Investment Kings of Sweden Shrug Off Loss of Five CEOs at Once
(Bloomberg) -- For an industrial dynasty whose forebears ran Swedish diplomacy during World War I and defied Adolf Hitler in World War II, the biggest management disruption in a generation hardly constitutes a crisis.
In the last two weeks, the Wallenberg family’s $29 billion empire has lost or changed chief executives at five listed companies involved in everything from wireless networks and currency trading to making industrial tools and specialty drugs.
The stakes in the companies -- Ericsson AB, SEB AB, Atlas Copco AB, Nasdaq Inc. and Swedish Orphan Biovitrum AB -- account for some 41 percent of the total assets of Investor AB, the vehicle the Wallenbergs set up in 1916 that now runs a sizable chunk of Sweden’s economy. But if family members are concerned the shake-up will adversely affect their fortunes, they’re not showing it.
“There’s nothing out of the ordinary, nothing spectacular,” Marcus Wallenberg said in a brief interview in Stockholm on Monday after the CEO departures at SEB and Atlas Copco were announced. Marcus, 60, is the chairman of SEB and vice chairman of Investor AB’s board, which is headed by his cousin Jacob.
A few minutes, that’s how long Marcus allotted each of the reporters who flocked to SEB’s palace-like early 20th-century headquarters in Stockholm for rare face time with a key mover of what Swedes call the Wallenberg Sphere. It’s in keeping with how the family operates -- working behind the scenes and shunning the limelight.
Unlike other investors such as Cevian Capital AB and its co-founder Christer Gardell, the Wallenbergs rarely use the media to pressure companies they invest in. The motto associated with the family, “Esse, non videri” becomes “to act, not to seem to be” in the Wallenberg universe.
And then there’s their long-term approach. Of the 11 core listed companies Investor AB currently holds, the average ownership period is 57 years, spanning 101 years for Atlas Copco to about half a decade for Nasdaq.
That policy and the family’s flair for diplomacy -- Raoul used his position as a special envoy to Nazi-occupied Hungary to save thousands of Jews -- have helped Investor AB to largely steer clear of scandal to the delight of fellow shareholders.
The stock has the highest percentage of buy ratings, about 80 percent, in Sweden’s 29-member benchmark index, even as tightly knit corporate ownership structures have come under increased scrutiny. A web of cross-ownership centered around smaller rival Industrivarden AB started to unravel in 2015 following media reports of perk abuse by senior management, including corporate-jet misuse.
Moody’s said in a research note on Tuesday that it expects Investor AB’s credit quality to remain among the strongest in the world for investment holding companies because of a culture that’s focused on “long-term sustainable value.” It rates the company’s debt at Aa3, its fourth-highest investment grade.
The clan’s strategy is to hold large enough stakes in what it calls “listed core investments” to get board seats and have a say in who else sits on the boards. Its representatives have been elected chairman of five of those boards. The company also has a private-equity arm through its investment in EQT and a unit -- Patricia Industries -- that invests in unlisted companies.
Sophie Nachemson-Ekwall, a researcher at the Center of Governance and Management Studies at the Stockholm School of Economics, said that each generation of the Wallenbergs has demonstrated an ability to adapt to the times. After cultivating Sweden’s most influential movers and shakers for more than a century, the family knows how and when to find fresh leadership.
“The Wallenbergs are not sentimental, but open to change,” Nachemson-Ekwall said in an interview. “It’s what the sphere does best.” Their unsentimental approach means long-held investments get offloaded when the time is right. The family sold its stake in Swedish truckmaker Scania AB to Volkswagen AG in 2008, ending almost a century of ownership.
If past is prologue, investors may be in for a big payday.
The Wallenbergs last faced a similar upheaval in 1997. Back then, in another deft diplomatic stroke, they agreed to let Electrolux AB CEO Leif Johansson take the helm of Volvo AB even though they no longer had a stake in the truckmaker, which was controlled by Industrivarden, a fellow Ericsson shareholder.
The clan then moved Atlas Copco chief Michael Treschow over to Electrolux and made Giulio Mazzalupi the first non-Swedish CEO at Atlas Copco. Over the next 20 years, Electrolux’s share price would jump more than five-fold, while Atlas Copco’s stock would soar tenfold.
This week, Atlas Copco CEO Ronnie Leten announced he had asked to step down after eight years on the job. The company named insider Mats Rahmstrom, who has worked at Atlas Copco for almost 30 years, as Leten’s successor and also said it plans to split the group into two listed companies in 2018. Over at SEB, a bank founded by the Wallenbergs in 1856, CEO Annika Falkengren is stepping down after 11 years on the job to pursue other opportunities. The company has yet to announce her replacement.
While Leten and Falkengren left on their own accord, Ericsson chief Hans Vestberg was ousted by the board in July last year after revenue and profit sagged and an array of investigations at the Swedish maker of wireless-networking equipment led to growing shareholder unease. Former Investor AB CEO Borje Ekholm took over as CEO this week. Sobi announced this month that its CEO Geoffrey McDonough will leave by July as “Sobi needs more continuous presence in Stockholm than Geoffrey can sustain given his current location in Boston.” The board is still looking for a replacement. At Nasdaq, Bob Greifeld stepped down as CEO after almost 14 years to replace Ekholm as the company’s chairman.
“This is a very unusual situation, with so many CEO changes at the same time,” said Johan Unnerus, an analyst at Swedbank AB. “But one has to assume that there are no bigger issues here and that it’s just a coincidence.”
The five CEO changes currently taking place follow a raft of management reshuffles at Investor AB’s companies in the past year. The head of Nasdaq changed this year while Electrolux switched in 2016 and Wartsila Oyj changed its CEO in late 2015.
The Long Term
SEB’s share price fell on the day Falkengren’s departure was announced. Atlas Copco gained on the news of the split on Monday, while Ericsson’ shares soared when Vestberg was let go last year. Since his departure from Ericsson was announced in July, through Monday, when his replacement took over and the changes at SEB and Atlas Copco were announced, Investor AB’s share price gained 14 percent, outpacing the 9.2 percent gain in Stockholm’s OMXS30 benchmark index.
“With Investor’s network they should be able to find the right people,” PO Nilsson, a fund manager at PriorNilsson Fonder in Stockholm, which holds Investor AB shares, said in an interview. “These are great companies, and it seems unreasonable that they wouldn’t be able to find good replacements.”
Marcus Wallenberg said in the interview that he’s confident each managerial transition will go just as smoothly.
“This is part of the board’s work in each individual company and it’s something we deal with every day,” he said. “We’re a long-term investor.”