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Monday, July 15, 2024

KLP calls for Yara chairman to quit

Yara International’s third-largest shareholder, the Local Government Pension Fund (Kommunal Landspensjonskasse, KLP), wants the chemical producer’s chairman to step down as a cloud continues to hang over the company. Current management claimed Yara tightened its procedures after the company and former executives were indicted in Norway’s biggest corporate bribery scandal ever, but KLP’s doubts remain following its own investigation into Yara.

Yara International, one of the world's biggest fertilizer producers, is caught in a huge bribery scandal but it hasn't badly affected its share price. Current management seems intent on carrying on, with those charged in the case mostly belonging to the company's earlier top management team. PHOTO: Yara
The Local Government Pension fund (KLP) wants some Yara board members, including chairman Bernt Reitan, to resign. The KLP’s own investigation into Yara left it with serious doubts about the company’s anti-corruption framework, following a huge corporate bribery scandal. PHOTO: Yara

Last month Yara accepted a record fine of  NOK 295 million (USD 49 million) for bribery in India, Libya and Russia, and several former and current executives were indicted for corruption. KLP ramped up its own three-year investigation of Yara before Christmas, asking a number of specific questions.

KLP told newspaper Dagens Næringsliv this week that it is not convinced Yara is following its own anti-corruption rules, and called for some board members including Chairman Bernt Reitan to quit.

“We recognize that the company has done a lot of good, and that a sound regulatory framework has been put in place,” said Jeanett Bergan, KLP’s head of responsible investments. “But at the same time we see that actions and rules are not in the same style.” She said KLP has doubts over Yara’s lack of response to warnings of possible corruption, the central position held by accused staff, key staff leaving the ethics and control department, and additional problematic transactions.

“The chairman must bear the responsibility for the doubts we have, that the case hasn’t been handled adequately, and there haven’t been adequate consequences,” said Bergan. “Beyond that, we will not go into individual members of the board.”

Investigation criticized
“That is their assessment,” responded Reitan. “I believe we have done very extensive work to correct the things this refers to. We have had meetings with them. We have also explained it in a letter. Otherwise, I don’t have any comments until I have seen what’s in there.”

In its letter to KLP, Yara criticized the way the pension fund had conducted its investigation reported DN. It said KLP should have questioned the chairman and chief executive, instead of contacting board members and former Yara staff.

KLP’s asset management director Håvard Gulbrandsen responded that as an owner, they have the right and duty to to retrieve information from outside Yara, provided it’s done in a correct manner. “We believe that we have done that,” he said. “It’s important not to forget that this is a large and serious case.”

Bergan said Yara has always been forthcoming, but the corruption reports led KLP to seek out people outside the usual formal channels. “What emerged in these conversations was so serious, we saw the need to investigate further,” she explained.

Sufficiently independent board
Last week KLP met with Yara’s board nomination committee. Bergan said KLP aired its doubts, and its belief that the best thing for the company would be to change the board. “So it’s up to the selection committee to put together a board to be voted on at the next annual general meeting, that is sufficiently independent and has the necessary distance,” she explained.

Reitan told DN he will meet with the selection committee later in February, but would not comment further on his ongoing position as chairman ahead of the board’s next elections in May.

Yara’s CEO Jørgen Ole Haslestad, who last month defended Yara’s new anti-corruption checks and balances, was a board member before he took on his current role in 2008. KLP warned that the transition from being a board member to a chief executive can also create challenges. “Generally speaking, I can say that’s something we think can be problematic,” said Bergan. “We believe a board should be strong and independent.”

Other shareholders concerned
The Norwegian government, meanwhile, owns a 36 percent share in Yara and is another concerned shareholder. Trade Minister Monica Mæland, representing the government, has requested a meeting with lawyer Jan Fougner, who was commissioned by Yara to investigate suspicions within the company.

Yara has never publicly released Fougner’s report in full, and wouldn’t immediately answer whether Fougner himself will be released from his confidentiality agreement not to divulge its contents, which are believed to be highly critical of Yara’s earlier procedures. Fougner told DN over the weekend that he would give Mæland “an orientation” regarding his probe. Yara declined to reveal what he’ll be allowed to say.

Norway’s National Insurance Fund (Folketrygdfondet), Yara’s second-largest shareholder, owns a 6.4 percent stake in the company. It also sought more details about the corruption case, on the grounds that it has not received sufficient information.

“We have asked the Yara board to present a summary of the corruption case and its justification for accepting the corporate fine,” said the fund’s Olaug Svarva. “We’re now awaiting the board’s handling of our request ,” she added, noting that the large pension fund wanted it “as quickly as possible.” Woodgate



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