Norges Bank Investment Management (NBIM) established a separate Corporate Governance Group for the Government Pension Fund – Global (formerly the Government Petroleum Fund) in September 2005 in order to strengthen its corporate governance activities and to ensure compliance with the Fund’s Ethical Guidelines. However, work on corporate governance has been ongoing for a number of years. In particular, voting at companies has been increased in recent years (see also Section 5 of the Government Pension Fund - Global Annual Report). Norges Bank has reported on corporate governance previously, including in an article published on Norges Bank’s website in 2004, and Norges Bank’s Executive Board introduced new principles of corporate governance in December 2004.
With broadly diversified investments in some 40 countries, the Fund is dependent in the long term on efficient markets worldwide. Norges Bank’s view is that various ethical considerations play an important role in promoting such markets and protecting Norges Bank’s interests as a shareholder. Consequently, ethics was a key consideration when the new Corporate Governance Group was established. It is unusual to focus on ethics as clearly as Norges Bank has in its corporate governance activities. It is therefore important to show, with solid arguments, the role ethics should actually play, and why it deserves such attention.
In the following, we discuss why it is important for the board and management of companies to address ethical issues and how these issues can be integrated into corporate governance.
Managing for the future
Section 6 of the Regulation on the Management of the Government Pension Fund – Global states that the primary objective of Norges Bank’s corporate governance activities is to “protect the Fund’s financial interests”. This is reiterated in the Ethical Guidelines for the Fund laid down pursuant to this Regulation. The Ethical Guidelines state that one of the premises on which they are based is that the Fund “is an instrument for ensuring that a reasonable portion of the country’s petroleum wealth should benefit future generations”.
As this wealth has no intrinsic value, it is reasonable to interpret this as meaning that Norway’s oil riches are to be a means of ensuring a good life for Norwegians in the future. We often talk about “welfare” in this context. However, a good life – or welfare – for Norwegians is not just about the welfare of Norwegians but also includes the possibility of sharing these benefits with others in the world.
The issue of what constitutes a good society and what makes a good life possible is the overriding concern of politics and public administration. It is also a key question in moral philosophy (ethics), which can provide useful insights when tackling social issues. Such insights form the basis for Norges Bank’s corporate governance activities.
In a wider political and administrative context, the return on the Fund is a means of achieving other benefits, ultimately the good life. However, the return is the primary objective for those involved in the operational management of the Fund. This is because these individuals have specialist expertise in investment management and not in welfare-related activities for which other individuals are responsible. Nevertheless, investment managers should be cognisant of the overall context in which they operate.
The Ethical Guidelines for the Fund state that solid long-term returns are contingent on sustainable development in an economic, environmental and social sense, and that the Fund’s ownership interests are to be used to promote such sustainable development. Since the return on the Fund is a means of achieving welfare and relies on sustainable development, the Fund’s investments and corporate governance activities must take account of sustainability issues.
In the debate about corporate governance – and more generally in business ethics – ethical issues have often been described as in fact being financial issues, based on the idea that “ethics pay” (generally speaking). Norges Bank has a complementary approach in this respect. It not only views ethical issues as financial issues, but also the other way around: the financial issues are ethical issues. This is because the return on the Fund is a necessary means of achieving other important goals, such as welfare. However, this is not to say that anything goes when it comes to achieving these goals – the end does not justify any means. This is also reflected in the Ethical Guidelines for the Fund, which are discussed in more detail in the section below on the division of responsibilities in the ethical management of the Fund, and in a separate box.
Ethical guidance for corporate governance
The Ethical Guidelines for the Government Pension Fund – Global (2004) form the basis for corporate governance. Their main content is presented in the text of the article. As the Ethical Guidelines refer to the UN Global Compact, the OECD Principles of Corporate Governance and the OECD Guidelines for Multinational Enterprises, these three documents are presented briefly below.
