As befits somebody who once spent six months alone in a remote Arctic cabin studying Kant, Hegel and Heidegger, Yngve Slyngstad is something of a corporate philosopher.
Slyngstad, who heads Norway’s oil fund, the world’s largest sovereign wealth fund, is not merely content with trying to make more money for the local population. He is also thinking deeply about how companies and markets work.
“Where do we actually see the public company going forward? How can we make sure that the public company is actually able to put together a profitable proposition and appropriate flexibility in the way they run their business?” he says in an interview in his office in Norway’s central bank, which manages the fund.
Underlying all this is the extraordinary scale of the oil fund. Less than two decades old, it has experienced a particular growth spurt in the past 10 years as its assets have grown sevenfold to $870 billion.
Its size can be difficult to comprehend — it has stakes in almost 10,000 companies and on average owns 1.3 per cent of every group listed on a stock market globally.
However, with this power comes responsibility. The size of the fund’s stakes in many companies means it has been forced to jettison its insistence that it is a mere financial investor and take a more active ownership role and focus on corporate governance.
Slyngstad says there exists a certain tension between this responsibility and the desire also for investors such as the oil fund to diversify their holdings to reduce risk. He admits it is impossible for the fund to do a deep analysis of all 10,000 companies and be on top of all governance issues.
“The price of that is that you have for society at large a cost to this risk diversification. Of course, it’s a benefit for each institution but for society as a whole you risk having the most significant organisational structure — and I still think that companies are really the backbone of societies — you risk having a vacuum here in terms of how they’re run and how they’re governed,” says Slyngstad.
Previously, big investors therefore outsourced a lot of their governance work to consultancies such as ISS that advise shareholders how to vote at annual meetings. But in the past two years the oil fund has moved to becoming an active investor in at least three different ways.
First, it has started revealing its voting intentions at annual meetings. Currently, it discloses how it voted the day after the meeting. But it is moving towards announcing its intentions before the meeting, partly to boost transparency and also to increase its own influence.
It has been a slow start. The fund was initially intending to pre-announce its intentions for 10 to 20 annual meetings this year, Slyngstad says. But so far it has made just two announcements — for BP and Royal Dutch Shell on climate change, and for utility AES on proxy access.
Slyngstad concedes it has been a cautious start but says the “positive journey” has convinced the fund this is the right path. It is about to expand the number of companies it analyses in depth from 500 to 1,000 and will hire more staff as the “amount of work behind it [has been] probably larger than we expected”.
Second, the fund is issuing “position papers” setting out its corporate governance principles. So far it has only released two — on proxy access and the ability to vote on individual directors — but Slyngstad says it should be 20 by the end of next year.
Much of the focus will be on issues around the board: composition, responsibility and the interaction between shareholders and directors.
Slyngstad is clear, however, that he does not want investors to usurp the traditional role of the board. “Shareholder frustration with CEO remuneration packages has led to an effort to circumvent the board, where you not only have a say on pay but in instances also decide on pay. We do not think this is the way to go,” he adds.
Watched closely by the City of London and boards across Europe, Slyngstad is keen to insist that he wants the oil fund’s role in governance matters to discuss principles, not go into company particulars. So expect a position paper detailing how it likes chief executives not to be chairmen as well, rather than a frontal attack on Goldman Sachs and JPMorgan over Lloyd Blankfein and Jamie Dimon (even if the fund did vote against both at their annual meetings in May).
The third area of engagement has been more local. Under the Nordic model of governance, a company’s largest shareholders often sit in the nomination committee that decides who the board members will be. After years of declining to join them, the oil fund signed up in 2013 to its first two: truck maker Volvo and paper company SCA, both in Sweden.
Then, earlier this year, SCA was hit by a corporate jet scandal that led to the resignation of its chief executive, chairman and other directors — and left the oil fund both bruised and unsure of the attractiveness of the Nordic model.
Swedish shareholders have criticised the oil fund for being too passive at SCA. But Slyngstad says they should not mistake silence to the media with lack of action.
He adds that the scandal highlights two potential problems with the nomination committees: that no dissent is allowed from their decisions and that shareholders must vote for the entire board, not individual directors. (When asked if he was happy with the decisions of the SCA nomination committee, he replies: “No comment on happiness.”)
As with all of the fund’s corporate governance work, Slyngstad says it is still in the learning phase in dealing with Sweden’s much-praised governance model.
But he adds: “What we have seen only from this very early phase is that there are challenges with nomination committees that we were not aware of and that we have not seen clear answers to, which makes us pause and consider whether this model actually lends itself well to other jurisdictions.”
Financial Times
