Baric, Marijana

Goergen, Marc

O'Sullivan, Noel

Wood, Geoffrey

LSE Research Online

How	Norway’s	sovereign	wealth	fund	protected	UKjobs	after	the	2008	crisisSovereign	Wealth	Funds	(SWFs)	are	investment	funds	set	up	by	national	governments	as	a	means	of	saving	–potentially	across	generations	–	a	proportion	of	foreign	exchange	inflows,	typically	as	a	result	of	windfalls	fromnatural	resources,	but	also,	in	some	circumstances,	from	manufactured	goods	export	booms	and/or	even	agriculturalsurpluses.	They	may	also	serve	as	a	stabilisation	device	in	the	case	of	unexpected	shocks	to	the	global	economy.Although	two-thirds	of	SWFs	have	only	emerged	after	2000,	there	are	now	as	many	as	78	SWFs	globally,	with	anestimated	combined	worth	of	US$	7.45	trillion.	SWFs	are	key	players	in	the	global	financial	ecosystem,	as	reflectedby	their	size,	which	exceeds	the	combined	size	of	global	hedge	funds	and	private	equity	houses	.Of	particular	significance	is	their	propensity	to	invest	in	equity	securities.	Indeed,	the	latest	estimates	suggest	thatthey	hold	shares	in	one	out	of	every	five	listed	firms	worldwide.	In	addition	to	absolute	size,	SWF	investments	havegrown	significantly	in	recent	years	with	the	values	of	funds	invested	having	doubled	since	2007.The	Norwegian	Government	Pension	Fund-Global	(NGPF-G)	is	the	largest	SWF	in	the	world	with	a	market	valuetotalling	NOK	8,473	billion,	including	equity	investments	in	over	9,000	companies	worldwide.	NGPF-G,	interestingly,is	not	a	pension	fund,	but	could	help	fund	state	pensions.	It	is	managed	by	the	Norwegian	Ministry	of	Finance,	butoperational	management	lies	with	Norges	Bank	Investment	Management,	a	subsidiary	of	the	Norwegian	CentralBank.	Other	major	SWFs	include	the	China	Investment	Corporation,	the	Abu	Dhabi	Investment	Authority,	the	KuwaitInvestment	Authority,	the	Hong	Kong	Monetary	Authority,	the	State	Administration	of	Foreign	Exchange	of	China,and	the	Government	of	Singapore	Investment	Corporation.	The	quality	of	governance	and	transparency	of	SWFsvaries,	but	the	NGPF-G	is	typically	seen	as	having	the	highest	standards	of	any	SWF.	In	line	with	this,	it	publishes	itsownership	stakes	in	all	its	investee	companies.We	study	the	effect	of	NGPF-G	on	employment	in	its	UK	investee	firms	before	and	after	the	2008	financial	crisis.	Ourfocus	on	NGPF-G	arises	from	its	atypical	approach	when	compared	to	other	SWFs,	given	its	clear	focus	on	sociallyresponsible	investment	(SRI),	including	workers’	rights.	NGPF-G	has	gone	as	far	as	exiting	from	investee	firms	thathave	not	reacted	sufficiently	to	its	criticism	of	their	labour	relations	and/or	other	ethical,	environmental	andgovernance	concerns.LSE Business Review: How Norway’s sovereign wealth fund protected UK jobs after the 2008 crisis Page 1 of 3		Date originally posted: 2018-06-27Permalink: http://blogs.lse.ac.uk/businessreview/2018/06/27/how-norways-sovereign-wealth-fund-protected-uk-jobs-after-the-2008-crisis/Blog homepage: http://blogs.lse.ac.uk/businessreview/A	classic	such	example	is	Wal-Mart	Stores	Inc.,	which	has	been	part	of	NGPF-G’s	list	of	excluded	companies	since2005,	when	the	Norwegian	Ministry	of	Finance	accused	Wal-Mart	of	preventing	its	employees	from	unionising,among	several	alleged	infringements	of	labour	and	human	rights.	While	NGPF-G	has	exited	on	a	number	ofoccasions	from	firms	that	ultimately	do	not	adhere	to	its	ethical	standards,	in	a	first	instance	it	always	tries	to	engagewith	such	firms,	voicing	concerns	and	giving	them	the	opportunity	to	address	any	contentious	issues	it	might	havewith	their	environmental,	social	and	governance	practices.	If	the	issues,	however,	remain	unresolved,	and	despite	itslong-term	orientation,	it	does	not	hesitate	to	sell	its	shares	in	the	offending	company	and	publicise	why	it	has	doneso.	Hence	and	despite	the	relatively	small	stakes	it	holds	in	its	investee	firms	(it	typically	holds	stakes	well	below	10per	cent	of	the	equity),	NGPF-G	is	an	active	and	vocal	shareholder.We	identify	508	UK	firms	with	NGPF-G	ownership	in	at	least	one	of	the	years	over	the	2006-2013	period,	whichincludes	several	years	before	as	well	as	several	years	after	the	2008	financial	crisis.	We	then	match	these	firms	withfirms	without	NGPF-G	ownership	from	the	same	industry	but	with	an	equal	likelihood	of	having	SWF	ownership.	Weuse	a	number	of	firm	characteristics	that	have	been	highlighted	by	previous	studies	to	increase	the	likelihood	of	SWFownership.	We	are	able	to	match	111	of	our	508	NGPF-G	investee	firms	in	such	a	way.	The	matching	is	done	toensure	that	we	compare	like	with	like	as	NGPF-G	investee	firms	may	be	different	from	the	average	UK	listed	firm.We	can	confirm	that	post-matching	there	are	no	significant	differences	between	NGPF-G	investee	firms	and	theirmatched	non-NGPF-G	firms.What	do	we	find?	