The UN Global Compact (2000) consists of ten principles in the areas of human rights, labour, the environment and anti-corruption. They are based on a number of international declarations and conventions. The principles are general in nature and state, among other things, that companies are to
- respect human rights and not be complicit in human rights abuses,
- uphold the freedom of association and the right to collective bargaining, and eliminate all forms of forced labour, child labour and discrimination in respect of employment and occupation,
- support a precautionary approach to environmental challenges, and promote greater environmental responsibility and the development and diffusion of environmentally friendly technologies, and
- work against all forms of corruption, including extortion and bribery.
According to the Ministry of Foreign Affairs, more than 2 600 companies and organisations have endorsed the Global Compact. Participants are encouraged to report annually on their progress in implementing these principles.
The OECD Principles of Corporate Governance (revised in 2004) is a large document covering the basis for an effective corporate governance framework, the rights of shareholders and key ownership functions, the equitable treatment of shareholders, the role of stakeholders, disclosure and transparency, and the responsibilities of the board.
The OECD Guidelines for Multinational Enterprises (revised in 2000) is another large document which contains recommendations in areas such as disclosure, employment and industrial relations, the environment, combating bribery, consumer interests, science and technology, competition and taxation.
The Ethical Guidelines for the Fund state that Norges Bank’s internal corporate governance guidelines are to stipulate how these international principles are to be integrated into corporate governance work. Norges Bank has done this in its Principles for Corporate Governance and the Protection of Financial Assets (2004). These set out how Norges Bank is to exercise its ownership rights and promote good corporate governance (e.g. by communicating its principles, voting at general meetings, participating in networks, contacting companies directly, and cooperating with other investors); corporate strategy and communication; company boards and structure; the long-term sustainability of the company’s activities; and Norges Bank’s reporting on its corporate governance activities.
Division of responsibilities in the ethical management of the Fund
The Ethical Guidelines for the Government Pension Fund – Global require that ethical issues be addressed through the following three instruments:
- Corporate governance based on the UN Global Compact, the OECD Principles of Corporate Governance and the OECD Guidelines for Multinational Enterprises in order to promote long-term financial returns
- Negative screening from the investment universe of companies that either themselves or through entities they control produce weapons which, in normal use, violate fundamental humanitarian principles
- Exclusion of companies from the investment universe where there is deemed to be an unacceptable risk of contributing to gross or systematic violations of human rights, gross violation of individual rights in war or conflict situations, severe environmental degradation, gross corruption, or other particularly serious violations of fundamental ethical norms
The Ministry of Finance is ultimately responsible for ensuring that the Fund is managed in an ethically acceptable manner. Responsibility for the first instrument (corporate governance) has been delegated to Norges Bank, while the Ministry of Finance is responsible for the other two (negative screening and exclusion) on the basis of recommendations from the Council on Ethics, established by the Government in November 2004 as a continuation of the old Advisory Commission on International Law.
The primary goal for Norges Bank’s corporate governance activities is to protect the Fund’s financial interests. Unethical behaviour by the board or management of companies can have negative financial consequences for the Fund, as several major financial scandals in the last decade have demonstrated. With investments in almost 3 500 companies in some 40 countries worldwide, the Fund’s long-term value depends on a world which, as far as possible, respects human rights, protects the environment and is characterised by political stability and predictability. Against this background, the Revised National Budget for 2004, drawing on the report of the Graver Committee (NOU 2003:22), stated that Norges Bank is to help promote ethical issues through corporate governance.
The Budget also states that Norges Bank shall not address ethical issues unless they affect the Fund’s long-term financial interests, because this would result in an unclear division of responsibilities between the Ministry of Finance and Norges Bank. This division of responsibilities means that Norges Bank is responsible for the operational management of the Fund based on financial considerations with a view to maximising the long-term value of the Fund. Decisions based on the aforementioned ethical criteria to refrain from investing in a company, or to withdraw from a company in which investments have already been made, are vested with the Ministry of Finance. The Council on Ethics will recommend that a company be excluded from the Fund’s investment universe through negative screening or exclusion if it is reasonably clear that the company is not meeting the criteria of the Ethical Guidelines. The Ministry of Finance then makes the final decision.
