3 Organisation of state ownership

3.1 The State’s various roles and the relationship with other policy instruments

The State’s role as a policy-maker and market regulator is distinct from its role as an owner. In order to assure the legitimacy of these roles and foster confidence in the State’s role as owner, these roles must be kept separate. The centralisation of state ownership and transparency on how the ownership is organized have served to reduce the conflict between the roles. Furthermore, in achieving specific objectives, it is often the case that regulatory measures, procurement of services etc. tend to be more precise and effective instruments than excercising shareholder rights.

The majority of the State’s commercial shareholdings is currently administrated by the Ministry of Trade and Industry. One important exception is Statoil ASA, which is administrated by the Ministry of Petroleum and Energy. NSB AS and Posten Norge AS operate extensively in competitive markets, but in certain areas play a key role in sector policy. The State’s ownership of these companies is therefore managed by the Ministry of Transport and Communications. Other sector policy companies such as the health care companies and AS Vinmonopolet are administrated by the Ministry of Health and Care Services, while NRK AS and Norsk Tipping AS are in the charge of the Ministry of Culture and Church Affairs.

The State normally exercises its authority through regulations (legislation and directions), by imposing conditions on licenses authorised by law, by granting licences, by signing contracts and by making executive decisions in individual cases. A related form of exercise of authority is the use of economic instruments such as procurement of services and levying of taxes and charges. The State is also able to exert its influence through dialogue with both public and private companies, in respect of expectations regarding corporate self-regulation and social responsibility for example.

The object of state ownership, competitive factors, budgetary and regulatory factors and so forth are all of great significance in determining which instrument is best suited for achieving certain political objectives. The desirability of extensive transparency concerning the use of public funds, and § 75 d of the Constitution concerning the Storting’s mandatory authority curb state ownership as an instrument. However, a number of companies were established specifically as political instruments. Examples of these are the special law companies: AS Vinmonopolet, Norsk Tipping AS, Innovasjon Norge (Innovation Norway) and the state-owned enterprise, SIVA (Industrial Development Corporation of Norway). Whether exercising the State’s shareholder rights is an appropriate instrument in order to achieve a political objective must be considered in each individual case compared with other available instruments.

3.2 Frameworks for state ownership

3.2.1 Constitutional frameworks

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

As a main rule, administration must be structured in such a way that the Government and the ministries are invested with instructive and supervisory authority over other bodies. This enables the Government and the ministries to achieve political objectives which may be founded in parliamentary resolutions, directives or the stated aims of the Storting. Insofar as it might be appropriate to establish separate administrative bodies for exercise of state ownership, these should then be organised in such a way that the Government and the ministry concerned are invested with instructive and supervisory authority over them.

Article 19 of the Constitution also regulates state ownership of enterprises:

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

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

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

Consent must be obtained from the Storting for any changes in State assets (acquisition and divestment of shares). Decisions regarding increase of capital are subject to the same requirements that apply to acquisition and divestment of shares.

State-owned enterprises will normally be permitted to buy and sell shares in other companies without requiring the Storting’s consent if the transaction is in logical extension of the formally stated objects of the companies activities. However, in private limited companies where the State is the sole shareholder, the consent of the Storting must be obtained in respect of decisions that would change the State’s commitment significantly. In part-owned companies, there might be issues of such magnitude that they must be brought before the general meeting (such as the demerger or merger of activities). Depending on the State’s shareholding in the company it may be necessary to submit such issues to the Storting, cf. Recommendation to the Storting no. 277 (1976 – 1977).

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

3.2.2 Other frameworks

Besides the frameworks that ensue from the Constitution and public administration law, exercise of ownership is chiefly governed by company law, competition law and stock exchange and securities law, which impose requirements on the exercise of ownership. Other central legal frameworks ensue from EEA regulations, among other things, rules regarding state aid.

Public ownership and the EEA Agreement

The EEA Agreement is essentially neutral on the question of public and private ownership, cf. articles 125 and 59 (2). At the same time, the prohibition against state aid in Article (1) of the EEA Agreement also applies to public undertakings. This limits the Government from favouring non-commercial interests in the exercise of state ownership. In order to determine when public funding to an enterprise constitutes state aid, the European Court of Justice and the EC Commission have devised the so-called market investor principle. If the Government furnishes capital on terms other than what a comparable private investor might have provided, this is then defined as «state aid». This means that the State is required to demand a normal market return on capital invested in an enterprise operating in competition with others. The EFTA’s Surveillance Authority monitors Norwegian compliance with the rules regarding state aid.

