surroundings are in a number of areas regulated by legislation. The Government wants the State as an owner to express its views on the companies’ role in a broad sense, and to ensure that the companies are aware of the balance between the aim of profitability and various societal considerations etc. It is the companies’ boards that have to make the actual decisions. The Government wants however to have clear goals for its ownership and communicate this through ongoing dialogue with the companies. This should be able to influence the companies’ actions and attitudes in such matters, without interfering in individual decisions.

The State has a long-range perspective for its ownership. This also implies an active attitude towards the companies’ growth and plans in terms of new investments and targeting of research and development. The State as an owner will assume an active attitude towards the companies’ solidity and financing. This is done through conveying its expectations for returns and dividends from the companies, but also by seeing these in relation to the financing of future growth. Active ownership means that the State takes a position on significant plans for growth whether acquisitions or new investments that require expansion of the companies’ equity are involved. Commercial activity implies financial risk and the State must also be prepared for the possibility of losses occurring in the companies it is involved in. If the State itself does not wish to contribute wholly or partially to further industrial growth of the enterprise, the option for financing this through a partnership with private investors will have to be considered. This will also get other investors to assess the risk of the projects.

It is important that companies with State shareholdings have the potential to exploit the value-creation potential they possess, by pursuing commercial opportunities both in Norway and abroad. By competing internationally, the companies can acquire increased competence and larger markets, which can in turn be an important factor in long-term, solid industrial growth and value-creation for the companies’ activities in Norway.

The monitoring of results in relation to objectives is key to active ownership. The Government will arrange for broad follow-up in relation to the State’s objectives. In addition to this, the requirement for expertise on the individual boards may change over time. The State will therefore require boards to perform self-assessments and will also make its own assessments. Where there is a lack of results or of expertise, the State will participate actively in the task of altering the composition of boards of directors.

7.2 An active ownership policy

7.2.1 The Government will exercise its ownership professionally

The main objective of state ownership is to contribute to the companies’ long-term value creation and industrial growth. Only if the companies are competitive over the longer term can they maintain and enhance their role in the Norwegian economy and society. One key reason why the State wishes to remain an owner in many of the companies is their importance to Norway.

The Government will therefore conduct an active ownership policy that sets out expectations for the boards if directors to have high ambitions for the companies’ growth. As a professional owner, the State will adopt a position on significant plans for growth whether concerning acquisitions or new investments that require expansion of the companies’ equity. In an active ownership policy, the State will impose its requirement in the usual way for returns and dividends, to underpin the companies’ long-term development and growth.

Companies that aim to be competitive over time must take into consideration factors that go beyond short-term profit maximisation. One aspect of this is that the companies must invest sufficiently in both research and development, and in increasing the skill level of the workforce. Over time, it will prove difficult for a company to restructure itself rapidly and extensively enough if it does not manage these processes satisfactorily. Companies with state ownership must also act responsibly in environmental terms. Equally, the company must promote diversity in its management at all levels, otherwise its ability to comprehend its surroundings will be weakened. High ethical standards everywhere will be necessary to maintain the company’s values and legitimacy. Salaries and any other compensation schemes for the company’s management must be justifiable, moderate and transparent. They must be competitive, but not market-leading in a Norwegian context, so that the management’s general authority is not weakened and the shareholders’ assets are not reduced.

An active ownership policy means that the State sets out clear expectations for development in these areas, and that these are clearly communicated to the companies. This gives a significant extra dimension to the ordinary commercial requirements for returns and dividends and will underpin the requirement for long-term value creation and solid industrial growth.

The state-owned companies must be managed to achieve commercial market level returns and solid industrial growth over time. Within such a commercial framework, the companies are required to take account of the considerations discussed above and in Chapter 7.3. To the extent that the State as an owner instructs wholly owned State companies to make investments or engage in other activities that the board does not find commercially warranted, the Government will arrange for the company to be compensated through separate state budget appropriations.

7.2.2 The board’s responsibilities and composition

The boards of directors are responsible for assessing the expectations which shareholders and others may have of the enterprise and of implementing the commercial initiatives the boards think are correct. The shareholders for their part must evaluate the boards’ performances. Through its active ownership policy, the Government will therefore give substantial emphasis to a systematic evaluation of the boards’ work and compose boards that can ensure the long-term value creation and other objectives, which the State has for its ownership.

The nomination of board members in listed companies is done through separate nomination committees, whereby the State, in conjunction with representatives of the other shareholders, seeks to achieve the best possible composition for the companies’ governing bodies. Through its representatives on the nomination committees, the State will ensure that the boards represent a diversity of competence and have sufficient capacity for exercising their offices. In the case of elections to the boards, the State will also assess the measures they have taken and whether the strategic challenges facing the companies indicate a need for changes to the boards. Needless to say, the regulations concerning equal opportunities will be respected. The Government will involve itself actively and systematically in board nominations and elections, in both wholly owned and part-owned companies.

7.2.3 Corporate governance and social responsibility

The Government sees the companies’ social responsibility as an integrated part of the principles for corporate governance and executive management. Most companies justify their social responsibility initiatives as being both intrinsically valuable and commercially valid. The Government believes that commitment to social responsibility will promote sustainable commercial development and the companies’ growth and competitiveness. The State as authority and owner imposes substantial requirements and expectations on the companies’ social responsibility. The State as an owner is committed to good long-term value creation. The companies’ management will have to make optimal deliberation of the various aspects in specific matters relating to social responsibility.

The State has previously set out the main principles for good corporate governance. These principles are directed at all state-owned companies, whether wholly or part owned. These are principles, which are in line with generally accepted principles for corporate governance, and they deal with significant matters such as equal treatment, transparency, independence, the composition of boards, the boards’ role, etc. The Norwegian Code of Practice supplements them for Corporate Governance aimed at stock-exchange listed companies.

These principles describe the rules to be followed by, respectively, the executive management, the board and the owners, and some key factors to be taken into account in order for the interaction between company and owners to function properly.

However, these principles say little about the factors the owners may wish to concern themselves with through their ownership of the individual company. In this report, the Government has emphasised giving an account of the factors the State will attend to in its ownership policy. This is discussed in more detail in chapter 7.3.

7.2.4 Exercising shareholders rights as an instrument

One important question is the degree to which the minister should employ his authority to instruct the boards of wholly owned companies. A general premise is that the minister/ministry should not normally intervene in the board’s day-to-day management of the company. The basis must be that the Storting and the Government/minister sets out the primary goals, while it is the board’s responsibility to implement them. When the State, through the general shareholders meeting/corporate assembly, instructs the board or reverses a board resolution, responsibility is lifted to the general meeting/corporate assembly.