As a result of discrepancies in the underlying ethical principles for the use of the various mechanisms, the ethical deliberations of Norges Bank, the Council on Ethics and the Ministry of Finance vary somewhat. The principles underlying the work of the Council on Ethics are relatively clear and are based on the requirements of international and national law as well as political goals. The Council does not have a mandate to consider the exclusion of companies on financial grounds, while the Ministry of Finance, which makes the final decision on such matters, may do so.
Norges Bank’s means of promoting ethical issues is corporate governance, where protecting the Fund’s financial interests is the primary objective. The Fund’s investments will always be made on the basis of financial considerations. Nevertheless, it is stated in the Ethical Guidelines that corporate governance is also to be an ethicaltool, and is to be based on the UN Global Compact, the OECD Principles of Corporate Governance and the OECD Guidelines for Multinational Enterprises, building on the assumption that this will also contribute to the best long-term return. Norges Bank’s role is therefore to interpret and apply these guidelines, and to identify ethically relevant factors that contribute to well-run and profitable companies, and use appropriate means to exert positive influence, both ethically and financially speaking, on company boards and management.
Complicity and responsibility
The aforementioned guidelines are so extensive and demanding that it would be impossible in practice to ensure their full implementation in every company in which Norges Bank invests. This is an area where it is easy to bite off more than one can chew and end up either accomplishing less than originally intended or achieving arbitrary and poorly coordinated results.
Norges Bank cannot use this as an excuse, however, for reducing its demands on companies in which it invests. The Bank must exercise judgment and look particularly at how important the various issues are, what can realistically be achieved, and what the consequences of failure to comply with the guidelines would be in terms of financial returns and hence future welfare. However, it is important to note that a company’s failure to comply with applicable guidelines does not automatically give Norges Bank grounds to withdraw from the company. While the Ministry of Finance has the authority to reach a decision on screening or exclusion for ethical reasons, the instrument at Norges Bank’s disposal is corporate governance. In practice, this means exerting influence with a view to bringing about the desired improvements at the company.
Having holdings in a company that does not comply with one or more ethical standards may be perceived as ethically problematic. The most important reason why an investor might want to avoid such companies is the risk of complicity – or the accusation of complicity – in something which may be seen as ethically unacceptable. This is known as the problem of “dirty hands”.
The risk that the Fund may contribute to grossly unethical behaviour is the underlying consideration for the provisions on exclusion and negative screening in the Ethical Guidelines. However, when one decides not to withdraw from a company, there may still be problems and challenges of an ethical nature. At this point, one can and must continue efforts to attend to important ethical considerations. As an investor, one has – alone or to an even greater extent in cooperation with other shareholders – an opportunity to exert positive influence on the company. Using these opportunities constructively is a question of taking responsibility for the positive and negative consequences of one’s complicity as an investor.
Different ethical positions will consider the question of responsibility and complicity somewhat differently. According to one approach to ethics, often known as duty ethics (or deontological ethics), aspects of the actual action (such as whether it complies with a recognised rule) or of the person performing the action (such as that person’s intentions) make it right or wrong. Positive or negative consequences can never be the deciding factor in this respect. Proponents of this approach would claim that an investor is contributing directly or indirectly to an unethical act – and is therefore partly to blame – if he holds shares in a company that engages in unethical behaviour. This will also apply if the overall consequence may conceivably be worse if the investor stays away from the company. Here, complicity relates to the connection with those engaged in the unethical behaviour.
