The purpose of the Norwegian Code of Practice
The objective of this Code of Practice is that companies listed on regulated markets in Norway will practice corporate governance that regulates the division of roles between shareholders, the board of directors and executive management more comprehensively than is required by legislation.
Good corporate governance will strengthen confidence in companies, and help to ensure the greatest possible value creation over time in the best interests of shareholders, employees and other stakeholders.
Listed companies manage a significant proportion of the country’s assets, and generate a major part of value creation. It is therefore in the interests of society as a whole that companies are directed and controlled in an appropriate and satisfactory manner. There is international competition to attract the interest of both Norwegian and international investors, and this makes it essential that Norwegian companies and the Norwegian stock market are seen to maintain high standards in the area of corporate governance.
The Code of Practice is intended to strengthen confidence in listed companies among shareholders, the capital market and other interested parties. It is important that companies enjoy good relationships with society as a whole, and particularly with the stakeholder groups that are affected by their business activities. Companies should therefore pay careful attention to establishing guidelines for their activities that take into account these issues.
This Code of Practice is principally intended for companies whose shares are listed on regulated markets in Norway, i.e. at the current time Oslo Børs and Oslo Axess. The Code also applies to savings banks with listed equity certificates to the extent that it is appropriate.
Unlisted companies with broadly held ownership whose shares are the subject of regular trading may also find the Code of Practice appropriate for their circumstances. The Oslo Børs “Continuing obligations of stock exchange listed companies” will determine which listed foreign companies and which Norwegian companies with a secondary listing must report in accordance with this Code of Practice.
Corporate management and control in Norway
In Norway, executive personnel are not normally elected to the board of directors. Under Norwegian company law, a company’s board of directors has both a controlling function and a management function in respect of the company’s activities and the executive managers of the company. The management function requires the board to play an active high-level role in matters that are of an extraordinary nature or of major importance and are therefore not a normal part of the day-to-day management of the company. The board’s management responsibility also includes drawing up strategies, budgets and guidelines for the company’s activities.
Any comparison of the Norwegian Code of Practice with international codes of practice should take into account some principal features of Norwegian company law:
- In the absence of any agreement with employees to the contrary, companies with more than 200 employees must elect a corporate assembly with at least 12 members of which 2/3 are elected by shareholders and 1/3 are elected by the employees. The main duty of the corporate assembly is the election of the board of directors. In addition, the corporate assembly has certain duties in respect of supervision, issuing opinions and decision-making.
- In any company with more than 30 employees, the employees have the right to be represented on the board of directors. If a company has more than 200 employees but has not elected a corporate assembly, employees must be represented on the board.
- The composition of the board of directors in terms of the gender of its members must satisfy the requirements of the Norwegian Public Limited Liability Companies Act (hereinafter the “Public Companies Act”).
- The Public Companies Act stipulates that the chief executive of a company may not be a member of its board of directors.
Adherence to the Code of Practice – “comply or explain”
Adherence to the Code of Practice will be based on the “comply or explain” principle whereby companies must either explain how they comply with each of the recommendations that make up the Code of Practice or explain why they have chosen an alternative approach.
The Code of Practice is addressed in the first instance to the board of directors of a company. It is the responsibility of the board to consider each section of the Code and decide how the company will meet the requirements. The board must include a corporate governance report in the company’s annual report.
Companies should report in accordance with this Code of Practice dated 21 October 2010 with effect from the 2010 annual report.
Structure and form of the Code of Practice
The Norwegian Code of Practice for Corporate Governance is based on company, accounting, stock exchange and securities legislation, as well as the Stock Exchange Rules, as in force at 1 October 2010, and includes provisions and guidance that in part elaborate on existing legislation and in part cover areas not addressed by legislation.
This Code of Practice addresses 15 major topics, with a separate section for each topic.
The text set out in bold type in the text boxes represents the recommendations to companies. These are the recommendations with which companies must either comply or explain their deviation from.
The commentary provided in each section is intended to provide greater detail and explanation of the requirements, and to explain the reason for their inclusion. The commentary also provides information on the relationship between the requirements of the Code of Practice and the relevant legislation. References to the appropriate legislative provisions can be found in the footnotes.
The Code of Practice uses the term “should” when describing its requirements. Where the requirement in question is already the subject of legislation, the term “must” is used. In addition, the Code of Practice uses the term “must” in Section 1 on corporate governance as a consequence of the requirement imposed by Oslo Børs for listed companies to issue a report in this respect in their annual reports.