Regulations for Financial Management in Government

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

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

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

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

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

3. that goals set for the company are achieved

4. that the board functions satisfactorily

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

One important principle in relation to limited companies, state-owned enterprises and special law companies is that the State’s liability is limited to subscribed equity.

3.2.3 Administration of companies

The companies’ management consists of the board of directors and a general manager. The corporate form of limited company and the other organisational forms employed for state-owned enterprises are based on a clear-cut division of roles between shareholders and corporate management. According to article 6 – 12 of the Limited Liability Companies Act/Public Limited Companies Act and similar provisions in legislation governing companies, administration of the company is vested in the board and the general manager. This means that the commercial management of the company and responsibility for this is vested in corporate management. The board and general manager are required to practice their administration based on the best interests of the company and the shareholders. Within the general and special frameworks prescribed by the Storting for the enterprise, the State as owner furthers its interests through the annual general meeting/corporate assembly. Through their administration of the company, the members of the board and the general manager are subject to a personal liability in damages and criminal law as prescribed by general company legislation.

3.2.4 The minister’s authority in the company

The legal basis for the minister’s proprietary right in a State limited company is article 5 – 1 of the Limited Liability Companies Act, which reads:

«Through the general meeting, the shareholders exercise supreme authority in the company.»

A similar provision applies to the public limited companies, the state-owned enterprises and the main special law companies. In relation to the state-owned enterprises, the term «general meeting» is replaced by «corporate assembly», but is in reality identical.

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

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

Provisions in article 5 – 1 of the Limited Liability Companies Act/Public Limited Companies Act entail that the minister, through the general meeting, has supremacy over the board in State limited companies and may issue instructions which the board shall be bound by. These may consist of general instructions or special instructions in an individual matter. The alternative to the board ceding to the instructions of the general meeting, is for the members of the board to withdraw from office.

Another aspect of article 5 – 1 of the Limited Liability Companies Act/Public Limited Companies Act is that the minister in the capacity of the general meeting has no authority in the company if the general meeting form is not employed.

In part-owned companies, the foregoing requirements are necessarily modified out of regard for the other shareholders and the parity principle of the Limited Liability Companies Act, cf. article 5 – 21 of the Limited Liability Companies Act/Public Limited Companies Act. This means that the State, even if it is the majority shareholder, may not serve its own interests at the expense of the other shareholders in the company. The requirement regarding equal treatment of shareholders imposes a restriction, for example on access to free exchange of information between the company and the ministry. The company legislation also prescribes clear guidelines regarding the State’s dialogue with listed companies. However, this does not prevent the state from addressing matters in the public interest in the dialogue with a company, similarly as other shareholders and other stakeholders generally may do.

3.3 Details of how ownership control is exercised based on different shareholdings

Once the Storting has decided that the State is to engage in an undertaking organised as an independent legal entity, this has consequences for how political policies and other aims are to be communicated and how and to what extent interference may be allowed in the business’s operations.

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

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

The following discusses what a shareholder achieves in the way of influence in a company with a number of relevant shareholdings and how this affects the governance.

3.3.1 Wholly owned companies

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

The main differences for state-owned limited companies as compared with ordinary limited companies is firstly that the general meeting appoints shareholder-elected members to the board even if the company has a corporate assembly, cf. article 20 – 4 no. 1 of the Limited Liability Companies Act/Public Limited Companies Act. Furthermore, the King in the Council of State (Government) is granted access to review the corporate assembly’s/board’s decisions in matters where significant public interests may call for a reversal of the decision cf. article § 20 – 4 no. 2 of the Limited Liability Companies Act/Public Limited Companies Act. In state-owned limited companies, the general meeting is also not bound by the board’s or the corporate assembly’s proposal for the distribution of dividends, cf. article 20 – 4 no. 4 of the Limited Liability Companies Act/Public Limited Companies Act.

There is a duty to have representation of both sexes on the boards of state-owned limited companies and their wholly owned subsidiaries, cf. article 20 – 6 of the Limited Liability Companies Act. The same applies to state-owned enterprises and public limited companies generally, cf. article 19 of the Act relating to state-owned enterprises and articles 6 – 11a and 20 – 6 of the Public Limited Companies Act. The Office of the Auditor General also has extended right of audit of the minister’s administration of the State’s shareholdings, cf. article 20 – 7 of the Limited Liability Companies Act/Public Limited Companies Act.

