Ericsson and ownership control 1990-2011
Ownership control of Ericsson has significantly changed during the past two decades. This is due to the transformation of the finance and telecom markets.
The two majority owners that have controlled Ericsson since its founding remain in power: the Wallenberg family through its investment company Investor and what is known as the Handelsbank Sphere via its investment company Industrivärden.
With voting rights stipulating one vote per thousand shares, each controlled approximately 40 percent of the votes in Ericsson for a total of 80 percent. Few could question their power because the banks could also finance the company's development and larger telecom contracts.
The majority owners did not need to take much consideration to the stock market, both because they did not need large new issues of stocks, and because the customers were few, and often state owned and politically controlled. The stock market was not needed as a billboard. This was fortunate, because the entire period from 1932 to 1980 was a period of relative calm.
There was no need for the owners to be on the alert for hostile takeovers. Due to high taxes, there were few new capitalists in Sweden. Foreign entities were not permitted to buy. Sweden's borders were closed to capital.
The senior Marcus Wallenberg had considerable influence, a result of among other things of him having recovered ownership from American IT&T after it was lost through Ivar Kreuger's desperate speculations during the 1920s. Moreover, Wallenberg always ensured that he had the backing of the other majority owners when making decisions. With the owners largely making the decisions regarding major credit risks, the balance of power was firmly established
But in the beginning of the 1980s, at the same time as the senior Wallenberg passed away, the conditions for financing in Sweden, and consequently for power and ownership control, began to be changed to their very foundations. Because the Swedish banks were no longer capable of financing the major Swedish export companies' expansion, the politicians began deregulating the Swedish capital market. The changes coincided with a general trend in the Western world towards stock investments, deregulation and financing via stock markets.
Beginning in the 1980s, interest in stocks grew and unit trust investments increased strongly in Sweden. Ericsson invested in the US and its share was quoted in New York. Many of Ericsson's customers were privatized and the public brand name became more important. But even so, there were few who questioned the power of the majority owners.
Long-term pension savings funds began to be increasingly drawn to the stock market and the fund administrators started taking an interest in how the companies were managed. They felt that the large difference in voting rights between the various types of stocks in Ericsson was unfair. They wanted more power in relation to their share of the capital.
But because Ericsson during the greater part of the 1990s developed strongly and dominated the new quickly growing mobile systems market, they had difficulty in finding anyone willing to listen to their objections. The time finally came with the major telecom crisis of 2000, which for Ericsson's part culminated with a dramatic new issue of stocks in the summer of 2002. The major fund administrators could point both to the seriousness of the crisis and the failure of Ericsson's cell phone operations, which by this time had been merged with Sony.
The considerable disparity in voting rights was adjusted to one vote per ten owned shares, and the majority owners' power was reduced to the present level of 20 percent each. To address the fund administrators' concerns regarding the work of the board of directors, a number of new board members were added, independent of the majority owners. The majority owners were forced to cooperate with them.
The most important influences on ownership control however, were that global competition increased so quickly in the wake of globalization and China's rapid rise as a major economic power. It is not just the fight for telecom contracts that has become even tougher, but also the fight for power. Should Ericsson once again find itself in a time of crisis, the risk for a hostile takeover would be greater than ever before, or in any event since the days of Ivar Kreuger.
Author: Torun Nilsson
Ivar Kreuger, director 1920s