Part 3
How state ownership is exercised

8 The State shall be an active owner

The Government has clarified through the State’s ten principles for good corporate governance that the State shall be an active and responsible owner with a long-term perspective, see Chapter 10. The State’s exercise of ownership shall contribute to the attainment of the State’s goal as an owner, whether this be the highest possible return over time in a sustainable manner or sustainable and the most efficient possible attainment of public policy goals, see Chapter 5. Among other things, this takes place by the State setting clear expectations of the companies, electing competent boards, systematically following up the companies, and voting at general meetings, see Figure 8.1.

Norway is considered to be far ahead internationally in terms of the exercise of state ownership.1 Among other things, this is due to the fact that a broad political consensus has developed over time regarding the key elements of the framework conditions and principles for the State’s exercise of ownership in line with generally recognised principles for corporate governance. This has contributed to predictability for the companies and the capital market, which has been a strength of Norwegian state ownership.

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The Government’s ambition is that the Norwegian State’s exercise of ownership shall be in accordance with the best international practice. The State shall be an active owner with a long-term perspective in line with good and responsible private owners. The Government will continue to further develop and professionalise the State’s exercise of ownership in order to contribute to public assets being managed and developed as best as possible. The State’s exercise of ownership should be carried out as competently and consistently as possible across the ministries. The good and uniform exercise of ownership strengthens trust in the State as owner and contributes to increased goal attainment.

8.1 How the State shall be an active owner

Active ownership shall be exercised in accordance with the division of responsibilities and roles laid down in company law between the State as owner of companies, on the one hand, and the board and general manager on the other.2 Together with the State’s ten principles for good corporate governance, the division of roles laid down in company law establishes the framework conditions for the State’s exercise of ownership. The State as owner will actively utilise the room to manoeuvre within these framework conditions in line with the practices of good and responsible private owners. State ownership shall not be an obstacle to exercising value-creating ownership. Among other things, the State shall, in the following manner, be an active owner within the division of roles and responsibilities upon which company law is based:

Use of the general meeting3

• Voting on matters that, by law, must be presented to the owners: By voting at the general meeting, the State will actively use its ownership authority in matters that, by law, have to be presented to the general meeting, see Chapter 9.3. Among other things, this applies to the election of the board, specification of board remuneration, approval of the annual accounts and any annual report, distribution of dividends, election of the auditor, approval of the auditor’s fee, approval of the board’s guidelines for executive remuneration, advisory voting on the board’s remuneration report, amendments to articles of association, changes in share capital, etc. Active use of voting rights is particularly relevant in the event of poor goal attainment in the company over time or significant deviations from the State’s expectations; however, it may also be relevant when the State wishes to express its view regarding the board’s ambitions for the company. In these cases, the State as owner may also exercise its voting rights to change the composition of the board or change the company’s capital structure, see Chapter 12.6.

• Voting on matters that the board chooses to present to the owners: The general meeting may hand down decisions on all matters that, pursuant to law or the articles of association, must not be made by other company bodies. The board will not normally present matters to the general meeting that the board is responsible for pursuant to company law. However, there may be good reasons for the board selecting to present matters of significant strategic importance to the company at the general meeting. The State will exercise its voting rights in such matters unless these matters are of such a nature that they violate the division of responsibilities and roles between the owners and the board upon which company law is based.

• The right to have matters considered at the general meeting: The State will exercise its right as owner to have matters considered at general meetings when this is relevant and in accordance with principles pertaining to company law. Among other things, the State may request that the general meeting considers the election of the board (even if the board is not up for election), that the board’s guidelines for executive remuneration be presented to the general meeting once more (even if they have not been amended), amendments to the company’s articles of association and other matters of importance to the owner. However, the State exercises caution when instructing companies on individual matters.4 This is because it undermines the division of roles and responsibilities set out in company law, see Chapter 9.3.

• The right to convene an extraordinary general meeting: The State will exercise its right as owner to request that the board convenes an extraordinary general meeting when this is relevant and in accordance with principles pertaining to company law.

• Explanation of vote: In order to clarify the State’s perspective or the assessments behind the State’s voting, the State will, if necessary, use an explanation of vote not only when the State votes against a decision, but also when the State votes in favour of the board’s proposal. The State will normally request that the explanation of vote is recorded in the minutes. Among other things, the purpose of this is to be transparent about the State’s exercise of ownership.

Election of board members

• The board is responsible for the management of the company. The State generally has a significant ownership interest and by being involved in electing the boards has the opportunity to influence the company’s management by contributing to ensuring that the company has a competent and well-functioning board. The State’s ownership policy dictates that all boards and board members are subject to an annual assessment, irrespective of whether they are up for re-election. Among other things, the purpose of the assessments is to determine the board and the board members’ contribution to the company’s goal attainment and work with the State’s expectations, and whether the board has the correct expertise, see Chapter 12.5. In the event of poor goal attainment over time or significant deviations from the State’s expectations, the State may vote at the general meeting to replace all or parts of the board.

Regulation in the articles of association

• Through the company’s articles of association, the owners set the framework for the board’s management and the general manager’s day-to-day operation of the company. Company law stipulates that certain matters need to be regulated in the articles of association. However, the legislation does not prevent other matters from being regulated in the articles of association unless otherwise stipulated in the individual statute. For example, for most unlisted companies, the State has stipulated in the articles of association that the board must submit guidelines and an annual report on the remuneration of senior executives to the general meeting in accordance with Sections 6-16 a and 6-16 b of the Public Limited Liability Companies Act and associated regulations. Amendments to the articles of association must be approved by the general meeting.5 If necessary, the State will also exercise its right to propose amendments to the articles of association to the general meeting in order to establish the company’s activities in line with, among other things, the State’s rationale for ownership and goal as owner.

Set clear expectations

• The board is responsible for managing the company; however, the State as owner sets and follows up specific expectations of the boards. By setting expectations of the boards, the State contributes to achieving the State’s goal as owner. As the expectations are specific, the concerns of the State as an owner are made clear to the boards. However, it is up to the boards to consider how the companies can best work with the various expectations tailored to their activities. When the State assesses the work and composition of the board, the company’s work with the various areas of expectations and the board’s contribution to this are assessed.

Use of owner dialogue

• The State actively uses owner dialogue to follow up the companies’ results and goal attainment, including the companies’ work on the State’s expectations, and other relevant topics and issues. Quarterly meetings are the core part of the owner dialogue; however, the State typically also holds other meetings on specific topics with the executive management and the board, see Chapter 12.1. Through the owner dialogue, the State will raise matters, ask questions and communicate points of view that company management can consider in relation to its activities and development. This serves as input to the company management, not as instructions or orders. The board shall manage the company in accordance with the interests of the company and all shareholders, and must make their own specific assessments and decisions. Matters that require the owners’ support must be considered at the general meeting.

• In addition to quarterly meetings, meetings on special topics and ad-hoc meetings, the State will have an annual meeting with the entire board if this is considered appropriate. Among the reasons for the State having these meetings as owner is to develop a good dialogue with the board, raise relevant expectations and discuss the company’s goal attainment.

• As part of the annual board assessment for companies that are wholly-owned by the State, the State will meet with all owner-elected board members and the general manager. The State will also endeavour to conduct interviews with board members elected by and among the employees, cf. Chapter 12.5. In the companies with a nomination committee, the committee is the body that conducts this dialogue.

• The State will normally also conduct onboarding meetings with newly-elected board members in the companies that are wholly-owned by the State. Onboarding meetings also help the board members to gain a better understanding of the State’s rationale for ownership and the State’s goal as an owner of the company in question, as well as the State’s expectations of the companies.

Offer knowledge sharing through professional seminars

• The State has a large portfolio of companies. The State will hold professional seminars for the companies to contribute to knowledge sharing on various relevant topics that are of importance to the companies’ goal attainment.

Support for, and possible participation in, transactions that contribute to goal attainment

• The State will assess any potential initiatives presented by the company that are expected to contribute to the State’s goal as an owner. The State will act in accordance with market practices when conducting a dialogue about, and in the event of, potential participation in share capital increases or other transactions that are expected to increase a company’s value, see Chapter 12.7.

8.2 The State shall demonstrate transparency about its ownership and exercise of ownership

In its capacity as owner, the State manages substantial assets on behalf of society as a whole. Transparency is decisive in order to give the general public, co-owners and potential new shareholders, competitors, lenders and others insight into how the State exercises its ownership, among other things, to be able to evaluate the State as an owner and determine whether there is fair competition between companies with and without a state ownership interest. Transparency creates predictability and is important if the general public is to trust that these assets are being managed in an optimal manner. Democratic considerations are thereby safeguarded. As a result of the Norwegian state’s extensive ownership, transparency is also important if investors are to trust the Norwegian capital market.6

Since 2002, a report to the Storting on the State’s overall direct ownership in companies (white paper on ownership policy) has been presented in each parliamentary session.

In addition, each year the Ministry of Trade, Industry and Fisheries presents the State Ownership Report, which provides an overview and description of the State’s direct ownership in companies in the preceding year, see Box 8.1.

9 Legal and other important framework conditions for the State’s exercise of ownership

The legal framework conditions for the State’s exercise of ownership are primarily established through the constitutional framework in the Constitution of Norway, and provisions in company law pertaining to the division of roles between an owner and the company’s management, which consists of the board and general management. This chapter provides an overview of the most important framework conditions for the State’s exercise of ownership pursuant to the Constitution of Norway and company law.7 The provisions in the EEA Agreement relating to state aid are also discussed. Other laws, for example, the Public Administration Act, Freedom of Information Act, Securities Trading Act and Competition Act, also impose legal requirements on the State’s exercise of ownership.8 These are not discussed here.

In addition to legislation, there are several other rules and regulations that are of importance to the State’s exercise of ownership. This chapter discusses rules pertaining to the right of civil servants, members of parliament and members of the government to hold directorships, as well as regulations for financial management in the State.

This chapter also discusses the OECD Guidelines on Corporate Governance of State-Owned Enterprises9 and the Norwegian Code of Practice for Corporate Governance.

9.1 Constitutional framework – the government administers the State’s ownership10

Pursuant to Article 19 of the Constitution, the Government administers the State’s shares in private and public limited liability companies and ownership in companies organised in other corporate forms, such as state enterprises and special legislation companies. Pursuant to Article 12, second paragraph of the Constitution, the administration of state ownership is delegated to various ministries. The Minister’s administration of ownership is exercised under constitutional and parliamentary responsibility.

Pursuant to Article 19 of the Constitution, the minister must administer the State’s ownership in companies in accordance with parliamentary resolutions concerning the individual company, general statutory provisions and other parliamentary resolutions. The provision expressly authorises the Storting to instruct the Government in matters pertaining to state ownership.

The Storting has no direct relationship with the companies with a state ownership interest. Parliamentary resolutions concerning companies with a state ownership interest must be resolved by the company’s general meeting in order to legally bind the company, unless the resolutions are set out in law.

Article 19 of the Constitution does not grant the minister authority to change the State’s ownership interest in a company, for example through the purchase or sale of shares, resolutions regarding or participation in capital increases or support for other transactions that change the State’s ownership interest. Such actions must be based on a parliamentary resolution whereby the minister is granted authorisation.

Several of the listed companies have so-called buyback programmes in which the company is authorised to purchase its own shares in the market with a plan to cancel the shares. A contractual framework has been established for such cases to ensure that the State’s ownership interest in the company remains unchanged during the buy-back programme. In line with previous white papers on ownership policy and practice, the minister may in such cases, without obtaining the consent of the Storting, endorse the State’s contribution to such share buy-back programmes and enter into agreements in line with the established contractual framework on the condition that the State’s ownership interest in the company remains unchanged.

The Storting’s appropriation authority pursuant to Article 75 (d) of the Constitution also entails that the Storting’s consent is required for changes in the State’s ownership interest in a company and for decisions on capital infusions that lead to government expenditure.

Companies in which the State has ownership interests will usually be able to purchase and divest shares in other companies and acquire or dispose of parts of business activities when this is a natural part of the adaptation of the company’s object-specific activities, without the approval of the Storting being required. For companies where the State is the sole shareholder, the consent of the Storting must be obtained regarding decisions which would significantly alter the State’s commitment or the nature of the company’s activities.11 When the State is a joint shareholder, the question of whether the matter should be discussed by the Storting in advance will arise for matters of such scope that they must be brought before the general meeting (for example, demergers or mergers). Depending on the size of the State’s ownership interest in the company, it may be necessary to present the matter to the Storting; however, the clear general rule is that matters concerning the purchase and sale of shares in other companies, including the purchase and sale of subsidiaries, are the responsibility of the company’s management, cf. footnote 5.

It is established practice for the Government to present to the Storting the rationale for state ownership and the State’s goal as an owner of each company with a direct state ownership interest.

The Office of the Auditor General of Norway conducts audits of the minister’s (the ministry’s) administration of the State’s ownership, and reports to the Storting accordingly. The Office of the Auditor General’s monitoring of the administration of the State’s ownership is described in more detail in Chapter 3 (Corporate control) of the Instructions for the Activities of the Office of the Auditor General.12

9.2 Corporate forms used for state ownership

The companies with state ownership are organised into different legal corporate forms, see Figure 4.2. Among the common features of these corporate forms are that they are based on a clear division of roles between the owner and the company management, consisting of the board and the general manager, and that the management of the company is the board’s responsibility.13 Another common feature of the corporate forms used for state ownership is that the State’s liability as owner is limited to the equity invested in the companies, and that the companies therefore may go bankrupt.14

The companies that primarily operate in competition with others are also subject to the same legislation as privately owned companies.15 Relevant legislation will, for example, include the Accounting Act, Auditors Act, Competition Act, Securities Trading Act, tax laws and, if applicable, sector-specific legislation. The companies that do not primarily operate in competition with others are normally also subject to such legislation. Some of the companies also fall under the scope of the Freedom of Information Act and/or the rules for public procurements.16

The following corporate forms are used for the State’s ownership:

Partly owned private and public limited liability companies

With the exception of Innovasjon Norge, all of the companies in which the State is a part-owner are organised as private or public limited liability companies. These companies are subject to the general provisions of the Limited Liability Companies Act and the Public Limited Liability Companies Act.

State-owned limited liability companies17

A state-owned limited liability company is a limited liability company in which the State owns all the shares, cf. Chapter 20, II of the Limited Liability Companies Act. The majority of the companies that are wholly-owned by the State are organised as state-owned limited liability companies, regardless of the State’s rationale for ownership and the State’s goal as owner. These companies are subject to the general provisions of the Limited Liability Companies Act18 with certain special provisions that are set out in Sections 20-4 to 20-7, see Chapters 9.3.2 and 9.3.3.

State enterprise

State enterprises are organised in accordance with the Act relating to state enterprises.19 State enterprises cannot have owners other than the State. The State currently has several enterprises organised in accordance with this act. State enterprises are largely regulated in the same manner as state-owned limited liability companies, however with some exceptions, see Chapters 9.3.2 and 9.3.3.

Special legislation companies

The term special legislation companies covers a small, diverse group of companies. A common characteristic of these companies is that they are regulated by special legislation adopted for the individual company.20 With the exception of Innovasjon Norge, it has been laid down in law that the State shall be the sole owner of the special legislation companies. The regional health authorities are a specific form of special legislation company. The specialist health service is organised as regional health authorities and health trusts. The former can only be established and owned by the State, while the latter, which provide health services and support functions, can only be established and owned by the regional health authorities. Rules that deviate from the provisions of the Limited Liability Companies Act may apply to the special legislation companies, including the authority assigned to the company’s board. It is a typical feature of several of the special legislation companies that specific matters must be presented to the owner.

