Last week a variety of news outlets reported that Norway intended to take a more active role in the governance of its portfolio companies. Here’s a blurb from International Venture Capital Post:
The sovereign wealth fund of Norway, amongst the world’s biggest investors, has said that it wants to participate more actively in the management of firms it has heavy investments in, such as Volvo and other firms.
The fund has under its management totalling US$728 billion and said it is aiming to become active participants of company activities such as election of board members.
According to the fund’s CEO Yngve Slyngstad, “It means having an ownership in the order of 5 percent and that we find ourselves among the top five investors. Our ownership should be significant, in the order of $1 billion.”
Norway’s activism will be an important test of how far sovereign investors are willing to go to pursue governance rights, and how much other countries’ regulators will allow. I am willing to bet, however, that the type of governance activity that Norway has in mind is not likely to cause much of a concern, since I believe they will engage in “negative governance” efforts, rather than “positive governance.” As I explained in another post,
Negative rights operate like negative covenants in a bond agreement. Under the agreement, the bondholder (or the Trustee) can prohibit the company from taking an action. This contrasts with a positive right (which bondholders typically do not have, but shareholders may try to exercise) to force a company to take an action. I see this as a significant difference because regulatory review of transactions involving foreign-controlled entities will generally be triggered only where positive shareholder rights are exercised. This regulatory posture makes good sense from a policy perspective. Negative rights do not tend to divert management authority away from the directors and officers to the extent the exercise of positive rights might (which is precisely the kind of activity that one might worry about with SWFs, i.e., that management is influenced to do something that inures to the political benefit of the SWF), but negative rights place limits on the ability of directors and officers to impair the rights or interests of the negative right-holder. Exercising positive rights makes you an activist. Exercising negative rights makes you a responsible shareholder.
Watch this space for updates on Norway’s activities.