The Wall Street Journal

December 1, 2005

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Oil-Rich Norway
Hires Philosopher
As Moral Compass

State Seeks Ethics Lesson
On Investing Its Bonanza;
Mr. Syse Reads Hobbes
December 1, 2005; Page A1

OSLO, Norway -- Henrik Syse, a professional philosopher, says he gets ribbed by his family that "five of my 10 best friends are dead Greeks." But this fall he put aside writing a book on Plato to ponder a more practical puzzle: what to do with around $190 billion?

[Henrik Syse]

Mr. Syse started work in September as the in-house ethicist for the Norwegian government's Petroleum Fund, one of the world's largest pools of investment capital. "It has been a steep learning curve," says the 39-year-old academic. "I'm a philosopher. I'm not a banker."

With a new office in the Norwegian Central Bank, he gets paid to ruminate on how, at a time of surging energy prices, the world's third-biggest oil exporter can best match profit and principle. Investment, he says, "is teeming with ethical issues." He has begun trying to figure out how the Petroleum Fund, the custodian of Norway's oil earnings, can use its investments to get companies to behave more ethically.

Mr. Syse's unorthodox career path reflects Norway's unusual position among major oil-exporting countries, all of which now wrestle with how to wisely deploy their massive windfall. Most are either poor, autocratic, corrupt or cursed by an assortment of these and other ills. Norway, by contrast, is prosperous, democratic and squeaky clean.

The money managers of other petro-states "can run around in the shiniest suits and biggest limos," says Mr. Syse, but this is "not our profile." He takes the tram to work and wears socks stitched with the cartoon dog Snoopy.

Home to the Nobel Peace Prize and a plethora of human rights and peace groups, this nation of just 4.6 million has long used its reputation for moral rectitude to wield influence around the globe out of proportion to its size.

The Petroleum Fund was set up to husband Norway's oil wealth for future generations. This spring, Knut Kjaer, who oversees the fund, and Yngve Slyngstad, its head of equities, approached Mr. Syse about a job. Mr. Syse figured the offer must be a joke or a misunderstanding. "Do you know who you are talking to?" he recalls responding. "If I had a stock and bond before me, I wouldn't know the difference."

Mr. Kjaer assured him the fund had enough financial experts. It needed a moral philosopher, he explained, to help implement a new set of "ethical guidelines" introduced by the Finance Ministry late last year. Offered nearly double his academic salary, Mr. Syse decided to take the job.

With degrees in philosophy from the University of Oslo and Boston College, Mr. Syse knows plenty about ethics. His last book, "Paths to a Good Life -- Philosophical Reflections on Everyday Ethics," applies the theories of great thinkers to ordinary problems, such as whether parents should sometimes lie to their children.

He's on shakier ground with high finance. Sometimes stumped by the jargon bandied about by his new colleagues, he keeps a copy of the Oxford Dictionary of Business near his desk "so I can run back and look something up if I don't understand." His four-person staff helps guide him like "a blind man's dog," he says, and he sometimes consults a treatise by the 17th-century English philosopher Thomas Hobbes, who warned that unrestrained desires such as greed render life "poor, nasty, brutish and short."

Some Norwegians, he says, misunderstand his role: "They think I'm a moral inquisitor in capitalism's high castle." The son of a former conservative prime minister, he describes himself as a "goody two shoes," and says he has no problem with capitalism. His rebellious streak, he jokes, is confined to work as a Sunday school teacher at an Oslo Lutheran church, a novelty in a largely secular country.

A committee set up by the government spent months last year drafting a set of rules to try to ensure "moral" investment of petrodollars. Parliament held heated debates about whether Norway should bar the Petroleum Fund from holding shares in tobacco companies. It finally decided against such a ban, noting that one-third of Norwegians smoke.

Consistency does not always prevail. Under orders from the Finance Ministry to purify its portfolio of companies that make weapons Norway frowns on, the Petroleum Fund this year dumped shares in a raft of U.S. and European arms manufacturers. Norway's Defense Ministry, however, remains a customer for some of these same companies. The inconsistency, says Mr. Syse, is a conundrum he's been pondering, but so far he hasn't found an "easy answer."

Norway pumped its first crude to markets in the 1970s and now produces over three million barrels a day. Taxes and fees paid by oil companies, coupled with dividends from Statoil ASA, an oil company majority-owned by the state, are expected this year to pump about $42 billion into government coffers. Some of it goes to finance the state budget, but most goes into the Petroleum Fund.

For many years, Norwegian politicians and finance officials resisted asking the fund to adopt a moral agenda, says Pia Gaarder, editor of Norwatch, a journal that campaigns for moral corporate behavior. They worried such a request might disrupt the fund's main goal: making enough money for the government to cover future obligations.

In November 2004, the government adopted the new rules, which bar investments "which constitute an unacceptable risk that the Fund may contribute to unethical acts or omissions." At the same time, the government set up an Advisory Council on Ethics to weed out offending companies, and ordered the fund to use its shareholder rights to promote corporate governance standards set out by the United Nations and Paris-based Organization for Economic Cooperation and Development.

"This is a big victory for public opinion," Ms. Gaarder says. "We don't want a pension that is based on blood money."

So far this year, nine big American and European companies, most of them arms makers, have been booted from the fund's portfolio. They include Alliant Techsystems Inc., General Dynamics Corp., Lockheed Martin Corp. and Raytheon Co., all of which the ethics council faulted for involvement in the manufacture of cluster bombs. Norway believes such weapons, which spray small bombs over a target area, "violate fundamental humanitarian principles," the Ethical Council said.

Alliant Techsystems says it hasn't made cluster bombs for a decade. General Dynamics says it makes fuses used in such explosives. Lockheed declined to comment. Raytheon declined to discuss Norway's move, but said it "remains committed to manufacturing military equipment in support of the United States government and its allies."

Mr. Syse has the difficult task of trying to change the behavior of companies before the fund has to decide whether to divest. His leverage is the fund's rights as a shareholder in 3,200 companies. But his power is limited by the fund's relatively small holdings in each of the companies. Moreover, he says, "if we just rant in public we will be excluded as Scandinavian moralists."

He says he has been communicating with other investors to try to press ethical issues ranging from executive pay to pollution to labor issues. After three months on the job, he hasn't chalked up any victories yet, but he says the fund has made progress formulating "our principled stand."

Carl Hagen, a populist politician and member of parliament, thinks Norway should stop fretting about morality. He wants to spend more of the fund's capital to build homes in Spain for Norwegian retirees and to fund other projects. Mr. Syse's job, he says, is a sop to naive do-gooders. "We are beating our chest and saying, 'Look. We are the good guys.' "

Mr. Syse acknowledges that doing good is often complicated. Citing Samuel Johnson, the 18th-century English writer, he says it's worth the effort: "The fact of twilight does not mean you cannot tell day from night."

Write to Andrew Higgins at andrew.higgins@wsj.com1

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