Howard Muson is a USA-based writer who specialises in business management and corporate histories. He is also a research associate with Lansberg Gersick LLC in New Haven, Connecticut.
David Bartal's book, The Empire, tells the story of a powerful Swedish family with controlling interests in most major areas of industry. But little is known about this publicity-shy dynasty and sources appear to be thin on the ground
The Wallenberg's famous motto esse non videri – "to be, not be seen" – is part of their mystique. Although this powerful family tries to keep out of sight, it's about as easy to hide its economic clout in Sweden – and Europe – as an 800lb gorilla. Actually, its leaders can be quite vocal when they need to fight back against their critics (and there are many) or the government, as journalist David Bartal points out in his 1996 book, The Empire: The Rise of the House of Wallenberg.
Through its holding company Investor AB, the family is said to control companies representing over 40% of the value of the Stockholm stock exchange. Investor AB has major stakes in military aircraft (Saab), forest products (Stora), mobile phones (Ericsson), pharmaceuticals (AstraZeneca), white goods (Electrolux) and electrical engineering (ABB).
Bartal's book, updated last year, is one of the few available sources on the Wallenbergs in English. Originally from Los Angeles, Bartal has spent over a decade in Stockholm as a correspondent for The Times and a columnist for the financial newspaper Dagens Industri. His book is sketchy and anecdotal, exhibiting all the handicaps of writing about a clan that shuns the limelight. But those of us who haven't yet mastered Swedish can be grateful for some revealing looks at one of Europe's oldest dynasties.
The Empire sheds light on two questions of particular interest to students of family business management: 1) how does one family control big, publicly-traded, industrial companies while holding only a small portion of shares in most of them, and 2) how do the leaders maintain their status and economic power as a capitalist enterprise in a socialist country?
Seafarers and gamblers
The Wallenberg tradition has been shaped by some colourful and very un-Swedish person- alities. The spiritual patriarch was the first Jacob Wallenberg, a Lutheran pastor who in the mid-1700s went to sea and spent years on merchant vessels sailing to ports from Borneo to India and China. The lusty tales that he wrote about his first Asian journey were published in a book still read in Sweden, My Son on the Galleon. Following their ancestor's example, the Wallenbergs have viewed sea-faring, service in the Swedish navy and international travel as broadening the perspective of future leaders.
The original family business, Enskilda Bank, was founded in 1856 by André Oscar Wallenberg (Oscar), whose father was a Lutheran bishop and a nephew of seaman-pastor Jacob. Oscar went to sea at age 15 and was a sailor and sea captain for 19 years before opening his bank. Along with his adventurous spirit, he had a flair for numbers. As a young man in his 20s, he cared for the finances of his widowed mother and provided the same service to several of her friends.
A gambler, a shipbuilder and later a combative debater as a member of Sweden's Riksdag (parliament), Oscar built his bank's capital and the family's wealth on savings deposits and novel products, such as bank money orders. He flouted social norms in accepting deposits from women and even hiring women bank tellers. He was prolific in other ways too, fathering 21 children by two wives and his first wife's sister.
With his walrus mustache, the autocratic Oscar must have been a fearsome figure to his brood of children, whom he called his "lovely pigs". He sent them off to boarding schools at an early age as part of their character training. "Middle-aged Oscar Wallenberg was a man with his eye firmly fixed on posterity," writes Bartal. "His descendants were meant not only to serve as guardians of his achievements, but also had a duty to make a valuable contribution to society."
Investments in industrial bonds brought Oscar's bank to the brink of disaster during the economic downturn of 1877. A bank panic was narrowly averted but after Oscar's death 10 years later, it became the second generation's task to clean up the failing companies in which the bank had invested. Knut, the second son and a Naval Academy graduate, inherited Oscar's fortune and became the bank's president. With his younger half brothers, Marcus and Gustaf, he laid the foundation for the growth of the family's industrial empire for the next 100 years.
Empire builders and statesmen
Marcus, a lawyer by training and a newly appointed judge, was persuaded to join the bank by Knut. He was given respon-sibility for reorganising the railway car manufacturer Atlas (later Atlas Copco), one of the companies with losses draining the bank's capital. The turnaround at Atlas shaped the management style to the extent that, according to Bartal, it is still the family's modus operandi.
"First, a new and talented manager was chosen, followed by a restructuring of the company and an infusion of capital by the bank (or an assumption by the bank of its debts)….the Wallenbergs end up taking long-term responsibility for companies that had previously faced the risk of liquidation." Of course, the process required dumping the former managing director overboard. As Marcus put it: "First the captain, then the ship."