In wholly owned companies, shareholders may, through decisions at the annual general meeting, impose obligations on the company with the effect of reducing the company’s financial results without this coming into conflict with article 5 – 21 of the Limited Liability Companies Act/Public Limited Companies Act (misuse of the annual general meeting’s powers), cf. also article 6 – 28 of the Limited Liability Companies Act/Public Limited Companies Act (misuse of position in the company etc.).

The State’s liability in limited companies, state-owned enterprises and special law companies is limited to subscribed equity. If the shareholder goes too far in controlling the company in commercial matters, this may result in creditors filing claims against the State by invoking law of tort or of corporate law concerning piercing of the corporate veil. For this reason, among others, companies are to be compensated by means of separate allocations if they are instructed to make investments or undertake other activities that their board does not find commercially justifiable.

3.3.2 Part-owned companies

In cases where the State is a joint shareholder in a company, company law imposes restrictions on the types of resolutions that may be passed at the annual general meeting, cf. article 5 – 21 of the Limited Liability Companies Act/Public Limited Companies Act (misuse of the annual general meeting’s powers). In principle it is therefore explicit limits to what political aims may be furthered through the exercise of shareholder rights in part-owned companies.

In Official Norwegian Report, NOU 2004:7 p. 33, the preparatory committee on state ownership reports on the rules regarding protection of minority interests:

«In the majority of companies in which the State has a proprietorial interest, the State’s shareholding would normally give a controlling interest. In spite of its controlling status, the State may not exercise its ownership of companies without showing regard for the interests of minority shareholders. The provisions of the Limited Liability Companies Act for protection of minority interests are particularly pertinent to the State in its role as part-owner. The purpose of these provisions is to protect the rights of the minority shareholders in relation to the majority shareholder. The two company acts lay down a number of rules which give a minority share of the company’s shareholders influence over and above that which ensues from the majority principle. The main provision is article 5 – 21 of Limited Liability Companies Act/Public Limited Companies Act. This provision prohibits the general meeting from passing any resolution designed to give certain shareholders or others an unreasonable advantage at the expense of other shareholders or the company. The reason why this provision may be pertinent to the State is that its ownership may be based on objectives other than purely commercial ones. The State may therefore have different preferences than other shareholders. Whether or not the realisation of other State objectives constitutes an unreasonable advantage over other shareholders in the company, will rest on a comprehensive assessment that must take into account the «scope of the benefit, the company’s standing and the general circumstances 1».

Depending on the size of the State’s shareholding, it will still be possible to further a number of important objectives, such as ensuring that head office functions remain in Norway, control over natural resources etc.

The following ownership thresholds are central in company legislation:

9/10

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

2/3

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

1/2

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

1/3

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

3.3.3 Unequal voting shares

In certain countries the practice has been to operate with a special class of shares or an individual share with special (veto) rights for government organisations known as ‘golden shares’. There is no tradition for operating with such shares in Norway and the EU currently only permits use of golden shares in very special circumstances. The Norwegian Code of Practice for Corporate Governance states that all shares should be accorded equal rights in the company. The use of such shares is hence to only a very limited extent an alternative of maintaining a large shareholding where it is regarded as important to exert political control over key decisions. Instead, the prevailing opinion through changing governments has been that proportionality should be maintained between capital invested and influence. On that basis, there has been no move to introduce special rights for the State as a shareholder.

3.3.4 Mandatory bid obligation

According to Part 1 of Section 4 – 1 of the Securities Trading Act, any person who through acquisition becomes the owner of shares representing more than 40 per cent of the voting rights in a Norwegian listed company is obliged to make an offer to purchase the remaining shares in the company. This entails that a decision to raise the State’s shareholding in a company above this threshold value may result in an unintended large shareholding.

In Norwegian Official Report NOU 2005:17, the preparatory committee for the Securities Trading Act presented a sub-recommendation including draft amendments to the rules regarding takeover bids (voluntary and mandatory bids in acquisition of companies) in order to implement in Norwegian law Directive 2004/25/EC of the European Parliament and of the Council on takeover bids. The Directive entails new requirements in relation to current Norwegian law, especially as regards voluntary bids.

