Norges Bank Investment Management (NBIM), the arm of the Norwegian central bank which runs the NOK3.7trn (€503bn) Government Pension Fund, has put forward its “applied ownership” model as the next phase of corporate governance.
The approach stresses a relationship of trust and accountability between shareholders and company boards and features high-level principles. It moves on from the “plethora” of governance codes that have been developed over the last 20 years, which NBIM says have become “somewhat corrupted” from broad recommendations into hard and fast rules.
It says: “The 1992-2012 period can be considered as the first chapter for broad acceptance of corporate governance where the concept became legitimised as integral to good stock-picking and risk analysis.
“The next chapter of corporate governance: applied ownership.”
Norges argues that as corporate governance has grown, institutional investors have not integrated it into their investment processes. So it has released a 43-page discussion document “intended to lead into a next chapter that de-emphasises corporate governance as an independent function and integrates it as a discipline within a balanced and long-term investment-decision-making process”.The stance is “a model for other funds to follow” that would be welcomed by companies if implemented effectively.
The influential investor says a separate corporate governance lexicon has been created which is impenetrable to the generalist investor. Investors are rigidly applying voting rules, undermining “considered, applied governance” which is unhelpful to companies.
“This problem is to a great extent created by institutional investors rule-basing or outsourcing their exercise of shareholder rights with minimum investment in company-specific research.”
“Our intention is not to provide another code of corporate governance for companies to comply with or report against,” NBIM says. “Rather, the ambition is to set out priorities for corporate governance as a means to foster dialogue and mutual understanding.”
At heart it is about “outcomes for the shareholder rather than technical compliance” with codes by companies.
NBIM’s views are important because it is among the 10 largest shareholders in around 2,400 companies worldwide. The fund is projected to almost double in size by 2020.
Alongside its corporate governance discussion paper, NBIM has also published a wide-ranging discussion on well-functioning financial markets. NBIM Home Page