The two lead siblings in the second generation had "severe differences", but kept them under control. Knut was stubborn and a risk-taker, Marcus more calculating and cautious, according to Bartal. Nonetheless, the two managed to cooperate right through World War I for the sake of the family's interests and the country's. Both emerged as statesmen who helped Sweden negotiate trade agreements that staved off food shortages and domestic disorders, and kept the country out of the war.
During this period of upheaval, the Wallenbergs began quietly cooperating with the leading leftist party in Sweden – the Social Democrats – whose power was growing. The pragmatic alliance, based on a common interest in peaceful reform to avoid revolution, brought ideological enemies together and set a pattern for co-existence that has lasted to this day.
Strong leaders – and rivals
The Wallenbergs' history is complicated by one family tradition: a preference for naming sons Jacob or Marcus. This, suggests Bartal, is a deliberate family strategy to remind them of their duty to live up to their ancestors' accomplishments. To tell Marcuses and Jacobs apart, the parents invent nicknames such as "Dodde", "Boy-Boy" and "Husky".
The third generation produced two strong leaders in two of Marcus's sons. After their father's death in 1943, Jacob, the oldest son, became president of the bank and Marcus Jr (Dodde), the youngest, vice president.
Once again during a world war, a pair of Wallenberg brothers played important roles in maintaining trade with the participants and keeping Sweden out of the conflict. Marcus was an emissary on trade to Britain and the allies, while Jacob negotiated with Nazi Germany, Sweden's leading trading partner (an association that left a stain on his reputation, even though he participated in a failed plot to kill Hitler).
Both men became towering figures in Swedish industry, mentors to a generation of executives. Jacob, a somewhat taciturn but likeable man, was a superb trader and business analyst. Once described by Life magazine as "the guiding force of the family", the lifelong bachelor shunned the spotlight and was devoted to sailing. Marcus Jr, a national tennis champion, was more competitive and outgoing, a man who thrived on stress and aspired to build ever larger and more complex business networks.
Perhaps to avoid clashing, the two brothers divided responsibilities for the various industrial companies in what the family called their "sphere". But over the years business associates noticed signs of a growing rivalry. In 1964, Jacob opposed Marcus Jr's proposed merger of the fledgling car and plane-maker Saab with the profitable truck-maker Scania-Vabis.
When Jacob, chairman of the Enskilda Bank, proposed a sailing crony for the board, Dodde resigned as vice chairman, citing his many differences with Jacob. Bartal interprets the dramatic gesture as a clever ploy to get Jacob, then in his 70s, to retire early. If so, he succeeded; Jacob stepped down and turned over the chairmanship to his younger brother.
If there was a rivalry between the brothers, we see only the tip of the iceberg in The Empire. In 1971, however, their disagreements erupted in a public argument after Marcus Jr secretly negotiated a merger between Enskilda Bank and its far larger competitor, Skandinaviska Bank. In an emotionally charged speech, Jacob denounced the deal at a crowded shareholders' meeting as violating their father's legacy. Marcus Sr had opposed all mergers with other banks, argued Jacob. "He taught us that a business could be small, as long as it was a good business."
The merger was approved, despite Jacob's opposition. But it was the after-math that left the family, and the whole country, in shock.
Dodde's son and heir-apparent, Marcus "Boy-Boy" Wallenberg, had been deeply involved in the merger negotiations and had tried to persuade his uncle, Jacob, to support the plan. The 47-year-old vice chairman of the family bank, a hard worker who served on some 20 boards, was expected to become vice-president of the merged S-E Banken, with Lars-Erik Thunholm of the Skandinaviska Bank as president and his now elderly father, Dodde, as chairman. Before the merger was completed, however, Marcus's body was found in a snow-covered forest south of Stockholm with a bullet through his head. He had taken his own life.
There is speculation in Bartal's book about the possible reasons for his suicide. The most persuasive theory is that he had little enthusiasm for the merger, had been under stress for weeks during the negotiations and was depressed about the responsibilities he was about to assume at the new bank. The thought of being squeezed between two strong-willed titans, Thunholm and his father, may have been too much for him to face.
We can only imagine the impact on the Wallenberg family, as well as the business community, of this tragic chain of events. Marcus Jr was the country's pre-eminent business leader, described by a US magazine as "puppetmaster to the nation's whole business community". With everyone guessing who might succeed the 72-year-old leader, he summoned his second son, Peter, back to Sweden as an advisor to the bank.
The outcast returns
Peter was well aware that his father had never had a high regard for his abilities. He had worked overseas for almost two decades as a salesman and executive of Atlas Copco and was now a middle-aged, rumpled, chain-smoking executive who had already suffered one heart attack. The somewhat garrulous second son liked to refer to himself as "a peddler". He could identify almost every one of the 25,000 parts in Atlas Copco's mining equipment, says Bartal, but he lacked experience in banking and finance.