Choice of corporate form

Having multiple corporate forms for companies that are wholly-owned by the State result in different and non-uniform framework conditions for the State’s exercise of ownership. The OECD Guidelines on Corporate Governance of State-Owned Enterprises recommend that governments simplify and standardise the legal corporate forms used for companies with a state ownership interest.21 Private limited liability companies are a well-known corporate form, including outside Norway. This corporate form is the most commonly used for companies with a state ownership interest, irrespective of the State’s rationale for ownership and the State’s goal as owner. The company law framework that is set out in the Limited Liability Companies Act ensures predictability in the State’s exercise of ownership, for the companies, the State and other stakeholders alike. Other corporate forms are used where these are well suited and there is a special rationale for doing so, cf. Chapter 9.3.2 and 9.3.3.

9.3 Company law framework

9.3.1 The minister’s authority in the company

The legal basis for the minister’s authority as owner in a limited liability company is Section 5-1 of the Limited Liability Companies Act, which reads as follows: «The shareholders exercise supreme authority in the company through the general meeting.» A corresponding provision applies to public limited liability companies, state enterprises and most special legislation companies.22 For state enterprises and some special legislation companies, the term «corporate assembly» is used instead of «general meeting»; however, the reality is the same. In this white paper, the term general meeting is used as a collective term for both.

The general meeting may hand down decisions on matters that, pursuant to law or the articles of association, must not be handed down by other company bodies.

Pursuant to the Limited Liability Companies Act and corresponding provisions in other company legislation, the general meeting shall, among other things, elect board members,23 determine the remuneration of the board members, approve the annual accounts and, if applicable, the annual report, determine the distribution of dividends,24 elect the auditor, approve the auditor’s fee, and resolve changes to the share capital and amendments to the articles of association.

The provision in Section 5-1 of the Limited Liability Companies Act entails that the general meeting has authority over the board and may issue instructions to the board. These may be general instructions or special instructions relating to individual matters. However, the general meeting’s authority to issue instructions is not unlimited. The board must not comply with instructions that are in violation of law or the articles of association. The board’s primary obligation is with the company as an independent legal entity. In principle, the board is obligated to comply with instructions issued by the general meeting within the framework set out in the Limited Liability Companies Act.

For companies with multiple shareholders, legislation pertaining to limited liability companies sets requirements for the protection of minority shareholders. The board cannot be instructed to make decisions that are contrary to the principle of equality or the collective interests of the shareholders.25

The State exercises caution when instructing companies on individual matters.26 This is because it undermines the division of roles and responsibilities set out in company law. The State’s liability as owner is limited to the capital invested. Pursuant to Section 6-12 of the Limited Liability Companies Act/Public Limited Liability Companies Act, the board is responsible for the day-to-day management of the company. If the board is issued instructions through the general meeting, the responsibilities can be pulverized, and the State may be held liable. The fact that the State is cautious about issuing instructions on individual matters must also be viewed in connection with the corporate form having been selected to grant company management the freedom to act. Corporate legislation is based on an assumption of mutual trust between the shareholders and a company’s board. If shareholders issue instructions to the board, this may be perceived as the board not having the shareholders’ trust, and could thus result in the board members resigning from their positions. Active use of instructions at the general meeting may also affect the parliamentary and constitutional liability that can be asserted vis-à-vis the minister if the minister, through a resolution of the general meeting, makes decisions that are customarily the preserve of the company’s board.

Another aspect of Section 5-1 of the Limited Liability Companies Act is that the minister has no authority within the company in the absence of the general meeting structure27.

9.3.2 The company’s management manages the company

Limited liability companies and the other corporate forms used for companies with a state ownership interest are based on a clear division of roles between the company’s owners, on the one hand, and the company’s management, consisting of the board and the general manager, on the other.

Pursuant to Sections 6-12 the Limited Liability Companies Act and corresponding provisions in other company legislation, management of the company falls within the authority of the board. It is the board’s duty to ensure that the company’s activities are properly organised. The board shall stipulate plans and budgets for the company’s activities to the extent that this is necessary. The board shall also remain informed about the company’s financial position and ensure that its activities, accounts and asset management are subject to adequate control.

The board appoints the general manager.28 The board shall supervise the day-to-day management and the company’s activities in general. The general manager is responsible for the day-to-day management of the company’s activities, cf. Sections 6-14 of the Limited Liability Companies Act/Public Limited Liability Companies Act. This means that the general manager must follow up the decisions made by the board. The board and the general manager shall manage and lead the company based on the interests of the company and the owners and in line with the company’s articles of association and other decisions made by the general meeting. The board and the general manager are responsible for ensuring that the company is operated in accordance with applicable laws and rules. In their management of the company, the board members and the general manager are subject to personal liability in damages and criminal liability as stipulated in company law.

Limitations in the management’s management of companies wholly-owned by the State

For wholly state-owned companies, the law stipulates certain special provisions that limit the general rules described above, and which grant the State as owner extended control.29

In state-owned limited liability companies and state enterprises, the general meeting is not bound by the dividend proposal made by the board or corporate assembly and may adopt a higher dividend than that proposed by the board or corporate assembly, cf. Section 20-4(4) of the Limited Liability Companies Act and Section 17 of the Act relating to state enterprises.

For state enterprises, it has also been enshrined in law that matters assumed to have a significant bearing on the object of the enterprise or which will significantly alter the enterprise’s nature shall be submitted to the owner in writing before the board makes its decision, cf. Section 23, second paragraph of the Act relating to state enterprises. The Act also stipulates that the minutes of board meetings shall be sent to the ministry that manages the State’s ownership of the state enterprise, cf. Section 24, third paragraph of the Act relating to state enterprises. Sending minutes of board meetings to the ministry is normally not considered sufficient to keep the owner informed about a specific matter.

Specific restrictions on the board’s authority have been enshrined in law for the regional health authorities, cf. Sections 30–34 of the Act relating to health authorities and health trusts.30 Legislation that places restrictions on the board’s authority also applies to the other special legislation companies and certain other companies.31

9.3.3 Special rules for companies wholly-owned by the State

The Limited Liability Companies Act contains some special provisions for state-owned limited liability companies, cf. Chapter 20, II of the Limited Liability Companies Act. In addition to what is described in Chapter 9.3.2 concerning restrictions in the management’s management of companies wholly-owned by the State, one of the differences between state-owned limited liability companies and limited liability companies not wholly-owned by the State is that the general meeting elects the shareholder-elected members to the board even if the company has a corporate assembly, cf. Section 20-4(1) of the Limited Liability Companies Act. 32

A requirement for both genders to be represented on the boards also applies to state-owned limited liability companies and their wholly-owned subsidiaries, cf. Section 20-6 of the Limited Liability Companies Act. The same requirement applies to state enterprises, special legislation companies and public limited liability companies.33

Special rules also apply to the convening and holding of general meetings, cf. Section 20-5 of the Limited Liability Companies Act. Among other things, this provision states that if the general manager or a member of the board or corporate assembly disagrees with the resolution adopted, the person in question shall demand that his/her dissenting opinion be recorded in the minutes of the meeting. A similar provision also applies for state enterprises.34

In addition, the Office of the Auditor General has an extended right to supervise the minster’s administration of the State’s ownership of wholly state-owned companies, including the right to be notified of and attend the general meeting, cf. Section 20-7 of the Limited Liability Companies Act and Section 45 of the Act relating to state enterprises.

9.3.4 The minister’s authority as owner is influenced by the ownership interest35

The basic company law principles and the relationship between the minister and the company’s management are generally independent of the State’s ownership interest. However, when the State owns a limited liability company together with others, the provisions of the Limited Liability Companies Act that safeguard the interests of individual shareholders will have a bearing on the minister’s relationship with and influence over the company. This entails that, in these instances, the exercise of the State’s ownership can differ to some extent from cases where the State is the sole owner.

When the State is a part-owner in a company, the minister’s authority is limited by, among other things, the principle of equality set out in company law, cf. Section 4-1 of the Limited Liability Companies Act/Public Limited Liability Companies Act, and the rule prohibiting abuse of the general meeting’s authority, cf. Section 5-21 of the Limited Liability Companies Act/Public Limited Liability Companies Act, which are also applicable to other shareholders.36 The provision relating to abuse prohibits the general meeting from adopting resolutions that are liable to grant certain shareholders or others an unreasonable advantage at the expense of other shareholders or the company. This entails that the State, even as a majority shareholder, is prohibited by law from favouring itself at the expense of the other shareholders in the company. This is particularly relevant if the State as an owner wishes to assign the company tasks that are not in the company’s interests. In addition to the protection provided from the principle of equality and abuse provision, there are also a number of other provisions in company law that safeguard individual shareholders.

The following is a general overview of how a part-owner can influence a company pursuant to company law based on the applicable ownership interests:

9/10

An ownership interest of nine-tenths or more of the share capital and a corresponding share of the votes in a limited liability company entitle the majority shareholder to a compulsory buy-out of the other shareholders in the company.37

2/3 – qualified majority

An ownership interest of two-thirds or more of the share capital and a corresponding share of the votes in a limited liability company gives the shareholder in question control over decisions that require a two-thirds majority under company law. This includes decisions to amend the company’s articles of associations, decisions on mergers or demergers, increases and reductions in share capital, raising convertible loans, and conversion or dissolution of the company.

1/2 – simple majority

An ownership interest of more than half the share capital and a corresponding share of the votes in a limited liability company give the shareholder in question control over decisions that require a simple majority of the votes cast at the general meeting. This includes the approval of the annual accounts, including the distribution of dividends, the election of members to the board38 or corporate assembly, board remuneration, election of the auditor and approval of the auditor’s remuneration.

1/3 – negative majority

An ownership interest of more than one-third of the share capital and a corresponding share of the votes in a limited liability company give the shareholder in question negative control over decisions that require a two-thirds majority. This enables the owner to oppose amendments to the articles of association, changes in the company’s capital and other decisions of material importance, cf. the paragraph concerning a two-thirds majority.

9.4 The EEA Agreement – prohibition on state aid

The provisions in the EEA Agreement are neutral with regard to public and private ownership.39 The prohibition on state aid stipulated in Article 61(1) also applies to companies with a state ownership interest. This limits the State’s opportunities to place emphasis on non-commercial interests when exercising ownership in companies that engage in economic activity pursuant to Article 61 (1) of the EEA Agreement. The purpose of the rules is to create equal competitive conditions.

Six conditions must be met in order for a measure to be defined as state aid, cf. Article 61 (1) of the EEA Agreement: the aid recipient must be an undertaking and the aid must be granted by the public authorities, favour certain undertakings or the production of certain goods or services, confer an economic advantage on the recipient, distort competition and have the potential to affect trade between the EEA states.

In order to determine whether investments entail an advantage for the company and can thereby constitute state aid pursuant to Article 61 (1) of the EEA Agreement, the European Court of Justice and the European Commission have developed the so-called Market Economy Investor Principle40. If the State contributes capital on the basis of different considerations and terms to what a comparable private investor would be assumed to have required, this may indicate that the capital contribution involves an economic advantage for the company in question that may constitute state aid pursuant to Article 61 (1) of the EEA Agreement, provided that the other conditions are met. This means that the State must operate in accordance with the Market Economy Investor Principle when investing in a company, provided that all of the criteria in Article 61 (1) of the EEA Agreement are met, in order to avoid an investment becoming state aid.

The EFTA Surveillance Authority (ESA) supervises compliance with the state aid regulations in Norway. The question of whether state aid has been provided can also be examined by Norwegian courts.

9.5 Other important framework conditions for the State’s exercise of ownership

9.5.1 Restrictions on the right to hold directorships

Civil servants and senior officials employed in a ministry or in other central government administrative bodies that regularly consider matters of material importance to the company or relevant industry are not eligible for election to the boards of such companies. This is stipulated in the Personnel Handbook for State Employees (Statens Personalhåndbok).41 The purpose of the prohibition is to prevent impartiality issues and constellations that weaken trust in the public administration’s decisions.

Furthermore, the Storting has decided that members of the Storting should not be elected to offices in companies subject to the Storting’s control, unless it can be assumed that the member in question will not stand for re-election.42 As a general rule, political leadership also cannot retain or accept paid or unpaid directorships.43

The Disqualification Act44 also contains provisions that provide for the possibility of imposing a period of disqualification on politicians, civil servants and other state employees when they move to a position outside the government administration.

9.5.2 Regulations on Financial Management in Central Government

«The Regulations on Financial Management in Central Government»45 contain guidelines on the State’s exercise of ownership. Among other things, the purpose of the regulations is to ensure that the State’s assets are managed in an efficient and proper manner. Section 10 of the Regulations states that:

«Agencies with overall responsibility for (…) independent legal entities wholly or partially owned by the central government, shall draw up written guidelines on how management and control powers shall be executed for each individual company or for groups of companies. (…)

The central government shall, within the framework of applicable laws and rules, manage its ownerships in accordance with general principles of corporate governance with special emphasis on:

• a) that the chosen form of incorporation, the company’s articles of association, financing and the composition of its board are expedient in relation to the company’s object and ownership,

• b) that the exercise of ownership ensures equal treatment of all owners and underpins a clear division of authority and responsibility between the owning entity and the board of directors,

• c) that goals set for the company are achieved,

• d) that the board of directors functions in a satisfactory manner.

Governance, monitoring and control including appropriate guidelines shall be adjusted to the size of the central government shareholding, the distinctive characteristics of the company, risk profile and significance.»

Section 16 goes on to state that:

«All agencies shall ensure that evaluations are performed to obtain information on efficiency, achievement of objectives and results within the agency’s entire area of responsibility and activities or within parts thereof. The evaluations shall focus on the appropriateness of, for instance, ownership, organisation and instruments, including grant schemes. The frequency and scope of the evaluations shall be based on the agency’s distinctive characteristics, its risk profile and its significance.»

The framework for the State’s exercise of ownership, as described in this white paper, is in accordance with the aforementioned provisions.

9.5.3 The OECD Guidelines on Corporate Governance of State-Owned Enterprises46

The OECD has adopted guidelines on corporate governance of companies with a state ownership interest (referred to as the SOE Guidelines) and for anti-corruption and integrity in companies with a state ownership interest (referred to as the ACI Guidelines). The guidelines contain recommendations concerning frameworks for state ownership and good corporate governance of companies with a state ownership interest. The guidelines are intended for the government authorities of the member states; however, by describing a set of good practices, they also provide guidance for the board and general manager of companies with a state ownership interest. The guidelines apply to companies with a state ownership interest that engage in economic activity,47 either exclusively or in combination with the pursuit of public policy goals.48

The SOE Guidelines aim to (i) professionalise the state as an owner, (ii) make companies with a state ownership interest operate with the same efficiency and the same degree of transparency as well-run private companies, and (iii) contribute to fair competition between companies with and without a state ownership interest. The guidelines are a supplement to the OECD Principles of Corporate Governance.49

The corporate governance guidelines state that the purpose of state ownership shall be to create value. The guidelines contain recommendations on the following main topics: rationales for state ownership, the state’s role as an owner, state-owned enterprises in the marketplace, equitable treatment of shareholders, responsible business conduct, transparency, and the responsibilities of the boards.

Key elements of the SOE Guidelines include recommendations relating to frameworks that promote fair competition when companies with a state ownership interest engage in economic activities. It is clear from the annotations to the guidelines that, when companies with a state ownership interest engage in economic activities, such activities must be carried out without any undue advantages or disadvantages relative to other companies. The overarching recommendation relating to fair competition (a level playing field) is elaborated on through several sub-recommendations, including that there should be a clear separation between the state’s ownership function and other state functions, transparency regarding cost and revenue structure for companies that combine economic activities and public policy goals, and that the companies shall, as a general rule, be subject to the same legislation as other companies and financing on market terms.

