Family first: Jacob (L) and Marcus Wallenberg

It takes a few minutes for the irony to sink in. Here you are, at a five-star hotel in Delhi, meeting with two scions of one of the most powerful business families in the world, and the venue for your meeting isn't a super-plush presidential suite or even a business centre conference room, but a (hastily-chosen) noisy corner of the hotel's lobby, where people come and go, well, talking of Michelangelo. The Wallenberg scions themselves-Jacob and Marcus-have just returned from a trip around the city, and it's their wish that we sit someplace not claustrophobic. There's no retinue of executives or hangers on, just the two Wallenbergs (besides Erik Belfrage, senior adviser, Investor AB, and the man responsible for getting them to India) in white shirt and tie, with Marcus' coat draped over the back of his chair. Looking at the down-to-earth duo, it's hard to imagine that between them, the Wallenbergs have investments in over 100 companies, with a combined market value of over $14 billion (Rs 61,600 crore), and that back home in Sweden, they are as important-if not more-as King Carl Gustaf or Prime Minister Goran Persson.

But that's the Wallenbergs for you. Founded by Andre Oscar Wallenberg in the middle of the 19th century, the Wallenberg business empire has grown and grown to include investments in companies such as ABB, Ericsson, AstraZeneca, Skandinaviska Enskilda Banken (SEB), and OMX, which owns stock exchanges in Stockholm and Helsinki, among others. At the heart of the Wallenberg empire is Investor AB, their holding company, which has between 3 and 20 per cent ownership-but typically greater voting rights-in 11 core companies (see Investor's Jewels). That apart, the family acts as a fund of funds (that is, it invests in hedge and private equity funds such as ram One and EQT Partners AB) and even has its own private equity funds under the Investor umbrella.

The surprising bit-and this is where Indian family-owned businesses may want to borrow a leaf or two from their experience-is that despite being in its sixth generation (Jacob and Marcus belong to the fifth generation), the Wallenberg family has stayed together, led by some simple but profound principles that go as far back as the founder himself. For example, there's a simple rule that decides succession: the eldest son (women aren't expected to participate in the family business) automatically becomes the group chief, provided he has the ability and the inclination to lead. Also, notwithstanding their personal wealth, the Wallenbergs are expected to work hard, and dedication to duty is considered a key part of their upbringing. Therefore, to this day, both Jacob, who's the new Chairman of Investor AB, and Marcus, Chairman of SEB, go to work every day. Says Jacob: "I think you have to have that drive in order to be able to sit in the middle of what's going on business-wise and bring in the interest that you have to put into it."

Owners But Not Managers

Showing up at work every day, however, doesn't mean that the Wallenbergs are control freaks. Their responsibility, says Jacob, "is to be the owners, and we execute that responsibility and our business ideas through board memberships". That's also by design. "We have 15 major businesses, we have a large number of companies on the private equity side, and if you put yourself as the CEO (in any of these companies) that'll take away 90 per cent of your time," he says. Interestingly too, unlike holding companies in India (think Tata Sons, Pilani Investments or Reliance's maze of investment companies), Investor is listed on the Stockholm stock exchange, making it transparent. The Wallenbergs control Investor via a family foundation.

All that, however, doesn't mean that the Wallenbergs haven't had their share of ups and downs. The family did face a crisis of sorts in the fourth generation of Marc and Peter Wallenberg (fathers of Marcus and Jacob, respectively), when there were stark differences of opinion between the two brothers, resulting in the emergence of what Professor Hakan Lindgren of the Stockholm School of Economics described as "two distinct spheres of interest within the Wallenberg family business group in the 1960s and 1970s". One group, the professor wrote in a paper presented at the sixth European Business History Association annual congress in Helsinki in 2002, "was made of companies with JW (Jacob Wallenberg, brother of Marcus Wallenberg Jr., or mw, that is grandfather of the two gentlemen featured in this article) as Chairman of the board, and (another), where mw was Chairman". The biggest flashpoint was the merger of Skandinaviska Banken and Stockholms Enskilda Bank in 1972-an event the run up to which so traumatised Marc that he took his own life. JW died in 1980 and when mw, too, died in 1982, Swedish media announced the end of the Wallenberg era.

However, Peter Wallenberg, who took over as Chairman of Investor in 1982, steadied the family business and increased effective ownership in sphere companies. Peter also gave greater freedom to the CEOs of sphere companies. Today, according to Investor's guidelines on corporate governance, the Chairman's role (the Investor nominee is usually the Chairman) is to ensure smooth functioning of the board, evaluate its performance, identify areas of improvement, and interface between the management and the principal owners.

