5 The government’s ownership policy

5.1 Background and introduction

The government believes that the State should practise active ownership characterised by long-termism, predictability and clarity. The State’s ownership administration shall be exercised in a professional and contemporary manner by taking account of the key developments in the Norwegian and international economy and society. Companies are best served by good and active owners. It is particularly important that the State, with its extensive ownership, is a good and active owner.

It is four years since this government launched Report to the Storting no. 13 (2006–2007) Active and Long-term Ownership. The State’s principles for corporate governance are firmly established, with the division of responsibility between board and owners as an underpinning element. Clear goals must be established for the shareholding in each individual company. In this way, the companies and other shareholders have a predictable situation to relate to.

However, the ownership policy must also be developed further. A faster pace of change within industry and new requirements concerning the execution of ownership have given rise to the need for greater flexibility in the State ownership. The State must have a dynamic approach to its ownership, so that the instruments that are used are at all times appropriate for the goals behind the State’s ownership. The proportion of a company that the State should own is linked to the question of whether State ownership is an appropriate instrument for achieving relevant social objectives and bringing about the growth of the company, as well as the sector in which it operates and structural considerations.

Whilst the government gives notice in this report of greater flexibility in the State’s ownership, the government is also clear that the total level of State ownership will be maintained at around the current level. This does not mean that the State must maintain the same shareholding in each individual company that it currently holds. Notwithstanding this, there are some companies where the government believes that it is particularly important to maintain its shareholding, including companies which have commercial objectives. The government will maintain the State shareholdings in Telenor, Norsk Hydro, DnB NOR and Statoil, amongst others, and companies such as Statkraft, Statnett and Statskog will remain wholly owned by the State. A proposal is also put forward for the Ministry of Trade and Industry to be given a mandate to participate in possible equity expansions if such expansions are proposed by Yara International and Kongsberg Gruppen in order to maintain the State’s shareholdings.

The requirements concerning the corporate social responsibility of companies have developed both in Norway and internationally in recent years. Within this field, Norway and Norwegian companies are well advanced and have an excellent basis on which to lead the way. Strategic and appropriate corporate social responsibility helps to strengthen the long-term position and enhance the competitiveness of the companies. A State owner with clear expectations in this field will help to further professionalise such work.

Moderation in the pay conditions of senior executives was one of the goals in the previous ownership report. The government has contributed to this, partly by stopping the share option programmes of certain companies, which have on occasions had unacceptable consequences. Overall, the trend in senior executive remuneration did not however meet expectations concerning moderation. This particularly applies to the senior executives of the wholly owned State companies. In recent years, senior executives of these companies have seen their pay rise faster than their contemporaries elsewhere in industry, according to surveys carried out by the Office of the Auditor General and others. The government is therefore tightening the guidelines concerning senior executive pay by requiring wholly owned companies to make the process for determining remunerations more transparent. This will be achieved through stricter requirements concerning reporting and presentation to the annual general meeting, in line with the restrictions that currently apply to public limited liability companies. In addition, the companies will be expected to reign in the pension benefits that the company offer in their agreements with their senior executives.

Wherever possible, the State’s ownership policy will be coordinated with the government’s other policies, e.g. those linked to the environment and research and development. However, there must be no doubt as to what role the State will play at any one time, whether as regulator, supervisory authority or owner. The State will therefore be restrained in its use of corporate governance instruments in cases where the same effect can be achieved using other instruments, e.g. legislation, tax and duty policy, concessions or the purchase of services.

The State’s ownership execution will be developed further and further professionalised. This will involve the strengthening of the corporate governance and a stronger collaboration between the owner environments in the various ministries. As part of this, the Ministry of Trade and Industry’s role as a competence and resource environment for State corporate governance will be reinforced.

5.2 Why the State should own – the objectives behind State ownership

5.2.1 General justifications for State ownership

The government believes that it is both right and important that the State contributes to industrial development in Norway through substantial and active shareholdings in Norwegian industry. State ownership gives predictability and the opportunity to invest in long-term industrial development and value creation. State ownership also means a lot for a strong Norwegian ownership. The only owner environments that are large enough to take over the State’s shareholdings will often be foreign. In many cases, privatisation of the State’s shareholdings will therefore also involve the shareholdings being sold abroad.

The government stresses that there must be clarity as regards why the State has a shareholding in individual companies. This will clarify the State’s ambitions behind each shareholding and make it easier for the companies concerned to relate to the State’s interests as a shareholder. Clarity concerning the State’s objectives also makes it easier to communicate the State’s expectations concerning the companies and to follow up these expectations as part of the corporate governance process.

As the historical review in section 2.1.2 shows, there are various justifications which lie behind the development of the State ownership and the State’s direct owner portfolio as it stands today. The review also shows that over time the State has been willing to adjust its ownership in cases where other instruments are better suited to contributing to the achievement of the State’s objectives behind the ownership.

The government will refer to a number of general principal justifications as to why the State should be a major direct shareholder in companies, in addition to long-term value creation.

National anchoring of important companies and key expertise

The government will pursue an industrial policy that promotes an innovative, knowledge-based and sustainable industry across the country. State ownership will play an important role and be a positive contributor to the development of Norwegian industry as a whole. Through State ownership, the government will therefore help Norwegian companies, technology and enterprises to survive and develop further in Norway. In order to succeed in this aim, it is essential that companies which represent industries and key expertise of national importance maintain their anchoring in Norway and their centre of gravity in Norway.

With a shareholding of at least one third, the State as a shareholder can ensure that a company retains its head office, and therefore key head office functions, in Norway. The government believes that, in this way, State ownership will promote long-termism and national anchoring of the ownership within some of the major Norwegian industrial concerns.

Decisions with consequences for the commercial development of the company are generally taken by the head office and by the company’s board or corporate assembly. The national anchoring of head office functions is therefore a key issue, both in Norway and in many other countries. Ensuring that companies of strategic importance have their head office in Norway can help to safeguard and promote specialised industrial, technological and financial expertise. The head office is also an arena for the development and training of managers who then move on to other areas of Norwegian industry. The government believes that the interaction between the head office environment and national institutions is vital for the development of industry within certain sectors in Norway and helps to strengthen regional industrial environments.

Boks 5.1 The Kongsberg Group – An example of a technology environment with national anchoring and State ownership

Kongsberg Gruppen ASA

Kongsberg Gruppen ASA is an international, knowledge-based group which supplies high technology systems and solutions to customers in the oil and gas industry, the commercial shipping fleet, the defence sector and the space industry. The Kongsberg Group has three main business areas: Kongsberg Maritime, Kongsberg Defence Systems and Kongsberg Protech Systems. Kongsberg Oil & Gas Technologies is an initiative area which reports under other operations. The most important areas of expertise are signal processing, cybernetics, software development and system integration.

The company is listed on Oslo Stock Exchange, with the State as the largest shareholder with a holding of 50 per cent. Private shareholders and institutional investors own the remaining shares. In 2010, the company recorded operating income of NOK 15.5 billion and had 5,681 employees in more than 25 countries. Markets outside Norway account for an increasing proportion of the group’s income, with the share now being over 80 per cent of total turnover. Of the employees, approximately 70 per cent work in Norway, and the head office is situated in Kongsberg.

The Kongsberg Group has industrial traditions stretching 200 years back in time. The group places an emphasis on technological innovation, long-termism, knowledge and research as a basis for the development, construction and delivery of advanced products, which in many cases are global leaders. The group works closely with customers and leading research environments. Much of the company’s expertise, including the research and development environments, have traditionally been linked to the company’s head office. Strategically important decisions, including those relating to social responsibility at corporate level, will always be handled by the company’s governing bodies, which are normally affiliated to the head office.

The Kongsberg Group is a cornerstone company in the Kongsberg region and has a long tradition of good schemes and organisation within working life. This is often a characteristic of undertakings with a high concentration of skilled workers, something that is reinforced by a strong element of highly educated employees. Kongsberg currently has a strong industrial environment which comprises many knowledge-based companies, such as the Kongsberg Group, FMC Technologies, Kongsberg Automotive, Volvo Aero Norge, Dresser Rand, Esko Artwork and Kongsberg Devotek. Many of these companies are global leaders within the subsea technology, offshore, maritime, automotive, aviation, defence and aerospace sectors. Many of the companies arose from the former civilian divisions of the armaments factory, Kongsberg Våpenfabrikk AS. Many of them are based at Kongsberg Technology Park, which hosts companies that operate internationally and develop world-class high technology solutions. The companies at the industrial park employ 5,500 people, of which 70 per cent have a college or university education. The 40 companies at the park have an annual turnover of approximately NOK 30 billion.

Kilde: Kongsberg Gruppen ASA

Kilde: Ministry of Trade and Industry and Kongsberg Gruppen ASA

Management of and the return from shared natural resources

In certain areas, other public sector instruments are not sufficient to maintain control over and income from the country’s major natural resources, particularly within the field of energy. The government believes that State ownership is necessary in these cases. Statoil ASA, Petoro AS, Statkraft SF and Statskog SF are examples of State ownership being used as an instrument in connection with the exploitation of natural resources in the best interests of society.

The objective of having revenues from natural resources benefit the whole population is achieved through the tax system and other means. Nevertheless, the State’s ownership of energy companies is an important component in the government’s policy of revenues from natural resources benefiting the common good insofar as is possible. In addition, State ownership of this type of company provides an excellent opportunity to control the framework for the companies’ operations through the determination of the companies’ objects and other articles of association.

Sectoral policy considerations

The government believes that certain tasks are so fundamentally important that they should be carried out by public bodies or companies that are not governed by commercial interests. This encompasses tasks linked to sectoral policy relating to the health sector, the transport sector and other infrastructure critical to society, amongst other things. AS Vinmonopolet for example plays an important role in the implementation of a responsible alcohol policy.

As described in Chapter 3 on the various roles of the State, the State as policy formulator and exerciser of authority has a special responsibility to provide good national infrastructure, including main roads, railways, airports, a national electricity grid and networks for the provision of electronic communication services (e-com services), etc. As regards e-com services, this is explicitly expressed in the E-com Act, which has the aim of securing users across the country good, reasonably priced and future-proof electronic communication services through the efficient use of society’s resources by facilitating sustainable competition and promoting industrial development and innovation.

Although State companies with sectoral policy goals must not be governed by commercial interests, it is important that they are managed efficiently.

Boks 5.2 Example of a company with sectoral policy objectives – Avinor AS

Avinor AS

Avinor was established in 2003 through the conversion of the administration company, the Norwegian Civil Aviation Authority, into a State limited company. Avinor is classified as a Category 4 company, i.e. a company whose State shareholding has been established for sectoral policy reasons. In line with the sectoral policy objectives, the administration of the shareholding rests with the Ministry of Transport.

Avinor’s social remit is to provide a national network of airports for civil aviation and a national air navigation service to both civil and military aviation. The company is responsible for 46 airports across the country. Only four of these airports regularly record a profit. It is a goal for Avinor’s operations to be self-financing. Considerable cross-subsidisation takes place within Avinor through transfers from the profitable airports to the unprofitable ones.

Approximately half of Avinor’s revenue originates from payments for services that Avinor provides to airlines. These fees are set by the Ministry of Transport and Communications in its capacity as aviation authority. The rest of Avinor’s income originates from commercial operations relating to the airports (car parking, hotel accommodation, leasing of land and duty-free sales).

As owner, the Ministry of Transport and Communications also imposes a number of so-called socially oriented commitments. This covers the preparation of statistics, planning and investigations, e.g. in connection with the work relating to the National Transport Plan. Avinor is also responsible for keeping the airports open to ambulance flights outside ordinary opening hours. Avinor must also provide for people with disabilities, work to provide public transport links with the airports, contribute to the national work relating to safety and preparedness, and assist the rescue services.

Like the other companies with a State shareholding, Avinor must be a leader with regard to the work relating to social responsibility.

Kilde: Gaute Bruvik/Avinor

Kilde: Ministry of Transport and Communications

Production in the event of market failure and the administration of monopolies

For society, there are certain products and services that are best produced outside a market with unrestricted competition. This could for example be the case in connection with the production of collective goods or production in areas in which there are natural monopolies. This justification for State ownership must be viewed in context with the desire to safeguard sectoral policy considerations (cf. the discussion above) and, in each individual case, consideration should be given as to whether State ownership in the form of a company is the most appropriate means, compared with other means and changes in market conditions.

The State has therefore split off State undertakings in order to establish markets for operations which were previously managed as a State monopoly, where the market does not work or where the market is characterised by incomplete competition. Such companies will normally be managed on commercial conditions and have a strong focus on achieving a high level of competiveness. The reorganisation of the State body Televerket into Telenor in 1994 is an example of the establishment of both a company and a market, in this case for telecom services.

