Sweden flies into a corporate storm

The Swedish economic model has long been admired. In particular, the Nordic country's system of active ownership of companies by big shareholders has attracted praise for its emphasis on long-termism.

But a growing controversy at one of the country's most powerful business empires - Industrivarden, which has controlling stakes in companies including Volvo, Handelsbanken and Ericsson - is now highlighting some of the model's weaknesses.

The issue centres on the use of private jets at SCA, the Swedish forestry and paper company - and the details make uncomfortable reading in a country famed as a bastion of egalitarianism and social democracy.

SCA has been using several private jets to transport its top managers - something that, on its own, is routine in the business world. Even so, Svenska Dagbladet - the Swedish newspaper that made the revelations - used the fact that SCA's chief executive often flew alone, or with just one other person, to question the company's commitment to sustainability.

But the company's response has made the situation much more damaging. Initially, it insisted that only SCA employees or board members were allowed on the jets. Then, reports appeared in Svenska Dagbladet of wives and children being flown to a SCA-owned hunting lodge in northern Sweden, as well as the Olympics in London and the European football championships in Kiev.

Swedish shareholders in SCA and Industrivarden have since expressed deep concern over the flights. Some directors at other big Swedish companies - such as Swedbank and Nordea - have also become ensnared in the matter, having accepted trips in the jets. Worst of all, Svenska Dagbladet reported that one unnamed person on a hunting trip sent a jet back to Stockholm just to pick up his wallet, which he had forgotten.

Industrivarden seems unapologetic, arguing that the use of private jets is a normal corporate practice and that it is important for SCA, as a big forestry company, to entertain customers and partners. But SCA itself is more contrite. It says its board has started a special audit, and it has changed its policy so that spouses and children are no longer allowed to take business jets - despite insisting that its previous guidelines were never breached.

The controversy has laid bare problems at Industrivarden - particularly with its governance.

Industrivarden is one of two large investors - the other being the Wallenberg family - that together control companies with annual revenues of SKr2,200bn ($, and market capitalisations equivalent to half the Stockholm stock exchange. And, at Industrivarden, power is heavily concentrated in Sverker Martin-Lof, chairman, and Anders Nyren, chief executive.

Between them, they hold most of the important board seats at the companies they control. Mr Lof is the chairman of SCA and steelmaker SSAB as well as vice-chairman of Handelsbanken and Ericsson. Mr Nyren is chairman of Handelsbanken and Sandvik, as well as a director of SCA and Volvo. Sometimes, the two men even sign off on each other's expenses, with Mr Nyren sitting as head of the audit committee at SCA.

Industrivarden has hardly helped the situation with some clumsy responses to the SCA allegations. These have included Mr Lof complaining of espionage against SCA, and the dismissal of Mr Nyren's supposed successor as Industrivarden chief executive.

Swedish shareholders - and even senior managers in Industrivarden's empire - insist the right response to the private jet affair would be to improve governance. Power should be more diversified and the cosy system of cross-directorships and signing off of each others' expenses ended, they say. They add that SCA also shows the dangers of allowing a chief executive to become a chairman, as Mr Lof did: he has held one of the two positions since the 1980s.

Industrivarden is now expected to take action to spread power - perhaps as early as this year's annual meeting season. Mr Lof has said he intends to step down as chairman of Industrivarden next year, but some shareholders are pressing for him to go this spring. Whatever the rights and wrongs of SCA's private jet use, it has provided at least one valuable service: exposing the flaws in a system that allows the business elite too cosy a relationship.

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