Industrial foundations as long‐term owners

Abstract

Manuscript Type Empirical Research Question/Issue Does foundation ownership lead to long‐term corporate governance and business behavior in foundation‐owned companies? Research Findings/Insights Short‐termism has become a serious concern for corporate governance, and this has inspired a search for institutional arrangements to promote long‐term decision‐making. In this paper, we call attention to long‐term ownership by industrial foundations, which is common in Northern Europe but little known in the rest of the world. We use a unique Danish data set to document that industrial foundations are long‐term owners that practice long‐term governance. We show that foundation ownership is highly stable compared to other ownership structures. Foundation‐owned companies replace managers less frequently. They have conservative capital structures with low financial leverage. They score higher on an index of long‐termism in finance, investment, and employment. They survive longer. Overall, our paper supports the hypothesis that corporate time horizons are influenced by ownership structures, and particularly that industrial foundations possess characteristics that promote long‐termism. Policymakers, business owners, and managers interested in promoting long‐term governance models should therefore reconsider the role of ownership structure. Theoretical/Academic Implications This paper supports the hypothesis that time horizons are influenced by ownership commitment and particularly that industrial foundations promote long‐termism. We contribute to the corporate governance literature by further developing the concept of long‐termism as a multi‐faceted corporate governance concept associated with ownership commitment. We also show that foundation ownership is associated with long‐termism. Practitioner/Policy Implications Policymakers interested in promoting long‐termism should encourage long‐term ownership, for example by industrial foundations. Practitioners should consider the importance of ownership commitment in ensuring long‐term corporate governance.

Profits, Innovation and Financialization in the Insulin Industry

“…In any case, the wider motivations of Novo Nordisk's share repurchases are worthy of further investigation. To what extent does executive remuneration at the company influence share repurchasing, or are such interests held in check through the industrial foundation model of corporate governance (Thomsen et al, 2018)? To what extent are medicine list price increases and share repurchases used as a means of value extraction for the sake of long-term or stable investment, in the face of an impending 'cliff edge', that looms as biosimilar or lower-priced analogue formulations are primed to take over the market?…”

“…Its developing supposition is that while various actors in the insulin supply chain have profited from higher list prices, notably pharmacy benefits managers (PBMs), it is the shareholders of the three manufacturing companies that have reaped the most disproportionate gains, through the extraction of value via cash dividends and rising expenditure on share repurchases in the companies, which to varying extents prioritize maximizing shareholder value at the expense of patient access and actual treatment innovation (Lazonick et al, 2016;Lazonick and O'Sullivan, 2000). In the case of one company, Novo Nordisk, shareholders include a non-profit industrial foundation, which endows Novo Nordisk with relative corporate stability through the development of long-term capital (Thomsen et al, 2018). The paper suggests nonetheless that this model of financing has not undermined shareholder interest in insulin list price increases.…”

The Taxation of Industrial Foundations in Sweden (1862–2018)

“…Research also finds that corporate control differs significantly across countries [e.g., 37]. For instance, industrial foundations play an important role as controlling owners in several countries, especially in northern Europe [e.g., 61,62]. This is especially notable in Denmark, where foundation-controlled companies constitute approximately 70% of stock market capitalization [60], and in Sweden, where a few influential family business groups, notably the Wallenberg group as discussed above, have used foundations to exercise far-reaching control over Swedish industry.…”

The rise and decline of industrial foundations as controlling owners of Swedish listed firms: the role of tax incentives

“…The literature on industrial foundations is sparse and has mainly focused on the consequences of foundation ownership for financial performance (Thomsen, Poulsen, Børsting, & Kuhn, 2018). Our study contributes by making a long-run and detailed analysis of the tax incentives for establishing industrial foundations as control vehicles.…”