The ACI Guidelines supplement the SOE Guidelines by providing supplementary guidance to the member states on how to fulfil their role as active and informed owners in the specific area of anti-corruption and integrity. The ACI Guidelines include recommendations on how the member states should organise state ownership and promote integrity, as well as how the member states as owners should follow up the companies in relation to this.

The Norwegian State’s exercise of ownership is essentially in accordance with the OECD Guidelines on Corporate Governance of State-Owned Enterprises.

9.5.4 The Norwegian Code of Practice for Corporate Governance

The Norwegian Corporate Governance Board (NCGB) consists of representatives of different interest groups for owners, issuers of shares and Oslo Stock Exchange.50 The Board prepares and updates the Norwegian Code of Practice for Corporate Governance. The objective of the Code of Practice is that companies listed in regulated markets shall have corporate governance that more comprehensively clarifies the division of roles between shareholders, the board and executive management than what is required by law. The Code of Practice is intended to strengthen confidence in the companies among shareholders, the capital market and other stakeholders.

The Code of Practice is primarily aimed at companies with shares listed in regulated markets in Norway, but is also relevant for unlisted companies. The Code of Practice chiefly addresses the companies’ boards; however, several of the recommendations are also relevant for owners. This includes recommendations 2 (Business), 3 (Equity and dividends), 4 (Equal treatment of shareholders), 5 (Shares and negotiability), 6 (General meetings), 7 (Nomination committee), 8 (Board of directors: composition and independence) and 11 (Remuneration of the board of directors). The Code of Practice is a supplement to the State’s own corporate governance principles.

9.6 Special framework conditions for companies that perform assignments for the State

The State awards assignments directly to several of the companies with a state ownership interest. This usually applies to companies in Category 2, but occasionally also to companies in Category 1. The awarding of such assignments is related to the State’s rationale for ownership and the State’s goal as an owner. The ability to award assignments directly to companies is regulated by the regulations for public procurements, the state aid regulations, the Regulations on Financial Management in Central Government and any special legislation applicable to the company. For companies that perform assignments for the State, the State will follow up the companies as the principal, regulatory authority and/or supervisory authority in addition to its capacity as owner. In such instances, the role played by the State should be clearly stated, see Chapter 12.8.

Examples of assignments the State can award to such companies include management of government schemes, construction and management of infrastructure, provision of goods and services and statutory monopolies. When the State instructs companies to perform assignments, the assignment is normally accompanied by financial compensation allocated via the national budget or through other regulated revenues.

The Regulations on Financial Management in Central Government can provide guidelines for the company’s performance of the assignment when concerning both funds transferred to the company and any State assets that the company manages. The State normally follows up assignments through letters of assignment/grant, reporting and dialogue, and, if applicable, goal and performance management systems.

The State can also enter into agreements to purchase services from a company. In such an event, the assignment and the financial compensation will normally be regulated in the agreement. Agreements are followed up through reporting from and dialogue with the company.

Companies with assignments from or agreements with the State can be fully or partly user-financed. The right of companies to charge a fee for goods or services, or exclusive rights to a market (monopoly), is adopted by the Storting.

Some companies may also have dedicated supervisory bodies charged with following up the assignments.51

Companies that engage in economic activities as defined in state aid law, in addition to having assignments or agreements financed by the public sector, must separate these activities in their accounts.52 Such a distinction highlights the company’s revenues and expenses, contributes to preventing illegal state aid through cross-subsidisation from non-commercial to commercial activities and allows for efficient supervision by the State as owner and principal/contracting party.

10 The State’s ten principles for good corporate governance

There has long been broad political consensus regarding the key framework conditions for the State’s exercise of ownership. This has created predictability for the companies and the capital market, which has been a strength of Norwegian State ownership. The key elements of the framework conditions for the State’s exercise of ownership are collated in the State’s ten principles for good corporate governance. The State’s principles for good corporate governance and the State’s goal as an owner together form the basis for how the State exercises its ownership within the framework conditions set out in Chapter 9.

In this white paper, the Government has clarified through Principle 1 that, in addition to being a responsible owner, the State shall also be an active owner with a long-term perspective.

As a responsible owner the State promotes responsibility in the companies. It is important for the State that the companies are managed responsibly, which entails acting in an ethical manner and identifying and managing the company’s impact on people, society and the environment.

The State being an active owner entails that the State shall contribute to the companies’ goal attainment within the framework conditions for the State’s exercise of ownership. The State achieves this by setting explicit goals as owner in each company, setting clear expectations of the companies, and actively following up the companies’ goal attainment and efforts regarding the State’s expectations. See Chapter 8.1 on how the State is an active owner.

The State having a long-term perspective as owner means that the State is focussed on the companies being managed in such a way that they achieve a high level of goal attainment in both the short and long term. This does not prevent the State from supporting or participating in transactions that can be expected to contribute to achieving the State’s goal as an owner, see Chapter 12.7.

Furthermore, it is specified in Principle 2 that the State shall be transparent about how it votes at general meetings.53 The State’s voting at general meetings has normally been available to the public by the companies publishing their minutes on their websites. Going forward, the State will actively publish its voting records unless special considerations dictate otherwise, for example, if publication could be detrimental to the company’s interests.

The principles are reflected in the State’s goal as an owner, the State’s expectations of the companies, how the State follows up the companies, including the State’s work on board elections, and how the State has organised the follow-up of the State’s ownership.

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11 The State’s expectations of the companies

By defining clear expectations of the companies, the State wishes to be an active owner to contribute to attaining the State’s goal as an owner. Clear communication of the expectations also contributes to transparency regarding what is important to the State as an owner, and what the State will follow-up when exercising its ownership.

Pursuant to company law, the board is responsible for managing the company, while the general manager is responsible for the day-to-day management of the company’s activities. The State’s expectations as owner are communicated to the companies’ boards. For companies that are organised as groups, the expectations apply to the entire group.

Several of the State’s expectations are in areas where the specific work is normally followed up by the company’s day-to-day management (referred to as «management» in this chapter and Chapter 12). However, it is the board’s responsibility to assess how the company should emphasise and work with the various expectations and to follow up the work. The State assumes that the board is aware of the State’s expectations.

Unless otherwise specified, the expectations apply to all companies. Among other things, the companies differ in terms of their size, industry and international presence. The companies’ work within the different areas in which the State has expectations should be adapted to the companies’ distinctive nature, size, risk exposure and factors that are of importance for each individual company.

The State’s expectations are largely based on recognised guidelines, international good practice and the expectations of other leading investors.

The State’s goal as an owner for the companies in Category 1 is the highest possible return over time in a sustainable manner, and sustainable and the most efficient possible attainment of public policy goals for the companies in Category 2. Attainment of the State’s goals as owner presupposes that the companies consistently integrate financial, social and environmental factors into the companies’ ambitions, goals, strategies and corporate governance, see Figure 11.1. Common to all of the State’s expectations is that they shall contribute to the attainment of the State’s goal as owner.

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The State’s expectations of the companies are set out in bullet points in this chapter. The expectations are summarised in Figures 11.10 and 11.11. The expectations are explained in more detail under the bullet points.

This chapter also describes good practice in selected areas as stated in separate boxes and figures. This serves as an inspiration for the companies’ work.

11.1 Ambitions, goals and strategies

The State expects that:

• The company defines and implements ambitions, clear goals and strategies.

• The company includes the work with the United Nations Sustainable Development Goals in the company’s strategies and actively works to follow this up in day-to-day operations.

• The company’s risk assessment is an integrated part of the company’s strategies.

• The company defines clear key performance indicators and measures the company’s goal attainment and implementation of the strategies.

Ambitions, goals and strategies

The State places emphasis on the companies having an ambition, i.e. a view on the purpose of the company’s existence, beyond generating a return to the owners. In other words, a company’s ambition describes the company’s role in society, including the long-term benefit the company provides to its customers, local communities and other stakeholders. A well-defined ambition can provide direction for the company’s work with strategy, culture and long-term capital allocation. For the companies in Category 2, the company’s ambition and role in society will often follow from the State’s rationale for ownership and the State’s goal as owner.

It is important for the State that the board develops clear goals and strategies which present how the company will generate the highest possible return over time in a sustainable manner, or sustainable and the most efficient possible attainment of public policy goals. If a company in Category 2 also has activities that are in competition with others, it is important for the State that separate goals and strategies are defined for the public policy activities and activities that are in competition with others. Clear goals and strategies provide the company with direction and are expected to contribute to the company prioritising and allocating resources to areas that make the greatest contribution towards goal attainment. This includes how the company understands, protects and develops its competitive advantages and value drivers in both the short and long term.

For some companies, transactions and other structural measures may be appropriate for helping to achieve the State’s goal as owner. The State places an emphasis on the board having a conscious attitude towards and assessing these opportunities, and the State will consider any initiatives that are put forward.54

The board is responsible for setting ambitions, goals and strategies for the company within the framework of its articles of association. However, as a long-term owner, the State is focussed on engaging in dialogue with the company concerning this, including what underpins the company’s goals and strategies and how these are operationalised and followed up.

The highest possible return over time in a sustainable manner or sustainable and the most efficient possible attainment of public policy goals require the company to be sustainable. A sustainable company balances economic, social and environmental factors in a manner that contributes to long-term goal attainment without reducing the ability of future generations to meet their own needs. Among other things, this entails that the company identifies and manages the opportunities and risks associated with sustainability and integrates these into the company’s strategies and corporate governance using materiality analyses.

Risks and opportunities associated with climate change and biodiversity are examples of value drivers that should be identified and managed in the companies’ strategy work. The State’s specific expectations in these areas are set out in Chapters 11.4 and 11.5.

The ability to adapt and innovate can be crucial to a company’s future development and goal attainment. Good innovation processes, the ability to identify and understand changes in the external environment and how these impact the company’s activities, as well as research and development, are normally vital for supporting the company’s strategy. For example, the company’s ability to develop and adopt circular business models and processes may be key to reducing risk and increasing opportunities for the company in the transition to a low-emission society.

United Nations Sustainable Development Goals

The United Nations Sustainable Development Goals are the global plan for sustainable development. The goals, which will apply until 2030, are intended to promote economic growth and eradicate poverty, combat inequality and stop climate change. The Sustainable Development Goals call for joint efforts by governments, civil society, academia and companies. Many companies have defined a selection of goals as being of key importance to their activities. Good practice for companies is to use the Sustainable Development Goals as a framework for integrating sustainability and responsible business conduct into the company’s strategies. This requires that the company familiarises itself with relevant sustainable development goals and associated targets, identifies how the company impacts and is impacted by these throughout the entire value chain and is open about this.

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United Nations

Strategic risk assessment

When developing the company’s goals and strategies, it is crucial that the company exploits strategic opportunities, protects itself against threats and formulates plans based on risk capacity and risk appetite. Risk capacity depends on factors such as expertise, access to capital and other resources. Different goals and strategies means there are different risks, and determining how much and which types of risk the company is willing to accept is part of the board’s strategy work. The State expects that the company’s strategies are adapted in such a way that they are within the company’s risk capacity. In instances involving significant strategic investments, for example, when establishing activities in new geographical areas or in new or adjacent activities, it is essential to be aware of the consequences that the strategic choices will have for the company’s risk profile and whether it deviates from the company’s risk appetite and ability to manage this. A conscious risk assessment is an integral part of good strategy work and can be essential for the company’s goal attainment. The company’s transparency in this area is of vital importance to the State’s follow-up of its ownership, cf. also Chapter 11.13.

A good risk assessment includes a materiality analysis that follows the principle of double materiality in order to identify areas of significant risk and opportunity for the company, see Figure 11.3. This form of analysis addresses both the risk of changes and the impact that externalities have on the company and risks of the company’s activities impacting people, society and the environment. These risks can often overlap and good due diligence work dictates that both should be managed. A company that monitors developments in externalities, defines its role in society and understands the stakeholders and local community can better understand changes in, for example, customer preferences, the competitive situation and technology, and thereby what impacts the risk situation and opportunities for goal attainment.

The State engages in dialogue with the board regarding the company’s risk profile and whether the risk profile is balanced when based on the State’s rationale for ownership and the State’s goal as an owner when this is deemed relevant.

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European Commission

Key performance indicators and measurement of goal attainment and implementation of the strategies

Of decisive importance to the company attaining its goals is that the strategy is implemented into its activities in a sound manner, for example, through action plans with clear milestones at relevant levels of the organisation.

The preparation of relevant key performance indicators55 can help in steering the company in the right direction, the implementation of strategies and better and fact-based decision-making. Good key performance indicators enable the owners, board and management to follow up the company’s goal attainment and measures.

Key performance indicators are defined for the areas that the company has identified as being of material importance and for which the company has set goals. Insights from the indicators are used to make fact-based decisions and to implement measures. It is of importance to the State that the most important key performance indicators relating to the company’s goals and strategy and action plans are consistently reported from the organisation to the board and owners. It is also relevant that the company reports on the development in goal attainment over time.

In order for the State, the board and management to be able to assess goal attainment for companies in Category 2, it is essential that these companies prepare goals, key performance indicators and target figures for both public policy goal attainment and efficient operations. Public policy goal attainment can be difficult to measure, and there may be a need to use additional key performance indicators, see Box 11.2. If companies in Category 2 also have activities that are in competition with others, it is essential that separate key performance indicators are prepared for this part of the company’s activities. For activities in competition with others, it will be relevant to implement target rates of return for the activities.

Textbox 11.2 Goals, strategies and key performance indicators for companies in Category 2

The Norwegian Agency for Public and Financial Management (DFØ) has developed a model for enterprises that have public policy goals, which is known as the result chain (resultatkjeden). This can be used to describe what is occurring in the enterprise and the consequences this has for users and society. The arrows in the model show the causal connections between the different boxes. The result chain can be used in the work with goals, strategies and key performance indicators. Goals, key performance indicators and target figures can be linked to the most important matters in the different boxes, which can form the basis for a hierarchy of goals.

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DFØ (2010): Performance measurement – goal and performance management in the State.

11.2 Responsible business conduct

The State expects that:

• The company leads the field in the work on responsible business conduct.

• The company conducts due diligence based on recognised methods.

Leads the field in the work on responsible business conduct

To lead the field in the work on responsible business conduct entails acting in an ethically responsible manner and complying with best practice in this area at all times. This involves having good guidelines and systems for identifying and managing the potential and actual negative consequences the company’s activities have on people, society and environment. This includes both its own activities and the supply chain. The work is endorsed by the board and integrated into the company’s goals, strategies and other corporate governance. The work with responsible business conduct is adapted to the activities, distinctive characteristics, risk and size for each company.

To lead the field in the work on responsible business conduct also entails that the company complies with recognised guidelines such as the OECD Guidelines for Multinational Enterprises, United Nations Guiding Principles on Business and Human Rights (UNGP), and the principles in the ILO’s core conventions. It also involves setting goals and implementing measures relating to responsible business conduct that have been identified as significant, as well as being transparent about goal attainment and using recognised reporting standards for transparency regarding sustainability and responsible business conduct, see Chapter 11.13. State-owned companies are of major public interest, and responsible business conduct helps to strengthen trust in and the legitimacy of the companies.

Conduct due diligence

Due diligence assessments are carried out in accordance with the United Nations Guiding Principles on Business and Human Rights (UNGP) and the OECD Due Diligence Guidance. This involves identifying, preventing and limiting, as well as explaining how the company manages the actual and potential negative impact or harm its activities have on people, society and the environment. Due diligence assessments also include having systems in place to rectify any negative impact or harm that is caused by the company.

