The manager of Norway’s NOK22trn (€2trn) sovereign wealth fund has issued a plea for stock exchanges, regulators, index providers, companies and investors to take concerted action to defend shareholder rights, which it says are weakening in many markets.
In an article published this week, entitled “Shareholder rights under pressure: Our view on why market participants should act together to protect shareholder rights”, Norges Bank Investment Management (NBIM) wrote: “We are concerned that shareholder rights are weakening in many markets, putting investor confidence and long-term value creation at risk.”
NBIM, manager of the Norwegian Government Pension Fund Global (GPFG), which now owns nearly 1.5% of all shares in the world’s listed companies, said robust shareholder rights underpinned well-functioning public equity markets.
“Protecting shareholder rights is a shared responsibility for regulators, stock exchanges, index providers, companies and investors,” NBIM said, pledging to step up its own engagements with market participants on shareholder rights.
Carine Smith Ihenacho, the Oslo-based central bank subsidiary’s chief governance and compliance officer, and two colleagues, said in the article that across many markets, competition for listings had led to changes to the frameworks that protected minority shareholders.
“Some changes reflect legitimate improvements, but others weaken the investor protections that anchor market confidence and integrity,” the trio wrote.
“In global markets, changes in some jurisdictions create pressure on others to follow. This trend is concerning and can affect long-term value creation across global portfolios,” they said.
Citing research, they argued robust shareholder rights were associated with deeper more liquid capital markets and broader access to financing, that weakening rights could increase companies’ cost of capital, and that businesses with stronger shareholder protections had historically traded at higher valuation multiples.
Outlining what they considered important pillars of shareholder rights, such as access to reliable information and a vote on fundamental decisions, Smith Ihenacho and colleagues said: “Together, the actions of key market stakeholders shape and maintain shareholder rights.”
Addressing regulators, stock exchanges, index providers, companies and investors, NBIM said: “Each depends on the market integrity that these rights sustain, and all should take steps to protect them.”
Smith Ihenacho – who is leaving NBIM in December after nine years – and her colleagues said that “given the concerning changes”, they would “engage proactively with companies and key market stakeholders on maintaining and, where relevant, strengthening shareholder protections across the markets we invest in”.
They also pledged to monitor shareholder protection across the GPFG’s portfolio and work with academics to deepen collective understanding around the topic.
