[The Public Interest Corporation with Broken Wings] The 'Secret' of the Wallenberg Family That Built Sweden into a Science Powerhouse

The Wallenberg Family Establishes a Public Interest Foundation for Social Support
Corporate Dividends → Investment Structure in Science and Education
6th Generation Succession Underway

The Wallenberg family, a Swedish conglomerate, spent 2.7 billion kronor (approximately 350 billion KRW) last year supporting basic scientific research and education in Sweden. This was not an unusually large amount for last year. Over the past five years, the total support for social contributions and other causes has reached 11.4 billion kronor, showing consistent commitment. Since the public foundation was first established in 1917, it has donated 44 billion kronor. The guiding principle of this century-long support has been to do "beneficial work" for the Swedish national community.

At the 100th anniversary event of the first foundation among the Wallenberg family's 16 foundations, Peter Wallenberg Jr., chairman of the foundation, stated the foundation's purpose as follows.

"(Over the years) the foundation has worked for the benefit of Sweden, as expressed by the old Swedish word ‘landsgagneligt’ (meaning beneficial to Sweden), in areas such as basic science and education."

The word ‘landsgagneligt’ is included in the foundation's articles of association, and the foundation defines this ambiguous term as 'spending money on work for Sweden' and executes its activities accordingly. There are 16 foundations established by key members of the Wallenberg family. These foundations are passed down through generations with heirs participating on the board of directors. The Knut and Alice Wallenberg (KAW) Foundation, which was established first and has the largest assets, ranks second in Europe in terms of investment in basic science. These foundations have supported research projects with high potential and provided funding in fields such as medicine and mathematics.

For example, the foundation allocated a budget of 650 million kronor from 2014 to 2030 for projects related to mathematics, which forms the basis of all sciences. So far, 152 scholars have received support through this program. This includes initiatives to bring internationally renowned mathematicians to Swedish universities as visiting professors and to enable Swedish PhD holders to conduct research abroad.

Another public foundation, the Marianne and Marcus Wallenberg Foundation, supports social sciences and clinical medicine, while the next largest, the Marcus and Amalia Wallenberg Foundation, supports the humanities. These foundations are characterized by not imposing any obligation on recipients to produce specific 'results.' Even ideas considered 'foolish' by academia can receive support if their validity and research necessity are recognized, allowing researchers to proceed without fear of failure. The Wallenberg family's active support has made Sweden, with a population of 10 million, one of Europe's leading countries in research and development (R&D).

How can the Wallenberg family provide such astronomical support?

The Wallenberg family entered economic history in earnest when Andr? Oscar Wallenberg (1816?1886) founded Stockholms Enskilda Bank in 1857. At that time, the concept of separating banking and commerce was weak, as commercial banks even conducted corporate restructuring, but as awareness of this issue grew, the Wallenberg family invested in companies through investment firms. Andr?'s eldest son, Knut Agaton Wallenberg, and his younger brother, Marcus Wallenberg Sr., succeeded the family, with Knut, who was particularly skilled in business, becoming one of Sweden's wealthiest men. In 1917, he established the KAW Foundation named after himself and his wife, and subsequently, other members of the Wallenberg family also established public foundations and transferred their wealth. The public foundations established by the Wallenberg family all had in common that they invested in Stockholms Enskilda Bank and the investment company Investor, which are core pillars of the corporate group built by the Wallenberg family.

The KAW Foundation was launched with about 20 million kronor (equivalent to 746 million kronor in current value), and its current asset size has reached 216 billion kronor. When the KAW Foundation was established, the two founders stipulated in the articles of association that the foundation's investment income should be used not only for scientific research but also to promote Sweden's trade, forestry, industry, and other commercial activities. Since then, the foundation has conducted sponsorship activities under the grand principle of 'Sweden's benefit.' Currently, descendants of the Wallenberg family participate on the foundation's board of directors and maintain the corporate empire built by the family. Succession work for the sixth generation of the Wallenberg family is currently underway. The foundation introduced that "about 30 members of the sixth generation are participating in a program to learn about the family's social contributions, values, and history."

The annual revenue generated by companies wholly or partially owned by the Wallenberg family is estimated to reach 160 billion dollars (213 trillion KRW). Regarding this vast corporate group, the Wallenberg family controls the group in a pyramid structure through investment companies such as the unlisted Wallenberg Investment and the listed Investor. The foundation uses more than 80% of the profits earned from dividends of companies held by the investment companies for public interest activities. Because of this, although the Wallenberg family's foundations hold enormous wealth, none of the family members are billionaires. This is why the Wallenberg family does not appear on lists of Sweden's top 100 richest people.

Why did the Wallenberg family adopt such a governance structure?

Knut, who established the KAW Foundation, was one of Sweden's wealthiest men of his time and served as Sweden's Minister for Foreign Affairs during World War I. After stepping down from the ministerial position and becoming ill, he decided to hasten the foundation's establishment, which he had only contemplated before. Since he had no children, the decision was easy. As a public figure, he received numerous donation requests, and he thought that establishing a foundation would free him from these requests. After founding the foundation, he found fulfillment and joy in the work that could be done through it and showed great enthusiasm.

Companies where the Wallenberg family is the largest shareholder [Source: Wallenberg Foundation]

Besides this goodwill, there is analysis that practical intentions also influenced the establishment of the Wallenberg family's foundations. Professor Shin Jeong-wan of Kyungpook National University explained, "The Wallenberg family established many public foundations not only to enhance the family's image for social contribution but also because the profits obtained through ownership of corporate stocks by public foundations can receive tax benefits." It is also analyzed as a choice to reduce the heavy inheritance tax burden. Professor Seo Jong-hee of Yonsei University Law School explained in an article titled 'A Study on Swedish Corporate Foundation Legislation including the Wallenberg Group' that "Swedish foundations with charitable purposes are exempt from taxes on capital income and inheritance and gift taxes, and by transferring ownership to the foundation, multiple heirs can avoid dividing corporate assets and maintain corporate capital under a single voting structure." In the past, Sweden's top marginal inheritance tax rate reached 60%. However, Sweden granted inheritance tax exemptions only if the foundation conducted public interest activities, activities aligned with the foundation's purpose accounting for 90-95%, and these activities accounted for 80% of net income.

However, since the 1980s, related systems in Sweden have changed, and the establishment of public interest corporations by companies has weakened. This is because incentives for establishing public foundations disappeared due to the abolition of property and inheritance taxes on controlling shareholders.

What kind of corporate governance does the Wallenberg Foundation have?

The Wallenberg Foundation, a collective term for several public foundations, controls companies mainly through two pillars: the investment companies Investor and Wallenberg Investment.

Investor, in which three foundations including the KAW Foundation exercise 50% voting rights, has assets totaling 969.3 billion kronor and holds shares in companies such as Saab and Ericsson, AstraZeneca, among others. The profits generated from investments in these companies are returned to shareholders, including the Wallenberg family's various foundations, in the form of dividends, which become the Wallenberg family's social contribution funds.

An interesting point is that the Wallenberg family's companies are connected in a pyramid structure through investment companies like Investor, rather than a circular shareholding structure. Additionally, the Wallenbergs maintain management control through dual-class voting rights, allowing them to have more voting power than their actual shareholding.

Besides Investor, Wallenberg Investment, wholly owned by the Wallenberg family, invests in unlisted companies such as FAM, technology-related venture companies, and private equity funds (PEF). As of the end of 2023, FAM is known to manage assets worth 63 billion kronor.