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During the pandemic, large corporations have been very successful in producing many goods for society. In a gloomy year for most companies, a minority shone: pharmaceutical groups boosted by their hunt for the Covid-19 vaccine; the tech giants driven by the telecommuting trend; and retailers offering online lockout products.
Many would say that the reasons for these successes are obvious. But not all businesses that could fit into this category have succeeded. To better understand those which have prevailed, many business theorists have resorted to the explanations offered by what is called in the philosophy of corporate governance the “agency theory”.
In short, the Amazons and Zooms of this world won because of the relatively direct relationship between shareholders, as principals, and company executives, as agents – allowing the supply to be recalibrated and demand faster and more efficiently.
However, what this theory apparently fails to explain is the many large multinationals that have prevailed throughout the pandemic for which this relationship is much less direct, namely companies owned by foundations. These are companies that tend to be under the full control of a self-appointed board of directors whose remuneration is totally divorced from the profitability of the company and who cannot be removed or replaced by anyone other than them- same.
The companies in question are those controlled by “industrial foundations”, which are not-for-profit entities that have a majority stake in an otherwise conventional trading company. An industrial foundation usually controls only one company, although it can control many subsidiaries, and was created by the founder of that company to maintain control of the company in perpetuity. Directors of an industrial foundation generally do not receive any incentive compensation and, more remarkably, are generally self-appointed and therefore immune to shareholder votes and hostile takeovers.
There are a number of very successful businesses around the world that are owned by foundations. Examples include world-class companies such as Bertelsmann, Heineken, Ikea, Robert Bosch, Kronospan, Rolex, the Tata Group and Carlsberg. The so-called “industrial foundations” that own them are nonprofit institutions that typically combine corporate ownership and philanthropy, but prioritize the business purpose.
Contrary to what agency theorists would have us believe, aggregate data and forecasts from last year seem to indicate that foundation-owned firms have on average been as profitable as investor-owned or private-owned firms. families.
As such, industrial foundations represent a fascinating anomaly. As nonprofit entities with minimal diversification, the continued success of the companies they control is a major challenge for standard agency theory. Evidence suggests that the profitability of companies owned by foundations depends on the governance structure of the foundation, and in particular on the relationship between the board of directors of a foundation and the management of the industrial branch of the foundation.
A useful example in this context is Kronospan, a company with roots in the lumber industry dating back to the late 19th century. Under the leadership of Kronospan owner and CEO Peter Kaindl, the company has harnessed the potential of the integrated single market to both consolidate its strength in its home industry – becoming the world’s largest manufacturer of wood-based panels. – while diversifying beyond the primary sector.
Kronospan has more than 30 wood-based panel manufacturing sites in Belarus, Russia, Ukraine, Latvia, Poland, Czech Republic, Slovakia, Bulgaria, Romania, Serbia, Croatia and Hungary , as well as factories and branches in the United States. Kronospan’s worldwide sales exceed 4.5 billion euros per year and the company employs more than 11,000 people.
A number of private foundations in Liechtenstein serve as ultimate parent companies for the vast majority of the 200+ Kronospan entities identified worldwide. The resilience and continued success of Kronospan over the past 18+ months suggests a very close and direct relationship between the foundation’s board of directors and its industrial subsidiaries.
While its exact structure is a matter of confidentiality, it is likely to operate under a governance structure in which information and decisions are framed for the trustees of the foundation in a way that makes them strongly identify with their role. assumed as virtual owners of the operating company. .
Other explanations put forward for the continued success of foundation-owned businesses tend to be the lack of short-termism and dedication to charity. However, in these most trying of times, short-term incentives have been paramount, and charity has certainly taken the lead.
The most successful foundation-owned companies are more likely to be those whose internal communications and governance structure most closely resemble those of investor-owned companies. In this hypothesis, the apparent paradox of companies belonging to foundations would disappear.