After his return, Peter was gradually given jobs with more responsibility in different parts of "the sphere". At the same time, however, his father was attempting to forge an alliance with his only big rival, Volvo's charismatic Pehr Gyllenhammar. It looked as if Gyllenhammar might even be a wild card in Marcus Jr's succession plans. However, when Marcus died in 1982 Peter took over as head of the family enterprise, even though it appears he was never formally anointed by his father.
Peter fooled all those who had written him off as a lightweight. First, he acted to purge Gyllenhammar's influence from two Wallenberg companies in which Volvo had been allowed to buy substantial positions. Surrounding himself with high-powered non-family operatives such as Claes Dahlbäck and Percy Barnevik, he strengthened Wallenberg holdings at home and expanded aggressively abroad.
Shares in Investor produced hefty average returns of 20% a year during his 16-year tenure. The stock market boom in Sweden had a lot to do with it but the pundits seem to agree: the ugly duckling had turned out to be a swan. Perhaps his father's early criticisms had given him a tougher hide than his brother; he once confided that his father's treatment "gave me calluses on my soul".
The new Marcus-Jacob team
Peter, in his 70s, retired as chairman in 1998, and a new Marcus and Jacob were thrust into the leadership under the guiding hand of Barnevik. Groomed to handle the industrial side, Marcus (Husky) Wallenberg, son of Boy-Boy, became CEO of Investor, while his cousin, Peter's son Jacob, trained to run the family bank, became vice chairman. The two cousins, both in their mid-40s, were relatively unseasoned and they faced formidable challenges.
Most of the family wealth today is in two foundations, which control 45% of voting power in Investor. The Wallenbergs have kept control of the big public companies in the portfolio by creating two classes of stock and holding on to a sizable chunk of the "A shares" with multiple votes. Even though other investors control considerable votes, a company has the "aura" of a Wallenberg company if the family is involved, Gyllenhammar once observed.
As fractional owners of public companies, the Wallenbergs have become increasingly vulnerable to takeovers. In the late 1990s, Volvo's Leif Johansson mounted a challenge by accumulating shares of truck-manufacturing powerhouse Scandia. Marcus Wallenberg held out on an offer for the company, forcing Volvo to pay an exceptionally high price.
But shares of the holding company have been trading at a steep discount compared with the portfolio's underlying assets, and lately several companies in the portfolio have taken big hits. The telecom giant Ericsson, for example, has been battered by fierce competition in the mobile phone market.
The fifth generation Marcus has been reshuffling the Investor portfolio to shed interests in "old-economy" companies and invest in fast-growth technology and healthcare startups, mostly in Asia and the USA. But activist investors such as Switzerland's Martin Ebner have been bringing pressure on the new leaders to revamp the portfolio faster in order to ratchet up shareholder value.
It was Ebner who revealed last March that in 1996 Percy Barnevik had walked away from his CEO job at Zurich-based engineering giant ABB with a US$78 million severance package, without the board knowing anything about it. Swedes, as well as other Europeans, were shocked by the size of the package, and the embarrassed Wallenbergs had to dump Barnevik as Investor's chairman.
The family enterprise has been able to bounce back from near disaster several times in its 150-year history and, in Bartal's view, very likely will again. "The Wallenberg family has demonstrated time and again a willingness to take risks," he writes in the conclusion to The Empire. In addition, the family draws on the talents and combined experience of a veteran corps of managers who sit on one another's boards and on the board of Investor AB.
Patient and impatient capital
The family's vast economic power is tolerated in socialist Sweden in part because it has been a good caretaker of its companies, not just investors. Marcus (Dodde) Wallenberg once told a government commission that it takes 38 years to get a company into shape. Long before the rise of corporate raiders and LBO artists, Wallenbergs were not only restructuring companies but nurturing their growth.
The family leaders have argued that unlike short-term investors, they don't run away at the first hint of bad news. The Swedish government has recognised the value of this "patient capital" by granting the investment-holding companies in Sweden, including Investor AB, a special exemption from long-range capital gains taxes.
Some observers see the family's expansion outside Sweden as a sign that it is planning to leave the country altogether. In an interview with Expressen, Peter Wallenberg once warned that Investor just might move the headquarters of some its businesses abroad unless the government curbed its free-spending ways.
"The Wallenbergs could cash in their chips at any time, as most other wealthy and powerful families have done," writes Bartal. "Nothing stops them from selling off and moving somewhere else with a more favourable climate than Sweden and lower taxes."
The Wallenbergs are one of Sweden's greatest assets and they have stayed put in their home country, where they've been doing business for almost 150 years, even though frequently attacked as greedy, clannish and out of touch. According to one author quoted by Bartal, they are sensitive to this criticism and feel unappreciated for all their contributions. If so, perhaps one day they will cooperate in the writing of a more intimate, well-documented history – with an English translation.