Ownership Function - Case Wallenbergs

Marcus Wallenberg Senior (1864-1943) and Marcus Wallenberg Junior (1899-1982) successfully carried on the work that was initiated by André Oscar Wallenberg (1816-1886), who in 1856 founded the family bank, Stockholms Enskilda Bank. Markus Wallenberg Senior and Junior can be considered as a relevant case for illustrating the prerequisites of a stabilizing ownership role for the following reasons:

• From modest beginnings the Wallenberg sphere had grown to employ 500 000 people in a number of companies with a total turnover of 125 mrd SEK, when Markus Wallenberg Junior died in 1982.


• The Wallenbergs have been playing an important role in Swedish industry, including many of the most successful Swedish companies with extensive international operations.

• When the Wallenberg family purchased shares of companies it was not a passive investment but it also meant personal commitment. Not only money was invested but also the personal resources of the Wallenbergs.

• The Wallenbergs made a determined intervention into the operations of the companies whose performance was not considered adequate. However, they also contributed positively to the performance of the companies belonging to their group during periods of reasonably good performance to guarantee that performance in the future.

The Stabilizing Ownership Function

The importance of carrying the owner’s responsibility has long traditions in the Wallenberg family. André Oscar Wallenberg emphasized the social responsibility that results from being involved in industrial activity to his son Marcus in the letters that he wrote to him. However, Marcus Wallenberg Senior later on became critical of his father for not having revitalized the industrial firms when this was necessary. During his career Markus Wallenberg Senior himself became a specialist in revitalizing companies where the family was playing a role.

Markus Wallenberg Senior emphasized the importance of finding good managers for companies that were experiencing problems. He developed a unique skill in finding creative solutions for: finding and attracting talented managers matching the management resources with the demands set by the business situation giving advice and any other support needed to the selected manager.

Marcus Wallenberg Senior

Marcus Wallenberg Senior spent much of his time restructuring companies that were having problems due to the decline of their business ideas. He made clear demands on general managers of the companies in the Wallenberg Group and those who did not meet the requirements were personally dismissed by him. The number of key executives that he dismissed during his career is quite large. In fact he was quite critical of his father who did not make changes in incompetent management structures. Markus Wallenberg Senior was very much aware of his role as the creator of corporate values and norms. According to him, those who are not performing well should be dismissed not only because they are not worth their salary, but also because if they are allowed to remain in the company, the others in the firm do not find it worthwhile to do an excellent job.

Marcus Wallenberg Senior’s functioning in the ownership role was not only evident in companies whose business idea had started to decline. On the contrary, Marcus Wallenberg Senior was also active in creating new businesses based on new technologies. He played a key role, for example, in developing businesses in the new diesel engine and telephone technologies. He did not limit his role to financing but also to creating markets and developing international business opportunities for the new technologies. In doing so he actually determined to a large extent the future mission and role of these companies.

Before Marcus Wallenberg Junior took over from his father he was carefully trained both by his father and by a number of people with whom he worked during a period when he was sent to several foreign countries for a traineeship. From his father he inherited a sense of responsibility for the companies in the sphere. His basic values were strikingly similar to those of his father’s. He clearly understood that if an industrial manager fails, this catastrophic consequences for a great number of people. He very strongly emphasized the responsibility that the company has to its employees and to society as a whole. The person who has the ultimate responsibility for a company must make sure that the management resources are adequate for the continuous development of the firm. If this is not the case, the owners must act.

Marcus Wallenberg Junior

Marcus Wallenberg Junior had a very clear idea of the implications of being responsible for the fate of a company as an owner. He believed, for example, that if a manager fails, it is not the manager's fault, but the fault of the person who appointed him. This clearly indicates how Marcus Wallenberg Junior felt that the owners have the ultimate responsibility for everything that happens of does not happen in the company. It is the owner who takes the final decision in the most fundamental issues.

A difficult test of Marcus Wallenberg Junior's ability to carry the owner's responsibility came in the late 1960's when it became evident that the family bank was unable to cope with changing environmental demands. Revolutionary new solutions were needed to deal with the new situation. Despite the many difficulties and conflicts involved he was the driving force behind the merging of the family bank with Skandinavian Banken in 1972 to quarantee the vitality of the bank in the future. The merger was, in a sense, a "crime" against old family traditions but a necessary if the vitality of the bank was to be quaranteed. Marcus Wallenberg Junior was able to function as the carrier of owners' responsibility even if it meant a bitter conflict with his brother Jacob. By redefining the company mission and role he created a new basis for the company's growth.

Discussion

When we take a look at the development of the Wallenberg sphere during this century we can observe that there has always been an active carrier of owners' responsibility. It is also important to realize that the holder of this position has had clear incentives to make the ownership role work. The family tradition has placed very tough demands on the carrier of owners' responsibility. The traditions were to be respected and were carefully indoctrinated in the succeeding generation. It was not possible for the new key actor of the following generation to withdraw from the active bearing of owners' responsibility. Both Marcus Wallenberg Senior and Junior have emphasized the heavy burden that was put on their shoulders. It is interesting to note that in the history of capitalistic families, this kind of burden of ownership has sometimes been even too heavy for a representative of the next generation to bear. Furthermore, an additional incentive to play an active ownership role was, naturally, the substantial financial involvements.

The Wallenbergs not only had the incentives to function as the carriers of owners' responsibility, but also the competence. Marcus Wallenberg Senior and Junior had extensive experience from acting as carriers of owners' responsibility in a great number of companies which enabled them to become specialists in, for example, making turnarounds. They became "company doctors". Both of them were put in very demanding situations at an early age and they had to mature fast. Both received extensive training from their fathers. Furthermore, Marcus Wallenberg Junior went through a training program (carefully worked out by his father) which included extensive travel abroad. This was combined with a formal business education. Furthermore, an important part of the competence of Wallenbergs was their extensive contacts both in Sweden and internationally.

However, it is important to note that the Wallenbergs not only had the incentives and competence needed. They also had the power to undertake the necessary, often unpleasant steps to save companies or to build new businesses. The power position was partly based on ownership, and partly on other types of financial interests and frequently exercised with own involvement on the board. However, it should not be forgotten that their personal charisma, experience and good prior results also were important source of power in difficult situations.

It can be summarized that the ownership function can influence firm performance both in a stabilizing and in labilizing manner. The nature of the influence depends on the power, competence and incentive conditions of the ownership function: the extent to which carriers of owners' responsibility have competence and incentives to function in their role, and the nature of the power structure, seem to determine the extent to which they influence the firm's performance. They do this in a positive manner by using the owners' instruments, the most important of which are:

• Defining the company mission and role
• Participating in industry level restructurings including ownership changes
• Selecting and changing top management
• Influencing the company culture

Source

Jyrki Veranen (1987, 102-109) Ownership Function and the Performance of the Firm: A Study of the Renewal Processes of the Firm.