A specific evaluation must be made of when and in what circumstances exercising shareholder rights is a suitable means for achieving political objectives. It is fully possible for matters pertaining to the public interest to be addressed in the ownership dialogue the State entertains with the company, as it does with other shareholders and other stakeholders generally. The State as a shareholder will thus be able to exert substantial influence, even if it is ultimately the board that is responsible for making the specific deliberations on the various inputs and interests. If the board does not follow up on what the State communicates through the ownership dialogue, the State as a shareholder must evaluate whether to raise this at the general meeting, if the matter is sufficiently important. There is however several factors to take account of in such an evaluation, including the State’s reputation as a shareholder in a company with many shareholders, some of them foreign.

The State has a number of instruments suitable for achieving political objectives. This applies especially in respect of achieving specific environmental policy aims, R&D objectives, etc. The State also has a range of instruments suitable for stimulating and contributing to a thriving business climate (legislation and regulations, research funds, schemes organised through Innovation Norway, Enova and SIVA (the Industrial Development Corporation of Norway) and others). In terms of society, governance occurs largely through regulatory measures. The use of corporate governance will thus be assessed on the basis of the specific circumstances and available alternatives.

7.3 Important sector-independent considerations that companies must take into account

The Government expects that all companies assume their corporate social responsibility, regardless of whether they are owned by private or public actors.

The preparatory committee on state ownership showed that most companies justify their corporate social responsibility initiatives as being both intrinsically valuable and commercially valid.

The committee also set out that state-owned companies should be leading on corporate social responsibility. The committee pointed out that the State’s legitimacy may be weakened, for example, as a legislator and in foreign policy affairs, if it does not, in its ownership role, meet high standards in this area. The Government supports this view and, through the quarterly meetings that the companies have with the State’s ownership administration, it will follow up on matters that underpin the companies’ long-term value creation.

Demonstrating social responsibility means that the companies interact openly with everyone who has a legitimate interest connected with the enterprise. Safeguarding the company’s interest is the prime task. This means operating profitably within the established framework.

Social responsibility is about running the business so that it in all important aspects makes a positive contribution to society. Such an attitude requires that companies assume broad responsibilities, notably in relation to environmental impacts, ethical conduct and so on.

Active social responsibility means that finances and ethics are combined in all aspects of the enterprise from the selection of partners, to investments in, for example, staff working conditions locally and globally. Socially responsible management means that the company strives to act correctly towards all of its stakeholders. Social responsibility is not, and should not be seen as, disconnected from the company’s commercial strategy and business development. It is about integrating such concerns into the process of developing a strategy and of running the business.

The social responsibility of companies is a key theme in corporate governance in most modern economies and is recognised as important in safeguarding companies’ long-term growth potential. A company’s reputation is increasingly affected by its ability to maintain a high ethical and environmental standard and to demonstrate social responsibility. A loss of reputation has thus become a greater financial risk factor. The emphasis of companies’ social responsibility in today’s more globalized economy contributes in a positive sense to a trend in society that supports a sustainable environment and long-term development interests. In particular, large companies with international activities have a major independent impact in this regard.

Internationally, the term «Corporate Social Responsibility» (CSR) is applied to contexts involving business and industry’s self-regulation in areas linked to broader social interests. In this sense, it relates to companies setting goals or defining standards for their own commercial activities that adhere to or even exceed the requirements that the authorities impose in various areas.

Companies naturally see their own social responsibilities in the light of the services and products they supply and the environment they operate in. The actual substance of social responsibility evolves over time and varies between different sectors. The aim of being a leader in the commitment to corporate social responsibility means that companies have to actively adhere to and get involved in developing sound business practices in areas that are relevant to the activities.

One absolutely decisive precondition for companies being capable of showing positive consideration towards the environment, society, employees and owners is that they are profitable. It is therefore important for companies to continuously adapt to changes in their surroundings and develop a sound and constructive dialogue with owners, employees, local society, the authorities, and professional and industrial bodies.

Good corporate governance is based on a clear division of responsibilities and roles as well as a fundamental trust in the relationships between the roles. The Norwegian Code of Practice for Corporate Governance and the OECD’s Guidelines for the Corporate Governance of state-owned enterprises set out that the company’s board should frame ethical guidelines for the enterprise. The Government expects that all companies with state ownership that have not already done so, should formulate their core values and ethical guidelines. These should be implemented actively within the companies.

Companies must engage in open dialogue with their surroundings on finances, corporate social responsibility and environmental issues. Large companies with international activities should consider using the reporting standards of the Global Reporting Initiative 1. This standard has broad support, including from UNEP, the UN’s environmental programme.

The following gives a more precise account of what factors the Government will be concerned with in its ownership dialogue with companies. These are factors that the Government expects the boards to include in their evaluations and which are intended to underpin high long-term returns and solid industrial growth.

7.3.1 Restructuring

The Government expects that companies with activities in Norway engage responsibly and for the long-term in readjustment processes. Restructuring in vulnerable local communities with little alternative employment is especially demanding. In order to create confidence in such demanding change processes, it is important that the need for restructuring is accompanied by a high level of transparency, and for the owners, employees and local community to be brought into constructive dialogue at an early stage; in respect of the actual need, the time frame and whatever measures may be appropriate. When it is clear that restructuring is essential, it is important for all parties to try to act as constructively as possible to an orderly process and investigate the options for establishing alternative activities. The State as an owner is a participant in these processes on a par with other stakeholders and responsible owners. The Government will be committed to new profitable investments and consequently guarantee jobs for the future in Norway. Companies where the State is a dominant owner are expected in particular to conduct themselves as responsible actors and active partners in restructuring processes in vulnerable local communities.

The State also has a commercial and regional policy role in restructuring operations. In a community based on a sole industry, restructuring programmes should be used to promote development rather than downsizing. In the first instance, the challenges of restructuring should be resolved within the frameworks of the existing body of instruments, including Innovation Norway, labour market initiatives, county councils and municipalities. There is also the possibility for extraordinary measures to be taken by the State in special cases in accordance with precise criteria; see Report to the Storting no. 21 (2005 – 2006). Please also note in this context the Government’s measures in the case of business closures.

7.3.2 Research, development and competency building

The Government wants the industries to be ambitious in its research and development (R&D) initiatives, and has the aim for companies with State shareholdings to contribute to increased private participation in R&D in Norway.

The competitiveness of the industry depends on companies being able to employ and develop new knowledge and new technological and organisational solutions. A more knowledge-based commercial environment is conditional for increased research activity in business, supported by a sound system of policy instruments and a good infrastructure of universities, colleges and research institutes.