A number of countries have included requirements for the implementation of due diligence assessments in their national laws. Norway has adopted the Act relating to enterprises’ transparency and work on fundamental human rights and decent working conditions (Transparency Act). The Act requires large enterprises to carry out due diligence assessments related to fundamental human rights and decent working conditions in their own activities and in the supply chain, and to provide an annual report on this work. The Act applies irrespective of where the company carries out its activities. In the spring of 2022, the European Commission submitted a proposed directive that, if adopted, will require larger companies to conduct due diligence assessments of both human rights and key environmental aspects.56 The State’s expectation that the company conducts due diligence assessments in accordance with recognised methods such as the OECD Due Diligence Guidance is thematically broader than the scope of the Transparency Act, since, in addition to human rights and decent working conditions, it also covers matters relating to, among other things, climate and nature, as well as corruption. The OECD Due Diligence Guidance is summarised in Figure 11.5.

Due diligence assessments are risk-based and involve prioritisation, which means that the risks that are assumed to be the most serious are prioritised first. Due diligence assessments depend on context, which in some cases will require particularly in-depth assessments. Good systems and routines are therefore of key importance, including for evaluating and improving the company’s due diligence assessments. The work on due diligence assessments is endorsed by the board and integrated into the company’s goals, strategies and guidelines.

Due diligence assessments require the company to have a meaningful dialogue with stakeholders, with particular emphasis on those who are or may be adversely affected by the company’s activities. Different stakeholder groups, for example, children, women and indigenous peoples, may have different perceptions of how they are or may be adversely affected by the company’s activities. It will therefore be relevant for many companies to pay particular attention to the rights of these groups in their due diligence assessments. See also the expectations regarding human rights and decent working conditions in Chapter 11.3.

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OECD’s Due Diligence Guidance for Responsible Business Conduct.

11.3 Human rights and decent working conditions

The State expects that:

• The company respects human rights and workers’ rights and is a leader in promoting decent working conditions in the company’s own activities and in the supply chain.

• The company encourages its own employees to organise themselves and promotes the right to free unionisation in the supply chain.

Respect human rights and workers’ rights and be a leader in promoting decent working conditions.

International human rights and workers’ rights are rooted in key UN conventions and ILO’s core conventions, see Box 11.3. The rights that are considered to be the most important will vary for different companies and are identified through due diligence assessments, see Chapter 11.2.

Respecting human rights and workers’ rights entails that the company works in accordance with the United Nations Guiding Principles on Business and Human Rights (UNGP), ILO’s core conventions and relevant chapters in the OECD Guidelines for Multinational Enterprises, cf. Chapter 11.2. This applies both to the company’s own activities and the entire supply chain. Larger companies have statutory duties under the Transparency Act.

It is also of importance to the State that companies which operate in, trade with or have business contacts linked to conflict areas57 demonstrate respect for international humanitarian law58 and avoid contributing to, or supporting violations of these rules. Instances such as these require particularly extensive due diligence assessments.59

Among other things, leading the field in the work for decent working conditions means working systematically with health, safety and the environment (HSE) in the workplace and that employees in their own activities and in the supply chain are paid a living wage.

Unionisation

The right to organise and collective bargaining is a key part of the ILO’s core conventions and the Norwegian model. It is important for the State that the company encourages its own employees to unionise, and that the company applies its respect for employees, trade unions and participation in its international activities and to its business contacts. For companies with international activities, this may include entering into global framework agreements.

11.4 Climate

The State expects that:

• The company identifies and manages risks and opportunities relating to climate and integrates these into the company’s strategies.

• The company sets targets and implements measures to reduce greenhouse gas emissions in both the short and long term in line with the Paris Agreement, and reports on goal attainment. The targets shall be science-based when available.

• The company reports on direct and indirect greenhouse gas emissions and climate risk, and uses recognised standards for reporting greenhouse gas emissions and climate risk.

Identifies and manages risks and opportunities related to climate

It is essential for the companies’ future goal attainment that they succeed in the transition to a low-emission society. The Paris Agreement’s goal of limiting the increase in temperatures will require global CO₂ emissions to be reduced to net zero by 2050. An orderly and sufficiently rapid restructuring process that is in line with this can contribute to lower risk and costs for the company, owners and society at large when compared with other scenarios.

The State places emphasis on the company identifying risks, opportunities and needs for restructuring its operations as a result of the goals of the Paris Agreement and integrating these into its strategies. This may involve conducting scenario analyses to assess climate risk and identifying the company’s room to manoeuvre. As a follow-up to the Paris Agreement there are ongoing regulatory developments in Norway and internationally, and capital markets and stakeholders have stricter expectations of the companies. A company operating its activities in line with the goals of the Paris Agreement could reduce its risk and cost of capital and contribute to competitiveness over time. The transition to a low-emission society also represents major opportunities that can provide competitive advantages for companies that make ambitious investments in developing new unique solutions within green technology. As is the case in other areas, the company’s investments in research and development could play a key role.

Set targets and implement measures to reduce greenhouse gas emissions

It is important for the State that the company sets short and long-term targets in line with the goals of the Paris Agreement, and that these are followed up with concrete action plans. Where available, emission reduction targets are based on science-based methods. In order to set targets, it is essential to have an overview of the company’s direct and indirect greenhouse gas emissions, see Figure 11.6. Goals and action plans are adapted to each company’s activities, distinctive characteristics, risk and size.

Good reporting on goal attainment, greenhouse gas emissions and climate risk

The State expects the company to be a leader in promoting transparency and reporting. This entails that the company uses recognised reporting standards to report on risks, opportunities, goals, greenhouse gas emissions and goal attainment, see also Chapter 11.13. For companies subject to the EU’s proposed Corporate Sustainability Reporting Directive (CSRD), reporting on greenhouse gas emissions and climate risk will be required by law. In Norway, the Securities Act Commission has been assigned a mandate to study how the proposed directive should be implemented into Norwegian law.

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GHG Protocol – Technical Guidance for Calculating Scope 3 Emissions.

11.5 Biodiversity and ecosystems

The State expects that:

• The company identifies and manages risks and opportunities relating to nature and integrates these into the company’s strategies.

• The company sets goals and implements measures to reduce its own negative impact and increase its positive impact on biodiversity and ecosystems, and reports on goal attainment.

• The company uses recognised standards for reporting on natural hazards and impact on biodiversity and ecosystems.

Identifies and manages risks and opportunities related to nature

The Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) has documented that human activity has significantly altered nature across the globe, and that a number of ecosystems are threatened as a result. This may have consequences for the companies’ future goal attainment. According to the World Economic Forum (WEF), more than half of global value creation is moderately or highly dependent on nature and ecosystem services.60 The State places emphasis on the company identifying and managing strategic and financial risk associated with loss of biodiversity and degradation of ecosystems. This includes physical nature risk, transition risk and liability risk, see Box 11.6 on nature risk.

Furthermore, it is important for the State that the company identifies and exploits opportunities that exist in the shift towards more nature-positive and circular business models, see Box 11.1 on circular economy and Box 11.7 on nature-positive business models. As is also the case for climate, early adaptation can provide competitive advantages in this area. Scenario analyses can be a useful tool for assessing the company’s nature risk and identifying alternative courses of action.

Reduce negative impact and increase positive impact on biodiversity and ecosystems

Identifying and reducing one’s own negative impact on biodiversity and ecosystems includes conducting due diligence assessments of the company’s impact on nature and ecosystems, being transparent about one’s own impact, setting goals and implementing measures to reduce the negative impact, as well as being transparent about goal attainment.

Together with capital market and stakeholder expectations, regulatory developments in the field will contribute to greater focus on reducing the negative impact on nature. This could be significant for future goal attainment through, among other things, lower capital costs and reduced reputational risk. For some companies, reducing the need to extract new resources from nature through increased use of circular production processes will be critical for access to raw materials and continued operations.

The companies can increase their positive impact on nature by, among other things, restoring damaged nature or switching to nature-positive business models, see Box 11.7.

Water scarcity also represents an increasing threat to parts of the world’s population and a potential financial risk for companies that have water-intensive processes in their own activities or in their supply chains. For a number of companies in which the state has an ownership interest, responsible water management and the development of more circular production processes could therefore reduce risk.

Reporting on nature risk and impact on biodiversity and ecosystems

The State expects the companies to be leaders in promoting transparency and reporting. This entails that the companies are transparent about their own impact on nature and ecosystems. It also involves using recognised standards to report on nature risk, and reporting on opportunities, goals and goal attainment for negative and positive impacts, see Box 11.8 and Chapter 11.13 for further reference.

11.6 Tax and prevention of financial crime

The State expects that:

• The company has an appropriate, well-considered and justified tax policy and is transparent about where financial value is created and where tax is paid.

• The company works systematically to prevent financial crime such as corruption and money laundering in its own activities and in the supply chain.

Tax policy

The payment of tax is a significant contribution that companies make towards common welfare benefits and well-functioning social institutions in the countries and local communities where the companies operate. Among other things, tax is used for public goods that companies also benefit from.

Extensive international efforts have long been underway to counteract harmful tax competition and international tax adjustments. Norway actively supports international tax cooperation, and has introduced several measures against international tax adjustments. These measures include interest limitation rules and withholding tax on interest, royalties and lease payments for certain physical assets.61

A justified tax policy describes and provides grounds for the main principles that the company applies in the area of tax, including the main principles for the company’s reporting.

An appropriate and well-considered tax policy helps to counteract tax base erosion and profit shifting. This is achieved not only by complying with the wording of tax laws, but also the intention behind the tax laws in the countries where the company operates. Guidance on what is considered to be an appropriate and well-considered tax policy for multinational enterprises is provided in, among other things, the considerations behind the OECD/G20 Inclusive Framework on Base and Profit Shifting (BEPS) project.62 An important consideration in the BEPS project is that tax is paid where economic value is created, and that companies’ transfer prices are in line with the arm’s length principle63 in accordance with the guidelines in the OECD Transfer Pricing Guidelines64 and national law in the countries where the companies are located.

Some countries attract certain types of enterprises by offering particularly favourable tax rules, for example, for patents and intellectual property rights. This can be regarded as harmful tax competition, which distorts competition between companies and facilitates tax adjustments. The consequences of tax adjustments and harmful tax competition are both reduced total tax revenues from multinational enterprises and adverse economic effects from the impact on competitive conditions in the global economy.

Prevention of financial crime

Corruption and other financial crime such as tax evasion and money laundering are prohibited. The prevention of corruption presupposes that the company has good and up-to-date anti-corruption programmes that are endorsed by the board and are adapted to the risk in the company’s own activities and among suppliers and other business contacts. Prevention of money laundering requires particularly good programmes for customer due diligence. Updated guidelines and programmes that are endorsed by the board and are in line with good practice contribute to the company reducing its own risk and preventing financial crime from occurring.

11.7 Capital structure and dividends

The State expects that:

• The company has a capital structure adapted to the company’s goals, strategies and risks and normally in line with other well-run companies in the same industry. The company will provide grounds for any significant deviations from this.

• The listed companies communicate what they deem to be an appropriate capital structure and dividend level to the market. The non-listed companies communicate their assessments of the capital structure and dividend level to their owner(s).

Capital structure

Good resource allocation and utilisation of capital are crucial for goal attainment. An optimal capital structure is well-adapted to the company’s goals and strategies, the risks associated with the company’s activities and the company’s ability and opportunities to create returns that exceed the cost of capital. An optimal and market-based capital structure promotes the company’s value development or the effective attainment of public policy goals. Companies with either very low or very high debt ratios will often have a higher cost of capital, which can impact their competitiveness and prospects for growth and profitability over time. A balance sheet that is too strong, which give the company easy access to liquidity, increases the risk of misinvestments and less efficient allocation of capital. Correspondingly, a balance sheet that is too weak may, among other things, result in attractive investments not being made.

The starting point for an optimal capital structure for the companies in Category 1, and companies in Category 2 with activities in competition with others, is that they have the amount of capital necessary to operate profitably and make investments with expected returns that exceed the cost of capital over time. Correspondingly, the situation for the companies in Category 2 that only have public policy activities will be that they have capital in order to be able to operate efficiently and make investments that promote effective public policy goal attainment. Capital exceeding this should be returned to the owners, and possibly to the lenders if the debt should be reduced.

The board is responsible for ensuring that the company has an optimal and market-based capital structure, which requires the board to conduct an assessment based on, among other things, the company’s goals, strategies, risk, cost of capital, financing, competitiveness and profitable investment opportunities. Grounds must be provided for significant discrepancies between the actual capital structure and what is considered optimal and market-based. If the company is of the view that there is a difference between an optimal and market-based capital structure, the grounds for this should also be communicated to the owner/owners.

Dividends

Dividends provide the owner(s) with a direct return and are also a means of adjusting the company’s capital structure. An appropriate dividend level promotes long-term value development and the most efficient possible attainment of public policy goals.

In some cases, it may be appropriate for the company to buy back shares for the purpose of cancellation in addition to paying dividends, which some listed companies choose to do based on factors such as shareholder preferences. It will normally be the case that the State will want cash dividends, and share buy-backs should be regarded as a supplement to this. The State will conduct a specific assessment in each instance of whether it is appropriate for the State to support and participate in a share buy-back programme, see also Chapter 9.1.

Further information regarding companies in Category 2

Many companies in Category 2 are financed via the national budget or by regulated revenues, and the State therefore often places restrictions on the companies’ ability to borrow or distribute dividends. Even if the State may have imposed certain restrictions on the company’s financing, it is essential that the board considers at all times the optimal capital structure and how it can be adjusted as required. If the company is only financed with equity, it is relevant to assess whether the equity is justifiable based on the risk and scope of the company’s activities. If the company has stipulated in its articles of association that it shall not distribute dividends, the capital structure can be adapted by engaging in dialogue with the State concerning the need for adjusted grants/regulated revenues.

Transparency

The State places an emphasis on the boards being transparent about their assessments relating to capital structure and dividends in order to have a dialogue with the board concerning these matters. For companies in Category 2 that also have activities in competition with others, the State places emphasis on the companies being transparent about the use of capital from activities in competition with others that may be used to finance public policy activities. As a general rule, this should be subject to normal dividend assessments. If commercial revenues are used to finance public policy activities, it is of importance to the State that the company is transparent about the amount and what these funds are used for. Transparency is important both for public insight and for the State as owner and board to be able to adequately follow up the company, including the company’s goal attainment.

11.8 Organisation and culture

The State expects that:

• The company’s organisation is efficient and promotes attainment of the company’s goals and supports the company’s strategies.

• The company’s culture is established, managed and developed in such a way that it promotes attainment of the company’s goals and supports the company’s strategies.

Organisation

The board is responsible for ensuring that the company’s activities are adequately organised. The State places emphasis on the board regularly assessing whether the company’s organisation promotes the company’s goals and supports the company’s strategies, and whether its resources are being used efficiently.

Most companies face major or minor restructuring processes. The need for restructuring and innovation may lead to new ways of organising a company’s activities and the need for new expertise and perspectives.

In order to develop more flexible and competitive activities which can more rapidly and better adjust to changes in markets and externalities, and to increase efficiency, new organisational forms and models may be required. Increased autonomy, cooperation across functions and the use of temporary groups with responsibility for results are examples of methods of organising activities.

Culture

The company’s culture influences and is influenced by employee behaviour and thereby the company’s ability to attain goals and to act responsibly. The factors that affect a company’s culture are complex and difficult to measure; however, company culture is expected to be influenced by, among other things, the company’s ambition, values and strategies and how these are communicated and complied with at all levels of the organisation. Formal and informal incentives, performance management systems and decision-making and organisational structures also influence a company’s culture.