According to another approach, often known as consequentialism, the good or bad consequences of an action are what determine whether it is right or wrong. The most appropriate of several possible actions will be the one which can be expected to have the best overall consequences. If there is reason to believe that, as a shareholder, one can exert a positive influence on a company behaving in an ethically reprehensible manner, this will be better than staying away from the company. Here, complicity relates to the opportunity to bring about the best possible consequences.
However, there are a number of questions which arise in such a situation. What kind of signals are we sending out if we provide implicit support to an action or behaviour by injecting money into the company? Is the action or behaviour so unacceptable that we should keep our distance either way? Can the association with a company through ownership – irrespective of any positive consequences of the influence we may then have – be of a nature which violates the fundamental principles that we are expected and obligated to uphold?
The Ethical Guidelines for the Government Pension Fund – Global are a result of striking a balance between these considerations. We need to avoid being associated with the most obviously unethical behaviour, and must therefore not invest in companies which clearly violate the provisions of the Ethical Guidelines. But it would be impossible to avoid every possible association with unethical behaviour if one wishes to ensure a diversification of risk and a solid return. Furthermore, ownership of companies brings power and rights that can be used to promote ethical behaviour, not least in companies that are involved in some way in ethically reprehensible activities.
The discussion above shows that both duty ethics and consequentialism provide insights which can be useful when we have to make difficult decisions on the basis of the Ethical Guidelines. These insights are explored in more detail in “Perspectives from ethics” (see separate box), where we also look at a virtue perspective on corporate governance and asset management.
Ethically relevant factors in corporate governance
Norges Bank has operational responsibility for managing the Fund in the manner that generates the best return in the long term, subject to the limitations set out in the Regulation. The Fund should therefore be invested in a manner that provides the greatest potential for such a return. As a shareholder, we should then seek to change ethically questionable aspects of a company’s activities. Norges Bank wants the companies in which it invests to maintain the highest possible ethical standards, both for reasons of profitability and due to the intrinsic value of such standards. Key factors in assessing this will include:
- The board’s composition, qualifications and independence of senior management
- The board and management’s ability to look after shareholders’ interests
- Management remuneration systems (fixed salary, bonuses, options etc.)
- Internal control systems (supervision, audits etc.) and accountability mechanisms
- Openness and transparency (including reporting systems)
- Labour standards (including workers’ rights and health and safety)
- The company’s approach to the environment
- Business practice (including approach to legislation on corruption, taxation, competition, consumer rights, etc.)
This is not an exhaustive list of relevant factors. Furthermore, these factors are to some extent interconnected. The factors listed are largely covered by the Ethical Guidelines mentioned above.
Means of influence in corporate governance
Norges Bank’s corporate governance work involves exerting a positive influence in companies in which it invests. Naturally, this applies not only to matters of an explicitly ethical nature but also more generally. This influence can be exerted in the following ways:
· Communicating Norges Bank’s ethical principles and guidelines: This applies to all of the ethical principles and guidelines to which Norges Bank subscribes, cf. the relevant section above. These principles and guidelines will be communicated to both partners on the investment side and companies in which investments are made.
· Cooperating with other institutional investors: Influence over a company will be more effective if it is exerted by several investors in cooperation. Norges Bank will therefore cooperate with other institutional investors, both formally and informally, with a view to forming a common front on important issues.
· Voting at general meetings: In recent years, Norges Bank has increasingly voted at general meetings of the companies in which it is a shareholder, cf. Section 5 of the Government Pension Fund – Global Annual Report. Norges Bank continuously assesses how voting rights can be used to promote shareholder interests.
· Contacting companies directly: If there are aspects of a company’s board or management which come into conflict with the Fund’s long-term profitability or its ethical principles in other ways, Norges Bank can discuss the matter directly with the company, primarily with its board. This may be done in cooperation with other investors.
