Norway oil fund voting declaration ‘certain to cause a stir’

Disclosure likely to have a significant effect, say investors

Norway’s $870bn oil fund has been busy in recent weeks. The world’s biggest sovereign wealth fund has voted at annual meetings against companies ranging from JPMorgan and Bank of America to Volkswagen and Carlsberg.

The fund has voiced its disapproval to business heavyweights such as Jamie Dimon, Lloyd Blankfein, Ferdinand Piëch and Marcus Wallenberg while sanctioning the companies they run.

Piquantly, the fund – which on average owns 1.3 per cent of every listed company worldwide – voted against the election of the entire board at airline SAS, where the Norwegian government owns a big stake and helps choose the directors.

But the votes made few waves as the fund only disclosed how it voted the day after the annual meetings.

That is about to change. In its strategy report for the next three years, Norges Bank Investment Management – the manager of the oil fund – says: “We will make our voting intentions public before the annual shareholder meetings to increase transparency, and encourage initiatives to strengthen the vote execution chain.”

The oil fund is fairly tight-lipped about the exact details. But starting next year, it will reveal its voting intentions before annual meetings of “selected companies” with the ambition of eventually doing so for all the 8,000 groups in which it invests.

The move is certain to cause a stir in corporate governance circles, where big investors have kept their votes secret apart from a few occasions when they choose to leak their intentions.

The oil fund is closely followed by many investors on governance matters, especially the companies it excludes from its portfolio – a list that includes Walmart, Boeing, British American Tobacco and Rio Tinto.

“Given the profile and size of the Norwegian oil fund, disclosure of their voting decisions ahead of AGMs is likely to have a significant impact on current practice among institutional investors,” says Hans Hirt, executive director at Hermes EOS, the UK activist investor.

He says the crucial issue is when exactly the fund makes the disclosure. If it is disclosed as soon as the decision is made and the vote submitted electronically, it would have a bigger effect by alerting other investors and the media.

If it is disclosed closer to the AGM, it will have less effect on the vote but still one on the company being voted against, Mr Hirt believes. “It is likely to send a much stronger message to the company and its board of directors who may otherwise be ignorant of concerns raised and reinforced through voting.”

The move is also likely to have a big effect on the fund itself. “They may have to have a new department in case everybody asks them ‘why are you doing this?’” says Christian Strenger, a member of Germany’s corporate governance commission.

The fund has a strict policy of not commenting about individual companies. It argues that many of the votes will be self-explanatory as it will be merely following its principles, such as its dislike of combining the job of chief executive and chairman that led to its votes against Messrs Dimon and Blankfein.

But some decisions may need more explanation. For instance, in recent months, it has voted against the election of John McFarlane as chairman of FirstGroup and director of Aviva.

Not everyone thinks the extra disclosure will be a good idea. Mr Strenger argues that investors need to keep their options open up to the start of the annual meeting as companies can change their minds at the last minute.

“From a governance point of view, if you want to achieve something. it’s not a very useful step … We always retain the right to vote differently if, in the days leading to the meeting, there are events demanding a different vote,” he says. He points to an example where VW dropped a proposal at the last minute after intense shareholder pressure.

Mr Strenger says the better approach is to keep talking to the company and other shareholders but in private. “They may, because of their sheer weight, rally other votes to join them. But the best way is not to go antagonistic and instead talk to other shareholders. You win much more with the companies if you give them the chance to listen to you,” he says.

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