The attitudes and conduct of managers are also decisive in developing the desired culture. For example, communication from and attitudes of managers determine how the rest of the organisation acts and communicates. Another example is how hiring, promotions and remuneration schemes impact employee satisfaction and behaviour. For example, when appropriate, different models for profit sharing can create a team culture. A greater sense of community can motivate and contribute to increased goal attainment.

The board has a particular role in ensuring that management facilitates and maintains a culture that enables attainment of the company’s goals and supports the company’s strategies. This is also described in Chapter 11.12 concerning the organisation of the board’s work. This not only involves follow-up and assessment, but also advising management on developing the desired culture.

For example, a value-creating and responsible culture can be achieved by rewarding behaviour that contributes to long-term value creation, encourages openness about challenges and objections and creates lower thresholds for reporting censurable conditions. Such a culture is characterised by employees being able to freely express their opinions, be listened to, share their expertise and be themselves without fear of social sanctions. A high degree of trust between employees and managers contributes to creating a good working environment where challenges and efficiency are valued. Psychological safety is considered to be of decisive importance in creating this type of culture.

11.9 Employees and diversity

The State expects that:

• The company has clear goals and measures for promoting and triggering the value of increased diversity, equality and inclusion in all parts of the organisation.

• The company works systematically with the development and recruitment of employees in line with the company’s goals and strategies.

• The company uses professional and vocational training and apprenticeships when this is relevant to the company’s access to the right expertise in the short and long term.

Diversity, equality and inclusion

Diversity of background and experience contribute to providing different perspectives, which give companies a broader basis for making good decisions. Companies that are able to attract employees from a broad segment of the population better position themselves in the battle for the best talent and can appear as more attractive employers and thus have a competitive advantage.

The State places emphasis on the company unleashing the value of greater diversity by identifying and utilising the expertise in its own organisation and applying this to solve tasks.

What constitutes relevant diversity will vary between the companies. Different life and work experience, education, values, gender, geographical affiliation, cultural background, age, disability and sexual orientation can contribute to providing the company with expanded and valuable perspectives.

The Gender Equality and Anti-Discrimination Act states that all Norwegian enterprises must work in an active, targeted and systematic manner to promote gender equality and to prevent discrimination. Employers with more than 50 employees are also obligated to report on gender equality work in the annual report or other publicly available documents. The State places emphasis on the company promoting gender equality by working actively for equality, equal opportunities and equal rights, both in recruitment and in the career development of all employees in the company.

There are still not enough women in the upper echelons of Norwegian business and industry, including in companies with state ownership. The proportion of women in the management groups of state-owned companies varies between the companies and is generally lower at the levels below the senior management group. It is important for the State that the company works to achieve a more equitable gender balance. The State also places emphasis on the company working for equal pay between women and men at all levels of the company, including for senior positions. Equal pay between genders and the limited use of temporary employment and undesired part-time work can also contribute to equality and in building a culture in which employees experience a sense of fairness.

The State places emphasis on the board setting clear goals and taking ownership of the company’s work in this area. Among other things, this involves assessing whether the company has a culture and measures that promote and unleash the value of diversity, gender equality and inclusion, thereby enabling the company to achieve its goals.

Textbox 11.10 Different aspects of diversity

Diversity is a collective term used to describe personal differences such as individual characteristics like gender, age, disability or cultural background, and also differences in perspective, behaviour and identity. In other words, diversity describes both observable and unobservable differences that may be of significance to relationships at the workplace, approaches to work tasks and productivity for the organisation. The differences can be roughly divided as follows:

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Employee development, expertise and apprenticeships

The State places emphasis on the company having good personnel strategies and development and recruitment plans which contribute to ensuring that the company has the managers and employees with the requisite expertise needed for the company to implement its strategies and attain its goals. This presupposes that the company identifies the expertise that it has available and will require in the future.

Internal competence-building and further development of employees are vital. Many companies may find it challenging to obtain the necessary expertise. The use of professional and vocational training and the recruitment of apprentices may be a relevant means of accessing or developing the right expertise in the short and long term.

11.10 Salary and remuneration

The State expects that:

• Remuneration and other incentives used by the company promote attainment of the company and owner’s goals.

• The remuneration of senior executives is competitive, but not market-leading, and is set with due regard to the principle of moderation.

• The primary element of the remuneration scheme for senior executives is fixed salary.

• Remuneration of senior executives is not unreasonable, and does not have adverse effects on the company nor undermines its reputation.

• The company is transparent about the structure, level and development of remuneration of senior executives, including that the remuneration schemes are clearly understandable to owners, senior executives and other stakeholders.

• Differences in the remuneration of senior executives and other employees are taken into consideration when assessing moderation, and the company should provide specific justification for salary adjustments for senior executives that are higher than the average salary adjustments for the company’s other employees. This assessment shall also take into account the wage growth (in terms of Norwegian kroner) for other employees.

• The company complies with the State’s Guidelines for the Remuneration of Senior Executives in Companies with State Ownership.

The expectations regarding the remuneration of senior executives are supplemented and further detailed in the State’s Guidelines for the Remuneration of Senior Executives in Companies with State Ownership.

Incentives

Incentives refers to different means of motivating and rewarding performance and the desired conduct in an organisation. Good incentives contribute to better implementation of the company’s strategies and goal attainment, and promote motivation, loyalty and appropriate risk-tasking. Remuneration is a key part of the incentives; however, criteria that form the basis for assessing promotions and the type of conduct that is valued in the organisation are also examples of incentives, cf. Chapter 11.9. Employees are also controlled by intrinsic motivation, i.e. the individual’s inner drive and desire to do a good job regardless of external motivations such as remuneration. Many of the companies with a state ownership interest are of major importance to the Norwegian business sector or the industry to which they belong, and are attractive workplaces for managers and employees. In a work context, intrinsic motivation can contribute to employees performing well and a working environment that fosters development.

The companies in which the State has an ownership interest differ considerably in terms of size, industry and complexity. Appropriate incentives and the correct level and structure of remuneration will therefore vary. The companies shall have the opportunity to recruit and retain the desired expertise by being able to offer competitive remuneration and other incentives.

Remuneration of senior executives (executive salaries)

The State has a general expectation that remuneration and other incentives used by the company promote attainment of the company and owner’s goals. This expectation also guides the remuneration of senior executives.

It is essential that the companies can offer competitive remuneration that enables them to recruit and retain good managers. Pay conditions are an important means of attracting and retaining such expertise.

In order to assess what constitutes a competitive, but not market-leading, level of remuneration, factors such as experience, seniority, expertise and pay conditions that are common in other, similar companies must normally be taken into consideration. For senior executives working in the Norwegian executive pay market, equivalent Norwegian companies should normally be the reference point. For unlisted companies, other unlisted Norwegian companies should normally be considered. The board should be aware that comparisons with other companies, for example, through the use of reference groups, may have an adverse effect on salaries, particularly if the reference group does not consist of a representative sample of companies.

At the same time, it is important for the State to ensure that there is moderation. This is important for safeguarding the company’s long-term interests, among other things, by avoiding the company’s reputation being undermined by executive salaries contributing to creating unreasonable disparities in the company and society at large. Moderation can also prevent an unreasonable transfer of value from owners to senior executives.

Based on this, the State expects the remuneration of senior executives to be competitive, but not market-leading when compared with similar companies, and that the board takes moderation into account when determining and adjusting remuneration. The individual remuneration components (fixed salary, pension and other benefits) must be assessed both individually and collectively in relation to the State’s expectations. The consideration of moderation, together with the expectation of competitive remuneration, entails that the remuneration must not be higher than necessary to attract and retain the desired expertise.

The Norwegian working life model is based on a culture and tradition of relatively small differences in salary when compared with other countries. Among other things, the consideration of moderation suggests that the board takes into account differences in the level of remuneration for senior executives and other employees. If senior executives receive an annual adjustment in their fixed salary higher than the average for other employees, it is important for the State that the company provides the grounds for this. Moderation further entails that, when conducting their assessment of salary adjustments for senior executives, the board and general manager take into account the salary adjustment (in terms of NOK) for other employees. It may also be relevant to consider the total remuneration. If the growth in total remuneration, or in certain remuneration elements, is higher for senior executives than for other employees, either in terms of percentage or krone value, the State places emphasis on the board providing specific grounds for this in the company’s remuneration report. When considering the company’s remuneration report at the general meeting, the State will assess the company’s rationale in relation to the State’s expectations. The Government considers that raising awareness of wage levels, including that equal percentage increases result in different krone-related increases, is essential to curbing wage growth for senior executives and preventing the pay gap between managers and other employees from increasing, because this could potentially have a negative impact on the company’s reputation and development. If the State finds that the grounds rationale provided by the board is not in line with the State’s expectations, the State can vote against the remuneration report.

For performance-based remuneration schemes, the State places emphasis on these types of schemes promoting goal attainment for the owner. Good schemes for performance-based remuneration reflect the company’s goals and strategies and are designed to create an alignment of interest between the owners and senior executives. In practice, performance-based remuneration should not be used as a fixed salary element, nor should remuneration depend on the development in external factors over which managers have no control, for example, developments in commodity prices. As a general rule, performance-based remuneration should reflect the results that exceed expectations, which is something that requires good assessments of factors such as criteria and entry points.

It can be challenging to find suitable criteria and entry points for determining performance-based remuneration. There are also differing views regarding when performance-based remuneration contributes to good incentive effects. In a society where the value of relatively small differences in pay is emphasised as being a positive factor, it may appear to be a negative factor that the pay gap between management and employees is greater during years in which the company is doing well. The Government is of the view that fixed salaries should constitute, to a greater extent, the majority of the remuneration paid to senior executives. The expectation of a maximum achievable bonus for companies in Category 1 will therefore be reduced from 50 to 25 per cent of fixed salary in the State’s guidelines for executive remuneration. For listed companies, the expectation of the total limit for bonuses and equity programmes will be correspondingly reduced from 80 to 55 per cent. It can be particularly challenging for companies in Category 2 to find good criteria that reflect the company’s goals and strategies, and the State will therefore include an expectation in the State’s guidelines for executive salaries that companies in Category 2 do not use separate bonus schemes for senior executives.

It is the board that is responsible for assessing whether the level of remuneration of senior executives is in line with the State’s expectations. It should not be automatic that a reduced bonus limit results in an increase in the fixed salary. The State as owner considers the board’s assessments and rationale in connection with its review of the remuneration report and guidelines on the determination of salary and other remuneration to senior executives at the general meeting.

In companies that use performance-based remuneration, the board should consider whether it is more appropriate to use a collective bonus scheme in the form of profit sharing, which can give all employees a sense of ownership in the company’s results. If the companies use these types of collective schemes, the schemes should be designed in such a way to avoid excessive disparities in the potential payments for senior executives and other employees.

The State expects that the companies will not offer senior executives remuneration schemes that are unreasonable, have adverse effects for the company or damage its reputation.

The State places emphasis on the board taking ownership of, and working actively with, the specification and follow-up of the company’s executive remuneration policy, and that the reporting of executive salaries is in line with the State’s expectations. Transparency regarding the structure, level and development of the remuneration of senior executives is important for the owners being able to assess the schemes and public trust in the company. It is important for the State that performance-based remuneration schemes are understandable, and that the owner and the individual senior executives are able to understand what is required to achieve this remuneration and how the criteria are assessed. It is of further importance to the State that the company’s guidelines and remuneration reports reflect the boards’ assessments relating to, among other things, how the remuneration contributes to the company’s goals and strategies, and how the boards have ensured that, when determining and adjusting the remuneration, it is competitive but not market-leading, and has considered moderation.

For listed public limited liability companies, it is stipulated by law that the board must present guidelines and reports on salary and other remuneration to senior executives at the general meeting, cf. Sections 6-16a and 6-16b of the Public Limited Liability Companies Act and associated regulations. In other companies in which the State has an ownership interest65, the State will propose to include this in the articles of association to also enable the owners to consider the board’s guidelines for remuneration of senior executives and the remuneration report at the general meeting.66 These types of amendments to the articles of association have been implemented for most of the companies in the State’s portfolio. An informed vote at the general meeting requires a comprehensible description of all elements of the remuneration and what they entail in terms of payments. It is good practice for the annual remuneration report to following applicable guidance documents, including a template for the remuneration report, prepared in accordance with the provisions in the Shareholder Rights Directive.67

The State has prepared guidelines for executive remuneration in companies with a State ownership interest. This is a separate «expectations document» that sets out and details all of the State’s expectations relating to executive remuneration. The State’s guidelines for executive remuneration present the matters that the State assigns emphasis to in the voting process when the board’s guidelines for executive remuneration and remuneration report are considered. In addition to general expectations of the companies’ remuneration schemes, the State’s guidelines for executive remuneration also contain specific expectations relating to the special remuneration elements of bonus, pension and severance pay. The State’s guidelines also contain comments, explanations and examples related to both the general and specific expectations. The State’s guidelines are being revised in the light of the aforementioned changes to the State’s expectations regarding executive remuneration.

When concerning voting at general meetings in connection with executive remuneration, see Chapter 12.4.

11.11 Risk management

The State expects that:

• The company has effective strategic and operational risk management and good internal control that are integrated into the company’s strategy and decision-making processes.

Risk management and internal control are tools for good decision-making processes and the sound operation of the company and for the board to supervise the management. This contributes to increased goal attainment for the company.

Several of the companies in which the State has an ownership interest are large enterprises that operate in complex environments where the risk situation and business models can change rapidly. It is therefore essential to identify relevant risks, including risks that are not easy to quantify and which may be dependencies and vulnerabilities that cross sectors, areas of responsibility and national borders. Examples of the latter may be exposure to countries with unstable governance systems, shorter lifecycles for goods and services, vulnerability in supply lines, increasing dominance of individual companies, cybercrime, industrial espionage and vulnerabilities related to physical and digital infrastructure that are critical to business activities.

Effective risk management requires risk assessments to be integrated into the company’s strategy, core business and decision-making processes. A good risk management system enables the company to identify, evaluate and report risk, and allows the company to respond strategically, operationally and financially when necessary to manage and implement necessary measures. This includes having the necessary emergency preparedness for crisis management. The purpose of risk management and internal control is to manage, not eliminate, risks.

It is important for the State that the board has an opinion on the company’s risk management and internal control. Effective risk management requires that the reporting from management to the board provides a balanced account of all significant risks and how the company manages these.

Some companies have established a separate internal audit as part of their internal control process. In such instances, it is essential for good internal control that a system has been established for the board to receive regular reports, and otherwise, as needed. If a company does not have a separate internal audit, good internal control will then require specific consideration of how similar information may be sent to the board regularly or as needed.

Textbox 11.13 The COSO Framework

COSO’s Internal Control–Integrated Framework¹ enables organisations to develop internal control systems that allow them to adapt to changing business environments and framework conditions, mitigate risks to acceptable levels, and support sound decision making and governance of the organisation.

¹ The Committee of Sponsoring Organisations of the Treadway Commission (COSO) is an organisation that publishes reports and frameworks for risk management and internal control.

COSO defines internal control as a process, effected by an entity’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance. This entails that the internal control:

• is geared to the achievement of objectives in one or more separate categories.

• is a process consisting of ongoing tasks and activities.

• is effected by people – not merely about policy and procedure manuals, systems, and forms, but about people and the actions they take at every level of an organisation to affect internal control.

• is able to provide reasonable assurance, but not absolute assurance, to an entity’s senior management and board of directors.

• is adaptable to the entity structure.