Long-term ownership in the Norwegian capital market

The government believes that, as an owner with a long-term approach and capital strength, the State is an important contributor to the reinforcement of long-term ownership in the Norwegian capital market. Together with other long-term investors, the State can contribute to stability within the ownership and promote the industrial growth of Norwegian companies and the development of Norwegian expertise over time. The State aims to promote the economic growth of the companies and the requirements for such development in the short term. However, as an owner, the State has a long-term perspective on its ownership which emphasises the strong development of the companies over time.

5.2.2 The objectives behind the shareholding in each company – categorisation of companies in the direct ownership

Against the background of the general reasons for direct State ownership (cf. the discussion in 5.2.1), and a desire to clarify the ownership, the government clarified the goals behind the State ownership explicitly for the first time in Report no. 13 (2006–2007) to the Storting Active and Long-term Ownership. The companies were divided into four categories based on the State’s goals behind the shareholding in each company. The government believes that it has been beneficial to make it clear that the State has a number of objectives behind the shareholding in this way and will continue this practice.

The State’s specific objectives behind the shareholding in each company are set out in the company discussion in Chapter 6 (Norwegian version). These objectives will also be relevant factors if the government should subsequently assess the size of the State’s shareholding in the company.

The government has decided to revise the categorisation of two companies. This concerns Cermaq ASA (reassigned from Category 2 to Category 1) and Veterinærmedisinsk Oppdragssenter AS (from Category 3 to 1). Norsk Eiendomsinformasjon AS will continue in Category 4, but will be transferred to Category 1 when the transitional arrangement to safeguard the operation, maintenance and system development of the register of deeds is wound up.

The four categories that form the basis for the State’s owner involvement in the various undertakings are:

1. Companies with commercial objectives

2. Companies with commercial objectives and national anchoring of their head office functions

3. Companies with commercial and other specifically defined objectives

4. Companies with sectoral policy objectives

Category 1 – Companies with commercial objectives

For the companies in this category, the objective behind the State ownership is commercial profitability, a high level of value creation and the highest possible return on investment over time. This means for example that the companies will not be issued with instructions which would weaken their long-term value creation or competitiveness.

For some of the companies in Category 1, changes in the State’s shareholding may be appropriate if they would help to promote the company’s industrial and commercial development and safeguard the State’s assets. In relevant cases, possible initiatives could include the State selling off some of its shareholding, support for industrial solutions or other measures which reduce or eliminate the State’s shareholding in a company. There may also be situations which indicate that the State’s shareholding should be increased or that the State should contribute capital in connection with an acquisition or merger in order to maintain the State’s percentage shareholding.

Kilde: Rockheim/Geir Mogen

Category 2 – Companies with commercial objectives and national anchoring of head office functions

The State’s ownership in this category of companies is motivated purely by commercial interests, but with the added dimension that it ensures national anchoring of the company’s head office and associated functions such as research, innovation and technological development. The government believes that the national anchoring of head office functions helps to ensure and promote specialised industrial, technological and financial expertise, and also provides an important arena in which to develop and train managers, who subsequently move on to other areas within Norwegian industry. The government believes that the interaction between head office environments and national institutions is important for industrial development within certain sectors in Norway. Head office and associated central decision-making mandates in Norway help companies to exploit production and investment opportunities in Norway with the resultant positive effects that this has for industrial development and R&D. This leads to close collaboration with business partners elsewhere within industry and with research and education institutions and presents the companies with the opportunity to establish a close dialogue with public authorities.

Kilde: Kjetil Alsvik/Statoil

Through demand for services and expertise, head offices can have important indirect effects in terms of value creation. The presence of a number of head offices can promote the development of different types of specialist services.

It is assumed that the companies will develop entirely on a commercial basis, operating from their head office in Norway. It is thus assumed that the companies’ acquisition, sale, start-up and winding-up of businesses in both Norway and abroad would be carried out on a commercial basis. These are also issues that naturally fall within the remit of the corporate management pursuant to Norwegian company legislation

Corporate governance for these companies will be the same as for Category 1. The only added for these companies is the dimension that the companies must locate their head office functions in Norway. This is ensured through a shareholding of more than one third.

The State’s shareholdings in companies in Category 2 shall remain unchanged, unless it is considered appropriate to adjust the shareholding in extraordinary circumstances. Examples of such circumstances include a merger or a share issue in order to facilitate international growth through an international acquisition for example.

Category 3 – Companies with commercial and other specifically defined objectives

Over time, the safeguarding of specifically defined objectives through the ownership of companies has been increasingly replaced by general regulatory instruments such as laws and regulations and concession rules and through commercial State acquisitions from the companies. However, the defining trait of Category 3 is that it embodies objectives beyond commercial profitably which must also be achieved through State ownership. For some companies, the situation may be very similar to that of Category 2 in the sense that there is no need for special follow-up within the ownership administration in order to realise specifically defined objectives. These objectives are realised through the company managing its business on a commercial basis within the sector concerned. This would for example apply in cases where the aim of the ownership is to monitor the sustained production of products and services of importance for national security or to safeguard national sovereignty. The same applies where the objective behind the State ownership is to safeguard the national ownership of natural resources and a desire to correct the failure of the capital markets through contributing to competition, capital, etc.

Companies in Category 3 will not normally be distinct from the commercial companies in Categories 1 and 2 with regard to the exercising of good corporate governance, and execution of the ownership.

Kilde: Stine Gabrielsen

The State’s shareholdings in companies in Category 3 should normally remain unchanged. In extraordinary circumstances, it may however be considered appropriate to adjust the shareholding. Such circumstances could for example include situations where the objectives in an area can be achieved more effectively by replacing ownership with regulatory measures as an instrument.

Category 4 – Companies with sectoral policy objectives

The State’s shareholdings in companies in this category primarily have sectoral policy objectives. Qualitative or quantitative objectives for such companies should be adjusted to the objective behind the shareholding in each company. This will require issues to be prioritised and assessments to be made, which must be carried out by the political authorities responsible. The objectives should be achieved in an efficient manner. As owner, the State will focus on ensuring that the sectoral policy objectives are achieved as efficiently as possible and with the coverage of costs, and on ensuring that financial surpluses are possible.

The State’s shareholdings in the companies in Category 4 shall remain unchanged, unless it is considered appropriate to adjust the shareholding in extraordinary circumstances. In practice, such circumstances will rarely arise.

Kilde: Aina Holst

5.3 What the State should own

As described above, there are various reasons why the State has shareholdings in key Norwegian companies. The government believes that it is right that the State should continue his shareholdings in most companies that the State currently owns. The government furthermore believes that the overall extent of the State’s ownership should remain at approximately the current level. Within this framework, it is not necessarily appropriate for the State’s shareholdings in each company to remain unchanged in perpetuity. Assessments must be carried out at regular intervals to determine whether the justification for the State’s shareholding remains valid. An assessment must also be made as to whether an increase in the State’s shareholding or the injection of State capital would be appropriate in some cases.

5.3.1 Relevant changes within industry

Rapid global changes within the fields of technology and innovation and an increase in global trading are making it challenging for companies to sustain their strategic positions over time. Companies must be both willing and able to adapt in order to maintain or improve their value creation. As discussed in more depth in section 2.2.3, a strong position today is less of a guarantee of a strong position in the future than it used to be. The elimination of trade barriers is leading to an increase in competition across national borders within many industries. This is inevitably affecting the companies that operate globally and have extensive international activity. However, companies which produce for the national market which have traditionally been protected are also increasingly encountering tougher competition.

The faster pace of change within industry will require companies to consider rapid and comprehensive changes to a greater extent than previously. Such readjustments require the involvement of the shareholders, e.g. through the investment of capital, in connection with acquisitions, mergers and disposals, etc. The government believes that the State as owner must be able to act so that companies can exploit their development and commercial opportunities, whilst at the same time safeguarding the State’s shareholder values in an appropriate manner. This means that the State must be able to adopt a position with regard to proposals that are put forward by companies and that decisions must be taken sufficiently quickly to enable companies to realise relevant initiatives assuming that the Parliament gives its consent.

5.3.2 The government’s experiences and practice

In Report no. 13 (2006–2007) to the Storting, the government stated that “through its ownership, the State shall contribute to the long-term growth and industrial development of the companies”. Changes in owner structure and financing form a natural part of a company’s development. On the basis of this view, the government has decided to support and participate in many transactions in recent years. The examples below illustrate situations where the State has decided to contribute to development:

• In order to strengthen the financing of a company, it may be appropriate to invest new equity (for example SAS in 2009 and 2010, DnB NOR in 2009 and Statkraft in 2010). If the State does not participate in capital expansions carried out by the companies, the State’s percentage shareholding could be reduced or the company may not be able to develop to its full potential.

• In connection with mergers with other companies, all or part of the settlement may be made in the form of shares. In such cases, the existing owners will reduce their shareholding (e.g. as in the case of Norsk Hydro’s acquisition of the aluminium operation of the Brazilian company Vale in 2010/2011). This reduction in shareholding could be remediated through the State subsequently increasing its shareholding again. The thresholds for the triggering of a bid obligation impose certain limitations on the opportunities available. The State cannot increase its shareholding above such thresholds unless it submits a binding bid to purchase all the shares.

• The use of certain types of financial instrument such as convertible loans could involve the future issuing of new shares with the possibility of corresponding dilution (e.g. as in the case of SAS in 2010).

• Minor changes in shareholdings may arise through the issuing of new shares in connection with share programmes for senior executives and employees. However, such programmes are often carried out through the corresponding purchase of shares on the market, so that the shareholdings of shareholders who do not sell shares to the company for such a purpose will not be diluted.

• It may be appropriate for the State to buy or sell shares in companies on its own initiative. For example, it may be appropriate for a company at a certain stage in its development to gain private sector owners with sector expertise and industrial ambitions (as in the case of BaneTele in 2008) or for a company to be floated on the stock exchange in order to improve access to capital for example (as in the case of Telenor in 2000).

Since 2006, the State has invested around NOK 58 billion, minus proceeds from the sale of shares, in order to maintain or increase the State’s direct ownership. The other transactions are all referred to in Chapter 2 and illustrate how the government has actively contributed to the companies’ industrial development in many cases.

5.3.3 Need for flexibility within the existing company portfolio

The government sees an increasing need for the State as owner to exercise flexibility in its ownership, not in order to reduce the collective State ownership, but to respond to changes and situations that require action. A good example of this is Norsk Hydro’s acquisition of the aluminium operation of Vale S.A. The State’s total shareholding increased, even though the State’s percentage shareholding in Hydro fell. The government furthermore believes that the overall extent of the State’s ownership should remain at approximately the current level.

The government believes that greater flexibility in this sense is only relevant in the case of companies with commercial objectives. The government will not consider adjustments to its shareholding in companies with sectoral policy objectives. These companies will continue to be wholly owned. The government will furthermore maintain its shareholdings in key companies such as Telenor ASA, Norsk Hydro ASA, DnB NOR ASA and Statoil ASA, and continue its policy of wholly owning Statkraft SF, Statnett SF and Statskog SF. Notwithstanding the foregoing, the government is presenting a proposal for the Ministry of Trade and Industry to be given a mandate to participate in potential equity expansions if such expansions are proposed by Yara International and Kongsberg Gruppen in order to maintain the State’s shareholdings.

The government proposes that the State’s shareholding in certain companies with commercial objectives should be reduced where appropriate in order to promote strong industrial development for the company and the justification for State ownership no longer applies. The government furthermore proposes that the State’s capital investment in industrial activity in other areas be increased. The government has specifically assessed the need for mandates to maintain the State’s shareholdings in certain companies in connection with potential equity expansions in these companies.

Share issues

Companies often obtain capital by carrying out share capital expansions (hereinafter ‘share issues’). There are various types of share issue, including (1) private placement – aimed at a defined selection/group of investors, (2) public share issue – aimed at everyone, (3) rights issue – aimed at existing shareholders, and (4) employee share issue – aimed at the company’s own employees. A company must have the permission of the shareholders’ general meeting in order to carry out a share issue.

The most frequently used form of share issue is a private placement. This is because such share issues can often be carried out quickly and under a mandate that has already been granted to the board. If the board does not have a special mandate, the matter must be put to the shareholders’ general meeting. A private placement is appropriate in cases where fast-track access to capital is needed in connection with strategic transactions. As there is no requirement for the preparation of a prospectus, such share issues can be implemented more quickly than share issues aimed at the shareholders or the general public.

Assessment of board mandates in State-owned companies

Shareholders in many private and listed companies have given their boards a mandate to issue shares beyond the limited access that is often provided for in share programmes for the company's employees. Both the State and a number of other, especially institutional investors, have however been cautious in giving their boards a mandate to issue shares without a ruling by the general meeting and without the mandate being linked to a specific purpose. The government intends to continue the State’s policy in this area and will not vote for proposals at shareholders’ general meetings in State-owned companies which give the board a mandate to implement changes in capital which traditionally fall within the remit of the general meeting.

