Sovereign wealth funds, productivity and people: The impact of Norwegian Government Pension Fund‐Global investments in the United Kingdom

• Author: Marc Goergen,Noel O'Sullivan,Marijana Baric,Geoffrey Wood
• DOI: http://doi.org/10.1111/1748-8583.12179
• Published date: 01 April 2018
• Date: 01 April 2018

ORIGINAL ARTICLE

Sovereign wealth funds, productivity and people:

The impact of Norwegian Government Pension

Fund‐Global investments in the United Kingdom

Marc Goergen

1

|Noel O'Sullivan

2

|Geoffrey Wood

3

|

Marijana Baric

4

1

Cardiff Business School, Cardiff University,

UK and European Corporate Governance

Institute, Brussels, Belgium

2

School of Business and Economics,

Loughborough University, UK

3

Essex Business School, University of Essex,

UK

4

Business School, University of Buckingham,

UK

Correspondence

Marc Goergen, Cardiff Business School, Cardiff

University, Colum Drive, Cardiff CF10 3EU,

UK.

Email: goergenm@cardiff.ac.uk

Abstract

Sovereign wealth funds have an increasing presence in the global

financial ecosystem, principally through their investments in equi-

ties, which, in turn, may influence HRM. This study examines the

influence of the world's largest sovereign wealth fund, the Norwe-

gian Government Pension Fund‐Global (NGPF‐G), on employment

in its U.K. investee firms. We find that firms with NGPF‐G invest-

ment are significantly less likely to reduce their demand for labour,

more specifically in the immediate aftermath of the 2008 financial

crisis. When a drop in the demand for labour does occur, it is less

extreme when compared to similar organisations without a NGPF‐G

shareholding, and this is evident even in the case of relatively small

NGPF‐G investments.These findings are in line withthe fund's objec-

tive of promoting corporate sustainability and Norwegian values.

We draw out the keyimplications of our findingsfor HR practice.

KEYWORDS

alternative investors, downsizing, Norway, Norwegian Government

Pension Fund‐Global (NGPF‐G), sovereign wealth fund (SWF),

sustainability

1|INTRODUCTION

There is a growing body of literature that explores the relationship between new or alternative categories of investor

and HR practices adopted by firms (Appelbaum, Batt, & Clark, 2013; Clark, 2007, 2013; Goergen, O'Sullivan, & Wood,

2014a; Gospel & Pendleton, 2014a). Sovereign wealth funds (SWFs) have become an important feature of the global

financial ecosystem. They are “state owned financial vehicles that administer public funds and invest them”(Bahgat,

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This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and repro-

duction in any medium, provided the original work is properly cited.

© 2018 The Authors. Human Resource Management Journal Published by John Wiley & Sons Ltd

Received: 12 February 2015 Revised: 24 October 2017 Accepted: 25 October 2017

DOI: 10.1111/1748-8583.12179

288 Hum Resour Manag J. 2018;28:288–303.wileyonlinelibrary.com/journal/hrmj

2010: 163), potentially providing parent governments with future financial stability (Bahgat, 2010). Although some

have been the product of large nonmineral exports, most are founded on the export of primary commodities.

Due to their size, the activities of SWFs are expected to have far‐reaching consequences for the economies in which

they invest and for individual investee companies and their employees. Although emerging types of investor, of which

SWFs are one, may impact a range of HR practices, of particular concern has been their effect on jobs (Appelbaum &

Batt, 2014; Gospel & Pendleton, 2014a). This would reflect the extent to which changes in ownership may be asso-

ciated with the aggressive liquidation of physical assets and/or the adoption of strategies that treat labour as a readily

disposable or substitutable commodity. Not only may this lead to a loss of organisational specific human capital, which

raises issues around organisational sustainability, but also may cause the disruption of work teams, worsening inequal-

ity in the employment relationship and the spread of the survivor syndrome.

Even though there is quite extensive research on the effects of other categories of alternativeinvestor (e.g., ven-

ture capital and private equity) on work and employment, little has been written on SWFs (for exceptions, see Gospel

& Pendleton, 2014a, 2014b), although they feature in wider scholarly debates on alternative investors (Appelbaum &

Batt, 2014). This study seeks to redress this gap in generating new quantitative evidence to supplement Gospel and

Pendleton's (2014a) earlier qualitative work. Specifically, we investigate the impact of equity ownership by the world's

largest SWF—the Norwegian Government Pension Fund‐Global (NGPF‐G)—on employees in U.K. listed firms.

Because no SWF is typical of the category and one cannot reach general conclusions on the likely impact of SWFs

on HRM based on the case of a single fund, one can provide evidence as to the level of shareholding at which influ-

ence may be secured, and the extent to which SWF investments may result in visible HR outcomes.

We focus on the NGPF‐G for several reasons. First, it is the largest SWF in the world in terms of equity invest-

ments (SWFI, 2014). Second, it expects investee firms to adhere to basic standards of social responsibility, including

towards employees (Dixon & Monk, 2012; Norges Bank, 2014). Although this may make it atypical, it does serve to

illustrate the diversity of the alternative investor financial ecosystem and the potential for even small investments to

have a substantial impact on firms and their people. Third, recent years have seen a significant increase inits acquisition

of U.K. listed equities, which facilitates a “before”and “after”investigation. We structure our research design so that we

are able to capture NGPF‐G's investments around the recent financial crisis soas to further enrich our findings in terms

of SWF impact in the context of a significant financial crisis. Fourth, the NGPF‐G is unique in publishing its ownership

stakes in all its investee companies. This is important as it allows us to accurately identify U.K. firms in which the

NGPF‐G has made an investment, and when this investment has occurredas well as ensuring we identify a control sam-

ple of firms without NGPF‐G investment. Fifth, during the period of our study, the NGPF‐G did not invest in firms via

private equity, so we are therefore able to focus exclusively on direct investments.

1

Finally, given the impact of country

of origin on SWF behaviour (Gospel & Pendleton, 2014a), the NGPF‐G represents a particularly interesting case given

that Norway is a social democracy, notable for progressive and employee‐friendly HR policies (Amable, 2003).

Our paper is structured as follows. In the next section, we discuss the relationship between investors and HRM

and how types of investor, including SWFs, are expected to influence corporate behaviour around employment. In

Section 3, we introduce the NGPF‐G. In Section 4, we present our sample and explain our research methodology.

In Section 5, we discuss our empirical findings, and in Section 6, we discuss the practical HR implications of our find-

ings, identify limitations, and suggest avenues for further research.

2|INVESTORS, HRM, AND SWFS

There is a growing body of work linking investor behaviour with work and employment issues. Lazonick and O'Sullivan

(2000) argue that in liberal market economies, legislative reforms in the 1980s and 1990s confirmed the primacy of

shareholder value and strengthened the rights of investors over those of managers and, indeed, workers. This has

been associated with the empowerment of financial intermediaries and alternative investors who are lightly commit-

ted to particular industries and locales, and the commensurate weakening of the position of workers (Appelbaum

GOERGEN ET AL.289