Steen Thomsen The Danish Industrial Foundations Djøf Publishing Copenhagen 2017
Steen Thomsen The Danish Industrial Foundations 1 st edition 2017 by Djøf Publishing Jurist- og Økonomforbundets Forlag All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without the prior written permission of the Publisher. Cover: Marianne Tingkov Print: Toptryk Grafisk, Gråsten Printed in Denmark 2017 ISBN 978-87-574-3689-1 E-book ISBN 978-87-574-9990-2 Sold and distributed in Scandinavia by: DJØF Publishing Copenhagen, Denmark Email: forlag@djoef.dk www.djoef-forlag.dk Sold and distributed in North America by: International Specialized Book Services (ISBS) Portland, USA Email: orders@isbs.com www.isbs.com Sold in all other countries by: The Oxford Publicity Partnership Ltd Towcester, UK Email: djof@oppuk.co.uk www.oppuk.co.uk Distributed in all other countries by: Marston Book Services Abingdon, Oxon, UK Email: trade.orders@marston.co.uk www.marston.co.uk
Contents Contents Contents Preface... 9 Chapter 1. What are Industrial Foundations?... 11 Overview... 11 Why Study Industrial Foundations?... 11 Definitions... 13 Industrial Foundations. Schematic Definition... 20 The Variety of Industrial Foundations... 21 Conclusion... 23 Chapter 2. Industrial Foundations in Theory... 25 Overview... 25 The Puzzle... 25 Agency theory... 27 Altruism... 31 Identification and values... 34 Longtermism... 36 Institutional Context... 39 Conclusion... 41 Chapter 3. Industrial Foundation Law and Supervision... 45 Overview... 45 Design issues... 45 Danish Law... 47 Supervision... 58 Best Practice Recommendations on Foundation Governance... 60 Conclusion... 65 Chapter 4. Taxation of Industrial Foundations... 67 Overview... 67 Should foundations be taxed?... 67 5
Contents Danish Foundation taxation... 68 Tax comparisons... 71 Do Danish Industrial Foundations Pay Taxes?... 73 Conclusion... 75 Chapter 5. Industrial Foundations around the World... 79 Overview... 79 The USA... 80 The UK... 83 Germany... 85 France... 90 The Netherlands... 90 Italy... 91 Austria... 92 Switzerland... 93 Sweden... 94 Norway... 98 India... 100 Taiwan... 102 Conclusion... 103 Chapter 6. Industrial Foundations in the Danish Economy... 105 Overview... 105 Enterprise Foundations... 105 Share of the Danish Economy... 111 Market valuations... 112 The largest foundation-owned companies... 114 Employment... 114 Sales and value added (gross profits)... 115 The growth of foundation-owned companies... 117 Normal and abnormal growth... 120 Economic stability... 121 Separation rates... 123 Research and Development... 124 Foundation donations... 124 Conclusion... 125 6
Contents Chapter 7. The Performance of Danish Foundation-Owned Companies... 127 Overview... 127 Theory... 127 Benefits of foundation-ownership... 128 Costs of foundation ownership... 130 Hypothesis... 131 Literature review... 131 The size effect... 133 Total returns... 135 Origins of the size effect... 136 Statistical Control, Matching and Differences in Differences... 137 Matching... 139 Differences in Differences... 141 Profitability of Foreign Direct Investment... 141 Performance Drivers... 142 Other performance measures... 144 Corporate Reputation... 144 Conclusion... 149 Chapter 8. The Governance of Industrial Foundations... 151 Overview... 151 Industrial Foundation Governance... 152 Foundation Governance... 155 Governance of Foundation-Owned Companies... 158 The Foundation and the Company: Managerial Distance... 161 Governance Behaviour: Longtermism... 163 Conclusion... 165 Chapter 9. The Charters of Industrial Foundations... 167 Overview... 167 Charters in Danish Foundation Law... 168 Legal structure... 169 Examples... 170 Empirical Evidence... 172 Results... 176 Analysis... 179 7
Contents Long run changes... 182 Conclusion... 184 Chapter 10. The Philanthropy of Industrial Foundations... 187 Overview... 187 Industrial Foundation Philanthropy... 188 Donations... 189 Economies of scale... 192 Research donations... 193 Conclusion... 201 References... 203 8
Preface Preface Preface Industrial foundations are foundations that own companies. The foundations are independent, self-governing entities, without owners. The companies need not be industrial in the sense of manufacturing, but may be active in any private business activity including construction, shipping, consultancy, real estate or banking. Other words for the same phenomenon are enterprise foundations, corporate foundations, commercial foundations or business foundations. The defining feature is that the foundations own and control the companies and not vice versa. Moreover, the foundations are private entities and not governmental or quasigovernmental institutions. Around the world, some very big companies are owned by foundations including the Indian Tata Group, the Swedish Wallenberg businesses, US Hershey, German Robert Bosch, UK Lloyds Register or Swiss Rolex. However, nowhere are they as common as in Denmark, where they account for 70% of stock market capitalization. Foundations own three of the four largest Danish companies A.P. Møller-Mærsk, Novo- Nordisk and Carlsberg. Foundation ownership presents an alternative to both investor ownership and to family business. It combines charity and business in a way that resonates with contemporary discussions of corporate responsibility. Its inherent longtermism compares favourably with the mercurial nature of contemporary stock markets, and yet it remains a rarity on a global scale, partly because of ignorance and partly because of hostile regulation. I believe that businesses around the world can benefit from foundation ownership and that governments can promote it simply by allowing it to arise and grow on its own terms without subsidies or artificial restrictions. I also believe that they can be a source of inspiration for companies in general. Nevertheless, foundation ownership is not a panacea. In the absence of vigilant governance, longtermism and responsibility may develop into inertia and complacency. The inherent weaknesses of self-ownership 9
Preface need to be recognized and addressed. Governing industrial foundations is therefore an important topic in its own right. This book is about foundation ownership of business companies and what we can learn about it from the Danish evidence. It is about how foundation ownership is ruled, taxed and governed, what role it plays in the Danish economy, and how foundation-owned companies perform. It is based on a large-scale research project (www.tifp.dk), but is aimed at a general readership without specialist knowledge. I wish to thank a number of people whose advice and help directly and indirectly contributed to this book: First, the project sponsors, the LEO Foundation, the Rambøll Foundation, the Novo Nordisk Foundation, the Lundbeck Foundation, the Lauritzen Foundation, the Cowi Foundation, the Augustinus Foundation, the Carlsberg Foundation and Knud Højgaard s Foundation. Second, the project participants, Christa Damgaard Børsting, Johan Kuhn, Thomas Poulsen, Rasmus Feldthusen, Martin Poulsen, Guenter Franke, Henry Hansmann, Niels Westergaard Nielsen, Hans Christian Johansen, Erik Werlauff, Susanne Nørgaard, Peter Loft, Søren Bo Nielsen, Signe Marie Degn and Anna Sofie Andersen. Third, I would like to thank my wife Annette Blegvad whose encouragement and companionship I constantly rely on, and who helped edit the manuscript. The book is sponsored by the Research Project on Industrial Foundations and any income or royalties from it will in the foundation spirit be used to maintain its website and promote further research. Copenhagen, October 2016 Steen Thomsen 10