However, the government will continue to support the State in its participation in buy-back programmes (where the company buys back shares in the market and then deletes them, as a supplement to dividends) provided that the State’s shareholding in the company is not altered as a result of the buy-back).

Assessment of resolution mandates to the government

In accordance with Article 19 of the Constitution, it is the King (the government) who administers the State’s property (including shares); section 3.2.2. However, it does not fall within the mandate of the minister's authority under Article 19 to buy or sell shares in companies with a State shareholding. This requires a special mandate from the Parliament. In connection with the consideration of Document no. 7 (1972–1973) of Recommendation to the Storting no. 277 (1976–1977), the Parliament established that it has the real decision-making authority in respect of decisions which would significantly affect the State’s involvement in companies where the State is the 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.

In connection with Report no. 13 (2006–2007) to the Storting, the Parliament proposed the withdrawal of the unutilised mandates to sell shares which the government had been granted from previous parliamentary terms. The government must now present relevant and specific proposals concerning transactions to the Parliament as separate cases.

Through being the sole shareholder or through having a controlling interest in a company, the State has a decisive influence over nominations to the board, major investments, acquisitions/mergers or restructuring, injection of capital, dividend policy and capital structure. The State should contribute generally to an effective capital structure, so that the companies have the opportunity to bring about strong industrial growth or efficient operation. At the same time, the companies should however not be over-capitalised. This could result in less efficient operation, over-investment and poor returns on capital. Mergers and demergers, as well as other structural measures, within the commercial companies should be assessed on the basis of commercial objectives and evaluations. This indicates that the owners should participate in decisions concerning investments or transactions that are of importance to the company’s operations. The dynamics of business and industry dictate the need for decisions concerning the investment of capital or adjustments to shareholdings to be made with a certain speed. The financial crisis has shown that in certain situations companies must be able to act very quickly on the capital side in order to safeguard shareholder values or take advantage of industrial opportunities.

The government believes that the State as owner should facilitate the fast and efficient consideration of owner issues. However, the government does not believe that it is necessary to deviate from the principle that important shareholder issues should be subject to consideration by general meetings, or to alter the established mandate structure between the government and the Parliament with regard to ownership issues. Within the applicable framework, it is however the government’s view that, in addition to mandates to participate in industrial restructuring processes within certain companies, the government can also be given a mandate by the Parliament to participate in share issues subject to certain conditions. Concurrently with this Report to the Storting, the government is presenting a Proposition to the Storting in which it proposes that the Ministry of Trade and Industry be given a mandate by the Parliament for the remainder of the current parliamentary term to potentially participate in possible equity expansions carried out by Yara International ASA and Kongsberg Gruppen ASA within a defined limited framework in order to maintain the State’s shareholdings.

5.3.4 Changes in the State’s shareholdings

Professional ownership is not simply about imposing expectations concerning a company’s strategic development, capitalisation and corporate social responsibility; it is also about having an ongoing assessment of what the State should own and what it should not own. Certain companies in which the State has a sh’areholding may end up in a situation where owners with an industrial and commercial background would be able to contribute more to the development of the company than the State. The government believes that it would be appropriate to request a mandate from the Parliament to adjust the State’s shareholding in selected companies. Concurrently with this Report to the Storting, the government is therefore presenting a separate Proposition in which it requests such a mandate for the sale of shares in SAS AB and Secora AS. The government will return to the shareholding reduction/floatation of Entra Eiendom AS after the properties have been reviewed.

SAS AB

SAS is categorised as a company in which the State only has commercial objectives.

The company also has an important role to play as part of the Norwegian transport infrastructure and, through the interaction between SAS and Widerøe, provides a seamless network of scheduled services both within Norway and between Norway and abroad. The consequences as regards transport policy were taken into account in the government’s assessment in connection with the capital expansions in SAS AB in 2009 and 2010.

SAS still faces a significant number of challenges which the company can probably best overcome with an industrial partner on the owner side. The biggest challenge stems from increasing competition, but the company also has a smaller share of the intercontinental air travel market than is desirable from a commercial perspective. This increasing competition could force a process of consolidation within the industry. In connection with this, it is important to actively seek to identify an appropriate industrial solution for SAS, in which considerations relating to the company’s assets, jobs and airline services in Norway will be important factors. The government believes that, in this situation, the State should be open to selling its shares in SAS AB to an industrial player which has a long-term perspective behind its investment and which can develop the company further in an appropriate way. The government assumes that the disposal of SAS would take place in a dialogue with our Nordic partners, in line with the tradition of Nordic cooperation as regards the ownership of SAS. In connection with this, the government will also assess how essential interests as regards transport policy should be safeguarded.

Kilde: SAS Group

Secora AS

Secora AS is a maritime contractor that was established in 2005 through the separation of the production unit of the National Coastal Administration. Secora has around 115 employees and an annual turnover of over NOK 200 million. The company is categorised as a company in which the State only has commercial objectives.

The company operates in a market which is fully exposed to competition and the size and nature of the company are not such that it is of national strategic importance. Secora currently has a significant market share in Norway and possesses specialist expertise within the provision of maritime contractor services on hard substrates. However, Secora is facing a number of challenges in achieving adequate profitability over time. The government believes that the company’s industrial and expertise base is too limited to enable the company to expand significantly without external assistance. There may be a need for stronger industrial owners in order to exploit the company’s opportunities for growth and realise the full potential of Secora. It may be appropriate to bring the company into a wider environment that is better placed than the State to help the company develop. In a separate Proposition, the government has therefore asked the Parliament for a mandate to identify an appropriate and sustainable solution for Secora AS through a merger or the disposal of the State’s shares. In connection with the assessment of opportunities, the government will emphasise the company’s affiliation to North Norway.

Entra Eiendom AS

Entra Eiendom was established in 2000 through a parliamentary resolution to divest the buildings in Statsbygg’s property portfolio that are most exposed to competition. The company has around 170 employees and accounting equity of NOK 7.0 billion. The company is categorised as a company in which the State only has commercial objectives.

Entra operates in an industry that is fully exposed to competition. The company believes that State undertakings are key customer groups which will continue to be well served even if Entra Eiendom gains new owners. The government shares the view that State lessees are central to the company’s business model. Full State ownership is therefore not deemed necessary in order to secure access to premises.

Entra Eiendom may require more capital in order to exploit its development potential. As the company operates in a market that is exposed to full competition with other property companies, the government believes that it would be better for the company to finance its equity requirements linked to further growth through the private market. The company could benefit from new private sector owners who are demanding and aim to bring about development as regards the company’s strategy and commercial solutions. An appropriate solution could be to reduce the State’s shareholding as part of a structural transaction and/or floatation. Before any reduction in the State’s shareholding is implemented, the government will consider whether certain buildings in Entra’s portfolio should be taken over by Statsbygg on commercial conditions.

5.3.5 Establishment of new State ownership

The government believes that the State’s direct ownership should remain at around the current level. The direct ownership must however be dynamic and contribute to the development of value creation within Norwegian industry. It is important that the ownership is not locked on the basis of historical considerations, but is aimed at companies and operations that are of importance for the value creation of tomorrow.

Traditionally, State ownership has been established through the conversion of a State undertaking into a company, through the establishment of a new company or through the acquisition of all or parts of an existing private undertaking. In most cases, State ownership has been established at an early stage in a company’s history or as a result of a fundamental industrial change or crisis. The government considers it appropriate that, in future, the establishment of new State ownership should normally be carried out on the basis of commercial grounds, ideally in cooperation with private investors. If a different type of ownership is considered, such ownership must be based on considerations relating to socio-economic profitability or certain specified objectives, such as objectives relating to sectoral policy.

Challenges associated with changes in State ownership within the current structure

The government believes that, under the ministerial structure, establishing a body to actively and regularly work on the establishment of new strategic ownership would be a challenging process.

There are special challenges linked to the trading of shares in a company in which the State is or wishes to become a shareholder. These challenges are linked to the confidential handling of information and effective conduct in the market. Awareness of the presence of a major potential buyer or seller in the market will generally quickly have an impact on the market price of the shares. In connection with such assessments, this means that the State must generally exercise strict confidentiality, including with regard to the use of external consultants.

The ministries can often be in possession of information concerning processes relating to the framework conditions of Norwegian industry or particular sectors which is not publicly known. The State as a regulatory authority has authority over laws, regulations/concessions, supervision, public support/guarantees, public procurement of services, taxes, duties, etc. which impact on the financial and competitive circumstances of the companies. The challenges for the State as owner remain the same whether the issue concerns the buying or selling shares, and include the declaration of inside information, the use of independent consultants, procedures for safeguarding confidentiality, considerations relating to the equal treatment of shareholders, etc. However, these are circumstances which the State can manage within the current framework. In some cases, however, transactions may have to be deferred because the State as an authority has a unique knowledge that is of market-related significance.

Ownership with a view to the emergence of new industry

Through Investinor AS and Argentum Fondsinvesteringer AS, structures have been established for direct and indirect State shareholdings respectively in companies at an early stage. There are also State-supported seed funds. These companies were set up to contribute to the emergence of new industries and are pivotal instruments in the government’s innovation policy.

As mentioned above, there may be special challenges linked to the trading of shares in companies in which the State either is or wishes to become a shareholder. The State’s direct ownership administration is therefore not structured to handle the regular acquisition of shareholdings in new companies of particular importance in terms of industrial policy. This is handled by other State administrators such as Investinor. However, this does not prevent the State from buying shares in new companies in individual cases through the direct ownership.

Innovation Norway is the lender for a total of 14 privately owned seed funds which were established during the period 1997–2008. The scheme was evaluated in 20091. The seed funds trigger private capital and expertise for projects at an early stage. The evaluation also indicates that they supplement Investinor AS and Argentum Fondsinvesteringer AS and meet a need at an earlier stage that is not covered by other public sector instruments. The seed funds account for over 90 per cent of the seed capital under administration. The government believes that this indicates a need for public sector involvement in this segment.

The capital in the existing seed funds has largely been invested in portfolio companies or allocated to administration and follow-up investments in these companies. Limited new investment is therefore anticipated in the future. The results of the funds during the period 2006–2008 seem to be better than those achieved by the funds during the period 1998–2000. It will be important for future seed funds to draw on the experience gained through previous funds.

In order to promote investment during the seed phase, and thereby the emergence of new companies, the government will present proposals to establish new national seed funds. For new seed funds, an assessment must be carried out as to how incentives can be established to promote the best possible administration of the State’s assets. The government will return to the Parliament with a proposal for the appropriate organisation of the funds.

Investinor AS began operating in February 2008 with subscribed equity of NOK 2.2 billion. The aim of the investment company is to promote value creation by offering venture capital to internationally oriented competitive companies, primarily new establishments. Investinor will primarily invest in sectors in which Norway already has a strong position and in which there is considered to be potential growth. Investments from Investinor are in great demand. After just two years’ operation, around two-thirds of the capital has already been allocated. The government will present a proposal for the provision of additional investment capital for Investinor to ensure that the company can continue to contribute to the emergence of new and internationally competitive companies. Before such capital is provided, the ministry will conduct a review of Investinor.

In the long term, the recirculation of capital can release funds for new investment to a greater degree, through Investinor disposing of shareholdings in certain companies to other owners. If certain companies in which Investinor is to dispose of its shareholding should prove to offer unique potential or be of particular importance for other reasons, a decision may be taken in each individual case concerning the possible transfer of shareholdings directly to the State on commercial conditions where the State can be a good long-term owner. Such an acquisition of ownership will be submitted to the Parliament in the normal way.

5.4 Exercise of ownership

The government believes that the primary purpose behind the State’s commercial ownership (the companies in Categories 1–3) is to contribute to the companies’ long-term value creation, industrial development and profitability, with a view to ensuring the best possible return on the State’s investments. Requirements concerning return on investment and expectations relating to the distribution of dividends will be a key part of the dialogue with the companies. There is a clear presumption that the companies must be competitive over time in order to maintain and develop their position. This will also lay the foundations for employment and secure jobs. The government believes that companies with sectoral policy objectives must also be managed as efficiently as possible, whilst at the same time achieving the sectoral policy objectives in the best possible manner.

The State administers substantial assets in Norwegian companies on behalf of society. The government believes that the demanding requirements that are imposed on the State as owner mean that the State must exercise its ownership in a professional manner. This is vital in order to safeguard the assets and thereby create trust in the State as a major owner, both amongst investors and players in industry and amongst the population in general by achieving a good return on the investments that society has made in the companies.

