ANALY SIS
Crucially, centralised ownership
can help defend the business from a potential external takeover. But every coin has two sides, Hsueh warns, and family influence over the firm can diminish in a holding company model. “When the family business is
still in its early stage, without such a formal governance structure, it may be able to directly use its ownership and managerial position in a single firm to influence decisions,” Hsueh says. “After the set-up of a holding
company, the family will need to go through the formal meeting and voting process to influence the firm’s decision.”
The beauty of the foundation is that they can pick those in each generation who are most suitable to lead and manage the empire while the others get paid off handsomely
PLAYING DEFENCE So which should it be? Holding company or foundation? It is hardly an “apples with apples” comparison but both models offer common positives: Avenues to greater tax efficiencies, defence against hostile takeovers and—perhaps most crucially—rationalised ownership structure and wealth distribution options for current and next-generation family members. If an argument is to be made for industrial
foundations, look to Sweden’s sixth-generation Wallenberg clan, whose pedigree in banking and major industrial groups has shaped the country’s economy. As the Wallenberg’s bank (SEB) flourished it began
buying chunks of distressed industrial firms, leading the family to set up a holding company, Investor AB, 102 years ago.
LOW RISK, HIGH STABILITY on measurement, and
Industrial foundations are a vital component of the Danish economy—few fail and their domestic and foreign economic impact cannot be understated. They account for 5-10% of economic activity, depending
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as much as 20% of Denmark’s international business activity, according to Steen Thomsen of the Center for Corporate Governance at Copenhagen Business School. Stable and steady, Nordic foundations are risk averse.
Why? First, they have concentrated holdings. Second, foundations typically have a charter- driven fiduciary duty to preserve and develop the companies that they own. Third, they rarely attract external risk capital to finance investments as a listed company would.
“The main purpose of the foundation is often to preserve the company,” Thomsen says. “The death of the company is the ultimate no-no.”
Indeed, this may partly explain the principled obsession by many industrial foundations
to invest so heavily in research and development (R&D). According to Thomsen’s research, large Danish companies invest as much as 43% of earnings into R&D. Significant, he notes, but with “uncertain and very long returns”.
ISSUE 73 | 2018
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