The Research Council of Norway, through a series of tables in its 2005 Report on Science and Technology Indicators, illustrates that enterprises that target R&D are generally more profitable than others. This is true of operating revenues per employee, operating profit as a share of operating revenues, total capital and equity. Studies made by the Federation of Norwegian Manufacturing Industries also show that companies that target R&D are more profitable and exhibit stronger growth in turnover and exports than companies in the same sector that is not. Other reports serve to nuance this view. In 2005, the US company Booz Allen Hamilton conducted a survey of 1,000 companies which concluded that it was difficult to find a consistent connection between R&D activity and business success.

The various findings above illustrate that a company’s overall success, whether measured as growth, profitability or share price trend, in addition to its own research activities, depends on a number of factors. The business strategy, areas of competence and other strengths and weaknesses make up a whole, which, along with competition from other companies, contribute to the final result. Investments in R&D will therefore vary from compan–y to company, depending on factors such as the sector, the company’s lifecycle and strategy, and should not be seen as separate from the company’s other areas of competence.

Norwegian companies with a large proportion of public ownership are among the leaders in R&D in Norway. The three groups with the highest total R&D costs in the 2005 accounting year all had considerable public ownership (see table 7.2).

In a new ranking by the European Commission of the world’s companies by research activity, there are four Norwegian companies among the thousand largest, three of which have a significant proportion of public ownership.

The development of new knowledge proceeds faster and gives better returns when the individual researcher is able to build on what others have done previously. Both the OECD’s growth studies and general economic growth theory point to R&D as an important source of economic growth and welfare. Research undertaken for a specific purpose can also be applied for other purposes, and often in other businesses. But this also means that society’s benefit from research can be greater than the return the individual company gets from its research. This can result in individual companies settling on an R&D level that is too low to be socio-economically profitable.

Norwegian research policy therefore assists in more and better research and development being undertaken in companies. The Government achieves this through direct support for R&D, notably through State aid schemes under the Research Council of Norway and Innovation Norway, and through tax incentives for research made through the SkatteFUNN scheme. The Government also provides companies with access to usable, advanced R&D skills through its financing of the country’s research institutes and, through the size and organisation of the education system, with access to a highly educated and appropriately qualified work force. Through its research policy, the Government thus contributes to improved knowledge acquisition, access and dissemination.

The Government expects that commercial companies with State shareholdings operate their businesses based on what best serves the company and its shareholders in a long-term perspective. Enterprises have good access to the comprehensive instruments which research policy has already generated. The Government is very ambitious for the business and industry’s R&D efforts, and expects companies to pursue a conscious approach to their own R&D activities. The boards should work actively and ambitiously with research and innovation in order to grow the business and to facilitate commercialisation of research internally within the company and through seeding. Companies should also pursue a conscious approach to communicating their own research results and commercialising the results from other research environments and companies through partnerships.

The Government is committed to companies taking a positive attitude to investing sufficiently in their employees’ skills development. Companies should organise trainee schemes and apprenticeships as an important recruitment basis.

7.3.3 The environment

Long-term value creation calls for effective use of resources and the minimisation of negative impacts on the external environment. This means that companies’ work on environmental issues must proceed systematically and extend to the enterprise’s entire value-chain. The company must work actively to raise awareness of and involve the organisation and the individual in environmental issues. Customers, partners and suppliers must cooperate on environmental and safety issues to arrive at the most environmentally friendly solutions. Product development, production, distribution and use of the company’s products must be adapted to long-term, responsible, social development with the least possible environmental impact.

Responsibility for the goals, the performance and the evaluation of environmental work must be clearly specified. Systems, monitoring and reporting routines must be constantly developed to ensure that the work is carried out satisfactorily. The Government wants state-owned companies to be at the forefront in terms of environmental action within their sectors.

7.3.4 Health, safety and the working environment

It is important for the board to follow up on work on health, safety and the working environment, and that this is done in a systematic and satisfactory manner. The principle of preventive action is important.

An increasing number of employees of companies with State shareholdings are employed outside Norway. The companies’ HSE work must also cover their international activities.

The best traditions for cooperating with employees and their organisation must be in place when the company operates in other countries. This will make a positive contribution to the implementation of international employment standards, organisational participation and good relations between employers and employees in the companies’ operations in other countries.

The Government has established the premise that companies with State shareholdings shall be at the forefront in HSE work.

7.3.5 Ethics

Ethics are becoming increasingly significant in today’s industries. It has become customary to employ terms such as ethical competition to underline the fact that finance and ethics are not contradictory, but rather that ethics have an increasingly important role to play in companies’ results and competitiveness. Although it is not easy to prove that ethical management influences profitability, there is widespread recognition that breaching ethical rules in business represents an increasingly substantial risk factor. This is, in part, connected with the globalisation of business and the development of information and communications technologies that make it more difficult to conceal unethical conduct in business.

Awareness of business ethics serves to define a company’s business culture.

Companies naturally see their own responsibilities in the light of the service and products they supply and the commercial environment they operate in. The substance of those responsibilities evolves over time and varies between different sectors. The aim of being a leader in the work of ethics and social responsibility means that companies have to actively adhere to and become involved in developing sound business practices in areas that are relevant to the business.

Some aspects of ethics, however, have more general validity:

Fundamental human rights are a universal requirement. These are laid down in the UN’s declaration of human rights and include civil, political, economic, social and cultural rights. In working life, breaches of human rights can include discrimination based on gender, religion, race, national or ethnic origin, cultural background, social grouping, sexual preference, disability, family status, age or political opinions.

Companies’ activities must be carried out in accordance with fundamental human rights, and business partners and suppliers must be required to do the same.

Through responsible conduct and making demands of suppliers and other business partners, the State wants companies to contribute to increased prosperity and a positive trend in employment standards and human rights in the countries they operate in.

The State has established ethical guidelines for the administration of the Government Pension Fund – Global. These ethical guidelines have the following foundation:

Financial assets must be managed so as to provide good returns in the long term, and this is dependent on sustainable development in economic, environmental and social terms. Using the Fund’s ownership interests to promote such sustainable development shall strengthen the financial interests of the Fund. The fund should not make investments that constitute an unacceptable risk that the Fund may contribute to unethical acts or omissions, such as violations of fundamental humanitarian principles, serious violations of human rights, gross corruption or severe environmental damages. Ethical guidelines have also been established for the administration of the Government Pension Fund – Norway.

Companies covered by this report should, when formulating ethical guidelines for activities, evaluate the factors on which the Pension Fund’s ethical guidelines are based. Like the Pension Fund’s guidelines, the companies’ ethical guidelines should adhere to the UN’s Global Compact and the OECD Guidelines for Multinational Enterprises. The guidelines should also adhere to the OECD Guidelines on Corporate Governance of state-owned Enterprises.