The government will administer the State’s ownership in line with the State’s established principles for good corporate governance. These principles are aimed at all State-owned companies, whether wholly or part-owned. The division of roles between the board and owner in accordance with the company acts must form the basis for the State’s ownership policy. The State’s corporate governance principles have been formulated in line with generally accepted principles for corporate governance and deal with important issues such as the equal treatment of shareholders, transparency, independence, the composition of boards, the boards’ role, social responsibility, etc. The State’s principles for good corporate governance are supplemented by the Norwegian Code of Practice for Corporate Governance, which is aimed at listed companies, and by the OECD’s guidelines for the corporate governance of State-owned companies. However, there may still be some differences in the way the State exercises its ownership of wholly owned and part-owned companies, particularly in the case of companies which have a specific social remit as part of sectoral policy and/or which are financed via the State budget. In such cases, it may be necessary to delimit the company’s operations more clearly and to establish a somewhat narrower framework concerning the remit of the board without submitting matters to the owner.

The government will continue to pursue an active ownership policy which sets out expectations for the boards concerning high ambitions for the development of the companies. Increasing globalisation and the rapid pace of innovation and technological development mean that companies must continually consider operational readjustments. Together with clearer expectations concerning corporate social responsibility, this presents the boards and executive management of the companies with major challenges. However, it also imposes demands on the owners. They must be aware of the challenges as regards reorganisation faced by the companies and be able to adopt a position with regard to key strategic initiatives such as strategic investments, acquisitions or mergers. In connection with this, the composition and competence of the boards must be assessed and the owners must make changes as and when necessary. At the same time, the private sector ownership of many companies is fragmented, which results in less marked activity amongst the shareholders, particularly with regard to strategic issues. Within such companies, the board and senior management can easily lean towards the general market, which can often represent a more short-term perspective on the companies than the State has. In such a situation, more demanding requirements are imposed on the State as owner. The ministries must have the competence to maintain a real strategic dialogue with the companies, within the framework dictated by the division of roles between the owner, board and general management.

The government believes that the greater demands imposed on the State as owner (cf. the discussion in Chapter 2) will require the State to increase the capacity of its ownership administration in the future in order to ensure that the government’s objectives behind the ownership are safeguarded through the initiatives that the board and the management of the companies submit for approval. In this also lies a need to establish a higher level of preparedness in order to make strategic decisions and to continually follow up the dialogue with the companies concerning their industrial and financial development. The government will ensure that the ministries that exercise State ownership have sufficient capacity to enable the State to understand both the challenges that the companies face and the way in which the State can actively contribute to the further development of the companies in an appropriate manner.

The government’s expectations as regards State-owned companies are primarily described under the various themes covered in this chapter. Certain expectations are however more general or overarching in nature and are therefore described in this introductory section.

The government expects State-owned companies to have long-term strategies for the development of industry in Norway, in addition to international initiatives, which can positively contribute to employment and value creation in local communities. This particularly applies in regions where industry is based on local natural resources. Reorganisations in smaller local communities are particularly challenging and therefore necessitate a close dialogue with both employees and the local community. The State as policy formulator and exerciser of authority has a special responsibility to provide good national infrastructure, including trunk roads, railways, airports, a national electricity grid and networks for the provision of electronic communication services (e-com services), etc. As regards the latter infrastructure, this is explicitly stated in the E-com Act, which aims to secure users across the country good, reasonably priced and future-proof e-com services through the efficient utilisation of the country’s resources by facilitating sustainable competition and promoting industrial growth and innovation.

The government will therefore:

• Expect State-owned companies, through the ownership dialogue, to give an account of their long-term strategies for the development of industry in Norway, in addition to any international initiatives which can contribute to employment and value creation in local communities. This particularly applies in regions where industry is based on local natural resources. Furthermore, the State will, again through its owner dialogue, ask the relevant companies to provide information concerning the follow-up of Act No. 83 of 4 July 2003 on electronic communication.

In the work relating to international corporate social responsibility, the government expects companies in which the State has a shareholding to monitor and assess areas that are evolving. An example of this is the work being carried out to develop systems for country-by-country reporting (CCR). The government believes that this work is important and can help to raise awareness concerning how multinational companies and other organisations operate in developing countries. CCR is an initiative that is aimed at increasing transparency and means that multinational companies will be required to include operational information for the individual jurisdiction in which they are established in their annual reports. CCR is currently being considered by the OECD, amongst others, by bodies which establish international accounting standards in individual countries. The USA has introduced such a legal requirement for the mining industry, which will probably implemented in 2012. The European Commission is also considering whether it would be appropriate to require listed companies to include key information in their annual reports concerning their operations in third countries. The government believes that it would be appropriate to consider developments in the EU, but will assess whether there could be a basis for introducing such rules in Norway, either as part of the process relating to possible new EU rules in the area or on an independent basis.

Another example where the companies could lead the development is linked to the UN’s work relating to human rights. The UN Human Rights Council was presented with the framework “Protect, Respect and Remedy” in 2008. A draft has recently been put forward for guidelines concerning the operationalisation of the framework in the document “Guiding Principles for the Implementation of the United Nations’ ‘Protect, Respect and Remedy’ Framework”. These guidelines are not legally binding, but contain recommendations to authorities, industry and civilian society concerning how challenges linked to human rights and business should be handled.

5.4.1 The government’s expectations concerning dividends and return on investment

5.4.1.1 Return on investment

The value of the State’s direct ownership in Norwegian industry is substantial. The State has invested in limited companies and State companies in the form of share contributions, invested capital and withheld surpluses within undertakings. The government has a long-term perspective on these investments and wishes to contribute to industrial growth, employment and positive value development. An important goal is for the companies to achieve a long-term return on invested capital. In the case of listed companies, this will often be measured through the return on the market value of the equity. For companies in which the State has a shareholding for commercial reasons, such a return is the key consideration, in the ownership execution. The shareholders can promote value creation within the companies partly by imposing clear requirements on the board concerning the return on investment.

Pursuant to the Regulations for Financial Management in the Government Administration, return targets must be established for companies in which the State is a shareholder. In this context, return target means the return that an investor can expect to receive on his shares in a company over time, given the risk to which the investor is exposed. Return targets are also known as ‘reference returns’, which are an expression of what an investor could expect from an investment in another share or portfolio with a similar systematic risk. The State has specific return targets for each company, i.e. expectations concerning the long-term return on its shareholdings in the form of dividends and increases in value. Such return targets also reflect a desire on the part of the government for the companies to have an appropriate capital structure, as this can also affect the return.

In the case of certain companies for which other specially defined objectives have been established, it may be appropriate to also consider the return in the light of these objectives. However, the EEA Agreement sets out the framework for the determination of return requirements to ensure that this does not hinder fair competition. The State must expect a normal market return on capital invested in an enterprise operating in competition with others. For companies with sectoral policy objectives which do not operate in a market or administer a monopoly, a reference return will be of lesser importance. In this case, return requirements can be replaced by other targets, such as efficiency targets.

The government’s expectations concerning the fulfilment of their corporate social responsibility will however not affect the return targets. The work of the companies in this area is expected to be carried out in a strategic manner, so that it forms a basis for a return that is as good or better in the long term and within the horizon during which the return targets apply.

A normal market return on invested capital should be determined on the basis of company-specific considerations and is the sum of risk-free interest plus a risk supplement for the company concerned. The State’s return target should be in line with those of other investors.

A frequently used model for calculating return targets for companies with commercial objectives is the Capital Asset Pricing Model (CAPM); cf. box 5.3. The return requirement is particularly relevant in the assessment of the performance of companies over a number of years (typically three to five years) and may be of less relevance in the short term (one year). It should therefore be supplemented with other figures which show the company’s development, results and key figures compared with others. The government expects the companies to be in an upper tier in such contexts.

The Capital Asset Pricing Model (CAPM) gives an indication of the return that should be expected from a company investment in relation to the risk that the investment imposes on the investor’s portfolio.

The return will largely be determined by developments in market values. In the case of unlisted companies, no information on this is available in the market and specific analyses must be carried out based on available information. It may be difficult to find appropriate listed companies and sectors with which to draw comparisons, but valuations of the companies can be prepared. External financial consultants are generally used in connection with valuations. The values of the unlisted companies can be substantial and such valuations represent an important instrument for the State as owner in assessing financial developments within its portfolio.

An assessment of return must be made on the basis of an average over a number of years. The return targets that the State establishes normally apply as an average over a period of three to five years and are normally revised every three to five years. It may also be appropriate to make adjustments more frequently, e.g. if the risk profile of the companies alters significantly. In the follow-up of the return targets, general market trends are also considered. In the case of listed companies, sector indices are also taken into consideration.

Return targets are not established for companies which are not based on commercial operations, or which are dependent on government aid in order to continue operating as a going concern. Instead, these companies adhere to the State’s appropriation regulations in respect of appropriations and reporting. Nevertheless, the government expects the operation of such companies to be efficient.

5.4.1.2 Dividends

As owner, the State expresses views and expectations concerning each company’s dividend policy. The government will generally support a dividend policy which promotes long-term value creation within companies that have commercial objectives. The State’s dividend expectations should reflect what the State as a shareholder regards as the right balance between dividends and retained profit in order to achieve the objective of the maximum possible value creation over time. Dividend expectations conveyed by the State to the individual company must be predictable and should normally be fixed for a term of several years. Over time, the company’s situation may however change, making it appropriate to revise the dividend policy.

A key aspect in determining dividends is that the company should have equity commensurate with the company’s goals, strategy and risk profile. Companies in which the State is a shareholder must be able to operate under the same framework conditions as the companies with which they compete. This means, among other things, that dividend expectations should be formulated in such a way that they do not serve to give companies in which the State is a shareholder any competitive advantage or disadvantage compared with companies in private sector ownership.

Alongside their ordinary business operations, a number of State-owned companies have a sectoral policy remit involving commitments which may be unprofitable for the company. In such cases, the companies will normally be compensated separately for verified additional costs, rather than indirectly through reduced dividends from the company. Some sectoral policy companies have it laid down in their articles of association that dividends are not to be paid. Other companies which are dependent on subsidies/annual allocations do not normally pay any dividend.

The owner ministries responsible prepare long-term dividend expectations with regard to companies with commercial objectives. The owner ministry will communicate these expectations to the board. These expectations concern an average over a term of three to five years – or longer if deemed relevant. The State’s long-term dividend expectations concerning an individual company are normally expressed as a percentage of the annual result after minority interests. For some companies, the annual result is corrected for certain items in order to calculate the basis for the dividend. This is of particular relevance in the case of companies where unrealised changes in the value of balance sheet items have a major impact on the annual result.

In connection with the determination of the State’s long-term dividend expectations for an individual company, a systematic review is carried out of the following elements in particular:

• The company’s strategy

• The company’s maturity

• The state of the economy and sector considerations

• The company’s capital structure and capital return

• The company’s investment history

• The necessity of promoting capital discipline

• The company’s competitors

In addition to the long-term dividend expectations, the owner ministries responsible will also draw up expectations concerning the annual dividend. As regards the annual dividend expectations, the same considerations as mentioned above will be reviewed with the aim of assessing how the dividend expectation for a particular year should deviate from the long-term dividend expectations.

In connection with the determination of the State’s annual dividend expectations, the following additional considerations must be assessed:

• Buy-back programme for the company’s own shares

• Financial profitability

• Desire for a constant or constantly increasing dividend in Norwegian kroner per share

• The risk of possible unprofitable decisions within the companies

• Liquidity situation

• Known, profitable investment needs in the near future linked to the existing operation

• Other special considerations of particular importance for the ability of the company concerned to pay dividends

The owner ministry will pursue a dialogue with the company’s executive management concerning the dividend expectations for a particular year, to ensure that the company’s board is aware of the State’s expectations before the board’s proposal for the annual dividend is submitted to the annual general meeting and approved.

The State as a shareholder is not at liberty to determine the level of dividend in part-owned companies. Under the Limited Liability Companies Act/Public Limited Companies Act, the general meeting cannot decide to distribute a higher dividend than that proposed or approved by the board. With this proviso, the general meeting is able to set the maximum amount that can be paid. However, it is perfectly admissible for the State as a shareholder to express the expectations that are imposed regarding dividends, as well as the considerations on which these expectations are based.

Share buy-backs

The buying back by companies of their shares for subsequent deletion (buy-back of shares) combined with the payment of dividends can be an effective and flexible way of adjusting a company’s equity to its requirements.

A buy-back programme is one way of employing a surplus and should be seen in the context of the company’s capital situation. Equity that companies see no suitable use for is taken back into the stock market through owners who opt to sell their shares. As the shares which are bought back are permanently deleted, the underlying value of the remaining shares is not affected. In buy-back programmes, the companies therefore have an instrument for optimising their capital structure.

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. It is emphasised here that the State as owner considers buy-back agreements to represent a supplement to, rather than an alternative to, dividends. Enquiries from companies as to whether the State would consider participating in buy-back agreements are assessed on a specific basis in each individual case. In the case of companies in which the State is a shareholder, it is seen as desirable that the buy-back and subsequent deletion of the company’s own shares should not bring about a change in the State’s shareholding. In consultation with the companies concerned, a contractual basis has been drawn up for this in connection with the buy-back programmes of companies, according to which the State will maintain its shareholding by selling the appropriate number of shares to the company concerned. The agreements that are established must be publicly known, so that other shareholders receive the same information.