Norges Bank aims to be transparent about the principles of corporate governance. Norges Bank also believes, however, like many other similar investors, that a dialogue is best served by confidentiality vis-à-vis the individual company. If one wants to build up trust and bring about real change, a public, demonstrative approach may be counterproductive. Furthermore, it will be virtually impossible for Norges Bank to comment on voting or company contacts for all of the 3 500 companies in which it invests. Nevertheless, it is important for Norges Bank to clearly demonstrate the principles of corporate governance and to show how the actual corporate governance activities ensure compliance with these principles. It may also be appropriate in specific cases – for example, to exert further pressure on companies or to meet an important need for information – to resort to disclosure in order to focus on important initiatives taken either individually or in cooperation with others.
Vision for corporate governance
Norges Bank’s integration of ethics into its corporate governance activities is motivated by the Bank’s task, which is to protect the Fund’s long-term financial interests. This requires the consideration of ethical issues, as we have seen above. However, strengthening the ethical aspect of corporate governance has a further purpose, namely to define Norges Bank’s moral responsibility as manager of one of the world’s largest institutional funds, with ownership interests worldwide.
Ownership involves power, duties and rights that can be exercised and safeguarded in different ways. Generally, not all means will be equally sound, ethically speaking. Norges Bank wants to give an ethical dimension to its reflections on its position and its opportunities: what this position means and, not least, how Norges Bank through the Government Pension Fund – Global, can contribute globally to high ethical standards, within the confines of the Fund’s overall objective.
This reflection cannot be a one-off undertaking – it must be part of a continuous process which demands critical and creative thinking in both the formulation and application of ethical principles for corporate governance, the development of communication strategies, and, not least, the development of ethical expertise among those who are to manage and implement this work. In this way, Norges Bank, as a professional and morally aware investor, hopes to be able to make a difference to the benefit of both Norway and the rest of the world.
A couple of areas stand out as important priority areas for the coming years: promoting shareholder rights (including ensuring the board’s competence, accountability and independence of management, the right to have control over one’s own shares, and voting rights issues) and promoting greater transparency, not least in terms of environmental sustainability, combating corruption, and safeguarding the rights and opportunities of future generations.
Norges Bank hopes to contribute through this work to realising the overall vision for the management of the Fund, namely to be the world’s leading and most respected fund manager.
Perspectives from ethics: duties, consequences and virtues
When financial assets are to be managed in an ethically acceptable manner, it is dangerous to rely on simplistic arguments or believe in quick fixes. Many different considerations need to be borne in mind, and difficult decisions must be made. What can ethics – or moral philosophy – actually give us in the form of perspectives which can help us in this difficult work? The following is intended as a contribution to ethical reflection on good fund management, with a particular emphasis on our main theme here: corporate governance as an integral part of fund management.
Traditional thinking on corporate governance, which emphasises, among other things, shareholders’ influence over board elections, the board’s integrity and competence, appropriate levels of management remuneration, and adequate reporting, also gives us important pointers when assessing the ethical aspects of the companies in which the Fund is invested. Better and more predictable management systems give us greater transparency, clearer responsibilities, and a generally better basis for ethics and morals. But ethics as a discipline can also give us additional perspectives which may help to lead us to our overriding goal of responsible fund management which, inter alia through corporate governance, contributes to the welfare of future generations.
In the preceding article on ethics and corporate governance, we mentioned duty ethics and consequentialism as different ways of justifying a course of action. However, they can also be viewed as two complementary perspectives or standpoints which one can take and use to lead the discussion of ethics, and which can play an important role both individually and collectively as contributions to the debate about the management of the Fund. Together with a third perspective, virtue ethics, they provide useful standpoints for the formulation of questions, arguments and attitudes with respect to ethics in corporate governance in particular and fund management in general.
We are not claiming that these are the only ethical perspectives that can be applied, nor that they are always in harmony. Quite the opposite, there will often be tensions between them, and in some cases it will be necessary to give precedence to a theoretical standpoint when determining the correctness of a behaviour if we are to be able to draw any conclusions and take any action at all.
