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ICGN urges 'hiding' SWFs to be active investors

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  • ICGN urges 'hiding' SWFs to be active investors

GLOBAL - The International Corporate Governance Network (ICGN) has urged sovereign wealth funds (SWFs) to use their voting rights at annual general meetings, and avoid situations where 'bad things happen' because they go unopposed.

Speaking at the ICGN mid-year conference entitled 'Impact of Sovereign Wealth Funds & Nordic Corporate Governance', Anne Simpson, executive director of the ICGN, said SWFs could be caught on the "horns of a dilemma" as people accusing them of having "ulterior motives" and increased transparency may encourage SWFs not to exercise their shareholder rights.

"What we worry about at ICGN is that bad things will happen if investors do take action," said Simpson.

"So we are currently trying to develop a group of long-term investors, such as SWFs, who are prepared to vote their rights and act."

Her comments followed presentations by Gao Xiqing, general manager of the Chinese Investment Corporation (CIC) and Dr Mahmoud Al Kanderi, director of the legal compliance department at the Kuwait Investment Authority (KIA) who both emphasised their respective SWFs were long-term passive investors.

Xiqing pointed out the CIC has only been established since September 2007, and revealed it is based on the policies and philosophies of SWF predecessors, such as the KIA and the Norwegian Government Pension Fund - Global, though unlike the Norwegian SWF which places great emphasis on exercising shareholder rights, the CIC is a "very passive investor".

He said: "We don't want to vote, but we don't really have the people to vote in any case. We fully intend to be simple long-term investors. We have already rejected approaches from other Chinese companies wanting our help to take over western firms, as we don't want to take such a position. We want to hide and not attract attention."

Al Kanderi also confirmed the KIA, which was first established in 1953, also has a specific policy as a passive investor, and does not seek to gain control, a seat or membership of any management board.

"We are a friendly, not hostile, investor. We have a policy of core holdings and we keep it and enjoy the benefit and make sure we don't invest for political reasons, and only invest on a purely commercial basis," he said.

That said, he pointed out being a passive investor does not mean you don't have the right to vote at any time, and hinted it might "intervene" and vote its rights under certain circumstances, if things appearing to be going wrong at the company held.

"Where there's an interest for all shareholders we will intervene but we will not side with one group against another group. If the matter is going to harm the interests of a company a passive investor will intervene," he said.

One such example presented is a situation where the management board of a company was failing, Al Kanderi admitted that could be a situation where it would "try to help the company as a whole" because "if we don't intervene then we're harming our own interests".

Xiqing admitted as a former regulator he has always advocated shareholders should vote and follow best practice. However, he argued it is not "practical" for CIC to become an active shareholder at present and instead revealed if managers need to vote the CIC tells them to vote with the board and to be passive.

He did suggest, however, if a manager felt particularly strongly about a motion and really wanted to vote against the board, providing the manager told the CIC in advance, "it would evaluate" whether to take action. 

The position of the CIC and KIA is in contrast to the policy of Norges Bank Investment Management (NBIM), which manages the Norwegian SWF, as Anne Kvam, head of corporate governance, claimed its main focus is shareholding brings responsibilities as well as rights.

As a result, she said NBIM has a strong focus on social and environmental issues, and to increase investor transparency the organisation has published its voting record for 2007, including proxy voting guidelines, which show it was involved in 38,000 agenda items, and voted in about 90% of the total holdings of NBIM.

Kvam added: "We announced last year that we were going to do this. It is not something we're doing now to respond to the SWF debate. It's always been one of the main features of the fund, as it is owned by the Norwegian people so we want them to have insight and know what's going on."

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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