5.4.2 The government’s expectations concerning corporate social responsibility

The State will be an active driving force in the work relating to corporate social responsibility and use the State ownership to ensure that the companies fulfil their social responsibility. The government has therefore presented a separate report to the Parliament on this, Report no. 10 (2008–2009) to the Storting: Corporate social responsibility in a global economy. In this Report to the Storting, the government sets out its understanding of corporate social responsibility as follows:

“Companies integrate social and environmental considerations in their daily operations and in relation to their stakeholders. Corporate social responsibility means what the companies do on a voluntary basis over and above complying with existing laws and regulations in the country in which they operate.”

The government wants this understanding of corporate social responsibility to apply to State-owned companies in the same way as it applies to every other company in Norway. The concept ultimately concerns the responsibility that companies are expected to fulfil as regards the people, society and environment that are affected by the company.

The understanding of what lies in the term ‘corporate social responsibility’ and what it means for the operations of the companies concerned both in Norway and globally is evolving rapidly. Historically, many companies, especially those of a particular size, accepted a broad responsibility for their employees and their families, built homes, took responsibility for schools and provided healthcare services. As such provisions became the task of the public sector, gifts and support for humanitarian and cultural activities came more into focus. The trend in more recent times is for corporate social responsibility to be linked more to the company’s own operations and supply chain.

The basic premise for the corporate social responsibility of State companies is that each company must be profitable over time and contribute to good and secure jobs, tax revenues and value creation. Corporate social responsibility also involves the development of goods and services, production methods and business practice which promotes sustainable growth. The government’s expectations concerning corporate social responsibility do not involve special requirements which make it more difficult for the companies concerned to operate within the framework that follows from company legislation, corporate governance principles or other frameworks which apply to the companies. Companies that the State considers to be damaging should generally be regulated through laws and regulations or by using economic means that apply to all companies, and should not be regulated through State ownership.

Every company has a responsibility to fulfil their social responsibility and to integrate it into their operations and strategies. The government expects State-owned companies to take the lead and to work systematically with regard to their social responsibility and to be leaders within their respective fields. The government will clarify its expectations concerning the work of the companies relating to social responsibility in order to contribute to this. The government’s expectations concerning corporate social responsibility cover all State-owned companies regardless of the State’s objectives behind its shareholding.

The government believes that companies that fulfil their social responsibility in an appropriate and future-oriented way also demonstrate that they have a strategic approach to corporate social responsibility. The government believes that this will help to enhance each individual company’s competitiveness over time and thereby contribute to achieving the best possible return for the State as owner. The government believes that such companies are able to seize the business opportunities that arise and that, through their sense of responsibility, they reduce the risk of unfortunate events which could weaken the company’s market position and reputation. The government believes that such companies will be best placed to gain access to the most highly qualified labour and the most loyal customers, as well as to local communities who support the company. This will support value creation in the long-term, thereby ensuring a good return on investment for the State as owner.

Companies with sectoral policy objectives often have a social remit that goes beyond commercial goals. Such a social remit differs from what is termed corporate social responsibility. For example, the social remit of Posten Norge means that the company must work to fulfil the requirements concerning the provision of nationwide postal services that are imposed through the Post Act and the company’s concession conditions. These companies must also be aware of their social responsibility in connection with their operations, i.e. measures which extend beyond their social remit.

Kilde: Telenor Group

5.4.2.1 Link between the expectations concerning the State’s direct ownership and the expectations concerning investments through the Government Pension Fund

It is the government’s aim that the expectations of the State as a direct owner of the companies’ work relating to social responsibility should be as compatible as possible with the expectations that are imposed on companies in which the State has a shareholding through the Government Pension Fund (the Government Pension Fund Global (SPU) and the Government Pension Fund Norway (SPN)). The government will clarify the expectations of the State with regard to its direct ownership of the companies’ work relating to social responsibility and build on the same platform as that used in the administration of the Government Pension Fund. This platform is derived from international conventions, principles and guidelines such as the United Nation’s Global Compact, the OECD’s guidelines for multinational companies and the ILO Conventions. However, there are significant differences between the administration of the State’s direct ownership and the State’s investment activity through the Government Pension Fund, which means that the government will not introduce uniform guidelines concerning the exercise of ownership in the various owner roles.

A key difference between the State’s direct ownership and the State’s investment activity through the Government Pension Fund is that, in the former case, the State is a strategic owner with substantial shareholdings in each company, whilst in the case of the latter, the State is, through the Government Pension Fund, a financial investor and minority shareholder. The underlying role of the owner affects the instruments that are available and how these instruments are used. Strategic owners carry considerable weight and have more opportunity to follow up and influence the companies through both governance and dialogue. In the role of a broadly diversified financial investor, there will be less scope to exert an influence on the portfolio companies.

SPU has investments in approximately 8000 companies and in most markets around the world. Norges Bank administers the SPU on behalf of the State via the Ministry of Finance. The Ministry of Finance has issued guidelines concerning responsible administrative practice and exercise of ownership as part of the Norges Bank’s administration mandate. As the administrator of small shareholdings in many companies, Norges Bank focuses on selected areas which it considers to be of particular relevance for the long-term return, related both to good corporate governance and to corporate social responsibility, including the handling of environmental and social factors. As part of its ownership administration, Norges Bank has defined three key areas linked to corporate social responsibility within which they have prepared ‘expectation documents’: climate change, water management and children’s rights. Norges Bank follows up these areas in its dialogue with companies that are considered to be particularly vulnerable to risk and/or have opportunities to make a difference within these areas. The Ministry of Finance has also issued guidelines concerning observation and exclusion from the Government Pension Fund Global’s investment universe. These guidelines mean that SPU must not be invested in companies which produce arms that breach fundamental humanitarian principles or which produce tobacco. Companies may also be placed under observation or excluded from the SPU as a result of grossly unethical conduct, including gross violations of human rights, severe environmental damage and gross corruption. The Ministry of Finance takes decisions concerning the observation or exclusion of companies based on the advice of the SPU’s Ethics Council.

The National Insurance Scheme Fund administers the SPN on behalf of the State via the Ministry of Finance. The SPN invests in around 50 Norwegian and 100 Nordic companies. The National Insurance Scheme Fund’s investment activities are regulated by guidelines issued by the Ministry of Finance. The National Insurance Scheme Fund bases its administration of the investment activities within the SPN on ethical principles. The National Insurance Scheme Fund assesses the companies’ management of challenges linked to good corporate governance, human rights, corruption, the environment and other possible breaches of fundamental ethical norms. The National Insurance Fund assesses the guidelines that the company has itself established, the way in which these guidelines are followed up through specific measures and the way in which the company reports environmental and social matters.

As a direct owner, the State administers long-term shareholdings in around 50 Norwegian companies. This makes it possible to monitor each individual company in a more direct and regular manner than is possible in the Government Pension Fund’s extensive portfolio, partly through a close owner dialogue with all the companies. Furthermore, it must be assumed that, because the State is such a major shareholder in the companies with direct ownership, the State’s expressly stated expectations will be accorded considerable weight by the companies.

In the administration of the State’s direct ownership and of the Government Pension Fund, the owner dialogue is used as the principal instrument with regard to issues relating to corporate social responsibility. The SPU also has other mechanisms linked to its administration which encompass the right to place a company under observation or to exclude a company where there is an apparent risk of grossly unethical conduct or if the owner dialogue appears unlikely to succeed. As regards the State’s direct ownership, exclusion and observation cannot be used as instruments. There will therefore be natural reasons why the instruments that are used, the breadth of the expectations that are imposed and the ways in which the administration monitors the companies differ.

5.4.2.2 The government’s expectations concerning the work of State-owned companies relating to corporate social responsibility

The government expects all Norwegian companies to fulfil their social responsibility, regardless of whether they are privately or publicly owned and regardless of whether they operate in Norway or elsewhere. All companies should fulfil their social responsibility and this should be integrated in the companies’ operations and strategies. Companies with a State shareholding must be leaders in the work relating to social responsibility within their respective fields. The companies are expected to apply best practice regardless of where they operate. As in all other areas, it is the companies’ boards and executive management which must safeguard the companies’ interests and make the best possible evaluations, including in areas linked to the company’s priorities and work relating to corporate social responsibility.

The government has high expectations as regards how State-owned companies work with regard to their social responsibility, both because the government believes that doing so will produce a good return over time and because acting ethically has an intrinsic value in itself. There are however certain limits as regards what can and should be covered by the corporate governance of State-owned companies, particularly if the company is competing with other players. There will often be other public sector and general instruments, such as legislation, which are better suited to safeguarding these considerations. These instruments will apply to all companies and will therefore not hinder fair competition. Priorities linked to the competitiveness of the companies will therefore sometimes be necessary in order to safeguard the State’s ownership in the best possible way.

The government has both general and more specific expectations concerning the companies with regard to corporate social responsibility. The general expectations are more universally applicable. State companies differ widely with regard to their operations, and the expectations of the companies within the field of corporate social responsibility will vary. The government therefore believes that it is appropriate to have expectations of the various companies or groups of companies that are appropriate for their area of operation. The government furthermore believes that the approach of having different domains of expectations will contribute to the work to promote the profitability of the companies or achieve specific objectives, whilst at the same time ensuring that the operations of the companies are perceived as ethically reasonable.

The government’s overarching and general expectations

The government’s overarching and general expectations are aimed at all State-owned companies. The government’s expectations regarding social responsibility underpin the goal of the highest possible return on the State’s investments over time within the commercial companies. The government furthermore believes that State-owned companies can act as a source of inspiration for the rest of industry by being leaders within their field with regard to corporate social responsibility. The companies should actively comply with international norms, rules and practices within the field. The government’s general expectations are therefore strongly linked to national and international standards, conventions and reporting norms, because they are perceived as being universally applicable.

The government aims to enable the companies to use the so-called ‘comply or explain’ principle linked to its work relating to corporate social responsibility. In this way, the companies can, in their communication and reporting relating to social responsibility, state the extent to which their work meets the expectations and guidelines that have been established, or which they use linked to their operations. The comply or explain principles involves, for example, small companies that only have operations in Norway adapting their work relating to corporate social responsibility in a different way than companies with international operations, whilst still complying with international standards and norms. Companies that operate in demanding markets abroad must be able to operate without being accused of breaching international conventions and principles. One example of this is companies which operate in countries in which labour union activity is suppressed. In such cases, it would not necessarily be better for the companies to withdraw; instead, they could explain what they are doing in order to safeguard the rights of the workforce in the country concerned. The government believes that the fact that the companies are transparent in such cases and explain how they are handling the problem will help to drive developments forward, both nationally and internationally.

The government believes that official reporting concerning the work of the companies relating to social responsibility helps both to meet the needs of the public sector for information on how the State-owned companies are managed, and to structure and develop the work of the companies relating to social responsibility.

The government expects the work of the companies relating to social responsibility to be based in the boards that are responsible for the company. In order to make this clearer, the government expects the boards to be transparent as regards the work relating to corporate social responsibility, and in particular how this work is internalized within the organisation, in their annual reports.

The government expects State companies to develop appropriate systems for the notification of censurable circumstances, so that communications concerning notification are received and dealt with in a professional manner which safeguards the rights of the notifying parties2. Notification covers circumstances such as corruption and financial circumstances, as well as circumstances relating to health, safety and work environment (HSE) and breaches of employment regulations and environmental circumstances.

The government expects:

• The companies to be leaders in the work relating to corporate social responsibility within their respective fields. The companies to actively monitor and contribute to the development of good business practice within areas that are of relevance to their operations.

• The companies to have, and make publicly available, ethical guidelines.

• The companies to prepare, and make publicly available, guidelines concerning their work relating to corporate social responsibility3.

• Companies with international operations to adhere to the United Nation’s Global Compact and for companies with an international supply chain to consider doing the same.

• Companies with international operations or an international supply chain to familiarise themselves with and comply with the OECD’s guidelines for multinational companies.

• Companies with international operations or an international supply chain to base their operations on the ILO’s eight core conventions.

• The companies to develop key indicators linked to corporate social responsibility in a dialogue with their main stakeholders.

• Companies to report on their work relating to corporate social responsibility, including significant challenges, objectives and indicators for goal achievement. Companies of a certain size to use the internationally recognised reporting standard, the Global Reporting Initiative4.

• The work relating to corporate social responsibility to be anchored within the companies’ boards and the boards to report on key areas in their annual report.

• The companies to have good notification procedures in their operations.

In addition to these general expectations, there are four areas which the government believes are so important for the development of the companies that special expectations have been formulated. The government also aims to enable companies to use the “comply or explain” principle here in order to adapt to their own operations.