The reason why we are nevertheless discussing these three theories in the following and calling them “perspectives” is that they all help us to ask questions which should be mandatory when our goal is to manage assets on a large scale in an ethically acceptable manner. Our use of these theories in this context is intended to highlight fundamental ethical issues and associated arguments in our investment and corporate governance activities, and not as an interpretation of ethical theories as such.
· The duty perspective forces us to identify and formulate the duties and rights which our investment activities cannot ignore if they are to be ethically acceptable. The fundamental ethical question is then: What duties and rights do we depend on for our activities to function and be just and profitable? In practice, this perspective often leads us to the law with all its rules and regulations. But the duty perspective can also help us to identify norms and rules which are not primarily legal but have more to do with good practice for different types of activity, or with ethical requirements which go beyond the letter of the law. It is difficult to imagine good and just investment activities without adequate reporting mechanisms, efficient markets and sufficient confidence in social institutions. Perhaps the most important thing that the duty perspective urges us to do is strengthen respect for such duties and institutions (whether or not statutory) and work through corporate governance towards internationally recognised rules that everyone can respect. But this perspective is also important for the type of screening and exclusion mechanisms that are a part of the ethical guidelines, as these are based on the fundamental assumption that some types of production and activity are to be viewed as unethical and consequently something in which we should not participate. Here, it is not primarily an assessment of the consequences that forms the basis for decisions; rather it is a matter of deciding whether or not something is right relative to a set of rules. However, it is important to note that these rules in turn may have their ultimate justification in what has the best consequences, which leads us naturally to the next perspective.
· The consequentialist perspective compels us to ask questions about the consequences of our actions (including our omissions). As such, the consequentialist perspective is more forward-looking, as its focus is on future effects rather than duties, rules and rights which are already established. The investment of financial assets on a large scale can have consequences for many people, and in this respect the consequentialist perspective is obviously of relevance to fund management and corporate governance. According to this ethical perspective, we must use our influence and rights to help shape the consequences of both our own and (when possible and natural) others’ actions, and we are to do this by taking account of as many of the parties affected by those actions as possible, based on the fundamental premise that all people shall be treated with the same respect. In relation to our theme here, this should not be interpreted such that the investor can or should be responsible for all possible consequences, direct or indirect, of his actions. No society can function without a reasonable division of duties and responsibilities between different institutions with different areas of expertise and authority. Thus, the investor’s main role is to protect her financial assets, not to implement social or development policy. Nevertheless, there may be situations where an investor has an opportunity to address ethical, social and environmental issues in a way which can complement (and improve) others’ work in the same fields andhelp to protect his financial assets. As corporate governance is forward-looking in this respect and aims to promote the best possible consequences in the future (often the distant future), it is natural to say that the consequentialist perspective is fundamental to the Fund’s ethics. At the same time, we need to note, as indicated above, that the duty and consequentialist perspectives as presented here will, in many cases, overlap. Many duties will ultimately be rooted in their contribution to favourable consequences for society.
· The virtue perspective is different from the previous two, as it does not primarily ask questions about our actions, but more about who we are, our dispositions, and what kinds of ethical qualities we have – in a nutshell, what kinds of virtues should govern our actions. Virtue ethics focus on the ideals and attitudes which should underlie our courses of action, and as such serves as an important complement to the duty and consequentialist perspectives. From the standpoint of virtue ethics, it is relevant to ask: as a Norwegian government fund responsible to many generations, what kind of values should the Fund reflect, and what kind of institution should it be? Asking these questions does not have to entail some naive notion that we must be unblemished or perfect in all our behaviour, or that we should be doing something quite different from our principal role of managing financial assets in a professional and profitable way. But it does require us to take our self-image, ideals and attitudes seriously. This has become increasingly prominent in business ethics and in professional ethics more generally: there is often talk of building a “brand” and thereby standing forth as honourable – to employees, customers and the outside world – with an image and values which instil confidence. These ideas are also relevant to the investor. Not least, the investor must be aware of who owns the money she manages, and what kinds of values they have – as expressed in the Fund’s case through the political decisions which govern the Fund’s operations. Here, we are talking, for example, about fairness, honesty, respect for the law, and respect for other people and their rights. We need to behave according to these values in a way which inspires confidence in the Fund among its owners – and which also inspires confidence among other investors and in the companies and markets in which we invest. So we can see that the discussion of the role of ethics in investment and corporate governance is not only about identifying right and wrong actions, good and bad investments, ethical and unethical companies, but also about clarifying who we ourselves are and what kind of attitudes and values we wish to reflect. This also has consequences for professional ethics within the investment organisation: the responsibility and standards which are to govern our investments must also pervade day-to-day activities in the organisation.
