ARE PROTECTIONIST SENTIMENTS PREVALENT IN SWEDISH BUSINESS?

One of the reasons for Swedish industry’s international success is that it has accepted technical development. Both management and unions have realized that time doesn’t wait for those who lack the will or resources to adapt. In industry, we Swedes have played by international rules.

For capital to be priced correctly and distributed among a variety of assets in a productive way, we also have Lo have an effective capital market, however. Technical developments are taking place there as well, and Sweden has progressed relatively far in this respect. These changes are being led and steered by those with the expertise and insight to stay a step ahead.

Attitudes today are changing for the better, toward an acceptance of international guidelines and trends. As I interpret some of the opinions expressed in the current socioeconomic debate, however, not all of the major representatives of the Swedish business community consistently support the ongoing changes. At times their views have been outright protectionist, and in my opinion serve the interest of select individuals or groups rather than economic effectiveness and social progress.

CROSS OWNERSHIP LOCKS IN ESTABLISHED STRUCTURES

Corporate cross ownership is a distinguishing feature of Swedish business today. Despite the ongoing debate about the need for openness, a number of influential voices have come out in favor of cementing this phenomenon. Some have even gone so far as lo claim that the basic idea behind the corporation is to avoid a dominant owner. This type of thinking is nothing if not outdated.

The reason for forming a corporation is to limit liability to the capital investments made by the stockholders and has nothing to do with the owners’ relative size or influence. Those who believe ownership rights should be limited are in reality only concerned that someone else might think they could manage the company better- and buy it. Through cross-ownership they hope to defend their interests. There is no indication that they in this way further the long-term interests of either the other stockholders or the employees. Cross-ownership merely locks in today’s structures while discouraging dynamic growth beneficial to society as a whole. Defending owner restrictions and cross-ownership in order to “protect” Swedish industrial corporations and financial institutions directly conflicts with our need to adapt to impending deregulation.

REALLOCATING CAPITAL IS A NATURAL PROCESS

Change is often perceived as a threat rather than an opportunity. Development and progress, however, require that practiced patterns be altered. Structural changes mean a reallocation of capital. ln the process, stockholders and others who specialize in reallocating and managing capital play an important role of responsibility.

It is in the interest of society that investors are able to allocate their capital to activate unproductive resources and make them more productive. For the same reasons that countries trade with each other, to take advantage of the other’s comparative advantages, everyone benefits when capital is optimally distributed among a variety of assets. An open, free capital market is essential for guaranteeing and promoting development and economic growth.

GREATER FLEXIBILITY IN CAPITAL MARKETS

What current trends are we seeing in today’s capital markets? In general, companies can find financing through equity issues or borrowed capital. Stocks are expected to provide a high return as compensation for a high risk, while loans provide a lower return but generally are less risky.

Today the stock market and credit market can no longer be regarded as two separate entities, but rather a single, more sophisticated and developed financial market where hybrids of equity and debt are becoming more common and the line between liabilities and equity more diffuse. Creditors share risks with stockholders at the same time that investors are becoming more adept at getting paid for taking risks. A greater multitude of financing alternatives can provide a smoother breakdown and distribution of risks.

This development has led to more flexible, efficient price-setting. Demand for capital and financial expertise will continue to rise as a result. This raises new requirements in markets where companies have not been as active in their efforts to restructure, such as the United States. American capital markets are considerably more open and more developed in terms of risk awareness and access to capital than their European counterparts. Despite relatively high costs of capital in the U.S. takeovers have increased because American companies have been ineffectively managed. In Japan, the situation is the opposite; takeovers are not the result of ineffectiveness – and therefore low values – but rather of extremely low costs of capital stemming from the country’s strong economy. The prices paid for company acquisitions in the U.S. often are pushed upward by Japanese investors with low costs of capital.

Techniques for making restructuring capital available that have been developed in the U.S. will spread in Europe in the near future, however. In London these techniques are fairly well developed. We are seeing a growing interest in European industry and its structure. Ownership of European companies has long been very stable, at the same time as companies and their markets have developed. Some European countries have accepted tight restrictions on corporate ownership and stockholder influence. Protectionist regulations have limited capital markets and prevented structural changes in such a way they now work against efforts to quickly deregulate Europe.

PROFITABILITY IS THE BEST PROTECTION AGAINST TAKEOVERS

Takeovers are sometimes discussed as structurally or financially motivated. It is difficult, however, to clearly differentiate between the two. A deal which is financially motivated may involve individual stages with structural or industrial implications. All indications are, corporate acquisitions and sales will continue to increase in Sweden – and international players will assume an important role.

If other European countries are not concerned that Swedish companies are buying businesses on the Continent in order to raise market share, come closer to their export markets, achieve economies of scale in manufacturing or distribution, or whatever their reasons may be, it is very difficult for Sweden to take an opposite standpoint. In the same way that we are greeted as investors abroad, we must open our country for foreign investors.

The increased attention of the mass media has also complicated hostile takeovers. Demands for information and openness are great. Still, the best protection against a hostile takeover is to manage a company effectively and profitably, which raises its value and provides stockholders compensation for the capital they invest and risk. If capital works effectively, there is no value-added to be gained by breaking up the company and selling its assets. Regulations, on the other hand, only serve to stifle effectiveness, which is contrary to their original intent.

KNOWLEDGE GIVES THE POWER TO INFLUENCE FUTURE DEVELOPMENTS

If Swedish companies want a part in the coming restructuring process in Europe, including Sweden, we will also have to learn these skills, gain access to international capital, and be receptive to new partners. If Sweden follows rather than tries to resist this process of change, we will have a better chance to learn from it and influence it. By going to the source to learn new skills and then adapting them where their value is the greatest, we have the opportunity to actively take part in structural transformations and therefore influence developments in the capital market as we would like to see them.

Industrial and financial traditions in Europe differ from those in the U.S. and Japan. Capital does not flow as freely in Europe as it does in the U.S. , and efficiency and productivity are not as high as in Japan. European companies have a competitive advantage over their American and Japanese competitors thanks to their ties to European culture and traditions. ln the same way, Swedish companies have an advantage over other European companies as regards Sweden.

WE MUST PREPARE FOR NEW CHALLENGES

Swedish business has been successful for decades. A major reason has been our openness to global challenges. It would be unfortunate if we changed strategies now, if we suddenly began Lo believe that our future depends on preserving the past and resisting changes and outside influences.

I believe and hope that Sweden will take a more open, liberal stance. The removal of a portion of the existing currency controls is a step in the right direction. Swedish regulations are still complicating international cooperation on an ownership level. Opinions have been expressed – not just from the government – but from business as well – in favor of cementing outdated rules and established structures. Ownership restrictions and cross-ownership limit the flexibility required to make quick changes and in the long term can lead to poorer competitiveness and lower economic growth.

We are facing substantial changes. By maintaining an open-minded, objective attitude, Swedish companies can acquire the s kill s and preparedness necessary to face the challenges and opportunities that lie ahead in coming decades.

Changes are occurring at a rapid pace. We face a growing necessity to learn to live in an international environment and adapt to it. The question as I see it is not whether but rather when we will fall into harmony with the world around us.

ROBERT WEIL