The government’s expectations relating to human rights

Public authorities have a vital responsibility to safeguard human rights. However, others can also contribute to the safeguarding of human rights. The government believes that this is also relevant to the companies, including State-owned companies. The government expects State-owned companies to respect fundamental human rights in everything they do, including the rights of children, women, minorities and indigenous people, as they are set out in international conventions. The companies are also expected to follow up this area with respect to their suppliers and business partners.

The government expects:

• Companies with international operations to integrate circumstances linked to human rights as they are set out in international conventions in their guidelines concerning corporate social responsibility.

• Other companies, particularly companies which have international suppliers or business partners, to consider including this in their guidelines.

The government’s expectations relating to labour rights and decent working conditions

Companies with a State shareholding, regardless of where they operate, are expected to respect and promote decent working conditions which safeguard fundamental labour standards and give workers a decent wage. The ILO’s eight core conventions are considered to be fundamental to the field of working life and are deemed to represent a minimum standard. The core conventions cover fundamental principles and rights within working life: the freedom of association and the right to collective bargaining, the elimination of all forms of forced and slave labour, the elimination of child labour and the elimination of all forms of discrimination in working life.

Companies with extensive international operations may face different challenges to companies that operate in Norway. The Norwegian labour market is generally well regulated and there is widespread cooperation between employees and employers. Norwegian companies with international operations can contribute to the development of labour rights in other countries which have not progressed as far within this field and to the establishment of global framework agreements with the union movement.

The government expects:

• Companies with international operations to integrate circumstances relating to workers’ rights in their guidelines for corporate social responsibility.

• Other companies, particularly companies which have international suppliers or business partners, to consider including this in their guidelines.

• Companies with operations in Norway to act with a long-term and responsible approach to reorganisation processes and to carry out these processes in a dialogue with employees and local communities.

• Companies to be leaders as regards HSE covering both national and international operations, and for corresponding requirements to be imposed on suppliers and business partners.

The government’s expectations relating to anti-corruption and transparency concerning monetary flows

Corruption is a major social problem and hinders democratic, social and economic development in certain parts of the world, particularly in developing countries. Various forms of corruption also occur in the industrialised world and in Norway. Strict requirements concerning transparency and openness are effective instruments in the work to combat corruption and also help to illuminate the various dilemmas that the companies may face in different contexts.

Transparency concerning monetary flows is also important in order to fulfil the tax responsibilities of the companies in the various countries in which they operate. This is particularly relevant in certain developing countries where low tax revenues are important causes behind poverty. One of the reasons for low tax revenues is a lack of transparency in the global financial system.

The government expects:

• Companies with a State shareholding to integrate the work to combat corruption into their guidelines concerning corporate social responsibility.

• The companies to demonstrate the greatest possible degree of transparency linked to monetary flows, including tax.

• Companies with international operations to adhere to the OECD’s guidelines relating to taxation and, as part of this, to endeavour to avoid using tax havens which do not follow Global Forum’s standards concerning transparency and the effective exchange of information relating to tax matters and which refuse to enter into tax information agreements with Norway.

The government’s expectations relating to environmental and climate-related initiatives

The government is aiming for Norway to be a pioneering country with regard to the environment and climate policy. In order for future generations to have access to a good environment, a stable climate and rich natural diversity, environmental considerations must permeate everything we do. This also covers the way in which businesses act. If the climate challenge is to be overcome, international cooperation, which is largely an public authority responsibility, will be necessary. Nevertheless, the involvement of companies in overcoming environmental and climate challenges is vital. Companies can contribute through more environmentally friendly and resource-efficient operation within their own business, as well as through the development of new technology, innovation and new environmentally friendly goods and services. The government’s objective is for companies in which the State has a shareholding to be leaders in their sector with regard to low waste and the development of climate-friendly technology. The government believes that companies with a State shareholding should develop and take into use the best possible technology in order to reduce their environmental and climate impact. The government believes that companies that are at the forefront of development as regards innovation and environmentally friendly resource use can achieve both financial and market advantages in the long term.

The government expects:

• Companies with a State shareholding to integrate the work relating to the environment and climate into their guidelines concerning corporate social responsibility.

• State-owned companies to be at the forefront in terms of environmental initiatives within their sectors.

• The companies to contribute to the development of and to use environmentally friendly technology within their respective fields. The major companies have a special responsibility in this regard.

• The companies to identify and report on key measurement parameters linked to their environmental and climate impact in a dialogue with key stakeholders.

5.4.2.3 The government’s monitoring of corporate social responsibility

The government will use the owner dialogue to monitor the way in which the companies handle the established expectations. In order to do this appropriately, it is assumed that the owner ministries have sufficient information and the necessary expertise with regard to the key issues that the companies face. The government therefore believes that it would be beneficial for both the owner ministries and the companies to make use of the skills of the various voluntary organisations which have many years of experience of working within these areas. The government will take the initiative to ensure that annual stakeholder meetings are held between the owner ministries and the voluntary organisations to assess issues and to raise the level of knowledge of the companies and the challenges that they face. The Ministry of Trade and Industry will be delegated responsibility for coordinating such meetings.

The owner dialogue

The owner dialogue with the companies will remain the key instrument at the disposal of the owner administration in order to monitor the companies’ work relating to social responsibility. This means that corporate social responsibility will continue to be brought up at the regular quarterly meetings and at the annual meetings concerning corporate social responsibility that are held with the companies. The division of roles between owner, board and the corporate management establishes the framework for this owner dialogue. The boards and the corporate management teams are responsible for assessing the government’s expectations with regard to the expectations of other stakeholders and for safeguarding the company’s assets in a holistic manner. The government expects the boards of the companies to assess and adopt an active approach to the expectations of the government with regard to the work of corporate social responsibility.

The owner dialogue is an instrument that is used to a greater or lesser extent by all types of owners, such as private institutional investors, private equity owners and Norwegian State-owned financial investors such as the Government Pension Fund. In its direct ownership, the State is in most cases either the sole or majority shareholder in the companies. In cases where the State is a joint owner together with other parties, the interests of the minority shareholders must also be safeguarded. In the owner dialogue, the State expects companies to have guidelines, routines and operating procedures and follow-up in place in order to fulfil their social responsibility. The companies’ boards and management are responsible for formulating and operationalising routines and guidelines and for ensuring that there is transparency concerning such routines and guidelines.

Transparency concerning corporate social responsibility in the annual ownership report

The companies are responsible for relevant and accurate reporting of the company’s operations with regard to both financial and other circumstances. In this Report to the Storting, the government expresses clear expectations concerning the reporting of the companies and boards with regard to corporate social responsibility. In the annual report regarding the State’s direct ownership, the government will be transparent as regards the way in which the companies have been followed up during the year. In the discussion of each individual company, a general description will be given concerning the way in which the company has worked with regard to social responsibility during the past year. With regard to this, the need for transparency must be weighted against the consideration that processes have not been completed and the circumstances of the individual company.

The Ministry of Trade and Industry as an advisor and coordinator for the administration of companies by the ministries

The ownership administration is spread across a number of ministries that exercise State ownership, with companies with commercial objectives primarily being administered by the Ministry of Trade and Industry and the sectoral policy companies being administered by the sector ministries. The government also wants the Ownership Department of the Ministry of Trade and Industry to play an advisory and coordinating role with respect to the other owner ministries as regards the follow-up of expectations relating to corporate social responsibility. The Ministry of Trade and Industry will also contribute as and when necessary to ensuring that expectations linked to all the companies are formulated. Such expectations will be based on the expectations which are expressed in this Report to the Storting, but adapted to the individual company’s operations and relevance.

The government expects State-owned companies above a certain size to report in accordance with the Global Reporting Initiative. For certain companies, both State and privately owned, the fact that the reporting norm is only available in English may represent an additional barrier. The government will therefore contribute to the translation of GRI into Norwegian, thereby making it more accessible for the whole of industry.

5.4.3 The government’s expectations relating to research, development, innovation and expertice

The Government expects commercial companies with State shareholdings to manage their businesses according to what is in the best interests of the company and its shareholders in a long-term perspective. The development of a company is partly dependent on whether it has an innovating and long-term company culture. In the case of major international industrial and technology-based corporations, the ability to innovate will be a decisive factor in their future competitiveness. See the discussion of the reorganisation requirements in section 2.2.3.

Innovation has always been a pivotal source of value creation and in the development of the welfare society. Increased value creation primarily takes place when people utilise resources in new and smarter ways. By doing things in new ways or by developing new products and services, companies can produce things more cheaply and better or charge a higher price for what they produce, i.e. changes that increase the companies’ profitability and at the same time reinforce the basis for the welfare society.

Access to people with specialist knowledge is becoming an increasingly important competitive factor for the companies, which is also taken into consideration when the companies decide where to locate their operations. International competition has long been an important stimulus for innovation and reorganisation. Norwegian industries are accustomed both to international work sharing and to adjusting to the effects of international competition.

When they encounter strong international competition, the companies cannot utilise more resources within production than is strictly necessary. In order to achieve a satisfactory level of income, the government expects companies with a State shareholding to continually monitor technological and market developments and to organise their operations as efficiently as possible, in the same way as other private companies.

The competitiveness of the companies depends on their ability to employ and develop new knowledge and new technological and organisational solutions through new knowledge. Investments in research and development will vary from company to company, partly depending on the sector and the company’s lifecycle, size and strategy.

Relating to new knowledge and new technologies is of strategic importance for most companies. The Government has high ambitions with regard to R&D within business and industry, and also expects State-owned companies to have a considered approach towards their own R&D. The boards and corporate management are expected to work actively with regard to research, innovation and skills development in order to grow their businesses and facilitate the 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 of other research environments and companies. Companies also have access to the research policy instrument system, which can support their own initiatives.

Boks 5.12 Norsk Hydro – leaders in Europe within the field of modern and environmentally friendly construction systems

Hydro is a leading manufacturer of aluminium construction systems and the largest player in Europe. In 2009, the company had a turnover of some NOK 6 billion and just under 3,000 employees spread across 150 locations, primarily in Europe.

Hydro supplies advanced aluminium windows, doors and facades through three brands, Wicona, Technal and Domal/Alumafel, which are aimed at different market segments. Through a strong focus on research and technological development, Hydro has developed construction systems which significantly reduce energy consumption in buildings. Hydro estimates that around 40 per cent of the world’s energy consumption is due to buildings, and more energy-efficient buildings therefore represent an important part of the solution to the climate challenge. Hydro’s energy-efficient solutions can also be used in connection the refurbishment of existing buildings.

Aluminium products are used in modern energy-efficient buildings in many areas, as aluminium is strong and light and can be shaped, and is ideal for turnkey solutions for ventilation, solar blinds, heating and cooling.

In 2009, Hydro built a test centre in Germany which is equipped with a geothermal heat pump, solar panels and facades which regulate and utilise light, heat and ventilation efficiently. The building should be energy-neutral, but is currently generating far more electricity than it is consuming and power can be sold to the local grid.

Kilde: The photograph shows Vodafone’s new Italian head office in Milan, for which Hydro has supplied the facade solution.

Kilde: Norsk Hydro ASA

Many of the companies with a State shareholding are leading industrial companies in Norway. These companies play an important role within Norwegian industry and business. It is important that these companies contribute to good technological development, the development of strong industrial clusters, seeding and increased value creation.

Companies in which the State has a large shareholding are amongst the leaders within R&D in Norway. In a new ranking by the European Commission of the world’s companies by research activity, there are seven Norwegian companies among the thousand largest (Table 5.2), five of which have a substantial State shareholding. There are now more Norwegian enterprises amongst the major players than ever before.

The ability of companies to develop and employ new knowledge and technology, and thereby enhance their competitiveness and adaptability, is closely linked to the skills that the employees possess. Norway generally has a highly educated population, and employees in both the public and the private sector possess a high level of competence generally. Sufficient expertise is partly ensured through each company having a considered and long-term recruitment policy. However, it is at least as important that the companies update and further develop their employees’ skills, so that both the companies and the individual employees themselves are as well-equipped as possible to face new demands and the need for change.

The government expects companies with a State shareholding to have a conscious attitude towards the skills of their employees and to work continually and actively on competence development, so that their employees at all times have the knowledge and skills they need in order to develop the companies further.

Professional and vocational training represent an important aspect of the Norwegian education system. Industry’s contribution, through training within the companies, is a pivotal aspect of professional and vocational training. Forecasts of labour requirements show an increase in the need for skilled workers. Similarly, the number of jobs which require only a compulsory school education as the highest level of education is set to fall. The government expects companies with a State shareholding to take responsibility for recruiting apprentices.