The COSO Framework specifies a direct relationship between the objectives, which are what an entity strives to achieve, components, which represent what is required to achieve the objectives, and the organisational structure in the form of operating units, the legal business structure, etc.

COSO.

11.12 Company management

The State expects that:

• The company complies with the Norwegian Code of Practice for Corporate Governance where relevant, adapted to the company’s operations.

• The board follows best practice for board work, adapted to the company’s operations.

The Norwegian Code of Practice for Corporate Governance

The Norwegian Code of Practice for Corporate Governance is primarily intended for companies with shares listed on regulated markets in Norway.68 The Code of Practice is also relevant for unlisted companies. As stated in the Code of Practice, compliance with this must be based on a «comply or explain» principle. The Code of Practice states that the company shall provide a consolidated report for the company’s corporate governance. This is adapted to the company’s activities.

Organisation of the board’s work

The State places emphasis on the board working well and contributing to the State’s goal as owner. A good board organises and prioritises its work and utilises its collective expertise in order to effectively contribute to the company’s goals and carry out the board’s supervisory duties. It is a prerequisite that the board members have sufficient capacity, are dedicated and expend sufficient effort in the execution of their positions.

A good board sets clear expectations and is constructive in its dialogue with management. A good board serves as a resource and discussion partner for the management, while at the same time understanding its role as a non-operative unit in the company. As the closest point of contact for management, the chair of the board plays a particular role in this dialogue. The interaction between the owners, the board and management is also crucial, because it influences the company’s possibilities for goal attainment. Good interaction is characterised by transparency, mutual respect and trust.

Good board work is characterised by being forward-looking and contributing to a long-term perspective, which is essential for the company to remain relevant, competitive and create value for both the owners and other stakeholders. Previously, the primary emphasis was on control and compliance. However, there has now been a shift towards more strategic and result-oriented work that supports, guides and challenges the management. The board’s supervisory duties have also been expanded in recent years, a trend that has been driven by greater complexity, stricter regulatory requirements and a technological shift, all of which increasingly impact operations and development. The high pace of change in society makes it necessary for the board to allocate sufficient time and to work systematically with the company’s strategy and hold regular strategic discussions with the management. These changes impose increased requirements on the board’s expertise and work, and mean more time is set aside for the position.

The aforementioned factors have an impact on how the board organises its work. For example, an annual strategy meeting outside of the usual schedule for board meetings is now good and established practice; however, this is not necessarily sufficient. Good strategy work normally also requires ongoing strategy work throughout the entire year, because this provides the board with a better opportunity to follow up and discuss matters during an increasingly changing period of time. Good strategy work requires regular reassessments of the direction in which the company is heading, as well as «deep dives» into certain issues. A changing world and rapid changes place greater demands on the company’s ability to adapt and quickly change course.

Textbox 11.14 Example of the board’s annual schedule

The overview below lists examples of various items on the board agenda and how they can be followed up throughout the year. For listed companies, there are a number of additional activities for the board, such as capital market days and prospectus work.

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The board is responsible for organising its work and is responsible for the decisions it makes.69 As a consequence of an increased workload and complexity, the effective and expedient organisation of the board’s work is of decisive importance. Most boards choose to organise themselves into various subcommittees and some also establish ad hoc committees or utilise other types of expertise.

The chair also has a special responsibility for ensuring that the board functions well. This already starts with a good onboarding programme for new board members. Furthermore, the chair’s responsibilities also include structuring the board’s work by setting the agenda and considering relevant matters at the right level to enable the board to correctly prioritise its time and effort. The chair’s responsibilities also involve facilitating good discussions, including ensuring that each board member’s expertise, and thus the board’s overall expertise, is utilised as best as possible and that the board members can openly express their views. When matters are discussed, the chair should ensure that all aspects of the matter are well elucidated and then summarise the main points. The board is a collective body, and the perspectives and quality of discussions are of decisive importance. Mutual respect for each other’s views results in the constructive exchange of opinions, which is expected to make a positive contribution to decision-making processes. The chair of the board is responsible for contributing to a board culture that facilitates this at all times.

One of the board’s most important tasks is the appointment of the general manager. Structured board work related to this is characterised by the board having a succession plan for the company’s general manager high on the agenda and regularly ensuring that there is a well-qualified selection of potential candidates.70 Good boards also follow up long-term management development in the company in general, including ensuring that this supports the company’s strategies.

Good boards also follow up that management cultivates a culture that aligns with the company’s goals, values and strategies, cf. Chapter 11.8.

11.13 Transparency and reporting

The State expects that:

• The company leads the field in its work on transparency and reporting and makes use of recognised reporting standards.

• The company promotes a culture of transparency and is transparent about and reports on all matters of material importance in such a manner that the information provides owners and the general public with a true and fair depiction of the company’s activities.

Leads the field in the work on transparency and reporting

Good and transparent reporting is vital to the company’s trust among owners and in the capital market. Since the State manages its ownership interests on behalf of the population, the general public having an insight into matters of material importance to the company’s activities is also important for there to be trust in the State as owner. Transparency is also vital for gaining the public’s trust that there is fair competition between companies with and without a State ownership interest.

The board is responsible for the company’s activities and for ensuring that the company reports in a manner that provides a comprehensive and fair depiction of the company’s activities and potential for returns or attainment of public policy goals.

Good corporate reporting is a prerequisite for good exercise of ownership, because it provides insight into the company’s ability to create value in the short and long term. Access to relevant and timely information makes it possible for the State to assess the company in relation to the State’s goal as an owner. Transparency and good reporting are also drivers for, among other things, good strategy work, business development, access to capital, and operational and financial improvements in the company.

Leading the field in the work on transparency and reporting means that the company’s reporting is relevant, balanced and comparable over time, and that the company applies the best available reporting standards in the area that are adapted to the company’s activities and industry. It further entails that the company integrates important strategic and financial information, including sustainability information, that provides a comprehensive and fair depiction of the company’s activities and the opportunities for future goal attainment. Examples of reporting standards for financial information are the International Financial Reporting Standards (IFRS) or generally accepted accounting principles. The reporting standards for sustainability in general, and climate in particular, are constantly evolving. It is therefore essential that the company considers which reporting standard is best adapted to its activities and which meets the State’s expectations of transparency in this area, see the expectations relating to climate, Chapter 11.4 and biodiversity and ecosystems, Chapter 11.5. Box 11.18 discusses various reporting standards that, in addition to those discussed in the aforementioned chapters, are presently considered the recognised standards, as well as standards that are under development and intended to further integrate sustainability and climate reporting into other reporting. Irrespective of reporting standards, the company must independently develop methods for providing information to enable different stakeholder groups to be as well informed as possible.

It is important for the State that the annual report, together with the directors’ report, annual accounts and associated note information constitute the company’s most important information channel. The annual report shall provide comprehensive information about the company and clarify the board’s responsibilities. A good annual report is based on an integrated approach and contains significant strategic and financial information as well as information regarding sustainability, and is both retrospective and forward-looking. Information on capital markets days and quarterly presentations, or found in other channels such as websites, is a good supplement to contribute to transparency regarding the company’s operations.

Culture of transparency and reporting of matters of material importance

Being transparent about and reporting on all matters of material importance so that the information provides a true and fair depiction of the company’s activities means that the information provides a good and comprehensive description of the company’s ability to attain goals, which, among other things, makes it possible to assess whether future earnings will exceed the company’s cost of capital. The State places emphasis on ensuring that reporting enables there to be an understanding of the future range of outcomes and development trends, including that the reporting contains information on various scenarios and their significance for the company’s strategy. This includes information that reflects how the company assesses, among other things, strategic issues, capital allocation decisions, restructuring and major investments.

The need for owners and other stakeholders to obtain a true and fair depiction of the company may entail that it is not sufficient for the company to only report in accordance with the minimum statutory disclosure requirements. For example, there may be information about both financial and non-financial indicators (including intangible assets) and sustainability indicators that provides an insight into the company’s competitive advantages and plans for increasing competitiveness.

In the area of sustainability, it will be expedient that the company is transparent about its assessments of areas of significant risk and opportunity for its activities, see also Chapter 11.1. Reporting on matters of material importance requires that the results of the company’s materiality assessment, including stakeholder dialogue, are presented in the company’s annual report, in addition to goals, measures and goal attainment.

In the area of climate, it may be important for companies to report on climate risks and opportunities and how these are integrated into the company’s business model and strategy. This includes the annual report specifying the targets and measures that have been implemented to reduce greenhouse gas emissions in the short and long term and goal attainment, see Chapter 11.4. Correspondingly, it will be expedient for the annual report to also state the goals and measures that the company has implemented to reduce its own negative impact and increase its positive impact on biodiversity and ecosystems, see Chapter 11.5. On the whole, it will be essential that the company places climate and sustainability in a strategic context, including how climate and sustainability are expected to impact the company’s ability to generate a return or attain public policy goals. It may be important to provide information regarding plans for the financing of related investments.

Being owned by the State means that unlisted companies have a high degree of transparency regarding matters of material importance, not only with regard to their owners, but also the general public. This means that, unless special considerations suggest otherwise, unlisted companies are equally as transparent as listed companies; however, the reporting should be adapted to the distinctive nature, activities, risks, resources and size of the individual companies.

The State manages substantial assets on behalf of the Norwegian people. This means that important information about the companies should be readily available to the general public. A company’s official annual report may be in English in situations in which the company deems this appropriate and has been granted the necessary exemptions from the language requirement in the Securities Trading Act and the Accounting Act. Since State ownership is managed on behalf of the Norwegian people, it is desirable that companies with a State ownership interest publish a Norwegian version of the annual report that is available no later than the date of the notice of the general meeting.

In addition to the general expectations of transparency and reporting in this chapter, the State has specific expectations relating to transparency and reporting in Chapters 11.4 (climate), 11.5 (biodiversity and ecosystems), 11.6 (tax and prevention of financial crime), 11.7 (capital structure and dividends), 11.10 (wages and remuneration) and 11.12 (company management).

Further information regarding companies in Category 2

Being transparent about and reporting on all matters of material importance to the companies in Category 2 means, among other things, that the company is transparent about and reports on public policy goal attainment and efficient operations. Companies that have parts of their activities in competition with others submit separate reports for both public policy activities and activities in competition with others.

In order to be transparent to the public about the company’s goal attainment and for the State to be able to monitor this, it is essential that the company is transparent about and reports on goals, key performance indicators and target figures for both public policy goal attainment and efficient operations. This must be adapted to each company because the State’s goal as an owner varies between the companies in Category 2.

Separate reporting for public policy activities and any activities that are in competition with others71 provides the general public with a better insight into the company and enables the board and the State as owner to follow up the company’s goal attainment in each of the areas.

Exchange of information with the owner

As a starting point, the State expects that the company is transparent about matters that are of material importance to the general public. It is also important for the State to receive information in the owner dialogue about how the company complies with the State’s expectations, see Chapter 12.1. However, certain limitations may apply to what a company can and should disclose, for example, business-sensitive information.

Companies that are wholly-owned by the State can choose to disclose more information to the owner than they make public. Among other things, this enables the State to efficiently follow up the company and its goal attainment. The State normally engages in dialogue with the companies concerning the content and frequency of reporting to the owner.

In companies that are partly owned by the State, the State as an owner will not normally have access to more information than the other shareholders.72 However, the board may decide that the company needs to exchange information with certain major shareholders if the board considers there to be reasonable grounds for doing so based on the company’s interests and the common interests of all shareholders. One example of this could be if a requirement for being able to conduct a transaction is that larger owners vote in favour of it at the general meeting. Another example could be matters that are expected to attract a great deal of attention and where the company therefore has a special need to inform certain large owners. See more details about the owner dialogue in Chapter 12.1.

In instances in which the State awards assignments to companies with a State ownership interest, the State can define separate reporting requirements through its other roles. This usually applies to companies in Category 2 and is often related to appropriations.

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12 The State’s follow-up of the companies shall contribute to the attainment of the State’s goals as owner

The key elements of the framework conditions for the State’s exercise of ownership are collated in the State’s ten principles for good corporate governance, see Chapter 10. The State is an active and responsible owner with a long term perspective and achieves this by, among other things, clearly communicating what the State wants to achieve with its ownership of each company, expressing clear expectations of the companies and following up the boards on goal attainment and work with the State’s expectations, and when voting at the general meetings. The State’s follow-up of the companies shall contribute to the attainment of the State’s goals as owner.

The State’s ownership follow-up is based on the division of roles and responsibilities between the owner, the board, and general manager set out in company law, and on generally recognised principles and standards for corporate governance. The State shall be a predictable owner and systematically follow up the companies. Good owner follow-up of the companies requires the State to have a good insight into the company’s activities as well as sufficient expertise and resources.

The State shall exercise its ownership in accordance with the principle of equal treatment of shareholders set out in company law. A company’s ability to attract capital is dependent on investor confidence that no shareholders are given unfair opportunities to promote their interests at the expense of other shareholders. As a part-owner with significant ownership interests in several companies, it is decisive that the State contributes to achieving equal treatment between shareholders.

In principle, the State as an owner does not have access to more information than what can be provided to other shareholders, and the State cannot demand more information. However, the board may decide that the company shall exchange information with certain large shareholders if the board considers there to be reasonable grounds for doing so based on the company’s interests and the common interest of all shareholders, see Chapter 11.13. The State shall not act unlawfully on the basis of information about the company that other shareholders are not aware of.

12.1 The State engages in owner dialogue with the company – ownership authority is exercised at the general meeting

The State’s authority as owner is exercised at the general meeting. This typically applies to the approval of the annual accounts and, if applicable, annual report, including the distribution of dividends, election of board members and specification of board remuneration, approval of guidelines for executive remuneration and remuneration report, election of auditor and approval of remuneration to the auditor, the buy-back and cancellation of shares, as well as decisions on capital changes and other amendments to the articles of association. The State as owner may also require that certain matters be considered at the general meeting. The State will exercise this right when relevant and if it does not violate the division of roles upon which company legislation is based, see Chapter 8.1.

The State as owner cannot exercise authority in the company outside of the general meeting.73 However, like other shareholders, this does not prevent the State from receiving information from and engaging in dialogue with the company outside of the general meeting. Such contact is required to give the owners the necessary insight to be able to follow-up their ownership in an expedient manner and make good decisions at the general meeting. Dialogue based on confidence and trust is a prerequisite for good cooperation between the company and the owner. The State will also engage in dialogue with co-owners when relevant. The flow of information from a company to its owners can take place through different channels, for example, interim and annual reports and other publicly available information, the general meeting, and meetings with the owners.

The State holds regular meetings with each company. This and other contact with the company is referred to as owner dialogue. Through the owner dialogue, the State can raise matters, ask questions and communicate points of view that the company can consider in relation to its activities and development. Such dialogue is intended to serve as input to the company, not instructions or orders. The board shall manage the company in accordance with the interests of the company and all shareholders, and must make specific assessments and decisions. Matters requiring the approval of the owners must be considered at the general meeting.

The core of the State’s owner dialogue with the company is usually regular meetings every quarter, as is customary between companies and other large owners. What are considered relevant and important topics to be discussed at these meetings will depend on the State’s goals as owner and the company’s activities and situation. The meetings normally involve a review of the company’s development and future prospects, various matters relating to the State’s expectations, as well as specific issues. The matters that are reviewed will vary between the companies and over time. In addition to the regular meetings, the State engages in dialogue with the company regarding special topics or issues as required.