In NOU 2005: 17, a committee majority proposes lowering the threshold for acquisition of shares representing more than 40 percent of the voting rights in the company to one-third of the voting rights. A majority also proposes a repeated bid obligation on acquisition of shares representing more than 50 per cent of the voting rights in the company. The committee’s proposal will be considered by the Government and brought as a separate matter before the Storting.

3.4 Procedures in the exercise of state ownership

3.4.1 Contact with the company

The tasks of the ministries exercising state ownership involve monitoring the companies’ financial results and general status. A number of ministries hold regular meetings with the management of the companies. The matters at issue may concern discussions of economic trends, communication of the State’s expectations regarding return on investment and dividends or briefings on strategic issues involving the companies. One-to-one meetings with company management take place in a similar fashion to those usually held between limited companies and other large investors. The meetings are conducted within the frameworks prescribed by companies and securities legislation, not least as regards the criterion for equal treatment of all shareholders.

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

The State as shareholder is not usually privy to more information than what is publicly available to other shareholders. Under special circumstances, where the State’s involvement is required in order to carry out a demerger, merger or the like which entail that the Government obtains a mandate from the Storting, it will at times be necessary to disclose insider information to the ministry. In such instances, the State is subject to the ordinary rules regarding the treatment of such information.

3.4.2 Election of board of directores and members to corporate assemblies

The ministries charged with ownership responsibilities ensures that the companies have competent board of directors that satisfy the requirements that ensue from the companies’ strategic challenges and serve the interests of the general body of shareholders.

Active politicians, including members of parliament, ministers and state secretaries, and government officials and civil servants who within their remit exert regulatory or controlling authority over the company or deal with matters of substantial import for the company, can not be elected to the board of directors. This is a condition established to avoid any conflicts in legal capacity or conflicts of interest that might well arise if the interests of the general body of shareholders do not coincide entirely with those of the State.

The State has no own board representatives in part-owned companies. It is expected that all members of the board seek to attend to the company’s and the shareholder’s common interests.

The State expects the boards of directors of all companies with State shareholdings to perform an evaluation of their own activities. The board’s self-evaluation should include an assessment of the board’s composition relevant to the company’s competency requirements, and the manner in which members of the board function both as individuals and as a group in relation to the goals set for their assignment.

The nomination of board members in listed companies is usually done through separate nomination committees. As a main rule, the State will seek to be represented on the nomination committees on which the State, in conjunction with representatives for the rest of the general body of shareholders, will seek 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 embody diverse competencies and have sufficient capacity to discharge their duties, including that the boards of large companies include representatives who possess an understanding of and insights into matters of public interest. At board elections, the State will also review the work performed by the boards, and whether the strategic challenges faced by the boards dictate the need for changes to their composition. Boards and corporate assemblies must also reflect a balance of men and women.

The nomination committee will usually also present proposals regarding remuneration. In companies in which the State owns shares, remuneration is expected to be comparable with that paid by comparable private limited companies.

The boards are normally elected in full, and with a term of office of two years in conformance with article 6 – 6 of the Limited Liability Companies Act.

3.4.3 Principles of corporate governance

Good corporate governance is of great importance for the nation’s overall economic efficiency and competitiveness. The principles of good corporate governance entail, among other things, a clear distinction between roles and ensure the transparency of decision-making processes. Good corporate governance reduces the risk of the undertaking. This is of vital importance for the market’s confidence in the companies and hence also for the companies’ capital costs. Long-term value creation is best achieved through sound, transparent processes between the companies and their shareholders, in which the parties are aware of their roles and responsibilities.

The State owns a substantial proportion of society’s financial capital, and companies with State shareholdings constitute a considerable proportion of the Norwegian capital market and Norwegian value creation. The manner in which the State acts as an owner therefore has great influence on public and investor confidence in the Norwegian capital market.

Like private companies, both public administration and state-owned companies must continually adapt to changing requirements and circumstances. Goals and strategies for the individual companies must therefore be developed in response to changes in society. This is borne out by practice: major and successful structural changes in a number of wholly and part-owned companies, which were formerly part of public administration, demonstrate that the State has been adaptable.

3.4.3.1 The State’s principles of good corporate governance

The State has formulated its own main principles of good corporate governance. These principles are aimed at all state-owned enterprises, whether wholly or part-owned, and conform to generally accepted principles of good corporate governance. The principles concern key aspects such as equal treatment, transparency, independence, the composition and role of the board, etc.