5.4.4 The government’s expectations concerning the remuneration of senior executives

The government bases its policy on the Norwegian social model which has a good social safety net, relatively low differences in pay and extensive collaboration between employee and employer organisations. This will provide the best possible foundation for the development of the framework conditions for the labour market and employment. It gives the companies flexibility, which facilitates reorganisation and also offers those affected by reorganisation a social safety net. The Norwegian model is also characterised by a dialogue between key players in society and a predictable economic policy. The tripartite collaboration between the employee and employer organisations and the authorities is a central arena for dialogue and contributes to economic development, even in markets that are exposed to competition. The collaboration helps Norway to achieve the most important objective of its economic policy, work for all. In turn, this contributes to a high level of value creation. In order for companies to maintain their competitiveness, it is important that the pay of senior executives is linked to production increases and does not weaken Norway’s competitiveness.

The government launched the current guidelines concerning the State’s position on senior executive remuneration in State-owned companies in December 20065. These guidelines were launched partly as the result of a desire on the part of the government to bring to a halt an undesirable trend in the pay of senior executives, which leading to a widening gap between the remuneration of senior employees and that of the rest of the workforce.

The government believes that these principles should also apply to senior executives. The trend in remuneration amongst the senior executives of State-owned companies is thus an area that the State as owner both can and wishes to influence. If moderation is expected from ordinary wage-earners, it is vital that the same responsibility also applies to senior executives. If senior executives fail to demonstrate moderation, it will be impossible to expect other groups to show such moderation.

The government has noted the Parliament’s consideration of Recommendation to the Storting no. 246 (2010–2011) linked to the remuneration of senior executives and will follow this up in its further work.

Against the background of this and the trend in the remuneration of senior executives in recent years, the government will revise the guidelines with effect from 1 April 2011. The new guidelines are enclosed as an attachment to this Report to the Storting.

The guidelines apply to senior executives within State companies, regional healthcare enterprises and special law companies, as well as public limited companies and limited companies in which the State has a direct shareholding. The term ‘senior executive’ must be understood in the same way as set out in the Accounting Act6. The guidelines are intended to help protect the value of the State’s shareholdings. They set out the considerations on which the State will place emphasis in its voting when the board’s senior executive pay awards are considered by the companies’ annual general meetings.

The guidelines are intended to provide guidance and form a basis for the boards of State-owned companies in connection with their adoption of principles for the pay and employment conditions of senior executives. The ministries that exercise State ownership will base their follow-up of the guidelines on a “comply or explain” principle. This means that the State will expect the companies to follow the guidelines and that any deviation from them must be justified with the entitlement to an exception in accordance with the guidelines. The follow-up of the guidelines will be carried out within the framework of applicable company legislation and in accordance with generally accepted principles for corporate governance. The Ministry of Trade and Industry will have a coordinating and professionally responsibillity in order to assist other owner ministries in following up the guidelines with regard to their respective companies.

The key principles from the current guidelines will be continued. There is however a need for the guidelines to be tightened with regard to certain points. The primary objective of the guidelines remains to ensure that senior executive remuneration levels within companies with a State shareholding are competitive, but not above those of other similar companies. The government also believes that the guidelines have not had the effect on the trend in senior executive pay amongst wholly owned State companies that was anticipated in 2006. The revised guidelines therefore explain that the government expects companies with a State ownership to contribute to moderation in the pay levels of senior executives.

The principal element in the remuneration of senior executives should be the fixed basic salary. Any remuneration schemes with variable salaries must be based on objective and measurable criteria and they must be transparent and time-limited. There must also be clear links between the objectives behind the variable salary and the objectives of the company. It is important that variable salaries are not seen as a reward for circumstances over which the senior executives have little or no influence. The guidelines state that the total variable salary component in any one year should not exceed six months’ fixed salary, unless special considerations indicate otherwise.

Share options and other similar schemes must not be used by companies in which the State has a shareholding. However, if the guidelines permit the use of share programmes, i.e. programmes where salary components are paid in the form of company shares and where the shares cannot be sold until the end of a fixed binding period, such programmes may be used if they are particularly well-suited to achieving long-term objectives for the company. Share-based remuneration must be formulated so that it encourages a long-term contribution to the company. There must be a final allocation of rights, so that the recipient bears the full risk as regards both profits and losses. There should be a binding period for the shares of at least three years. Such schemes may only be used within listed companies.

Pension conditions for senior executives must be on a par with the conditions accorded to the company’s other employees. The total remuneration should not exceed 66 per cent of the pensionqualifying income. Consideration must be given to pensions that have been accrued through other positions. If it is necessary to offer senior executives a pension that is based on a pension qualifying income in excess of 12 base amounts (G), this must be arranged as a defined contribution scheme for a separate legal entity that is separate from the company with binding effect for the employer, limited to 30 per cent of the fixed salary in excess of 12 G. For companies that are either partly or entirely financed via the State budget, the general rule that the total pensionable salary should not exceed 12 G is being continued, unless competitive reasons require otherwise. In the case of advance agreements where a senior executive waives his or her entitlement to be covered by the dismissal protection provisions of the Working Environment Act, a severance payment may be agreed. Severance pay agreement should not be used in connection with voluntary resignation. The total salary during the period of notice plus the severance payment should not exceed 12 months’ fixed salary.

As regards listed companies and companies that are not deemed a small business under the Accounting Act7, the government expects the board to establish a suitable remuneration committee to prepare matters relating to the remuneration of senior executives for consideration by the board.

The board must have an overview of the total value of each individual senior executive’s remuneration and present this overview in a readily accessible form in the company’s accounts.

The government places great emphasis on moderation with regard to the remuneration of senior executives in State companies. Greater awareness of the government’s expectations is desirable. Given the above, the government intends to impose an expanded reporting obligation concerning senior executive remuneration policy on the boards of wholly owned State companies and State-dominated companies that are not defined as small businesses. The aim is to achieve this through the introduction of a provision in the articles of association of the companies – similar to that which currently applies to public limited companies – which requires the boards to submit to the annual general meeting a statement concerning the determination of pay and other remuneration to senior executives; for an advisory vote or approval. This will probably heighten the boards’ focus on the work relating to senior executive pay conditions and also give both the State as owner and the general public a better insight into senior executive pay levels within State-owned companies.

This will help to ensure that moderation with regard to senior executive remuneration rises is a prioritised task within the State’s ownership administration. This is a fundamental position that boards will be expected to place great emphasis on in connection with the formulation of their company’s senior executive remuneration policy. The follow-up of this will form part of the owner ministries’ assessment of the boards.

5.4.5 Composition of the board and the government’s expectations of the board

Administration of the company forms part of the board’s remit. It must ensure the appropriate organisation of the company, appoint the CEO and supervise the company’s day-to-day management and operations in general. The board must manage the company in the best interests of the company, the shareholders and the employees. The government believes that it is both vital and the State’s most important task to ensure that companies have appropriately composed and competent boards which manage the responsibility for the common good.

Election to bodies of companies with a State shareholding takes place at the general meeting or corporate assembly. In certain public limited companies, the board is elected through the corporate assembly. The preparatory work for the nomination of board members in listed companies is carried out through separate nomination committees, where the State, in conjunction with representatives of the other shareholders, seeks to achieve the best possible composition of the companies’ governing bodies. Through its representatives on the nomination committees, the State will ensure that the boards possess diverse expertise and experience, have sufficient capacity to perform their duties and are composed in a manner that is appropriate for the objectives relating to long-term value creation and other objectives that the State has for its ownership. The same considerations that are given emphasis with regard to companies with external nomination committees will be given emphasis in connection with the nomination of boards of unlisted State-dominated companies.

The government’s aim is for the board of a particular company to collectively represent the desired expertise based on the company’s business area and challenges, the expertise of the elected people, and the State’s objectives behind the ownership. With regard to companies with commercial objectives, emphasis will be placed on appointing representatives with a broad experience of business and industry and with expertise or experience within one or more of the following areas: management, sector experience, financial expertise, international experience, legal expertise, audit expertise, experience of mergers and acquisitions, experience of major reorganisation processes, social responsibility, social understanding, etc.

The government will place emphasis on differences in background experience in the composition of boards. A competent and relevant diversity will provide a broader decision-making basis, and the government believes that this will improve the quality of the work of the board. The government furthermore believes that scheme where one third of the board’s members are appointed by and from amongst the employees have worked very well in Norway for many years. This scheme has strengthened the board’s background experience and expertise and contributed to productive collaboration between the board, senior executives and employees.

The government will place emphasis on expertise, capacity and appropriate diversity when the State proposes people for election to boards and corporate assemblies. As part of these efforts, the State strives to achieve, as far as possible, equal representation of the sexes in election to the boards. As of the end of 2009, the proportion of women on the boards was 45 per cent within all the companies that are covered by this Report to the Storting. The government has an ambition for there to be more female board chairmen within the State-owned companies. The government will also place emphasis on geographic, cultural and social diversity, as well as a good age composition when the board is composed. The government believes that all these factors will contribute to good discussions and a broad basis for decision-making. The government believes that this is vital for the companies’ financial results and development.

For various reasons, it can be difficult to find candidates who fulfil these requirements. On occasions, such know-how must be built up through board work. There is therefore a need for continuity within many boards to ensure that expertise that is built up over time is not lost.

The Parliament has decided that Storting representatives should not be elected to positions within companies that are under the Parliament’s control, unless it can be assumed that the representative will not stand for re-election. There is also an unwritten rule that ministers relinquish such positions when they enter government. The same applies to secretaries of state. In addition to these restrictions, it must be expertise of relevance to the board position that determines board appointments, not political affinity or activity. Political involvement and experience can be useful expertise in a board with a broad composition.

Provisions have therefore been established according to which government officials and civil servants employed within a ministry or elsewhere in the central administration which have issues which concern the company as their case area, or who are employed by a ministry or other central administrative body which regularly considers issues of importance to the company or the sector concerned, should not be proposed for election as a member of the board or similar within the company. CEOs should also not be elected as a member of the board.

Elections to the boards will normally take place for a period of two years, in accordance with the general rule in the Limited Liability Companies Act. The boards’ work, expertise and challenges must however be assessed on an ongoing basis and replacements outside the period will therefore occur. The Ministry of Trade and Industry should play a coordinating role with regard to the other owner ministries in order to assist the owner ministries in finding candidates who fulfil these criteria.

Within the State’s ownership, company forms such as limited companies, public limited companies, State companies and special law companies have been utilised. Under company legislation, the executive management of the company falls within the remit of the board and general manager. The executive management of the company must be carried out in line with the interests of the company and shareholders. The development and reorganisation of the company’s operations and business and the assessment of major projects and long-term strategy are important tasks for the board. The State as owner promotes its interests through the general meeting/corporate assembly. Board members have an important responsibility to ensure that the company is managed appropriately. This means that the board must be composed in a way which enables it to handle what are considered to be the company’s key tasks and challenges. A broadly composed and competent board must be able to challenge the CEO and the company in order to ensure that appropriate decisions are taken. The board must handle the strategic management of the company within the framework that is set out by the owner, and as part of this must establish an appropriate balance between opportunities for growth and risk. In this role, the board should take the lead in the discussion concerning strategic paths for the company and pursue a dialogue with the senior management concerning such issues. On a more general level, a competent board should be an important discussion partner and support player for the company’s senior management. The board must also monitor the work of the senior management on the basis of established objectives and must therefore also play an independent role in relation to the senior management. The board chairman has a special responsibility to ensure that the work of the board works well. The board is also responsible for appointing and, where required, discharging the CEO.

For its part, the State as owner must evaluate the performances of the boards. In the case of elections to the boards, the State will assess the measures that the boards have taken and whether the companies’ results and the strategic challenges facing the companies indicate a need for changes to be made to the boards. The government expects the boards to evaluate their work with the aim of establishing a basis on which to develop the work of the board.

The government places emphasis on and wishes to see a good dialogue between the State as owner and the board in order to contribute to predictability and clarity as regards how the governance should collectively proceed within the framework of the essential commercial freedom.

5.4.6 The government’s expectations as regards diversity and equality

The government believes that the introduction of the rule concerning gender representation on the boards of public limited companies, State limited companies and State companies has been successful. This has also been the practice within the State-owned special law companies. In 2009, the proportion of women on the boards of public limited companies in Norway was approximately 40 per cent. In 2003, before the quota rule was introduced, the proportion of women in Norwegian public limited companies was below 10 per cent, a level that had been virtually unchanged for many years. No other country has such a high proportion of women as Norwegian public limited companies do today. The government will now work to increase the proportion of female chair of the board. A number of other European countries have introduced or are considering various forms of board quota, precisely because the natural trend is progressing so slowly. France and Belgium have recently introduced legislation which ensures a balanced gender representation on boards.

Although the gender representation on the boards has been an essential step in order to ensure diversity, it is not sufficient to secure diversity at every level within the companies. There are still too few women in senior executive positions within Norwegian companies. This view is for example supported by figures from an annual survey conducted by the World Economic Forum8, which shows that Norwegian companies are not particularly well placed as regards women in senior executive positions. The proportion of female senior executives in Norwegian companies for example is just 12 per cent. The survey shows that women give the following two factors as the most important reasons why there are so few female senior executives: male-dominated company cultures and the lack of opportunities to acquire the necessary experience and responsibility within the company.