7.3.6 Combating corruption

Corruption is a major societal problem in many countries. Corruption is the theft of political, social and economic benefits from the citizens and consumers. Corruption causes poverty, social marginalisation and arbitrary discrimination. Corruption does not only result in unjust distribution; it also gives the wrong incentives to economic actors and hence leads to an unhealthy allocation of resources.

The preamble to the Council of Europe’s Civil Law Convention on Corruption of 1999 states that

«corruption threatens the rule of law, democracy and human rights, undermines good governance, fairness and social justice, distorts competition, hinders economic development and endangers the stability of democratic institutions and the moral foundations of society».

Transparency International defines corruption as follows:

«Corruption is the misuse of entrusted power for private gain.»

Stringent requirements for openness and transparency are effective instruments against corruption.

In Norway, the Public Administration Act and the Open Files Act grant concerned parties and the general public the right to inspect the decisions made by public administration authorities. In business too, increased openness will be capable of preventing incorrect and ethically questionable decisions. Companies should therefore be open about dilemmas relating to corruption, conflicts of interest and legal incapacity. Companies that are negligent in this area risk attracting public scrutiny on the basis of alleged illegal or dishonest commercial conduct. Regardless of the legality of the case, such attention can damage the company’s reputation and cause substantial financial loss.

In some parts of the world there is limited transparency concerning revenues deriving from the extraction of oil, gas and mining activities. Increased transparency in these resource-rich countries will serve to counteract corruption and thus allow for better governance and supervision, as well as economic growth and prosperity. This will provide a better investment climate. Companies with oil, gas and mining activities should therefore sign up to the Extractive Industries Transparency Initiative 2.

7.3.7 Gender equality

Open and genuine competition for positions in society promotes both justice and economic efficiency. Women currently comprise around half of the active labour force. Norway is at the very forefront in equal opportunities in the labour market, but in terms of management positions in particular, men are still in a substantial majority. It is a wasteful and poor administration of society’s resources if the skills and capacity which women can offer companies and society are not better used.

The Government has seen to it that the regulations on the need for representation of both sexes on the boards of public limited companies came into force on 1 January 2006; see the Public Limited Companies Act, section 6 – 11a. For companies founded and registered before the Act came into force, a transition period of two years, to 1 January 2008, applies. However, for companies wholly owned by the State and their subsidiaries the regulations came into force on 1 January 2004, with a transition period of two years to 1 January 2006.

In July 2002, the revised Gender Equality Act entered into force. Among other things, the Act makes more stringent demands on employers working actively and justifying the measures they employ in the enterprise’s equal opportunities commitment. The preliminaries specify that an employer has a duty to be proactive. Section 1 a, para. 3 of the Act directs public and private enterprises, which by law are obliged to prepare an annual report, to give an account of the gender equality situation in the business.

The duty to act and report obliges the employer to work actively for equality in the enterprise. The purpose of the provision is to increase awareness of the importance of equal opportunities measures. An equivalent provision is included in Section 3–3 of the Accounting Act. The reporting must describe the actual status of gender equality in the enterprise and any planned or implemented measures.

The duty to act must contribute to targeted and planned work for equality between the sexes. The duty to report is based on a systematic description of relevant conditions for evaluating equality within the enterprise.

The recruitment of women to management positions in the companies is a task for the board and administration, pursuant to the distribution of roles as per the Limited Liability Companies Act. A specific development and selection policy must be operated at every level of the companies’ activities so that there are more women to choose from when executive positions are to be filled. Conscious initiatives at lower levels of the organisation are an important management responsibility. Within the administration of ownership, we will follow up on the boards’ activities in this field.

7.3.8 Integration and career opportunities for other groups

The Government is committed to Norwegian companies being proactive in terms of the recruitment of people from minorities. A number of companies with State shareholdings have activities in many countries. Companies should therefore also emphasise cultural awareness in their recruitment policies.

Companies should participate actively in attitude-changing measures, which ensure that immigrants with non-Western backgrounds gain access and opportunities in line with their qualifications.

The Government expects similarly that Norwegian companies pursue an active and specific recruitment policy to provide qualified senior people and people with reduced functional abilities with access to working life.

7.3.9 Civil protection

The companies’ safety and contingency measures are managed under the same principles, regardless of ownership. In a similar way to other private enterprises, companies with State shareholdings are obliged to protect their own operations, employees and surrounding environment against accidents. The guidelines for this are prepared and followed up by the specialist authorities within the specific sectors.

It is important to have a good safety culture that takes account of information, staff and operational safety. This also applies to companies in which the State is a shareowner. Norwegian Official Report NOU 2006:6 When safety is of paramount importance, describes the principles for a good safety culture in enterprises with responsibility for critical infrastructure and critical social provisions. The principles provide a sound basis for the companies’ commitment to safety and emergency preparedness, regardless of whether they are designated as critical to society, are subject to legally binding requirements or have entered into contingency agreements with the authorities.

7.4 Executive salaries and incentive schemes

The Government will ensure moderation in executive salaries in companies where the State is a significant owner. The determination of effective remuneration schemes is of great importance for the companies themselves and for society as a whole. Executive management is the most visible part of the enterprise and accordingly the part most identified with it, so it is especially important for executive salaries to appear as reasonable.

The previous Stoltenberg Government introduced guidelines for managers’ terms of employment in wholly owned companies. The guidelines state that «... executive salaries in state-owned companies must be competitive, but they should not be market-leading within their sectors.» That is also this Government’s fundamental position. The guidelines for executives’ terms of employment in wholly state-owned enterprises are included as an annex to the Ministry of Trade and Industry’s annual budget proposal. The guidelines cover salary and pensions agreements and other matters. A pension age lower than 65 should lead to a reduction in the level of pension. The total pension basis should not exceed 12 G where the enterprise is wholly or partially financed by the state budget. Pensions disbursements shall be regulated in line with Norwegian National Insurance pensions and not based on the specific position.

The growth in executive salaries has been higher than is desirable and has shown that there is a need for measures that give shareholders greater influence over executive remuneration policies. The Government has therefore proposed amendments to the Limited Liability Companies Act and others concerning the setting of executive salaries; see Bill to the Storting no. 55 (2005 – 2006). The Bill means that the board must prepare a statement on the setting of salaries and other remuneration to executives and that this statement must be discussed at the general meeting. The statement must contain an account of the executive salary policy pursued over the preceding financial year, as well as guidelines for setting salaries and other remuneration for the coming financial year. An advisory vote shall be conducted for that part of the statement that relates to guidelines for the setting of executive salaries for the coming financial year. The Bill implies that the general meeting’s approval will be required for those parts of the statement relating to guidelines for remuneration in shares or based on share values.

