2006

The following article is a translated version of the essay published by Professor B. Espen Eckbo for the Norwegian national business newspaper Dagens Næringsliv on October 31, 2005. Eckbo is the Tuck Centennial Professor of Finance at the Tuck School of Finance at the Tuck School of Business, Dartmouth College (USA). He is also Founding Director of Tuck’s Center for Corporate Governance.

In the Ethical Guidelines for the Government Pension Fund – Global, corporate governance is singled out as one means of ensuring ethically acceptable management of the Fund. But how do ethics and corporate governance actually fit together? What can we achieve through active corporate governance? And what instruments do we have at our disposal? This article discusses the importance of ethically-based corporate governance for the Fund’s long-term work to promote efficient, sustainable and more transparent markets, and also looks at some key concepts from moral philosophy.

In this article we show that Norges Bank’s active management of the Fund hasmade a statistically significant positive contribution to its returns. Solid results have been achieved in both equity and fixed income management. Excess returns have been generated despite limited risk-taking in active management. Positive excess returns have been achieved in both rising and falling markets, and can be attributed to a large number of individual positions. The distribution of historical excess returns is skewed to the right, which means that there have been far more high positive than high negative excess returns.

Shareholders, as owners of corporations, have several rights that enable them to govern the corporations, either directly or through their elected representatives on the board of directors. The most important shareholder right is the right to vote at to vote at the annual general meeting. Through the exercise of their voting rights, shareholders elect the board of directors and make decisions of fundamental importance to the corporation. If shareholder voting rights are to be used effectively, shareholders must have the right to make proposals at the general meeting and the right to receive timely, adequate and correct information from the company.

By Kai Dramer and Henrik Syse, Norges Bank Investment Management
Article in Aftenposten, Tuesday 17 January 2006