Norges Bank says ‘codified’ stewardship brings “limited results” without effective investor tools

Norges Bank Investment Management (NBIM), the arm of the Norwegian central bank which runs the assets of the NOK6.5trn (€753bn) Government Pension Fund, says ‘codified’ stewardship rules for investor-corporate relations are of little use without corporate governance tools for investors – and that investors must have the right incentives to play a role in overseeing companies.

The giant influential investor – which invests in 8,000 companies worldwide – has been sceptical of stewardship codes since the first one was launched in the UK five years ago. Such codes have since proliferated around the world. Now, in a submission to the Organisation for Economic Co-Operation and Development (OECD), Norges’ comments show that it remains doubtful about the value of ‘codified’ stewardship half a decade later.

“We would emphasise that for institutional investors to play an adequate role in corporate governance, they must have incentives to do so,” Norges says in its response to the OECD’s revision of its Corporate Governance Principles.

“We believe that authorities can most effectively strengthen the incentives by focusing on transparency, the practicality of shareholder rights, the mechanisms by which boards are accountable to shareholders, and the room shareholders have to coordinate governance efforts with each other,” NBIM’s CEO Yngve Slyngstad and William Ambrose, Global Head of Ownership Strategies, write. “Codified stewardship,” they say, “can bring only limited results in lieu of effective corporate governance tools for investors.” There was a risk that disclosure requirements for institutions would lead to “more box-ticking, not less”.The OECD had invited public comment on a draft revised text of the OECD Principles of Corporate Governance, which ended last month. There were 75 comments and they will feed in to a revised set of principles due later this year.

“Codified stewardship can bring only limited results”

In 2010, RI reported that Anne Kvam, Ambrose’s predecessor, pointedly asked at an event organised by the Financial Reporting Council watchdog inaugurating the UK code: “Who is the beneficiary of this code? I can see ways it won’t work.” She argued that the fund saw it as a right to “invest and not be stewards: to just buy a share and just buy it”. Kvam, who left the fund in 2012, queried the code’s requirement for investors to monitor companies and saw the potential for an “unnecessary” race towards disclosure and ranking lists.

That has not happened at the official level, but campaign group ShareAction has indeed ranked asset management firms, largely on stewardship. The FRC is still grappling with how to get stewardship embedded at asset owners and their fund managers, given that there is little regulatory sanction available to it for underperfomance, apart from “striking off” signatory firms.

The latest idea being floated, according to the Financial Times, is some sort of kite-mark for stewardship, although how it would be funded and administered is not revealed.