3.4.3.2 The Norwegian Code of Practice for Corporate Governance

On 28 November 2006, the Norwegian Corporate Governance Board (Norsk utvalg for eierstyring og selskapsledelse: NUES) presented a revised version of the Norwegian Code of Practice for Corporate Governance. NUES comprises representatives of different interest groups representing shareholders, issuers of shares and Oslo Børs. The following nine organisations established NUES and endorse the Code of Practice: Norwegian Shareholders Association, Norwegian Institute of Public Accountants, Institutional Investor Forum, Norwegian Financial Services Association, Norwegian Society of Financial Analysts, Confederation of Norwegian Enterprise, Norwegian Association of Private Pension Funds, Oslo Børs and Norwegian Mutual Fund Association. Until autumn 2005, the Code of Practice was the responsibility of a working group of representatives from the nine organisations mentioned above. The nine organisations then established NUES. The NUES’ objective is to keep the Norwegian Code of Practice up-to-date. The State, represented by the Ministry of Trade and Industry, participated in the project through its membership of the Institutional Investor Forum.

The purpose of the Code of Practice is to promote maximum value creation in listed companies in the best interests of shareholders, employees, other stakeholders and other societal interests. The Code of Practice is intended to strengthen confidence in Norwegian companies and the Norwegian stock market.

Oslo Børs has introduced a requirement for listed companies to produce an annual statement of policy in conformance with the Norwegian Code of Practice for Corporate Governance, which is founded on the «comply or explain» principle. This means that a company must either abide by each of the recommendations that make up the code, or explain why it has chosen another solution.

The Code of Practice addresses matters such as equity, dividends, equal treatment, general meetings, the work and composition of boards of directors and corporate assemblies, remuneration, information, etc.

3.4.3.3 OECD guidelines on state-owned enterprises

Good corporate governance of state-owned enterprises promotes economic growth through productivity growth, improved profits, efficiency gains and enhanced competitiveness. By providing conditions conducive to increased access to capital for state-owned enterprises (both loan capital and owners’ equity) an enterprise may achieve more transparent and efficient use of resources, which promotes profitable investment and job creation.

Good governance of state-owned enterprises is therefore important, and many OECD countries have seen it as appropriate to seek to establish a standard for best practice in corporate governance of such enterprises. The Guidelines prepared in 2005 complement the OECD’s Principles of Corporate Governance.

The Guidelines address six main areas. The commentary on the guidelines offers a number of recommendations based on administrative practice and experiences in the individual countries, as well as discussions in the OECD working group.

Through its participation in a working group, the Ministry of Trade and Industry has contributed actively to the formulation of the OECD’s new guidelines. The Norwegian Practice for the administration of the states ownership largely follows the OECD Principles.

3.4.4 Transparency concerning state ownership

Transparency and predictability build confidence in state ownership. Transparency concerning state ownership is important both in the interests of democracy and because the State wishes to see continual performance measurement as a component of professional exercise of ownership.

Norway operates with a principle of public access to documents in the public administration. The principle of public access to documents in the public administration is inscribed in Norwegian legislation and practice, and is regarded as a fundamental democratic principle.

The public possibility of access, and thereby for the public to learn about, influence and control the administration’s activities, helps to increase confidence in the public administration (central and local government). The right of access also helps to ensure that public debate may be conducted on a well-informed basis. A high degree of transparency will thereby serve to prevent potential misapprehensions concerning the State’s exercise of ownership and increase the predictability of its activities, which will also have a positive effect on valuation of the State’s shares.

In relation to the administration of state ownership, it is possible, and on occasion necessary, to exempt a number of documents from disclosure to the public. This would include sensitive information pertaining to the stock exchange and documents with commercial content. There is also a requirement regarding deferral of public right of access in cases being processed by the Office of the Auditor General. Such authorised exceptions are not to be used more than necessary.

All important matters concerning companies, which pertain to the relationship between the Storting and 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 strategy for wholly-owned companies. Moreover, for companies assigned sector-policy tasks, it is appropriate to prescribe special guidelines concerning social programmes and priorities.

The Ministry of Trade and Industry publishes a biennial ownership report on financial trends in the companies, key events and a survey of their boards etc. A number of key companies administrated by other ministries are also included in the report.

