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SWFs seek cover on corporate governance

Sovereign Wealth Funds have been urged by the International Corporate Governance Network (ICGN) to become more active investors and to exercise their voting rights, despite growing concerns about the level of influence wielded by SWFs from both Europe and the US.

At the ICGN mid-year meeting on the ‘Impact of Sovereign Wealth Funds & Nordic Corporate Governance' in Gothenburg, Anne Simpson, executive director of ICGN, said SWFs could be caught on the "horns of a dilemma" as being accused of having "ulterior motives" may encourage them not to exercise their shareholder rights.

She said: "What we worry about is that bad things will happen if investors don't take action. 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."

However, 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), both emphasised their role as passive investors, in contrast to Norges Bank Investment Management (NBIM), which manages the Norwegian Government Pension Fund - Global.

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Xiqing claimed that the CIC had no interest in participating in the affairs of international companies and revealed if managers had to vote they are told to vote with the board, as it wants to "hide and not attract attention", while Al Kanderi suggested the KIA would only "intervene" if it was in the interests of all shareholders or if the matter was going to "harm the interests of the company".

However, Anne Kvam, head of corporate governance at NBIM, highlighted that in 2007 the Norwegian SWF was involved in almost 38,000 agenda items and voted in approximately 90% of NBIM's holdings, and since last year it has published its entire voting record as it believes the Norwegian people should "have insight and know what's going on".

This difference in attitudes to corporate governance between the Nordic region and the rest of the world was also a focus of the conference, as Per Lekvall, board secretary at the Swedish Corporate Governance Board, highlighted that the Nordic regime does not work on a one share-one vote principle.

Instead power is balanced in favour of shareholders over the mainly non-executive boards, and in the Nordic region between 60-70% of the 20 largest companies have shareholders that own 20% of more of the company, compared to just 15% in the UK and 20% in the US, although Lekvall pointed out this is balanced by strong protection for minority shareholders.

But Petra Hedengran, head of corporate governance at Investor AB, warned delegates that this "unique" approach to shareholder nomination committees and owner-controlled processes "sometimes creates confusion and misunderstanding" internationally.

She claimed that "some Swedish companies have been downgraded in international corporate governance ratings because the company doesn't have a policy on the length of time someone can serve on the board", even though this would be "contradictory" in Sweden as the Nordic system accepts and supports strong ownership.

But as many overseas investors use proxy advisers to provide information on the local market and recommendations on how to vote, Eva Persson, senior vice president at AB Volvo, claimed it was important that the advice given was "adequate and of high quality".

In particular, Persson claimed advice centred on Swedish companies had been found to be "not high quality", either because the advisers "don't understand the corporate governance system, or just don't like it".

To try and combat these differences, particularly in relation to larger investors such as SWFs, Grant Kirkpatrick, senior economist at the Organisation for Economic Co-operation and Development (OECD), confirmed the organisation would publish corporate governance guidelines aimed at SWFs by early April.

Although Kirkpatrick emphasised the guidelines would be voluntary, Peter Montagnon, chairman of the ICGN, said the organisation would oppose any regulation "that would restrict SWFs access and deny them opportunities to invest".

He argued: "This approach would fuel the dangers of protectionism. It is not necessary to single out SWFs when most countries have safeguards in place."

"We welcome the multi-lateral initiatives to develop best practice governance frameworks. But it is important that this element is not undermined by national considerations of host countries," he added.

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