Adjusting	for	differences	in	productivity	and	wage	costs	across	firms,	we	find	that	non-NGPF-Gfirms	significantly	reduced	their	demand	for	labour	in	the	immediate	aftermath	of	the	2008	financial	crisis	–	that	is	inthe	year	2009.	In	contrast,	there	was	no	such	reduction	in	demand	for	NGPF-G	firms.	This	suggests	that	NGPF-Gbuffered	any	negative	effect	of	the	2008	financial	crisis	on	employment	in	its	investee	firms.Our	findings	are	consistent	with	NGPF-G’s	socially	responsible	agenda	in	terms	of	its	desire	to	take	a	long-term	viewof	employment.	They	also	raise	a	number	of	issues	relevant	to	HR	managers,	trade	unionists	and	businesses	moregenerally.First,	our	results	highlight	the	need	for	firms	to	identify	and	seek	to	understand	the	likely	employment	philosophies	ofkey	investors;	our	earlier	research	on	private	equity	institutional	buyouts	reveals	adverse	effects	on	jobs.	Theincreased	understanding	of	agendas	that	are	imposed	or	encouraged	by	specific	investors	would	allow	HR	managersto	react	accordingly.	Second,	firms	genuinely	pursuing	a	more	sustainable	business	model	would	do	well	to	seekinvestment	from	like-minded	investors.	Third,	our	work	shows	that	even	relatively	small	investments	can	potentiallybe	very	influential	in	determining	corporate	behaviour.	This	also	raises	the	question	as	to	what	the	likely	employmentconsequences	of	investments	by	other,	less	responsible,	SWFs	might	be.♣♣♣Notes:This	blog	post	is	based	on	the	authors’	paper	Sovereign	wealth	funds,	productivity	and	people:	The	impact	ofNorwegian	Government	Pension	Fund-Global	investments	in	the	United	Kingdom,	Human	ResourcesManagement	Journal,	April	2018.This	post	gives	the	views	of	its	authors,	not	the	position	of	LSE	Business	Review	or	the	London	School	ofEconomics.Featured	image	credit:	Photo	by	fietzfotos,	under	a	CC0	licenceWhen	you	leave	a	comment,	you’re	agreeing	to	our	Comment	Policy.Marc	Goergen	is	professor	of	finance	at	Cardiff	Business	School	as	well	as	a	research	associate	ofthe	prestigious	European	Corporate	Governance	Institute.	He	is	a	former	member	of	the	ICAEWCorporate	Governance	Committee.	He	has	published	widely	on	corporate	governance,	finance	andHRM	in	leading	academic	journals.	He	is	also	the	author	of	three	research	monographs	as	well	as	asuccessful	textbook	on	corporate	governance.	LSE Business Review: How Norway’s sovereign wealth fund protected UK jobs after the 2008 crisis Page 2 of 3		Date originally posted: 2018-06-27Permalink: http://blogs.lse.ac.uk/businessreview/2018/06/27/how-norways-sovereign-wealth-fund-protected-uk-jobs-after-the-2008-crisis/Blog homepage: http://blogs.lse.ac.uk/businessreview/Noel	O’Sullivan	is	professor	of	accounting	and	head	of	the	Accounting	and	Financial	ManagementGroup.		Prior	to	that	he	was	professor	of	corporate	governance	and	head	of	accounting	and	financialmanagement	at	the	University	of	Sheffield.	Geoffrey	Wood	is	Dean	and	professor	of	international	business	at	Essex	BusinessSchool.	He	has	authored/co-authored/edited	sixteen	books,	and	over	one	hundred	andsixty	articles	in	peer-reviewed	journals.	Geoff’s	research	interests	centre	on	therelationship	between	institutional	setting,	corporate	governance,	firm	finance,	and	firmlevel	work	and	employment	relations.	He	is	editor	in	chief	of	the	British	Journal	ofManagement	and	associate	editor	of	the	Academy	of	Management	Perspectives.Marijana	Baric	is	a	lecturer	in	management	and	human	resource	management	at	the	University	ofBuckingham.	She	completed	her	PhD	as	well	as	an	undergraduate	degree	(economics	andmanagement)	at	University	of	Sheffield.	Marijana’s	work	focuses	on	studying	the	informal	economyfrom	a	social	exchange	perspective.	Her	research	interests	also	extend	beyond	the	policy	orientation,to	many	aspects	of	organisational	behaviour.	Marijana	has	been	involved	in	projects	funded	by	theEuropean	Foundation	of	the	Improvement	of	Living	and	Working	Conditions	as	well	as	Marie	CurieActions.	LSE Business Review: How Norway’s sovereign wealth fund protected UK jobs after the 2008 crisis Page 3 of 3		Date originally posted: 2018-06-27Permalink: http://blogs.lse.ac.uk/businessreview/2018/06/27/how-norways-sovereign-wealth-fund-protected-uk-jobs-after-the-2008-crisis/Blog homepage: http://blogs.lse.ac.uk/businessreview/

How Norway's sovereign wealth fund protected UK jobs after the 2008 crisis

http://eprints.lse.ac.uk/90836/1/Goergen_How-Norway%27s-soverign_Author.pdf

How Norway's sovereign wealth fund protected UK jobs after the 2008 crisis

Abstract

Similar works

Full text

Available Versions

LSE Research Online