The proposal for administrative regulations for executive salaries will give shareholders in public limited companies better insight into, and influence over the company’s executive salary policy, especially concerning the use of supplementary benefits such as bonuses, options, pensions schemes, early retirement contracts and similar.

The Government’s proposal for an amendment to the Public Limited Companies Act means increased influence for the general meeting by the fact that the statement must be voted on. It is however important that the division of roles between the companies’ governing bodies as prescribed by the Limited Liability Companies Act is maintained. It will continue to be the board of the individual company that is responsible for deciding on the specific salary and incentive schemes. It is also the board’s assessment as to how far the individual elements of any incentive scheme form a necessary part of a total compensation package to ensure competitive remuneration of executives and employees in a company. The State as a shareholder will assess how the board manages this responsibility as part of its overall assessment of the board’s work in the individual company.

No owners or companies are well served by internal or external unease linked to unreasonable remuneration or lack of openness about it. Share options in particular have caused unwanted effects, by having produced excessive payments in accordance with changes in circumstances that are outside the influence of management. Research in share-based remuneration provides little support for share-options schemes being necessary in the type of company in which the State is an owner. This Government sees a need for more moderation and objectivity in the management of companies. Therefore, the State will vote against implementing new agreements that involve share-options schemes in companies covered by this report.

Companies with State shareholdings should however be able to employ other incentive schemes when setting executive salaries. But any incentive schemes must be designed so as to ensure moderation in the trend in executives’ terms of remuneration. In addition, there must be a reasonable ceiling to the value of the programme. To the extent that variable salaries are used, the payment terms should, as far as possible, be linked to circumstances that the person receiving the remuneration is capable of influencing. External factors should be avoided to the greatest possible extent.

In order to guarantee its impartiality, the board will not be included in incentive schemes.

In conjunction with other involved ministries, the Ministry of Trade and Industry will prepare general guidelines before the general meetings in 2007. The guidelines will relate to the State’s voting in matters concerning incentive schemes, share and share-price related instruments and pension and early retirement schemes.

7.5 The State’s purpose in ownership and the importance of explicit objectives

The purpose of the ownership in the commercial companies is to ensure that the State’s invested capital achieves the highest possible return over time and to see that the companies are able to show solid industrial growth. State-owned companies are to be run in the same way and within the same framework as well-run private companies. In addition, the companies must be among the leaders in the commitment to assuming corporate social responsibility.

A further clarification of the purpose of ownership is important, because it can help ownership to be better and more appropriately managed. This will make it easier to formulate expectations and evaluate the companies’ performances. Companies will also find it easier to define their primary tasks and know what the owners’ influence requires.

If the State is precise in regard of its ownership, it will subsequently be easier to assess whether capital invested has been efficiently employed. Unclear objectives can also lead the capital markets to believe that the State has different objectives than it actually has, which in turn can negatively affect the State’s shareholding.

The preparatory committee on state ownership has made a recommendation of how the State can categorise its ownership depending on the objectives of the ownership. Please see chapter 5.2.1 for a more detailed description of this.

The Government shares the opinion that a better clarification of the objectives of state ownership will provide a foundation for more active and value-adding ownership. Categorisation of ownership by objective is a useful tool in this context. In the review of companies in chapter 8, the Government has formulated the State’s objective for its ownership of each individual company.

The Government will ensure strong public and national ownership for achieving important political objectives. Ownership within the transport, health and culture sectors serves to further sector-policy objectives. Ownership of companies such as Norsk Hydro, Statoil and Statkraft is important for the development of natural resources and for retaining head office functions in order to develop centres of excellence in Norway. The State will be a long-term, stable and good owner. In many instances where companies have not been assigned specific social obligations it has been appropriate to bring in private expertise and capital. As a step in the opening up to competition and deregulation of the markets, the State has attracted other investors into a number of companies where the State previously was the only owner.

The size of the shareholding the State wishes to have in the largest companies must be seen in the light of the significance the companies have for the Norwegian economy and for value creation.

7.5.1 State ownership ensures national head office activities of important companies

The Government wants to ensure national head office activities of important companies and of key functions in society. A shareholding of more than one–third of a company is necessary to ensure this.

A diversity of ownership, as there is in Norway, is a strength for providing access to capital and skills. There is a need for interplay of private and public capital and national and foreign capital in order to develop Norwegian companies.

A dynamic business world is characterised by interplay between investors who have a short-term perspective on making profits and those with a longer term perspective on developing companies. This often produces a fruitful tension between long-term industrial development and the need to achieve earnings in the shorter term.

State ownership contributes to a greater degree of long-term engagement and hence to greater stability on the part of the owners. This ensures national ownership of the country’s largest companies. The importance of long-term engagement, stability and ownership in some of the largest Norwegian industrial groups means that the State, through its direct ownership, has played, and continues to play, an important economic policy role in the country.

At the head office, at the company’s board and corporate assemblies, decisions are made with considerable consequences for the company’s business development and, when it comes to major companies, also for other parts of the business world. The company’s shareholders can participate directly in such decision-making processes through the general meeting. Normally, strategically important decisions will be made by the company’s board and corporate assembly based on preliminary preparations by company’s head office. The shareholders exercise influence over these decisions primarily through the composition of the companies’ governing bodies.

It is important for the value creation to ensure national head office activities in Norway. This is therefore a key political issue in Norway as well as many other countries. Having a Norwegian head office in companies of strategic importance also helps to guarantee and develop specialised industrial and financial expertise and general managerial competence. The Government will therefore ensure ownership in Norway of key companies in the knowledge society, and would like to see that these companies continue to develop their activities in Norway.

Companies’ demand for expertise is a driving force in the development of domestic research and development institutions, while such institutions can also make a high-level contribution to the growth of internationally competitive companies. Thus there are good reasons for assuming that the location of head offices is important for national centres of excellence. Surveys made over a number of years indicate that Statoil and Norsk Hydro are highly attractive prospective workplaces among university and college students.

The interaction between the head offices and various national institutions within a sector is very important for commercial development. The head office will normally have considerable strategic expertise in order to exercise its controlling function. Nationally situated decision-making and managerial expertise can be very significant for the supply industry and consequently for national value-creation and employment. Through its ownership, the State will contribute to head offices in sectors of strategic national interest being retained in Norway.