It is the board that decides who represents the company at meetings with the shareholders.74 In order to have direct dialogue with the board, the State normally requests that the chair of the wholly-owned companies regularly participates in the meetings, and that the chair of the partly-owned companies participates as often as possible. The State normally also engages in dialogue with the chair in addition to the regular meetings. The State also holds an annual meeting with the entire board if this is considered appropriate. If the board is not represented at meetings, the State expects that the management will provide the board with insight into the content of the owner dialogue.

The State places emphasis on the board members having a good understanding of the State’s rationale for its ownership and the State’s goal as an owner of the company in question, as well as the State’s expectations of the companies. Therefore, among other things, the State normally holds onboarding meetings with newly elected board members in the companies that are wholly-owned by the State.

12.2 Owner follow-up is based on the State’s goal as owner, the State’s expectations and materiality.

By expressing clear expectations of the companies, the State wants to contribute to attaining the State’s goal as an owner in a sustainable manner. This requires the companies to balance financial, social and environmental factors without reducing the ability of future generations to meet their own needs. The expectations reveal the issues that are of importance to the State, while also providing the companies with latitude for finding the best solution.

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The board is responsible for the management of the company. The State assesses the company’s goal attainment, work with the state’s expectations and the board’s contribution to this. The State contributes to goal attainment by, among other things, holding the board accountable for this. The State is not represented on the boards.75 Therefore, one of the most important tasks of the State as an owner is to contribute to the composition of competent and well-functioning boards of directors that safeguard the company’s needs and the interests of the shareholder community, see Chapter 12.5.

Assessments of the companies’ goal attainment and work on the State’s expectations are made on an ongoing basis and normally summarised annually as part of the planning of the State’s ownership follow-up, and adjusted as necessary. This forms the basis for the State’s priorities in its ownership follow-up over the coming year and indicates, among other things, which issues should be followed up in the owner dialogue with the companies. The priorities are based on the expectations that are considered to be significant for the companies’ goal attainment and areas where the State can best contribute to this. The State engages in dialogue with the board regarding the matters that the State as owner considers to be most important to follow up.

12.3 Assessment of the company’s goal attainment

The State’s follow up of the companies shall contribute to the attainment of the State’s goal as owner, whether this be the highest possible return over time in a sustainable manner (for companies in Category 1) or sustainable and the most efficient possible attainment of public policy goals (for companies in Category 2).

Follow-up of the highest possible return over time in a sustainable manner

When the State assesses the company’s return over time in a sustainable manner, the State normally assesses the development in the value of the company’s equity. To calculate the company’s value-adjusted equity, cash flow and multiple analyses are used, among other things, where different scenarios are weighted. The company’s achieved total return (change in value and dividend, adjusted for any capital contributions and share buy-backs) is then assessed in relation the State’s calculated required rate of return,76 developments in comparable companies and any benchmark indices. These assessments are carried out on a regular basis for companies in Categories 1 and for relevant activities in the companies in Category 2 if this part of their activities is of material importance.

The State communicates long-term required rates of return to the companies in Category 1, and to companies in Category 2 when relevant. Long-term required rates of return generally apply for a period of up to five years, and should contribute to predictability for the company. In the event of significant changes in the company’s activities, the long-term required rate of return will be reassessed.

Recognised methods are used when calculating the company’s required rate of return. The total return achieved, the company’s potential for a long-term return and the State’s required rate of return are discussed with the board and management.

Follow-up of sustainable and most efficient possible attainment of public policy goals

Since the State’s public policy goals vary between the companies, there is a need for an individually adapted evaluation of the company’s goal attainment. In line with the State’s goal as an owner, the State establishes the framework for the company’s activities. This primarily takes place through the company’s articles of association. However, it is essential that, within this framework, the company has sufficient room to manoeuvre and predictability in order to achieve the State’s goal as efficiently as possible. The State engages in dialogue with the company regarding how the public policy goal should be understood and how the company operationalises and measures this. The State normally also engages in dialogue regarding whether the company should work to achieve the maximum possible goal attainment with the given resources or should deliver on a set goal with the fewest possible resources.

Among other things, the company’s goal attainment and efficiency are assessed on the basis of the company’s reporting and the state’s owner dialogue with the company. It may be relevant in this context to look at comparable enterprises, the company’s development over time and other evaluations of the business. The results achieved and the company’s outlook are discussed with the company’s board and management.

The activities of a number of the companies in Category 2 are wholly or partly financed via government budgets or through regulated revenues, and some of the companies are subject to special legislation. The State will therefore often also follow up the company’s goal attainment through roles other than that as owner, for example as client, contracting party and regulatory and/or supervisory authority. Follow-up of the company through other roles may therefore be partly in addition to the owner follow-up.77 The State must be aware of its various roles and clearly communicate to the company what role the state may be engaged in any given time.

12.4 Assessment of the company’s work on the State’s expectations

As a responsible and active owner, the State has expectations of the companies that relate to ambitions, goals and strategies, social, environmental and financial factors, and corporate governance. The State will follow up how the companies work in an integrated and systematic manner with the state’s expectations in these areas and how this contributes to the State’s goal as an owner, see Figure 12.3. The following is a description of how certain specific areas of expectation will be followed up.

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Ambitions, goals and strategies

The State expects that the companies define and implement ambitions, clear goals and strategies. Following up the company’s goals and strategies and how this supports the company’s ambition is a good starting point for the owner dialogue. It is important for the State to understand the company’s strengths and weaknesses, and potential market opportunities and threats that may impact the company’s development. The purpose of this dialogue is to create a shared understanding between the board and the owner about material opportunities and risks to the company’s value creation and the State’s goal attainment.

In the owner dialogue, the State will follow-up whether the strategies are adapted to the long-term risk that the company is exposed to, and that this in turn reflects the company’s willingness and ability to take risks. In instances involving significant strategic changes, for example, when establishing a presence in new geographical areas or in new or adjacent activities, the State will seek to use the owner dialogue to understand the consequences that such strategic choices may have for the risk profile and whether this deviates from the risk appetite and the company’s ability to manage risk. The State will also engage in dialogue with the company on whether the risk profile appropriately supports the State’s rationale for ownership and its goal as an owner.

The State also assesses the company’s goals, key performance indicators and targets78, and uses the owner dialogue to challenge the company about whether these are good and relevant. It is also important to follow up developments in the company’s results and assess whether these are in line with the company’s stated objectives.

Human rights and decent working conditions

The State places emphasis on promoting responsibility among the companies and therefore has expectations of the companies with regard to human rights and decent working conditions. Follow-up of these expectations will be included in the owner dialogue based on the level of importance for each company. If the company has its own activities or suppliers in areas where there is an elevated risk of violations of human and workers’ rights, the State will engage in closer dialogue regarding the company’s due diligence assessments and the measures that have been implemented to ensure that the company respects human rights and has decent working conditions.

Employees and diversity

In its ownership follow-up, the State assesses whether the company has clear goals and measures that contribute to promoting and unleashing the value of increased diversity, equality and inclusion in all parts of the company’s organisation. The State will also understand how the company works systematically with the development and recruitment of employees, including whether the company has personnel strategies and development and recruitment plans adapted to the company’s competence requirements. In addition to the owner dialogue, when following up this area of expectations, it may be relevant to take into account good practice, comparable companies and developments over time.

Climate, biodiversity and ecosystems

The State has clear expectations of the companies when concerning climate, biodiversity and ecosystems. In its ownership follow-up, the State assesses how the company identifies and manages risks and opportunities related to climate, biodiversity and ecosystems, sets goals and implements long and short-term measures. Among other things, the company’s goal attainment in these areas is based on the company’s reporting and the owner dialogue. The State will also follow up whether the company’s measures support the goals of the Paris Agreement and whether the company has selected recognised reporting standards. Among other things, it is relevant to look at comparable companies, developments over time and other external assessments of the company’s activities. The company’s plans and results achieved are discussed with the company’s board and management.

Capital structure and dividends

An appropriate capital structure promotes the company’s value development or efficient attainment of public policy goals. The board is responsible for the company’s capital structure, but decisions made at the general meeting concerning dividend and capital adjustments will affect the capital structure. When proposals that will have an impact on the capital structure are put to a vote at the general meeting, the State will emphasise whether the proposal promotes efficient goal attainment. In this assessment, it is relevant to consider, among other things, the company’s goal attainment, strategy, investments, competitiveness, industry conditions, opportunities and risks going forward, any comparable companies and whether the company’s utilisation of capital is efficient. If the State considers a company’s capital structure to be inexpedient, the capital structure should be adjusted through, for example, the distribution of dividends or capital contributions.

Several of the companies in Category 2 and some of the companies in Category 1 are subject to restrictions on their ability to take out loans. This may be particularly relevant if the company is financed via the national budget or through regulated revenues or performs socially critical functions. The reason for the loan restrictions is that it can be challenging to make it fully credible that the State will allow creditors to take control of the assets of such companies. If, as a result of this, the market prices loans to such companies at a lower rate, this will impact the investments that are made and, in turn, will mean that projects that would not have been considered profitable with the financing costs that another company would incur are nevertheless implemented. Borrowing in companies that are not financed on market terms can result in undesirable risk for the State. It can also result in more funds being spent on an activity than what the State would prefer. Any restrictions on borrowing set by the owner are reflected in the company’s articles of association.

Dividends from a company provide the owner with a continuous direct return (relevant for the companies in Category 1, and some of the companies in Category 2), and enables an adjustment of the capital structure that is relevant for all of the companies. The board is responsible for proposing the allocation of the company’s annual profit, including how much of this, if any, should be distributed as dividends.

The State as an owner communicates both long-term and annual dividend expectations to the companies in Category 1, and to companies in Category 2 when relevant. Long-term expectations generally apply for a period of up to five years, and should contribute to predictability for the company. Annual expectations are adapted to the company’s situation and capitalisation.

The State’s expectations and decisions regarding dividends shall contribute to attainment of the State’s goal as an owner. The expected divided is determined based on factors such as the State’s assessments of the company’s capital structure, competitiveness and industry dynamics, earnings prospects, cash flow and capital requirements, including expected profitable investment opportunities, and how the dividend contributes to goal attainment. The State engages in dialogue with the company regarding this and annually communicates its dividend expectations to the board, before the board presents its dividend proposal to the general meeting.

The distribution of dividends is decided at the general meeting after the board has submitted a proposal for distribution or other allocation of the profit. As a general rule, the general meeting may not adopt a resolution to distribute dividends that exceed the amount proposed by the board; however, state-owned limited liability companies and state enterprises are not bound by the board’s proposal for the distribution of dividend at the general meeting.

Dividends to the State are recognised as revenue in the national budget. When the national budget is presented in autumn, the companies’ annual accounts, relevant market conditions and other material information that form part of the basis for the board and owners’ assessment of dividends for the general meeting the following year are largely unknown. The Government therefore presents proposals for dividends based on estimates which contain significant uncertainties regarding a number of underlying factors. For listed companies, dividends are budgeted in the same manner as for the previous year. For unlisted companies, the Government’s estimates in the national budget will be based on various distributable reserves, for example, profit for the year, cash earnings or equity. Updated dividend estimates will be presented to the Storting in the revised national budget for the current budget year.

For companies in Category 2 that are financed via the national budget or have regulated revenues, annual dividends will often not be appropriate; however, they can nevertheless be used to adjust the capital structure of these companies. Several of the companies in Category 2 also have some activities that are in competition with others or other revenues from which it is natural to pay dividends.

Corporate governance

How and on which basis decisions are made in a company are vital for good goal attainment. The State therefore has a number of expectations of the company’s corporate governance. These expectations relate to responsible business conduct, organisation and culture, salaries and remuneration, risk management, company management and transparency and reporting, see Figure 12.3. Follow-up of these expectations will be included in the owner dialogue based on their importance to the company’s goal attainment.

In addition to assessing the company’s corporate governance in relation to the State’s expectations, it may be relevant to consider good practice, comparable companies and activities, and developments over time.

Remuneration of senior executives

At the general meeting, the State shall cast a binding vote on guidelines for determining the remuneration of senior executives, and an advisory vote on the remuneration report. The board’s guidelines must be presented to the general meeting at least every four years and in the event of any «significant change». The remuneration report must be presented to the annual general meeting. The rules are specified in the Public Limited Liability Companies Act and apply to listed companies; however, they are also implemented by amending the articles of association for most of the unlisted companies in the State’s portfolio, and provide the owners with greater influence over the remuneration of senior executives. For companies that have not implemented such amendments to the articles of association, the State’s follow-up of expectations of executive salaries will be assessed based on other grounds.

The State normally engages in close dialogue with companies regarding executive remuneration, and when engaging in this dialogue the State has a particular focus on understanding the company’s remuneration schemes and how these meet the State’s expectations. See more about the State’s expectations of executive salaries in Chapter 11.10 and in the State’s Guidelines for the Remuneration of Senior Executives in Companies with State Ownership.

Among the questions that the State will ask in the owner dialogue is how the remuneration schemes support the goals of the company and the goals of the State as owner. Questions may also be asked about what the board considers to be a competitive, but not market-leading, salary level and how the board takes moderation into account in the company’s executive salary policy and when determining specific remuneration. For performance-related remuneration, the State seeks to understand how criteria and entry points for bonuses are determined and measured in relation to the set goals and strategies of the companies. Furthermore, the State may request information regarding the basis for comparing salary levels, etc., which are used for the board’s assessments when, for example, changes are proposed to the remuneration schemes or in the event of significant increases in salary levels.

The State’s final assessment of the company’s executive salary policy and remuneration that is paid is expressed through voting on the company’s guidelines and remuneration report at the general meeting. The State assesses the company’s remuneration schemes, remuneration paid and the board’s grounds in relation to the State’s expectations, and will, in principle, vote against schemes that are contrary to the State’s guidelines. Exceptions may be considered if deviations from the State’s guidelines are adequately justified in the board’s guidelines or remuneration report. In instances in which the State votes against the board’s proposal, or otherwise has objections or remarks even if voting in favour, there is normally an explanation of vote. In the remuneration report for the subsequent financial year, the board must explain how the result of the general meeting’s vote, including any explanation of vote from the State, have been taken into account.

Transparency and reporting

The State as owner approves the company’s annual accounts and, if relevant, the annual report, at the general meeting, and in connection with this conducts an assessment of whether the company’s transparency and reporting are in line with the State’s expectations. In its assessment, the State will normally consider good reporting practices, comparable companies and activities, and developments over time. It may also be relevant to use evaluations and recommendations from external actors to assess the quality of the company’s reporting.

In the owner dialogue, the State may have views and input regarding the company’s reporting and whether the company demonstrates good transparency. The State will place emphasis on the company demonstrating transparency and reporting in a manner that provides a comprehensive and fair depiction of the company’s position and future opportunities for generating a return.

12.5 Board composition and remuneration shall contribute to the attainment of the State’s goal as owner

The State is not represented on the boards.79 One of the most important tasks of the State as an owner is to contribute to the composition of competent and well-functioning boards of directors that meet the needs of the companies and safeguard the interests of all shareholders.

Board members are elected by the general meeting in accordance with the main rule in the Limited Liability Companies Act, and normally for a term of up to two years.80 However, the composition of the board is assessed on a continuous basis, according to the company’s performance and needs and the board members’ contributions. Board members may therefore be replaced during the term of office.

In companies wholly-owned by the State, the State nominates and elects board members at the general meeting.

Several companies partly owned by the State have established dedicated nomination committees elected by the general meeting in accordance with the Norwegian Code of Practice for Corporate Governance. The system for nomination committees is not regulated by law.81 The duties of the committee are normally to nominate candidates for election to the board and the nomination committee, or possibly the corporate assembly, and to propose the remuneration to be paid to members of these bodies to the general meeting, or possibly the corporate assembly.82 In accordance with the Norwegian Code of Practice for Corporate Governance, the members of the nomination committee should be selected to safeguard the common interests of all shareholders. The State will normally propose that an employee from the ministry that manages the State’s ownership of the company be elected as a member of the nomination committee.