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. Conferences of this kind also contribute to transparency and greater predictability concerning the State’s ownership.

3.4.5 Return on investment

The value of the State’s direct ownership in Norwegian business and industry is considerable, and the State operates with a long-term perspective in its investments. Return on invested capital is therefore a key focus in administration of the State’s shares. Pursuant to provisions such as Regulations for Financial Management in the Government Administration, return targets must be set for companies in which the State is a shareholder. ‘Return targets’ are taken to mean the shareholder’s expectations of returns on investment in the shape of dividends and an increase in the value of invested capital.

Companies with multiple shareholders are expected to make an overall assessment of input from shareholders concerning expected return on investment. The companies set their own internal rate of return for their operations. Specific return targets signal to company management that the shareholder attaches importance to the profitability of its investments. Further, return targets are a necessary means of monitoring and evaluating actual value growth vis-à-vis shareholder expectations.

Return targets for a company are deduced as the sum of risk-free interest and a provision for risk. The higher the risk associated with the company, the stricter the requirement for a risk premium and hence the higher the total return target.

Return targets are intended to apply as an average for a medium term of three to five years, after which they are reassessed. The return targets are also adjusted if the companies’ risk profile changes substantially over the given term.

An assessment of target attainment therefore has to be made on the basis of an average over several years. In following up on targets, the shareholder will also need to look at general market trends.

Return targets are not set for companies that are not based on commercial operations, or which are dependent on government aid for continuation of their operations. For these companies, the State’s appropriations regulations must be adhered to in respect of appropriations and reporting.

3.4.6 Dividends

It is important that the State as a large owner, just as other shareholders, expresses its views and expectations regarding company dividend policy.

In companies whose main objects are commercial, high value creation over time is a primary objective. Company dividend policy should underpin this objective. 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 object of high 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 a longer term, the company’s situation may change and make it natural to change the dividend policy.

One important aspect in determining dividends is that the company should have equity comparable with the company’s goals, strategy and risk profile. Companies in which the state is a shareholder must be able to operate according to the same framework conditions as the companies they compete with. 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 competitive advantages or disadvantages compared with companies in private ownership.

Alongside their ordinary business operations, a number of state-owned enterprises have social tasks which may be unprofitable. In such cases, the companies will normally be compensated separately for documented additional costs, and not indirectly through reduced dividends from the company. Other companies such as Statnett SF, the owner and operator of large sections of the Norwegian power grid, is instructed to place investments and operate according to national economic criteria. For Statnett this may mean that certain measures or investments are not commercially profitable. These social tasks, which are laid down in Statnett’s articles of association, are not compensated through the national budget.

The ministries with responsibility for administrating state ownership produce their own long-term dividend expectations vis-à-vis companies with a commercial objective where the State is a shareholder. These expectations are applicable as an average over a term of three to five years – or longer if deemed relevant. The ministry’s long-term dividend expectations from an individual company are normally expressed as a percentage of the annual profit.

In addition to the long-term dividend expectations, the ministry also formulates its expectations regarding the annual dividend to be decided at the general meeting in accordance with the board’s proposal. When determining expectations from a company, a systematic assessment will be made in respect of a number of criteria. Certain criteria will favour a high dividend and others a low dividend. The emphasis given to the individual criteria varies from one company to the next.

The core company-specific criteria used in assessment are:

• strategy

• lifecycle or growth phase

• capital structure

• investment history

The following will also be taken into account:

• any weak return on capital in the company

• dividend policy as a control function

• the dividend level in comparable companies

The Government seeks to promote an active and conscious dividend policy designed to foster long-term value creation in the companies.

The State as a shareholder does not have a free hand in determining the dividend level in part-owned companies. According to 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 highest amount that can be distributed. However, it is perfectly admissible for the State as a shareholder to express its expectations regarding dividend, and also on what considerations these are based.

3.4.7 Strategy studies and financial statement analysis

The objective of ensuring solid industrial growth dictates the need for sustained focus on company profitability and growth opportunities. This requires in-depth comparison of the companies’ profitability and strategic situation compared to other companies. The companies’ accounting figures form the main basis for such analyses. Analyses of the company’s growth over time and compared with similar companies help the shareholder to assess the company’s commercial activities and management in terms of industrial objectives. The government performs such analyses partly in-house and partly by retaining specialised analytical expertise.