The “Statoil article”

Article 10 was introduced in 1974 to ensure that the state could control of the company it had created and owned. That reflected the big portfolio and wide mandates accumulated by Statoil during its first two years of life. While government and Storting needed to restore a certain authority over the company, its freedom of action nevertheless had to be kept. That created a difficult balancing act, and a dispute arose over how the authorities could secure the necessary powers.

Conflict over objects

Even before Statoil was established, political disagreement had arisen over what kind of company it was to be and what position it would occupy in Norwegian society. The Storting was admittedly unanimous in establishing the state’s own oil company – but that decision was characterised by a compromise between the objects of “commercial freedom” and “subject to parliamentary control and direction”.[REMOVE]Fotnote: Hanisch, T and Bould, M, 1994, “A Tiger by the tail: Embetsverkets forsøk på å styre Statoil”, in Hanisch, T (ed) , 1996, Om valget av det gode samfunn: Artikler om økonomi og historie, Høyskoleforlaget, Kristiansand: 214.

The Storting’s standing committee on industry viewed the state oil company as “a very important body for achieving national management and control”. In other words, it was not regarded as an ordinary commercial state-owned enterprise. Its articles of association had to be framed in a way which “secures the state company commercial freedom of action and ensures parliamentary control and direction”.[REMOVE]Fotnote: Recommendation no 316 to the Storting (1971-72) from the industry committee on establishing the Norwegian Petroleum Directorate and a state-owned oil company, etc (Proposition no 113 to the Storting).

The outcome was a wholly state-owned joint stock company with a broad object clause: The corporate object of Den norske stats oljeselskap a.s is, either by itself or through participation in or together with other companies, to carry out exploration for and production, transport, processing and marketing of petroleum and petroleum-derived products.[REMOVE]Fotnote: Proposition no 113 to the Storting (1971-72) on establishing the Norwegian Petroleum Directorate and a state-owned oil company, etc.

That text was quietly enlarged as early as the company’s statutory general meeting on 18 September 1972 to include the words: “as well as other business which bears a natural relation to this”.

The joint stock form was chosen to free the company from ongoing political interference.[REMOVE]Fotnote: Olsen, J, 1989, Petroleum og politikk: Det representative demokratiets møte med oljealderen, LOS-Senteret, Tano, Oslo: 101 While political agreement prevailed that it had to be given great commercial freedom, it was also understood that the provisions of Norway’s Companies Act would give the state, as sole shareholder, control through the general meeting.

The difficulty was that Statoil had been given wide commercial mandates on its creation without issues of principle associated with parliamentary management and control being identified as problematic.[REMOVE]Fotnote: Hanisch, T, Nerheim, G and the Norwegian Petroleum Society, 1992, Fra vantro til overmot?, Norsk Oljehistorie, vol 1, Leseselskapet, Oslo: 280-281. That was to prove a source of political conflict.

Dissatisfaction grows

Issue after issue concerning Statoil which came before the Storting made it clear that the unanimity over the company’s establishment was fracturing. This ranged the Conservative Party and Labour on opposite sides of the ring. The Conservatives, who had basically wanted a non-operational holding company functioning primarily as the state’s coordinator in Norwegian oil policy, sought stronger control. Labour, on the other hand, backed a fully integrated operational oil company with a large degree of independence and minimal interference from the Storting.

An opportunity for enshrining state intervention in Statoil’s operations arose in the spring of 1974, when the Storting was finally due to approve the company’s articles. The fight centred on what later became known as the “Statoil article” – article 10, which was intended to secure information about company operations and give the general meeting and the Storting a basis for exercising control.

The resulting political conflict almost felled the government and resulted in the resignation of Statoil’s board.

Among Conservatives, in particular, the idea dominated that the Storting’s opportunities for ongoing control were inadequate and that it was now time for a fundamental debate on the company’s form of organisation and management. Democratic control over Statoil was a prerequisite if the Storting was to remain in charge of Norwegian oil policy.[REMOVE]Fotnote: Ryggvik, H, Til siste dråpe, 2009, Aschehoug, Oslo: 181.

Labour, for its part, viewed Statoil as a political instrument and believed from the start that a strong company was needed in order to maintain a clear distinction between commercial operation and policy formation.

Since Statoil was a joint stock company, the Companies Act placed restrictions on the state’s opportunities to exercise control and oversight. The debate on the articles of association primarily concerned how the Storting could control and intervene in Statoil’s decisions while allowing the latter to maintain its freedom of action.[REMOVE]Fotnote: Rugaas, Daniel, “Statoils vanskelige fødsel 1970-1974”,  in Fortid, 4/2014, University of Oslo.

A new type of article

The result was the adoption of article 10, which represented an innovation in the control of Norwegian state-owned companies. Statoil’s new articles continued to build on the Companies Act, but the special provision enshrined in article 10 was intended to meet the demands for political management and control. It specified that the government should submit annual reports to the Storting on the main features of Statoil’s plans and other issues of principle with political significance.[REMOVE]Fotnote: Olsen, J, op.cit: 104-105.

Statoil thereby acquired a management system which was far more intrusive than had been the case for earlier state-owned companies in Norway.

Article 10 required the company to submit all issues considered to be significant in terms of principle, politics or society to the general meeting. The latter was to receive an annual plan from the board covering operations, including by subsidiaries, and detailing the group’s main activities for the coming year. A report was also to be submitted to the Storting on the company’s progress and plans. These arrangements were intended to ensure that both the minister and the Storting were kept informed and given opportunities for exercising political control.[REMOVE]Fotnote: Blaalid, Jon, Statkonsult report 1998:21.

This article ensured that the owners were informed of and could intervene in planned changes which might have societal significance.

It underlined the right to exercise oversight, management and control which rested with the minister and the Storting. That meant the latter had greater opportunities to give the company guidance and instructions through the general meeting.

While article 10 strengthened state control over Statoil and reduced its independence, it also had effects far beyond that company and came to be incorporated in the articles of other state-owned enterprises. These have included the Norwegian Broadcasting Corporation (NRK), Statkorn, Telenor, NSB BA and Posten BA.

Outcome

The “Statoil article” model was a compromise between the governance priorities of Labour and the Conservatives – commercial freedom versus demands for management and control by elected representatives. Article 10 imposed a duty on the board to submit issues to the general meeting which were considered to have significant political aspects or involve important matters of principle, or which could have substantial social or socioeconomic effects. That gave the directors a responsibility over and above the duties specified in the ordinary provisions of the Company’s Act.

Ministers made little use of their power to issue instructions. During the first decade with the model, it was exercised only three times – all of them in 1982-83 under a non-socialist government. These related to the module support frame on Heimdal, Statoil’s involvement on the Danish continental shelf, and the field centre on Oseberg.[REMOVE]Fotnote: Mestad, O, 1985, “Statoil og statleg styring og kontroll”, in Marius, print edition, vol 105, Oslo: 185-188.

After 27 years, when Statoil was partially privatised and listed on the stock exchange on 26 April 2001, the historic article 10 was removed from its articles of association