In companies partly owned by the State that do not have a nomination committee, the State nominates candidates for the board in cooperation with the other shareholders.

Considerations relating to the composition of the board

Relevant expertise shall be the State’s main consideration in its work on the composition of boards of directors. Given expertise, the State shall emphasise capacity and diversity.

Expertise is about relevant experience and background as well as personal qualities. When selecting board members, the State emphasises management experience, board experience, and relevant industry experience with good results. The board should consist of people who, on the whole, have a good understanding of the industry in which the company operates and relevant management experience, which enables the board to support and challenge the company’s management on strategic and other important matters. Experience from restructuring, digitalisation, and finance as well as a solid strategic perspective normally also constitute relevant expertise. For the companies in Category 2, a good understanding of the state’s goal as an owner and the state’s different roles will also be relevant.

The board should collectively have relevant expertise that enables it to assess risks and opportunities related to financial, social and environmental issues, and thus contribute to goal attainment.

When electing board members, the State will also place an emphasis on personal qualities which, among other things, enable them to function well as a collegial body. Examples of such qualities may be a high level of integrity, independence, interpersonal skills, creativity, ability to innovate, as well as commitment to the company’s objective and ability to safeguard the company’s interests in a sound manner. For the chair of the board, good leadership skills, such as the ability to facilitate open and trust-based discussions, will also be emphasised.

Using the required expertise as its starting point, the State will contribute to ensuring that each board has the relevant diversity. Diversity of opinion provides different perspectives and facilitates open, well-informed discussions that may, in turn, result in better decisions. Diverse perspectives can reduce the risk of groupthink, and complex problems are often best solved when considered from different points of view. Different perspectives can be obtained through, among other things, different work experience, education, gender, age, geographical affiliation and cultural background. The State specifically assesses what constitutes relevant diversity for each individual company. The State aims to have the most equal possible representation of both genders on the boards.

Furthermore, the State places an emphasis on the capacity of relevant candidates to make a contribution to the board and that they devote sufficient time and effort to the office of board member. The candidate’s other positions and offices shall be compatible with the time it is reasonable to expect the candidate to have to devote to the applicable board position.

In accordance with the Norwegian Code of Practice for Corporate Governance, the composition of the board should ensure that it can operate independently of any special interests.

In principle, the above-mentioned considerations are also applicable to the State’s work with the composition of other governing bodies, for example, corporate assemblies and nomination committees.

The State’s processes for work relating to board elections/nomination committees

All boards and board members are subject to an annual assessment, irrespective of whether they are up for re-election. Among other things, the purpose of the assessments is to determine the board and the board members’ contribution to the company’s goal attainment and work with the State’s expectations. There is also an assessment of whether the board’s composition, work method (internally on the board and with the management), expertise and effort indicate a need for changes to the board. The size of the board is also considered. Among other things, the assessment depends on the required expertise, the size and complexity of the company, and the interest of maintaining the board as an effective decision-making body. In order to contribute to boards that function well over time, the State endeavours to facilitate good succession processes (plan for replacement of board members) and continuity.

In companies that are wholly-owned by the State, the State conducts interviews with all owner-appointed board members and the general manager of the company as part of the aforementioned assessment process. The State also endeavours to conduct interviews with board members elected by and among the employees. The State seeks to maintain a dialogue with the chair of the board during the work of considering possible changes to the board.

In companies that have a nomination committee, the committee is tasked with assessing the composition of the board and nominating candidates for the board; however, the State carries out its own assessments in these cases. Through the nomination committees, where one of the members is normally an employee of the relevant ministry, the State seeks to contribute to ensuring that the nomination committee’s work is in accordance with best practice and the Norwegian Code of Practice for Corporate Governance. It is crucial that the nomination committee has access to necessary expertise in order for the committee to carry out the tasks for which it is responsible.

In companies partly owned by the State that do not have a nomination committee, the above-mentioned processes will be used as a basis insofar as they are appropriate.

Considerations when determining the remuneration of the board and other governing bodies

One of the State’s most important tasks as an owner is to ensure there are competent and well-composed boards that contribute to goal attainment. The remuneration of the companies’ governing bodies is decided by the owners at the general meeting.83 This is separate from the remuneration of senior executives, which is determined by the board and general manager.

Having the right remuneration can be crucial for attracting and retaining people with relevant and good expertise, and to contribute to board members devoting sufficient time to ensuring that the work in this position is performed well.84

When assessing the level of remuneration paid to the board, the State places emphasis on the following considerations:

• The remuneration of board members must reflect the board’s responsibilities, expertise, time spent, and the complexity of the company’s activities in accordance with the Norwegian Code of Practice for Corporate Governance.

• The remuneration must be at a moderate level. This means that remuneration shall not be higher than is necessary for contributing to the board having relevant and good expertise and should reflect the board’s responsibilities and workload.

Developments in recent years have shown that the work required of board members is becoming increasingly more extensive and demanding. This is partly due to increased legal regulation in several different areas, which has resulted in the board having been assigned more duties and areas of responsibility as part of its work on following-up compliance and reporting.85 It is vital for the company’s development that the correct decisions are made, and the consequences of incorrect decisions can be devastating. The State’s expectations of boards increase in line with the expanded duties and areas of responsibility. Changes to the company’s framework conditions and rules also require more follow-up from individual board members, and may result in greater complexity, and thereby increased demands for the board’s expertise and use of time. This particularly applies to listed companies and companies with extensive activities outside Norway. It may also apply to companies which are part of a sector that has been significantly reformed. In an increasingly changing world, it is natural to expect further legal regulation, for example, as a consequence of the implementation of international regulations. The fact that the board is increasingly involved in the companies’ strategy work has generally also resulted in boards having to devote more time to their work, cf. Chapter 11.12 on the organisation of the board’s work. Correspondingly, the complexity of the company’s activities may change or requirements for the board’s use of time may increase as a result of a significant expansion in the company’s activities. Conversely, the time used by the board may be reduced as a result of a significant reduction in the company’s activities or their complexity.

The State conducts a specific assessment of the remuneration paid to governing bodies in each company prior to the general meeting, cf. the considerations described above.

The State will normally propose, or in companies that have a nomination committee, will support:

• Growth that is in line with general wage growth in Norway when the State considers the remuneration of the board to be at a correct level. This is both to ensure moderation and to maintain an appropriate level of remuneration over time.

• Growth that exceeds ordinary wage growth when the State considers the remuneration of the board to be too low in relation to a specific assessment of the board’s responsibilities, expertise, time used and the complexity of the company’s activities. This means that increases in remuneration that are significantly higher than ordinary wage growth are only possible when the State finds this to be necessary in order to contribute to ensuring that the remuneration is at the correct level, particularly in order to attract and retain relevant and good expertise.

• Reduced remuneration or zero growth when the State considers the remuneration to be excessive, for example, when the scope of the company’s activities has been significantly reduced.

The State’s assessment of the level of board remuneration will normally take comparable Norwegian companies into consideration.

The chair of the board is remunerated in accordance with the scope of the duties and responsibilities that this position entails and will therefore normally have a higher level of remuneration than the other members of the board. For example, in addition to having the responsibilities as an ordinary board member, the chair of the board is specifically responsible for organising the board’s work86 and dialogue with management and shareholders. If relevant, the chair also devotes time to ambassadorial activities and other external representation.87 For board members who are also members of board committees, special remuneration for this work will be considered in each specific instance. For board members domiciled abroad, the State will normally support additional remuneration as compensation for the inconvenience of longer travel time.

The remuneration of the board should not be linked to the company’s performance, cf. Norwegian Code of Practice for Corporate Governance. An assessment of the remuneration of the board in line with the considerations described above may also entail an increase in the remuneration paid to the boards of companies with weak results and which are experiencing a difficult situation.

Share ownership provides a commonality of interests between the board member and the owner. The State therefore encourages board members at the listed companies to own shares in the company in accordance with the Norwegian Code of Practice for Corporate Governance, and may, in light of this, support any proposals from the nomination committee or the corporate assembly that require that parts of the board remuneration to be invested in shares in the company at the market price. Proposals for board remuneration having to be invested in shares will not normally be a reason for a significant increase in total remuneration.

Remuneration of other governing bodies, such as the corporate assembly and the nomination committee, is assessed on the basis of the same considerations as remuneration for the board.

12.6 Follow-up in the event of poor goal attainment over time or significant deviations from the State’s expectations

In the event of poor goal attainment over time or significant deviations from the State’s expectations, the State will consider how this can be followed up.

The reasons for this and options for improving the company’s situation are discussed in the owner dialogue. It may be expedient for the company or owner to carry out specific analyses. It will usually be natural to follow up the company’s plans for improving its performance with the board and management as part of the owner dialogue.

If the owner dialogue is unsuccessful, the State can exert influence through decisions at the general meeting. This applies both in the event of poor goal attainment over time or significant deviations from the State’s expectations. Whether the State should exert influence through decisions at the general meeting and, if so, in what manner, will vary depending on factors such as the company’s situation and the reasons for the poor goal attainment or deviations from expectations.

The State may provide an explanation of vote when there is a need to clarify the State’s position or when the State as owner otherwise has objections or remarks. An explanation of vote can be provided both when the State votes for and against the board’s proposal. The State will normally request that the explanation of vote is recorded in the minutes.

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In the event of poor goal attainment over time or significant deviations from expectations without the company having achieved successful improvements, it is natural that the board will consider the need for adaptations or changes in the company. The situation and how the board deals with it will form the basis for the State’s assessments of the composition of the board.88

The company’s goal attainment will also influence how the State votes on other matters that are considered at the general meeting, for example, capital infusion and dividends.

12.7 The State takes a positive view of transactions than can contribute to the attainment of the State’s goal as owner

The State generally takes a positive view of strategic initiatives and transactions in the company that can be expected to contribute to the attainment of the State’s goal as owner. This may entail changes to the State’s ownership interest in individual companies. It may therefore be applicable to both increase and reduce State ownership in existing and new companies. The State shall act in a manner that enables the company to exploit good business opportunities, and the State will therefore consider any initiatives presented by the company. The State will act in accordance with market practices when conducting a dialogue about and in the event of potential participation in share capital increases or other transactions.

For unlisted companies in which the government is authorised by the Storting to fully or partly adjust the State’s ownership interest, the State will normally engage in dialogue with the boards about what may be the optimal ownership structure and the timing of any changes in the State’s ownership interest. It may also be applicable for other companies to adjust the State’s ownership interest, for example, if the State’s rationale for ownership changes and can be adequately safeguarded with a different ownership interest.

12.8 Distinguishing between the State’s different roles and fair competition

The State has several roles, for example, as regulatory and supervisory authority, principal and owner. Among other things, the State formulates laws and regulations, determines fees and charges, awards licences and grants, purchases services, carries out supervisory activities and hands down decisions in individual cases. In order to create legitimacy for the various roles, the State should be aware of the role it has assumed at any given time, and, by its actions, clearly distinguish the role of owner from the State’s other roles. Considerations that are not justified by the State’s goal as an owner must be addressed by using policy instruments other than state ownership.

State ownership shall not give companies with a state ownership interest undue competitive advantages or disadvantages compared to companies without a state ownership interest. The State must not abuse its power and influence through other roles to promote its interests as owner. Companies in which the State has an ownership interest are therefore subject to regulatory and supervisory authorities in the same manner as companies in which the State has no ownership interest. The State must also refrain from making political decisions or exercising authority in a manner that grants illegitimate advantages or disadvantages to the companies with a State ownership interest when compared with other companies.

12.9 Organisation of the State’s ownership management

Responsibility for managing the State’s direct ownership is currently divided between twelve ministries.89 Irrespective of whether the State’s role as owner and executive authority is exercised by the same or different ministries, the State’s role as owner shall be distinct from its other roles. Management of the State’s ownership interests in a number of companies has gradually been consolidated into the Ministry of Trade, Industry and Fisheries. Several ministries have also delegated different roles to different departments or otherwise organised the follow-up of the companies in such a way that the ministry’s is clear about this distinction when conducting its activities.

The role of the central ownership unit

The Central Ownership Unit, which is the Ownership Department in the Ministry of Trade, Industry and Fisheries, serves as a resource centre and centre of expertise for the State’s direct ownership, both in relation to other ministries and internally within the Ministry of Trade, Industry and Fisheries. This entails coordinating the ministries’ processes for board election work, assisting other ministries and departments as required, organising competence building seminars and meetings, and helping to disseminate good practices. Among other things, the latter includes developing methods and guidelines for assessing the company’s goal attainment and the company’s work with the State’s expectations, cf. Chapter 12.3 and 12.4. The central ownership unit is involved in processes that can result in changes to the State’s ownership interest in a company, in the state’s rationale for ownership or in the event of changes to the State’s goal as owner. The measures referred to above shall contribute to the most competent and uniform exercise of ownership across the ministries.

In addition, the Central Ownership Unit seeks to disseminate good practices among the companies, and participates in various forums to foster good standards for good corporate governance, as well as other tasks relating to state ownership. This includes participation in the Working Party on State Ownership and Privatisation Practices in the OECD and the Institutional Investor Forum90 in Norway.

Direct state ownership in Norway is extensive; the ministries manage substantial assets, and the companies in which the State is an owner are of vital importance to the Norwegian business sector. Based on factors such as this, in this white paper on ownership policy the Government proposes more active management of the State’s direct ownership, and has the ambition of strengthening ownership management by providing the central ownership unit at the Ministry of Trade, Industry and Fisheries with additional expertise and capacity. Expertise and capacity when exercising ownership management shall result in good assessments of companies’ ambitions, goals and strategy. These assessments shall provide a basis for expanded support for, and follow-up of, other ministries, and more active and value-creating exercising of ownership in dialogue with the companies’ boards and management.

The State’s ownership interests in the companies in Category 1 are primarily managed by the central ownership unit

Unless special considerations call for other solutions, the State’s ownership interests in the companies in Category 1 shall be managed by the central ownership unit. Consolidating ownership management of the companies that primarily operate in competition with others contributes to separating the State’s role as owner from the State’s other roles and strengthens confidence in the State’s exercise of ownership and other roles. This consolidation also contributes to making the exercise of ownership more professional and efficient. This is in line with the OECD’s recommendation for organising ownership follow-up of state ownership. Further consolidation of the responsibility for managing the State’s ownership interests in the companies in Category 1 into the central ownership unit is assessed on a regular basis.

The State’s ownership interests in the companies in Category 2 are primarily managed by the relevant sector ministry

Unless special considerations call for other solutions, the State’s ownership interests in the companies in Category 2 are presently managed by the relevant sector ministry. This provides an opportunity to conduct a more holistic assessment of the policies for the respective sectors. This type of organisation requires internal procedures to avoid an unfortunate mixing of roles. It can also influence the State’s follow-up as owner, see Chapter 9.6.

13 Financial and administrative consequences

Using state ownership when it is the most effective means of achieving the State’s intentions, defining expedient goals as owner in each company and effectively following up ownership will contribute to better goal attainment for the State and efficient utilisation of the State’s resources.

The ongoing management of the State’s ownership is covered within the applicable budget framework.

The Government can be authorised to reduce the State’s ownership interest in individual companies. If these transactions take place through the sale or acquisition of shares or capital contributions, this normally entails changes in the State’s investment of capital and entry in the State’s capital accounts. Reference is also made to the more detailed description of principles and practices for budgeting loan transactions in the Yellow Book (Gul bok).