As a policy, Investor puts a company's needs and specific requirements at the centre of its relationship with it. If that means certain contradictions within the sphere companies, so be it. For example, in India, ABB is bullish on the country and has even made India a single manufacturing location for certain power equipment, but Electrolux has almost given up on the market. It has sold its plants to Videocon, and has just around 5 per cent share of the overall white goods market. Says Marcus: "You have to remember that these companies are separate companies, dealing with different markets, and have entered India at different times and on different premises. I don't think that Electrolux is not seeing the potential; it's more they are trying to find the right way."

So far, the Wallenbergs have refrained from investing directly in India, but that may soon change (See "We Have A Long Tradition Of Following India"). In the five days that the Wallenbergs spent in India recently, they met Commerce Minister Kamal Nath, Ratan Tata, Deepak Parekh, Baba Kalyani and Sunil Kant Munjal, besides a host of other Indian businessmen. Says Jacob: "The world's perception of India is changing." Obviously, critics who've announced the death of family-owned businesses, underestimate the strength that lie in them.

INTERVIEW
"We Have A Long Tradition Of Following India"

Jacob Wallenberg, Chairman, Investor AB	Marcus Wallenberg, Chairman, Skandinaviska Enskilda Banken AB

Leading a business delegation of over 65 top Nordic CEOs to India recently, Jacob Wallenberg and Marcus Wallenberg, both 49, met up with BT's Shailesh Dobhal and R. Sridharan. Excerpts:

With cheaper manufacturing options like China, and now India, booming, how are industrialised economies such as Sweden and EU adapting?

Jacob: I am absolutely convinced that we will see continued (protectionist) reactions within Europe, because shocks to the system and the individual are significant when we start to close down plants. And this will be a very significant challenge for the politicians to deal with. In Sweden, we had up to now, a very good working relationship between labour unions and all political parties in their collaboration with private enterprise.

You, as the Wallenbergs of Investor AB, haven't focussed on India in any big way, only your sphere companies have. What explains this?

Jacob: We have a long tradition of following India. I must say that if you consider Swedish companies with other (country) multinationals, they (Swedish companies) were early starters in India. The general feeling was that India is a challenging market and was even more challenging back then, but obviously it is changing. The world's perception of India is changing and that is one of the reasons why we are here.

"I believe the world's perception of India is changing" Jacob Wallenberg

Will this visit lead to your Asia Fund (Investor Capital Partners-Asia Fund) looking at India in a big way?

Marcus: This fund (Investor Capital Partners-Asia Fund) has been set up with a very close geographical focus, and I don't think you can move out of that perspective. But, of course, you can look at a (new) fund that can concentrate on India. In fact, a number of private equity persons have come along with us, but draw no conclusions.

How do you react to two of your sphere companies taking diametrically opposite views on India-Electrolux, which has virtually pulled out of India, and ABB, which is upbeat on India and is making it a big manufacturing base?

Marcus: No, Electrolux has not pulled out of India, only (worked out) a different production arrangement. They have not pulled out the brand or the products. You have to remember that these companies are separate companies, dealing with different markets, and have entered India at different times and on different premises. And some of them have been very successful in finding the right structures and some of them have had a tougher time. I don't think Electrolux is not seeing the potential; it's more they are trying to find the right way.

When you are the owner there is a great temptation to end up running the business, much like many business families in India do. How do you resist that temptation?

Jacob: We have 15 major businesses. We have a large number of companies on the private equity side. And if you put yourself as a CEO (in any of these companies), that takes away 90 per cent of your time. Our responsibility, and that is what we have determined it to be, is to be the owners. And we execute that responsibility and our business ideas through board memberships. And most often, I have been at the Chairman's position with these companies-and, in Sweden, the chairmanship is a non-executive position. But it is a position where you have to stay quite involved in what's going on in the company, the policy decisions, etcetera. Nor do we have such a holding in these companies that we could demand the CEO's post.

"You have to be long term if you want to build a business" Marcus Wallenberg

Every now and then, you have a management Cassandras predicting the demise of family-run businesses. What makes family-run businesses tick?

Marcus: Let me start with something else. You always have this debate of short term versus long term, especially in the western world, where you have a lot of fund managers who work for the short term. My view is that you need both short-term and long-term (views), otherwise you won't have a capital market that is liquid. But if you have to be building a business, you have to be long term. You can't run a pharmaceutical company and not be long term; it's impossible. It takes you eight to 12 years to put through a new drug. And, I think, it is easier to be long term in a family set-up than a pure institutional set-up, where you're day-to-day run by many (competing) views.

How have you managed to keep the family intact when, everywhere else, including here in India, we're seeing families split?

Marcus: In our case, our holdings are in the family foundation. We are actively participating in this (businesses) on behalf of the foundation. It is not our money, it is the foundation's money. So, we don't have that element of distraction. And you know, if you are in a family, you have to give and you have to take. You may have different views on things, but you have to see that (whether) you are there for your own personal benefit or try to help out the family (interest) in the long term.

Jacob: You can't only argue from your vantage point, you have to look at family interests.