LECTURE TWO CORPORATE GOVERNANCE IN SWEDEN

Transcription

1 LECTURE TWO CORPORATE GOVERNANCE IN SWEDEN aim: to focus on the most important aspect of corporate governance in Sweden, i.e. Business Groups, and the extreme power concentration

2 Based on: Business Groups satisfying governmental and corporate governance demands: The case of Sweden, Journal of Management Studies, 1998, 35:6, pp

3 BUSINESS GROUPS Here and there, it is true, we have found islands of conscious power in this ocean of unconscious co-operation, like lumps of butter coagulating in a pail of buttermilk. (Robertson s 1923:85) Business groups Firms Markets

4 BUSINESS GROUPS DEFINED Business Groups are - legally independent firms - joined together by some mechanism, particularly by equity ownership, and - coordinating the use of one or more resources.

5 THE WALLENBERG COUNTRY Marcus Marcus Marcus Peter Knut Jacob Jacob 1956-

6 SWEDISH BUSINESS GROUPS 2004 Investment corporations Investor Fonds and foundations Investment corporations Industrivärden Fonds and foundations OM-group ASEA AstraZeneca Electrolux ABB Ericsson SCA Scania Skanska Atlas Copco Munters Gambro SSAB Scania Sandvik SE-Banken Svenska Handelsbanken Saab AB WM-data

7 FACTS ABOUT SWEDISH BUSINESS GROUPS The Wallenberg group about 40% of the value listed The Handelsbank group about 15% of the value listed Financial corporations (banks, foundations, investment corporations) in the centre Industrial corporations in the periphery International orientation, i.e., non-domestic sales about 80% on average Internal managerial labour market Cross-ownership or foundations Interlocking directorates Political representation No intra-trade Haus-Bank

8 THE ORIGIN OF THE GROUPS Wallenberg Stockholms Enskilda Bank Fraenkel Svenska Handelsbanken 1910 Industry engagement Business boom 1920 Recession transfer of ownership to the banks 1930 Depression 1940 transfer of ownership to investment companies Business boom The Wallenberg group The Handelsbank Group

9 FOUR HYPOTHESES EXPLAINING THE EXISTENCE OF BUSINESS GROUPS Institutional Efficiency Governance Efficiency Organisational level Power: H1. Institutional inertia Corporate governance: H3. Economic efficiency Societal level Isomorphism: H2. Cultural fit Governmental governance: H4. Political efficiency

10 FOUR HYPOTESES cont. The institutional inertia hypothesis: the groups exist since they have accumulated so many resources so they can survive independently of their economic and political efficiency. The cultural fit hypothesis: the business groups exist since they are very well fitted with the Swedish culture of cooperation, modernism and equality. The economic efficiency hypothesis: the organisational form of the business group is a consequence of transaction cost minimisation offering a solution to the corporate governance difficulties connected with measuring and monitoring resources of credit capital and management labour. The political efficiency hypothesis: the business groups offer the government manageability through their small number of actors combined with their large influence.

11 H1: INSTITUTIONAL INERTIA The institutional inertia hypothesis the groups exist because of having accumulated so many resources that they can survive independent of their degree of economic and political efficiency.. In favour HausBank = Shielding of competition Against Tremendous growth and internationalisation of the industrial corporations The dramatic reduction of the influential family ownership during the last 30 years (except Rausing & Kamprad) REJECT!

12 H2: CULTURAL FIT The cultural fit hypothesis the business groups exist since they fit with the Swedish culture of cooperation, modernism and equality Small and homogenous population Small and homogenous population Strong property owning class of peasants Strong labour movement Weak aristocracy Weak aristocracy Strong state Strong social democratic state Corporativism: Tight cooperation between the state, the labour movement and the private capital Consensus: Flat organisations with small differences between the worker and the boss. Consensus and equality => one single large cooperative group, But competition between the groups Consensus and equality => randomly structured groups But structured with financial and industrial corporations REJECT!

13 H3: ECONOMIC EFFICIENCY The economic efficiency hypothesis The groups exist because they provide a transaction cost's minimisation solution to the corporate governance difficulties of measuring and monitoring credit capital and management labour. Limited supply of credit & managers due to monitoring and measurement problems Solution: Enclosure of the resource, thus avoiding adverse selection and utilising scale economies in monitoring Bank (Hausbank): Building trust through signalling (strategic information) Evidence: Still Hausbanks, despite debt finance through markets Internal managerial labour market (interlocking directorates): Long term => monitoring during extensive time Socialisation => preference conformity Risk diversification through the group Evidence: Heterogeneity in financial and industrial experience, and homogenisation triggering turn-over. Rotation between group corporations > Rotation between non-group corporations. DO NOT REJECT!

14 H4: POLITICAL EFFICIENCY They offer the government manageability through the small number of actors involved, actors whose influence is very large Business Groups offer the state: - development of large-scale companies creating employment and export revenues - governance capability, i.e., corporativism, since the groups are powerful entities in the economy.

15 WHY NOT ONE SINGLE GROUP? Possible through law changes 1.) one share = one vote 2.) ban on cross-ownership 3.) forbidding funds to exercise voting rights 4.) restricting the amount of shares that investment corporations could owe in single corporations but One Group... Hold-up => exploitation Monopoly => slack Two or a few more groups? Competition => efficiency and governability