Strategy, Capital structure, and Financial targets

A clear and justified long-term strategy with defined financial goals and a deliberate risk profile contributes to good corporate governance, effective resource utilization, and sound operations. This is necessary to achieve sound long-term value creation.

Long-term Strategy, Goals, and Risk Profile

• The board is responsible for preparing and carrying out a clear, well-reasoned long-term strategy. This should cover the business model, financial goals, capital allocation, plans for growth and use of resources, and considerations related to capital structure, risk, and tax.
   
• Financial goals such as growth and returns, as well as strategic goals, should be based on the company’s view of market developments, key assumptions, and competitive advantages. It should be clear how management’s compensation is linked to these goals.
   
• Companies should set targets for return on invested capital and show how these targets reflect risk and the level of capital tied up in the business. Return measures should give a meaningful and transparent picture of underlying profitability.
   
• Companies should describe the key competitive advantages that make it possible to carry out the strategy.
   
• Companies should analyse risks related to strategy, business model, and capital structure, and assess whether the capital structure is flexible and robust enough to support the implementation of the strategy.

Capital Structure and Surplus Capital

• Targets for the long-term capital structure should be based on the company’s strategy and risk assessment. Any differences between the target and the actual capital structure should be explained. If additional capital is required, the company should clarify what it will be used for and how it will be allocated.
   
• Surplus capital should generally be returned to shareholders. It should be clear whether this is done through cash dividends, share buybacks, or capital reductions, and these decisions should be anchored with the shareholders.

Responsible Tax Practices

• The company should follow the OECD Guidelines for Multinational Enterprises. In line with these principles, the company is expected to comply with local tax laws and provide the relevant authorities with the information they need.
   
• Transfer pricing practices should adhere to the arm’s length principle.

Financial Communication and Transparency

• Companies must communicate clearly about strategy, financial goals, and tax practices, and report on goal achievement.
   
• Companies should maintain open and consistent communication with the capital markets. Financial information should be provided in a timely manner, following the principle of equal treatment of market participants.

Corporate Governance

• We expect companies to follow NUES or equivalent national guidelines for good corporate governance. Folketrygdfondet generally applies the NUES recommendations also to companies outside Norway.
   
• The board must ensure that decisions regarding capital raising, share issues, buybacks, major transactions, or changes in ownership structure safeguard the equal treatment of shareholders.
   
• Authorisations should be well-justified and time-limited. The board’s composition and work should support independent and competent oversight and contribute to long-term value creation. For further guidance, see Folketrygdfondet’s voting principles at ftf.no.