In this context, the Government is also committed to the development and growth in Norway of businesses that are key to the interaction with R&D environments. This is important in order to maintain and strengthen important business and industry clusters and value chains. Where this can be done within the required framework of commercial returns, the Government aims for companies to contribute to increased processing of goods in Norway. This promotes greater value creation and employment and, in turn, will prove highly significant in many local communities.

The Norwegian oil industry has grown through the interactions of various industry actors; notably those between the supply industry and the oil companies have been critical for the development of a competitive sector. Statoil and Norsk Hydro have been responsible for major and complex installations on the Norwegian Continental Shelf. This has made them demanding customers of the Norwegian supply industry, which has had to develop technologically demanding products and services, which are now in demand on the world market.

7.5.2 State ownership ensures control of and revenue from our natural resources

The Government will ensure the right of disposal over the country’s major natural resources, especially in the energy sector. Acts, legal provisions, etc regulate the control over the country’s natural resources.

State ownership of Statkraft and Statskog among others provides instruments for exploiting these resources for the common good.

The objective of having revenues from natural resources benefit the whole population, achieved through the tax system. The State’s ownership of energy companies is however an important additional component in the Government’s policy of revenues from natural resources benefiting the common good to the greatest extent possible. Companies such as Norsk Hydro and Statoil, as a result of rising energy prices, have experienced substantial increases in value and returns over recent years. The same applies to Statkraft. Comprehensive state ownership within the energy sector has thus given society an extra revenue source through the recent high level of dividends. This shows that State shareholdings can offer an important supplement to the tax system providing revenues for the common good.

7.5.3 State ownership contributes to the safety of society and socially important infrastructure

Ensuring a sound national infrastructure is an important public task. Public ownership permits a socio-economically profitable construction of an infrastructure which is naturally monopolistic, i.e. one company can produce more effectively within a geographically restricted area than several companies. Through state ownership, the Government seeks to ensure that Norway has a well-developed infrastructure in terms of primary roads, railways, airports and the central power grid. The local authorities also take care of important infrastructure such as grids for power distribution, water supply and sewage, harbours and local roads.

The Government aims to increase transport initiatives in order to ensure increased traffic safety, extended public transport and an efficient transport system for the whole country. In terms of electricity provision, state ownership is necessary so that a central grid is extended in the interests of socio-economic profit.

7.5.4 State institutions ensure beneficial solutions for the common good in the field of culture

The public sector has a special responsibility for ensuring that society enjoys a rich and diverse cultural provision within areas such as theatre, opera, etc. Ownership of NRK, the Norwegian broadcasting service, contributes to cultural diversity. The State will use its ownership in the culture sector to provide for society’s need for quality, diversity and innovation.

7.5.5 State ownership ensures good health services

The Government wants the population to be provided with a good and equitable specialist health service. State ownership of regional health care companies and the corporate organisation of the specialist health service allows for coherent management and beneficial use of resources to protect and develop a high-quality service for the whole population.

7.5.6 Research and development

The Government will offensively target research and development. To achieve increased emphasis on research in business and industry, a sound business policy and generally conducive framework conditions are important, as well as publicly financed research programmes capable of stimulating companies to undertake further R&D activity.

In wholly owned companies, the potential for establishing special research initiatives will be in place. The part-owned Simula Research Laboratory AS is an example of a company which has the aim of performing fundamental research at a high international level.

7.6 Transparency concerning ownership

7.6.1 A new publication summarising the objectives of ownership, guidelines and expectations

The Government will be taking an initiative by having the Ministry of Trade and Industry produce a new annual document to provide a public statement on the government’s ownership policy as it is communicated to the Storting, and in conformance with guidelines laid down by the Storting.

The document will review the primary objectives of state ownership and the division of roles within the State’s administration, and between shareholders and the companies’ governing bodies. Expectations regarding capital returns and dividends will be formulated. For sector policy companies and companies that receive State aid, a requirement for efficient operation will be laid out.

The State will give an account in the document of which factors it wishes to emphasise in its ongoing ownership administration and, on this basis, of what expectations it has of the companies’ boards.

To support the objective of sound long-term development, the ownership ministries will undertake broad follow-up to ascertain that the factors supporting this development are being taken care of. This applies to R&D, ethics, the environment, equal opportunities, discrimination, restructuring, etc. The document will also include the guidelines in force that are relevant to the State’s exercise of its ownership.

This publication has three main target groups: wholly and partially owned companies, the general public and the capital markets. The document will be sent to the companies and followed up in meetings. The document will not replace information, assessments, proposals etc. which the Government will put before the Storting through its own presentations.

By summarising and presenting these topics systematically in a document which can be reedited annually, the Government wishes to contribute to greater transparency concerning state ownership. This will serve to underpin the economic development of the companies and contribute to beneficial social development. The document will be coordinated with the State’s ownership report.

7.6.2 Annual ownership reports

The preparatory committee on state ownership recommends that the Government prepare annual ownership reports for the entirety of state ownership. Such an aggregate presentation will provide a good overview of state ownership and contribute to improved public insight and democratic control of the way assets are managed. Effectively achieving the companies’ goals and making their value creation visible is equally important for companies that have other primary aims than business profitability.

The Government shares this assessment and refers to the fact that substantial sections of the State’s ownership are now presented in a combined annual ownership report by the Ministry of Trade and Industry. Some types of national enterprises that have purely sector policy obligations are, for various reasons, organised as limited liability companies, state-owned enterprises or special law companies. Such companies however, may in the Government’s assessment, be omitted in a combined presentation. The State’s ownership report shows the financial trends in the companies, important events, overview of the boards, etc.

The annual ownership report is sent to the Storting for information purposes. It is not necessary to send annual reports to the Storting for those companies covered by the ownership report. The Ministry of Trade and Industry also publishes a half-yearly report on the Internet. The way the State as an owner conducts itself in listed companies is highly significant for general confidence in Oslo Børs. The Government is mindful of this, which is a substantive concern behind the commitment it has in terms of transparency of ownership.

7.7 Organisation of state ownership

The task of increasing the organisational distance between the State’s ownership role and the various authority roles, and the consolidation of commercial ownership in one place in central administration, has served to improve confidence in the State’s ownership.

For several years, there have been processes underway for differentiating the State’s role as owner and the authorities’ exercise of different public duties. Companies such as Arcus Gruppen, BaneTele, Cermaq, DnB NOR, ECC, Entra Eiendom, Flytoget, Grødegaard, Mesta, NOAH Holding, Norsk Medisinaldepot, SAS, SIVA, Statkraft and Telenor have been transferred from other ministries to the Ministry of Trade and Industry. This is in line with the OECD’s recommendation to concentrate commercial ownership.

