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The lessons from 100 years of a family s industrial empire
Mar 12th 2016 | STOCKHOLM
SWEDEN is a progressive place. Women participate fully in the workforce.
Companies are transparent, generally uncorrupt and often globally minded.
Enthusiasm for technology helps Stockholm flourish as a lively startup centre
for gaming, music and fintech firms. Business leaders earnestly talk of the
benefits of going green, caring for workers and being ethical. In politics,
Sweden is egalitarian, redistributing wealth through high taxes. So it is a
puzzle that Swedish capitalism appears so strikingly unequal, with a small
number of individuals owning and running large chunks of the economy.
Credit Suisse, in its annual report on global wealth in October, pointed to
findings that the richest 1% of Swedish households control 24% of the
population s total wealth, making it only a bit less unequal than India
(25.7%). In contrast, Spain s 1% control 16.5% of the wealth, and Japan s only
4.3%. As in many countries, family-controlled businesses are the norm in
Sweden. But as Randall Morck of the University of Alberta in Canada has noted,
Sweden is an extreme case among rich countries in that one particular family,
the Wallenbergs, holds such sway in business.
The foundations were laid for the dynasty s fortunes 160 years ago when Andr
Oscar Wallenberg, the globe-trotting son of a Lutheran bishop, returned from
America with a book on how to set up a bank, and founded Skandinaviska Enskilda
Banken (SEB). The bank flourished, and began buying chunks of distressed
industrial firms, leading the family to set up a holding company, Investor, 100
years ago.
At the height of the Wallenbergs pre-eminence, in the 1970s, their various
firms together employed 40% of Sweden s industrial workforce and represented
40% of the total worth of the Stockholm stockmarket. Like most modern
manufacturers, the industrial firms in their portfolio, including ABB and Atlas
Copco (engineering), AstraZeneca (drugs) and Electrolux (appliances), are no
longer huge employers. But Investor, plus SEB and the other listed firms in
Investor s portfolio, still account for about a third of the stockmarket s
value. And they generally do better than the rest: in the past decade, Investor
s shares have doubled, whereas the OMX Stockholm 30 Index rose by just 40%.
Swedes often talk about the collection of companies as Wallenbergsfaren, the
Wallenberg sphere , and to its smaller local rivals as systems . One of the
largest systems is Industrivarden, whose portfolio includes Handelsbanken and
the maker of Volvo Trucks. It has passed through several hands down the years,
including those of Ingvar Kamprad, the founder of the IKEA furniture stores;
its leading investor nowadays is Fredrik Lundberg, the son of a construction
magnate. The Wallenbergs and Industrivarden both have large stakes in Ericsson,
a maker of telecoms equipment.
Many Wallenberg firms have roots in the 19th century, before Investor was
founded. But they have generally flourished under the active ownership and
close managerial oversight of the family. The sphere is now overseen by a
genial triad of middle-aged men, two brothers and a cousin: Jacob, Peter and
Marcus Wallenberg (pictured, next page). A transition to a sixth generation of
the family is looming, with the next set of leaders to be drawn from a pool of
around 30 relatives in their 30s or younger. A hitherto male-dominated empire
is then likely to have some Wallenberg women right at the top. Already,
Caroline Ankarcrona, younger sister to Marcus Wallenberg and in her late 40s,
has been running the main family foundation, KAW, for four years.
Sphere is one way of describing the Wallenberg holdings. A more pointed term
(literally as well as figuratively) is the one Mr Morck uses: a pyramid. The
Wallenbergs are thought to have combined personal wealth of just $1 billion or
so, but they control, or have strong influence over, businesses worth hundreds
of times as much.
They do so through a number of foundations. KAW, the largest, is named after
two ancestors who provided the largest endowment, 99 years ago. KAW has 50.1%
of voting rights in Investor, chaired by Jacob Wallenberg. It in turn holds
stakes and often outsized voting rights in their main, listed firms, at which
family members often take leadership roles. (Through a division called Patricia
Industries, Investor holds majority stakes in financial, telecoms and other
firms, and is also a founder-investor in a private-equity fund, EQT.)
Fear of tunnelling
These successive layers let the Wallenbergs multiply their clout. Investor has
beaten the Stockholm market handsomely, but its listed businesses often trade
at a discount to their global peers, points out Thomas Zellweger, who directs a
centre studying business families in St Gallen, Switzerland. Outside investors
may be discounting the shares out of fear of tunnelling , in which a
controlling family uses one firm to prop up another though Mr Morck notes that
there is scant evidence of this.
