61 MARTINDALE CENTER FOR THE STUDY OF PRIVATE ENTERPRISE The role of foundation-owned firms in corporate Denmark Junmoke James Denmark’s business landscape is unique, wherein foundations own most of the market value of its companies. The corporate structure of foundation-owned firms allows for flexibility in thinking that accounts for high levels of environmental sustainability, innovation, and philanthropy. This article examines three of Denmark’s foundation-owned firms—Novo Nordisk, Maersk, and the Carlsberg Group, analyzing how their structure generates increased focus on social responsibility. It extrapolates lessons that can be drawn from foundation-owned firms and applied to conventional corporations. Introduction The foundation-owned firm is the dominant corporate structure in Denmark. Around 70% of Danish stock market capitalization is composed of companies that fall under the category of foundation owned, including three of its biggest businesses— Novo Nordisk, A.P. Moller-Maersk (more popularly known as Maersk), and the Carlsberg Group (Thomsen, 2017). Firms are considered foundation owned when a majority of their shares are owned by an industrial foundation. Industrial foundations are private organizations borne out of an endowment and charter and possess a board of directors or trustees, in addition to having total independence from the firm they control. A subcategory of the industrial foundation is the family foundation led by descendants of the founder. Two out of the three above-mentioned companies—Maersk and the Carlsberg Group—are owned by family foundations, whereas Novo Nordisk is owned by the Novo Nordisk Foundation, a commercial foundation. This article analyzes the effects of foundation ownership on the practices of these three companies in regard to promoting environmental sustainability, innovation, and social responsibility. Background Why are many of Denmark’s largest firms foundation owned? Part of the answer may lie in Denmark’s regulatory environment, which is uniquely generous to the formation of industrial foundations. Danish law allows free access to establishing enterprise foundations as long as the purpose, which includes owning and ensuring the survival of the company, is clearly stated. In addition, Danish foundations are not constrained by requirements of a minimum level of philanthropic donations, unlike American foundations. Another part of the answer lies in the advantages of foundation ownership as opposed to shareholder ownership. Foundation-owned firms hold unique advantages in long-term planning, succession, and stakeholder relations. Unlike in myriad family businesses, family foundation–controlled firms avoid conflict over succession as the founding family negotiates a collective representation of their interests through the foundation boards. In other words, families choose membership of the foundation boards together to ensure that their varying viewpoints are represented and that there is no conflict over one member of the family’s wants gaining priority over another’s. Additionally, foundation-owned firms can build long-term relationships with shareholders, as these firms have less of an incentive to renege on implicit contracts. Foundation-owned firms seek a long-term presence, which requires the maintenance of good relations with shareholders and solidifying a reputation for reliability. Foundation-owned firms also have less debt, making them more stable and giving them more flexibility when pursuing strategic options (Thomsen, 2017). Maersk exemplifies the flexibility of foundation-owned firms in its rise. Maersk was not always the largest shipping container company. In 1979, Maersk was the fourth largest shipping company in the world, with the American company, Sealand, the largest. Over the course of the next 20 years, Maersk gradually increased its fleet capacity, until it became financially strong enough to acquire Sealand via merger in 1999 (Slack & Frémont, 2009). This acquisition by Maersk completed the disappearance of major American carriers from the container shipping company world. Slack and Fremont (p. 26) suggest the reason for these developments in the shipping industry could be the “orientation of the American
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