Unless special circumstances dictate otherwise, commercial companies should be administrated by the Ministry of Trade and Industry. In this context, the Government would point out that it is not the practice to coordinate commercial state-owned enterprises, since, on the contrary, the practice is for them to compete against each other to the extent that they operate in the same market. An example of this is BaneTele and Telenor which both supply broadband capacity and Hydro and Statoil, which compete in the petroleum and gas sector. It is up to the supervisory authorities to ensure that there is no anti-competitive cooperation between the companies.

If the exercise of shareholder rights no longer needs to be used in conjunction with regulatory instruments in order to achieve sector policy goals, responsibility for ownership administration will be assessed differently. For other companies, the sector policy justification for state ownership may prevail for various reasons. This is because in a number of cases there are generally accepted political objectives informing state ownership of these enterprises, but in other cases it is the production and marketing structure within the sector that dictates continued full ownership by the State and sectoral affiliation for the administration of ownership. Companies with sector policy objectives should be affiliated with the ministry that has sector policy responsibility.

The Government is in agreement with the preparatory committee on state ownership, that changes in the ministerial affiliation of companies should be based on a complex assessment which takes account of well-functioning markets, State risk management, proper role management and provision for sector expertise and general ownership competence.

Inter-ministerial cooperation on ownership issues is important, so that the ownership expertise of the general body of ministries is exploited as fully as possible. The principles for good corporate governance, guidelines for formulating objectives for return targets and expectations regarding dividends, guidelines for administration and board elections and formulating expectations of boards, and the financial reporting presentation, will be important joint tasks.

In a small number of companies, the State’s shareholdings are managed by several ministries. The Government will advocate that a single ministry manage the State’s shareholdings in the same company.

There are a number of examples of State administrative bodies owning enterprises that are organised as companies. If these are enterprises with commercial objectives and not purely operating companies, an assessment should be made whether to lodge ownership directly with the responsible ministry or with the Ministry of Trade and Industry. This will ensure a greater degree of political governance and supervision. In individual cases however such an organisation may be reasonable if it also supports sector policy.

The Ministry of Trade and Industry owns 90 per cent of the Andøya Rocket Range, which, through agreements with other countries, carries out rocket and balloon launches. The Ministry of Trade and Industry also owns 100 per cent of Norsk Romsenter Eiendom, which owns the fibre optic cables between Svalbard and the Norwegian mainland as well as 50 per cent of Kongsberg Satellite Services AS. Kongsberg Satellite Services owns infrastructure and has operating responsibility for the Svalbard and Tromsø Satellite Stations. This ownership, which is important in the exercise of sector policy in the aerospace area, is managed by the Norwegian Space Centre, which is an administrative body under the Ministry of Trade and Industry.

The preparatory committee on state ownership recommended that an assessment should be made of establishing a holding company for shareholdings with purely value-maximisation objectives. In those cases, the committee assumed that the need for governance and supervision of the financial dimension was small and could be catered for satisfactorily through a holding company arrangement. Important preconditions for such a recommendation are that the Storting provides the necessary scope for action, and that the holding company is established in accordance with the procedural principles outlined by the committee. The committee maintained that caution was to be exercised as regards the extent and selection of companies in the interests of State risk management and competitive factors.

A number of ownership matters linked to companies where there is an objective to ensure head-office functions in Norway, must be expected to be the subject of political governance and supervision. In addition, the consolidation of the largest companies into a single unit outside of the ministries will possibly involve a risk of unhealthy concentration of economic power. The committee recommended therefore that shareholdings where there is an objective to ensure head-office functions in Norway should not in the first instance be lodged with a holding company. Where ownership is founded on specific defined objectives, the committee believed that a similar assessment was appropriate.

The Government does not believe it is right to establish a holding company for managing the Norwegian State’s shareholdings, as an alternative to the current ministerial affiliations. Important ownership matters are of such a character that they need to be handled through a political body. A special administrative/holding company might introduce duplication of work and a lack of clarity in terms of responsibility. The Government agrees with the committee in that shareholdings where ensuring head-office functions in Norway is an important part of the State’s objectives, or companies where ownership is justified by specific defined objectives, should not be lodged with a holding company. It must anyway be expected that significant changes in the State’s shareholdings in these companies will require political deliberations. A holding company can therefore be assumed to act as an extra complicating and delaying step in the case-handling process.

The current ministerial affiliations ensure transparency concerning ownership and ensure considerations of democratic control. Confidence in the State as an owner is, in the first instance, dependent on other actors having confidence in the ownership decisions being made on a solid, informed basis, on there being a large degree of transparency concerning ownership, and that the State does not act arbitrarily. Such external confidence will be a function of the resources, the competence and the culture that develops in ownership administration rather than the choice of organisational model. In the Government’s opinion, the direction and practice set out over a number of years should be built on, in order to make the decision-making process more effective and confidence-building. If the objectives of ownership are clear and the administration is based on an effective and flexible decision-making system, there are grounds for believing that matters can be managed equally as well within the current ministerial organisation, as without.

7.8 Decision-making authority

Pursuant to section 19 of the Constitution, it is the King (the Government) who administrates the State’s property (including shares). It is not within the minister’s authority, in accordance with section 19 of the Constitution, to buy or sell shares in companies with state ownership. This must be based on a special authority from the Storting. Through its discussion of Document no. 7 (1972 – 1973) of Recommendation to the Storting no. 277 (1976 – 1977), the Storting established that it has the real decision-making authority for decisions that would significantly affect the State’s involvement in companies where the State is sole shareholder. It has been established that the practice described in Recommendation to the Storting no. 277 (1976 – 1977) also applies to part-owned companies.

A rapid rate of change in business often requires quick and extensive restructuring. Such restructuring requires input from the owners, e.g. through the addition of capital, for acquisitions, mergers, sales, etc. It is important that the State as an owner is capable of acting so that companies can exploit development and commercial opportunities, while the value of the State’s shareholding is suitably protected. This means that the State must be able to respond actively to proposals put forward by the companies, by putting them to the Storting, and that decisions can be made rapidly enough for the companies to be able to act on the measures.

The preparatory committee on state ownership recommended for individual categories of companies that the Storting authorise the Government in advance in matters changing the State’s shareholding.

The committee stated that:

«…when the State decision-making process is claimed to take an unreasonably long time and to be unpredictable, this must be understood on the basis of the decisions having to be dealt with on several levels and involve difficult political judgements relating to state ownership as such. Ministerial consultative processes, the Government’s and Storting’s debate may mean that considerations other than value maximisation are involved in the deliberations.