All three of these perspectives can profitably be used in the efforts to ensure that the Fund’s corporate governance activities take account of the ethical issues set out in the Ethical Guidelines for the Fund. This does not conflict with its financial goals, but serves rather as an additional assurance that the road leading to these goals is the right one, both financially and ethically. In other words, we are looking to identify (a) the fundamental duties which the Fund is dependent on others fulfilling, and which we as investment managers must fulfil; (b) the consequences which we must endeavour to promote through our actions; and (c) the virtues and attitudes which are to characterise our activities. Thus, we can see that ethical reflection in relation to fund management in general and corporate governance in particular is far from straightforward and one-dimensional, but is, and must always be, complex and multi-dimensional.
Corporate governance – the philosophical origins
Is there a historical link between corporate governance and moral philosophy? Indeed there is. Hugo Grotius (1583-1645), father of international law and one of the most important moral philosophers of the modern era, also contributed in his time to the birth of the concept of corporate governance.
In 1604, the Netherlands was roiled by a controversy which split shareholders in the rich and powerful Dutch East India Company. This was one of the first recorded disputes over what we now call corporate governance. It arose after the Portuguese galleon Santa Catarina had been captured a year earlier in the Straits of Malacca by a Dutch sea captain from a shipping company in Amsterdam who confiscated its valuable cargo. The United Provinces, as the Netherlands was then known, was at war with the Spanish Empire at the time, although the conflict had not yet spread to the trading outposts of the Indonesian archipelago. The seizure of the Santa Catarina therefore represented a major escalation in a conflict which had hitherto been confined to European waters. The Dutch captain justified his actions by appeal to the legal principle, then generally recognized, that even private parties could seize enemy property in time of war. The legality of his actions was tested in court in the United Provinces, and the court eventually found in his favour. The prize was awarded to the East India Company, which had just merged with the shipping company in Amsterdam.
Soon thereafter, a group of the East India Company’s shareholders – many of them Mennonites and avowed pacifists – mounted a vigorous campaign against this ruling. These shareholders distanced themselves morally from the judgment, refusing to accept their share of the prize awarded them by the court, and demanding that the company too refuse these spoils of war.
At this juncture, a young lawyer by the name of Hugo de Groot (“Grotius” was his Latin pseudonym) was brought into the fray. Today, he is best known for his monumental treatise On the Law of War and Peace, but back then, he was just 21 years old, albeit already a respected thinker. He was commissioned by the East India Company to analyse the legal and moral aspects of this complex case, and the young Grotius produced a work of more than 300 pages: De jure praedae (On the Law of Prize and Booty). Here, he looked thoroughly at every aspect of the case, but ultimately ended up defending the company rather than the minority shareholders.
Never published in the author’s lifetime, and rediscovered only in 1864, the work is today viewed with much interest. It represents what may be the first systematic attempt to report in depth on how international trade, war, ownership rights and obligations, the quest for profit, and public regulations fit together, and so challenges even the brightest minds. To Hugo Grotius we owe a debt of gratitude for providing us with the first moral and legal map of a nexus of issues that still, indeed increasingly, confront owners today.