Governing the family-owned enterprise: an interview with Finland's Krister Ahlstrom

Topics: Ahlstrom, Harvard Business School, Board of directors Pages: 20 (6267 words) Published: September 29, 2013
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10/8/13 11:57 AM

Title: Governing the family-owned enterprise: an interview with Finland's Krister Ahlstrom Author(s): Joan Magretta
Source: Harvard Business Review. 76.1 (January-February 1998): p112. Document Type: Article
Full Text: COPYRIGHT 1998 Harvard Business School Press
Full Text:
IS A COMPANY'S PRIMARY RESPONSIBILITY TO ITS shareholders or its stakeholders? What is the proper role of a company's board, and who should serve on it? To whom and for what are managers accountable?

In the last ten years, a series of shock waves in the once staid realm of corporate governance has ignited a reexamination of these most basic of governance questions. Increasingly, we see signs that the old equilibrium is giving way. Large institutional investors are no longer content to be passive owners. At the same time, boards are stepping up--sometimes under pressure--to claim a more activist role. While the debate has erupted with new urgency and high visibility in publicly owned corporations, governance has always been a contentious--although usually private-issue in family-owned enterprises. And in most of the world, family-owned enterprises dominate the business landscape. Even in the United States, family ownership is more prevalent than most people realize. It is estimated that over a third of the Fortune 500 are family owned or dominated; for the world economy as a whole, the number is certainly over 50%.

As CEO of his family's $3 billion holding company, Krister Ahlstrom has been grappling with governance issues for more than a decade. The Ahlstrom Corporation was founded by Antti Ahlstrom in 1851 and is wholly owned by his roughly 200 descendants. Today few family members actually work in the company, but the family controls the board. Krister Ahlstrom will retire in the winter of 1998 after leading the company through a 15-year transformation.

Ahlstrom joined the family business in 1982 after a successful career at Wartsila, a large Finnish conglomerate. He saw immediately that without a complete overhaul of its business strategy, the company would not survive in an era of global competition. His first task: to shed weak businesses and focus the company on a few core areas where it would have to build the capabilities to compete effectively in world markets.

But he quickly learned that he could not change the company's strategic direction without also leading the Ahlstrom family to a new understanding of its relationship to the company. In this interview with HBR editor-at-large loan Magretta, Krister Ahlstrom describes the changes that now allow the family to interact with the company as enlightened-not passive-owners. The transformation, as Ahlstrom describes it, began with "a big fight" that almost led to his ouster as CEO.

Until you became CEO in 1982, your entire career had taken place outside the family business. What did you find when you arrived?
Back then, Ahlstrom was an $800 million company. Effectively, all our operations were located in Finland. (See the chart "Ahlstrom: 15 Years of Change.") In the decades following World War I, Finland's economy was closed to foreign competition. In a protected economy, local companies tend to expand into other domestic businesses. Look at companies in India today and you see the same thing. So Ahlstrom went through a period of diversification from the forest industry, accumulating a portfolio consisting of almost 60 different businesses. We went into glass products, including even art glass. And we were in file:///Users/yupana/Downloads/Download%20Document-1.html

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building materials, in machinery, and you name it. By 1982, however, most of our businesses were not in good shape either operationally or strategically.
Every new CEO has to form his own view of the company he is going to lead. An insider is apt to ask, Are we doing things right? Because I came...
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