It was therefore pointed out that this:

«speaks in favour of decisions being made by the minister responsible with support from other ministries with commercial expertise.»

The committee also stated that:

«The committee recommends a programme for the Storting to deliberate at regular intervals the objectives and the extent of goal attainment on an overall basis for state ownership. In this context, the necessary mandates should also be issued.»

In companies that have specifically defined objectives, the committee advised against advance mandates to the Government. Here, the political evaluations will be broader in nature than simply commercial. The purchase of shares or other capital extension will require a decision based on an appropriation. Appropriations are decided on annually, while mandates to alter shareholdings apply until they are amended. A further complicating element is the regulations on bid obligations, which mean that the purchase of shares in a listed company will trigger a mandatory takeover bid for the company if the shareholding exceeds 40 per cent. This means that the costs of the State increasing its shareholding over this threshold are difficult to estimate. This will become a more significant factor if regulations for more percentage thresholds for mandatory takeover bids are introduced, as one committee has proposed.

The first Stoltenberg Government proposed in Bill to the Storting no. 1 (2001 – 2002) a scheme for the granting of mandates that could be decided on annually by the Storting in connection with debate on the ordinary state budget. The first Bondevik Government proposed in Bill to the Storting no. 1 Supplement no. 4 (2001 – 2002) a general mandate for the sale of shares in a total of 13 companies. In Budget Recommendation no. 8 (2001 – 2002), the majority pronounced that it would only decide on the proposal once the announced ownership report was available. The Storting’s discussions of Report to the Storting no. 22 (2001 – 2002), cf. Recommendation to the Storting no. 264 (2001 – 2002), provided no new general mandates. With the exception of a small number of unused mandates, currently the Government must put specific proposals to the Storting as separate matters.

The Government today has the following advance mandates from the Storting which have not been fully used: Cermaq ASA (down to 34 per cent), Norsk Hydro ASA (up to 51 per cent) and Telenor ASA (down to 51 per cent and down to 34 per cent in case of a merger/acquisition where the company’s shares are used for settlement or exchange). The Government also has an authority to reduce the State’s shareholding in Statoil to 66.67 per cent. In connection with the demerger of Norsk Hydro ASA, a decision was made that the State’s shareholding in Yara International ASA should be at least 33.4 per cent. These mandates were accorded in response to specific case-by-case presentations and not as part of a general arrangement.

The Government will subsequently propose that the Storting revoke mandates granted in previous parliamentary periods to reduce State shareholdings through divestment of shares. Access to implement industrial solutions within the framework of the mandates will continue.

Key to the assessment of whether there is a general need for a decision-making mandate, is whether the present frameworks have hindered the execution of transactions because of a lack of mandates. The Ministry of Trade and Industry is not aware of cases that would require greater ownership dispositions that have not been acted on owing to a lack of decision-making mandates. On the contrary, there have been a number of examples of major ownership matters being dealt with rapidly and without delay by both the Government and the Storting. Examples of this are Hydro’s purchase of Saga Petroleum, the demerger of Hydro (creation of Yara) and the acquisition of a 50 per cent share of Nammo.

In some minor ownership matters, an existing mandate for the ministry would probably have facilitated the execution of the responsible ministry’s ownership. After a thorough evaluation, the Government has concluded that it will not propose a system of mandates as recommended by the preparatory committee on state ownership. Current practice means that company matters can be dealt with sufficiently rapidly, including when it is necessary to bring the matter before the Storting. The Government will therefore deal with such matters individually in line with former practice.

7.9 Dividends in wholly owned companies and share buy-backs

In its Soria Moria declaration, the Government stated that public companies should have predictable dividend policies. The preparatory committee on state ownership’s proposal was to introduce the Limited Liability Companies Act’s normal regulations for dividend decisions into State limited companies and state-owned enterprises.

The Government will pursue a predictable dividend policy in wholly-owned companies. This will be achieved by the State setting out long-term dividend expectations for a period of 3 – 5 years in each individual company. The Government believes that this will give the boards in the individual companies the predictability essential for planning activities, and therefore does not see it as necessary to introduce the normal provisions of the Limited Liability Companies Act for State limited companies and state-owned enterprises.

The Government’s dividend policy is based on the objective of long-term market-level returns and solid industrial growth in the companies.

If the State instructs a company to make investments or undertake other activities that the board does not find commercially sound, such a company shall be compensated through separate appropriations. Such appropriations will be able to be granted within the frameworks ensuing from the regulations for State aid. The EEA Agreement as a main rule prohibits operational support for enterprises subject to competition. The scope for compensating enterprises which are assigned special tasks of a non-commercial nature is limited under the EEA Agreement, and a specific assessment has to be made in the individual instances of whether and how such tasks may be compensated.

For individual companies it may nonetheless be considered irrelevant or barely appropriate to compensate specific investments or measures that the owners may have imposed, as a result of the particular preconditions on which the establishment of these companies was based or of the tasks imposed on them.

Individual sector policy companies have laid down in their articles of association that dividends are not to be paid. Other companies which are dependent on grant/annual appropriations normally do not pay any dividend.

Share buy-backs

For a number of years, the State has had agreements with individual listed companies with State shareholdings for the proportional deletion of the State’s shares in connection with the companies’ buy-back programmes. This means that when the companies have bought back and deleted their own shares, the State has redeemed a proportionate number of shares at an agreed cash price, so that the State’s share of ownership remains unchanged. These matters are thus not put before the Storting in advance.

The buy-back of own shares is seen as an effective way of adjusting the company’s equity to its needs and is viewed positively in the stock market. A buy-back programme is a way of employing a surplus and should be seen in the context of the company’s capital situation and its dividend policy. Through such a scheme, equity that the company sees no suitable use for is taken back into the stock market through owners who opt to sell their shares. This contributes to increased capital discipline. In that the shares that are bought back are permanently deleted, the underlying value of the remaining shares is not affected.

Where the company’s management receives share-based remuneration as part of its incentive programme, in isolation, this can be seen as giving the management an incentive to prefer share buy-backs to increased dividend. In connection with future buy-back agreements with the State, there is a precondition that the company commits itself to seeking to make such incentives neutral in respect of executive management.

The Storting has issued a framework to the Government for the administration of state ownership. This includes, for many companies, a specific shareholding, or a minimum shareholding that the State can own. When the State participates in buy-back programmes with proportionate deletion of shares, the State’s shareholding does not change. The State’s influence through its ownership thus remains unchanged.

The Government believes that listed companies with State shareholdings should have the same opportunity as other companies to use share buy-backs as a supplement to their ordinary dividend policies. Whether it is appropriate for the State to participate in such schemes should, however, be assessed in each individual instance.