Shareholders may also fear a controlling family pursuing its private
obsessions, while neglecting the business: an early Wallenberg, for instance,
campaigned assiduously for a single global currency, based on gold and the
French franc. They may also worry that the next generation of Wallenberg bosses
are chosen for internal family reasons rather than on merit. The Wallenbergs
have managed their successions well over the years, but there is no guarantee
this will always be so.
The Wallenberg empire might in theory be threatened if, as in other countries,
there were moves towards curbing the use of the dual-class shares that let the
family exercise such sway over its firms. In Ericsson, for example, Investor
has just 5.3% of total stock, but controls 21.5% of votes. In Electrolux,
Investor has 15.5% of the stock, but 30% of voting rights. Family firms often
use such dual shares (The Economist Group, largely owned by European business
families, uses them too), but prevalence does not mean popularity. However, the
family has long enjoyed good political connections: for all its support for
free trade and open markets abroad, until the 1990s it had decades of help from
protectionist policies that kept foreign predators at bay.
That the KAW and other foundations get the Wallenbergs share of profits helps
shield them from Sweden s top income-tax rate, of 62%. The foundations
beneficence also helps shield them from criticism: the KAW, for instance, makes
$250m of grants a year, notably to fund basic research and education.
Nordic, not Anglo-Saxon
Discuss their set-up with the Wallenbergs and they say Anglo-Saxons , schooled
in British and American ideas that companies are best owned by masses of small
investors (or pension funds), are wilfully blind to the benefits of
family-dominated firms. The family argues that ownership models need not be
black and white , that theirs has proved it can deliver a nice track record
for more than a century-and-a-half. Well-run family firms can ensure modern
virtues transparency, professional management, clear communication, agility as
easily as those Anglo-Saxons.
Tour the headquarters of Ericsson, and its CEO, Hans Vestberg, offers a similar
argument: a stolid company, founded in 1876 (and part-owned by the Wallenbergs
since 1950), can be nimble, even ruthless. Ericsson frittered away the strong
position it once had as a maker of mobile handsets. But Mr Vestberg talks
optimistically of how it will prosper from the coming launch of
fifth-generation (5G) wireless telecoms and the internet of things . Ericsson,
with a $5 billion annual research-and-development budget, files 4,000 patents a
year, he says. In less than two years it has hired 30,000 staff, but also let
go 28,000, to make possible a shift from a company that sells products to one
more focused on services.
Gunnar Wetterberg, author of a book on the Wallenberg family, argues that
having most of its wealth locked up in the foundations best explains its
long-term success: family feuds are discouraged when no relative can dream of
running off to Bahamas with all the loot. There are no family fights, says
one Wallenberg. No one understands how it works, but it works well.
Other observers prefer explanations that focus on the personality and skills of
a mostly self-effacing, hard-working and polyglot clan. Their spells working in
the companies make them better owners. Carina Beckerman, who has just written a
book on culture and leadership in Wallenberg companies, lauds two qualities
that help encourage success. One is doggedness: the Wallenbergs found few
firms, but they stick with existing ones, seek new markets and try ways to make
them flourish. She notes that Atlas Copco had to be rescued from
near-bankruptcy three times in its first 27 years, but now flourishes.
The second quality, says Ms Beckerman, is a near-obsession with getting the
right managers in place: it is often the top item on the agenda whenever the
Wallenberg leaders gather. They typically favour loyal insiders, not show-offs
who promise dramatic change.
Not everything the family touches turns to gold. Efforts to go digital, just
over a decade ago, by investing in a pair of online firms, Spray Networks and
Bredbandsbolaget, had disappointing outcomes. Scania, a lorry-maker that has
flourished since being bought by Volkswagen in 2000, was sold too cheaply, says
Ms Beckerman.
But the sphere s more recent efforts to expand its medical interests have been
more successful witness its investments in Sobi, which specialises in
treatments for haemophilia and other rare diseases, and in M lnlycke Health
Care, which makes products for use in surgery and treating wounds. Even if its
dominance of the Swedish business scene has diminished in recent decades, the
Wallenberg sphere looks set to go on prospering in the hands of its sixth
generation.
That makes them mere parvenus compared with the Lovenskiold family across the
border in Norway: now led by its 13th generation, it claims a 360-year history
and runs successful timber and furniture firms. But there may be a shared
recipe for such longevity. The majority of the really successful, long-lasting
families are, like the Wallenbergs, convivial, modest, see the hard work needed
and do it quietly, says a close observer. If they were a bunch of work-shy
show-offs, Swedes would surely have noticed the inequality by now.