Women in Norway also account for over half of the places in higher education, and women are generally also well represented as employees within private industry. The government therefore believes that it is a paradox that there are not more female senior executives in Norway. It is vital that the best expertise is secured for such positions and the companies must therefore ensure that competition for senior executive posts is increased through more women applying for such posts. The government believes that the companies must find a new approach with regard to this.

Surveys conducted by the consultancy firm McKinsey & Company9 indicate a positive correlation between a company’s performances and the proportion of women in the senior management. The McKinsey survey shows that companies with a senior management with a well-balanced proportion of both genders develop financially more strongly than other companies. McKinsey points out that this is because a balanced senior management is better able to understand the company’s challenges and therefore also achieve better results. The government believes that we must consider equality within industry as a competitive advantage which can help companies to overcome global challenges. As an owner, the State believes that the companies must work purposefully on this.

The government believes that the goal of a good gender balance within the boards is an essential factor, but not in itself sufficient, to ensure the full utilisation of human resources in order to promote competitiveness. A company that remains competitive in the long-term is an inclusive company within which diversity is valued and all employees are given opportunities to develop their skills and talents in relation to the company’s values and strategies. In order to succeed in this, the company’s senior management must take the lead, not just through policy formulations but also through their actions. As in many other areas, the attitude and signals given out by senior executives are vital for the development of the company culture.

The government believes that it is important that Norwegian industry uses the best resources available in order to taken on the ever-increasing international competition. As a high-cost country, Norway’s comparative advantage is based not on cheap labour but on expertise and the ability to innovate. Given this, the best available expertise must be used at every level, including the senior management level. Norwegian companies should establish strategies for the way in which the best expertise can be employed within the companies, including the way in which women and minority groups can be recruited to senior management positions. As an owner, the government believes that this will help companies to achieve the best possible return and financial results over time. The government expects companies with a State shareholding to prepare a strategy for the way in which the best expertise within the company can be utilised. The State expects the companies to develop positively and to report on initiatives and developments. This will be brought up in the owner dialogue with the companies.

5.4.7 The State’s principles for corporate governance

The government believes that good corporate governance is of great importance for the nation’s overall economic efficiency and competitiveness. The principles of good corporate governance imply, amongst other things, a clear distinction between roles and ensure a tidy decision-making processes. Good corporate governance reduces the risks to which the company is exposed and is of importance as regards the market’s trust in the companies.

The State has substantial shareholdings within Norwegian industry. The manner in which the State acts as an owner therefore has a strong influence on public and investor confidence in Norwegian companies and the Norwegian capital market.

Like private companies, both public undertakings and State-owned companies must continually adjust to changing requirements and circumstances. Goals and strategies must therefore be developed for the individual companies in response to changes in society. Far-reaching and successful structural changes in a number of wholly and part-owned companies, which were formerly part of public sector activities, testify to the State’s adaptability and active support in such processes.

Boks 5.14 DnB NOR’s work relating to equality and diversity

One company that has established clear goals for its work relating to equality and diversity is DnB NOR ASA. In its 2010 annual report, the group states that the company’s working environment must be characterised by diversity, respect and consideration. In 2010, a process was initiated to establish specific goals and measures to increase the employment and integration of people with a disability. Work was also started to develop a new employee policy, which will cover the areas of equality and diversity.

The company has stated that it aims to give men and women the same opportunities for professional and personal development, pay and promotion. The board of DnB NOR have established a goal for the company of the four most senior managerial levels within the group to consist of at least 30 per cent women. In order to achieve this, the group has established flexible schemes which help employees combine their career with their family life. In 2010, the proportion of women within the corporate management was 40 per cent, which was unchanged from 2009. Within the fourth and fifth most senior management levels, the proportions of women were 27 and 33 per cent respectively.

The proportion of women within the group as a whole was 55 per cent.

Kilde: DnB NOR’s annual report for 2010

The State has formulated key principles for its corporate governance; cf. box 5.15. The principles are aimed at all State companies, regardless of whether they are wholly or partly owned, and are in line with generally accepted corporate governance principles prepared by the Norwegian Corporate Governance Board (NUES) and the OECD, amongst others. The principles concern important considerations such as equality, transparency, independence, board composition and the board’s role, etc. and help to create predictability and a clear framework around the State’s ownership.

5.4.8 Transparency concerning the State’s ownership

Transparency is important in building confidence in State ownership. It fulfils a democratic consideration in that the general public gain access to information. Transparency on the part of the companies also enables the State as an owner to continually assess results and developments within the companies as part of its professional corporate governance. This means that both the State as an owner and the companies have a responsibility to be transparent.

The principle of public access to documents in the work of the public administration and case documents is inscribed in Norwegian legislation and practice and regarded as a fundamental democratic principle. The requirement for public access was further strengthened through a new Freedom of Information Act10 in 2006.

The public right of access to the activities of the public administration, and therefore to be apprised of, to influence and inspect such activities serves to challenge and instil confidence in the public administration. This public right of access helps to ensure that the debate within society is as well-informed as possible. A high degree of transparency could limit possible misunderstandings and increase the predictability linked to the State’s corporate governance. This could have a positive impact on the valuation of the State’s shares.

In some contexts, it is necessary to except certain material from the public right of access in order to exercise the ownership in an appropriate manner. This would include sensitive information pertaining to the stock exchange and documents with commercial content. There is also a requirement regarding the deferral of public right of access in cases being processed by the Office of the Auditor General. It is however a general rule that such exemption authorities are not exercised to a greater extent than is necessary.

All important matters concerning companies which pertain to the relationship between the Parliament and the government are reported on an ongoing basis in Storting publications. These are typically matters concerning changes in shareholdings, matters with budgetary consequences or matters of special political interest, including ownership strategies for certain wholly owned companies. In addition, it will be appropriate to establish separate guidelines for companies linked to socially oriented tasks and priorities.

The Ministry of Trade and Industry publishes an annual ownership report11 on financial trends within the companies, key events and a survey of their boards, etc. Around 50 State-owned companies are covered by the ownership report, including all the companies that have commercial objectives, as well as key companies with sectoral policy objectives. A simpler interim report is also published, but is only available in an internet version.

The government has also prepared the government’s owner policy document, which summarises and updates the government’s policy with regard to ownership during the period between the Storting reports.

In recent years, the Ministry has organised an annual ownership conference to which individuals with diverse standpoints and experience of Norwegian and foreign business and industry are invited to discuss current issues linked to ownership. These conferences will be continued.

Transparency surrounding key considerations linked to their operations is also something that the government expects from State-owned companies. The government expects the companies to have an open dialogue with the outside world concerning financial matters and the work relating to social responsibility and environmental issues. Both annual reports and the companies’ websites are appropriate information channels in this context.

5.4.9 Organisation of the State’s ownership

The administration of the direct State ownership is distributed between a number of ministries. Administration of the ownership of the commercial companies is largely delegated to the Ministry of Trade and Industry, whilst companies with sectoral policy objectives are administered by the relevant sectoral ministries.

The ownership that is administered directly by the ministries largely consists of strategic shareholdings. However, the State has also invested considerable sums of money on the Norwegian stock market through other sources. This particularly applies to the Government Pension Fund Norway, which is administered by the National Insurance Scheme Fund on behalf of the Norwegian State. Almost NOK 57 billion had been invested in Norwegian listed companies as of the end of June 2010. The National Insurance Scheme Fund has a mandate to buy and sell shares in individual companies, but has no shareholdings in excess of 15 per cent. State-owned Argentum Fondsinvesteringer, Investinor and various seed funds are also present in the market with purely commercial mandates.

For several years, processes have been under way for differentiating the State’s role as owner and exerciser of authority. Companies such as Arcus AS, BaneTele AS, Cermaq ASA, DnB NOR ASA, ECC AS, Entra Eiendom AS, Flytoget AS, Grødegaard AS, Mesta AS, NOAH Holding AS, Norsk Eiendomsinformasjon AS, Norsk Medisinaldepot AS, SAS AB, Secora AS, SIVA SF, SND-Invest AS, Statkraft SF and Telenor ASA have been transferred from other ministries to the Ministry of Trade and Industry since the end of the 1990s. This is in line with the OECD’s recommendation to coordinate commercial ownership insofar as is possible. A number of these companies have since been part-privatised (Cermaq ASA, Telenor ASA) or sold in their entirety to private sector owners (Arcus AS, Bane Tele AS, Grødegaard AS, NOAH Holding AS, Norsk Medisinaldepot AS and SND-Invest AS).

The work to clarify an organisational divide between the various roles of the State and bring together the direct commercial, strategic ownership in one place within the central administration has helped to professionalise and strengthen the trust in the State’s corporate governance.

The government believes that its shareholdings in commercial companies should continue to be administered by the central ownership, which currently rests with the Ministry of Trade and Industry, unless special considerations indicate that other solutions would be more appropriate. However, no changes are proposed in this Report to the Storting with regard to which owner ministry administers each company.

An inter-ministerial study is under way under the Ministry of Government Administration and Reform concerning the use of governing instruments with respect to companies that have a sectoral policy remit (including the use of regulation, financial instruments and corporate governance). These are companies in which the State as owner may have an interest in influencing the company’s organisation, content and operation, and in which this takes place through the use of various instruments such as corporate governance, regulation and financing. The government will notify the Parliament of the recommendations and follow-up of these in an appropriate manner when the investigatory work has been concluded during 2011.

Substantial assets are administered through direct State ownership. As an example, the value of the shareholdings held by the Ministry of Trade and Industry as of 31 December 2010 is in excess of NOK 300 billion12. By way of comparison, around NOK 40 million is spent on the administration of these assets. Compared with what other State and private shareholders spend on administrating similar assets, this is a low figure13.

Fundamentally, the same requirement is imposed as regards professionalism in the exercising of direct ownership as for the State’s investment activity, which for example is administered through the National Insurance Scheme Fund (SPN) and Norges Bank (SPU).

Given the central development trends and a stronger focus on new areas within corporate governance, as described in section 2.2.3, the exercising of good ownership has become a more demanding process. The government believes that it is necessary to reinforce the work relating to corporate governance and will facilitate the further development and professionalisation of the State’s corporate governance.

The ten fundamental principles for good State ownership will continue to form the basis of the government’s exercise of ownership. However, the government believes there is a need to increase capacity within a number of areas:

• The strategic and financial follow-up of the companies should be strengthened, partly through markedly stronger analytical follow-up and partly through the development of clearer strategic understandings of the companies’ development. This will provide a basis for a broader dialogue with the companies’ senior management. The government believes that this does not breach the distribution of roles between owner, board and general manager or involve unreasonable contact between the State as owner and the company, even within listed companies. On the contrary, it is an entirely central to the government’s ownership policy that the companies are managed in the best interests of the shareholders. For many smaller shareholders, the market will be represented through share prices and the assessments of analysts will act as a messenger between the shareholders and the company. The company often spends a considerable amount of time serving this market. However, this information does not necessarily reflect the interests or views of value creation for a long-term owner such as the State. It is therefore admissible for the State to have a broad contact with the companies in which it is a major shareholder, provided there is transparency surrounding this contact and provided it does not interfere with the board’s decisions. For an individual company, there may be benefits in pursuing a strategic dialogue with a major and competent shareholder. Such a role would be challenging and the government will facilitate this through the provision of greater capacity within corporate governance.

• The work to appoint and evaluate boards should be reinforced further. The State as an owner must have a clear understanding of the need for board expertise within each company. One aspect of this will be to reinforce the work relating to the recruitment of board members and to systematise the evaluation of the boards’ work. This applies to all areas of the administration and the government will develop the expertise and the supporting role of the Ownership Department within the Ministry of Trade and Industry as regards the recruitment of board members.

• Good corporate governance helps to increase the value of companies. The State should be a leader as regards the promotion of good corporate governance and, in particular, the social responsibility of companies. See the review of this in section 5.4.2.

  As part of the establishment of more ambitious goals for the State’s corporate governance, the government will strengthen the Ministry of Trade and Industry’s role as an expertise and resource centre for State ownership administration and reinforce the inter-ministerial collaboration with regard to ownership issues by developing the coordinating role of the Ownership Department. The aim is to help to ensure that the collective owner expertise of the ministries is utilised optimally, so that the government’s ownership policy is implemented appropriately. The State’s principles for good ownership, guidelines for the formulation of return targets and dividend expectations and guidelines for procedures in connection with board appointments and the formulation of expectations of the boards within areas such as corporate social responsibility and senior executive pay are such important joint tasks where the Ownership Department will be responsible for formulation and coordination.

• Within such a model, the ownership of purely commercial companies will largely be administered by the Ministry of Trade and Industry, whilst the ownership of companies which have a largely sectoral policy remit will primarily be administrated by the individual sector ministry.