The man who fell to Earth: knives are out for a corporate legend

Only the Wallenbergs stand between Percy Barnevik and oblivion at AstraZeneca. How a corporate giant was brought low

By Stephen Foley
Friday 07 March 2014 02:22

Another once-feted Swedish boss is this week being forced to face humiliating questions on his private affairs, his probity and ability to continue in a demanding job.

The shredding of Percy Barnevik's reputation as Europe's foremost business executive and management guru will be completed on Thursday when he makes a public apology for paying himself a giant pension on retirement from ABB, the Swiss-Swedish engineering business he built in the 1980s.

The apology is likely to be enough to safeguard his job as chairman of the UK drugs group AstraZeneca, where he is up for re-election. But it comes after he was forced to resign as chairman of Investor, the Swedish investment company controlled by the powerful Wallenberg family, and to hand back £37m of his £61m pension bonanza.

Despite being ousted from Investor, he retains the Wallenbergs' backing for the AstraZeneca job. However, the role has been weakened. Last month, the drugs group appointed Sir Peter Bonfield, the former BT chief executive and a long-standing member of the board from its pre-merger days as Zeneca, as "senior non-executive" to act as a conduit for shareholder concerns.

AstraZeneca brushed aside criticism yesterday from Pirc, the corporate governance adviser, which argued shareholders should oppose Mr Barnevik's election because he, like at least two other non-executive directors, is connected to the Wallenbergs. Pirc says this is too many, compromising the independence of the non-executive directors.

In truth, Mr Barnevik has spent little time at AstraZeneca since the successful completion of its merger. He was brought in at the time of the deal in 1998 to give his experience of cross-border mergers. His international reputation was forged in the merger of his Asea with Brown Boveri in 1987 and the business structure he created as a result. He axed up to 90 per cent of head office jobs and devolved an unprecedented amount of decision-making power to local offices.

That process made him a favourite of Tom Peters, the celebrated US business author, and other management gurus. Mr Barnevik has been known as Europe's Jack Welsh, a rival in management philosophising to the General Electric chief. He has also been a sought-after participant in discussions at the annual World Economic Forum in Davos. For four straight years in the mid-Nineties, he was awarded the title "chief executive of Europe's most respected company".

The 61-year-old, famed for his goatee beard and apparent inability to smile, has had nuggets of management advice endlessly repeated. These include his focus on the three Ps of "purpose, processes and people"; the "Barnevik triple-jump" for turning round an underperforming business by restructuring, clearing out the management and making a big acquisition or disposals; and "the cost of delay exceeds the cost of chaos".

"You can never rest on your laurels," he once said. "You have to improve your position every year, every month and every day. Just two or three years of complacency can destroy a strong and successful company."

That might cause a snort of derision from ABB's investors, who have seen the company slide to its first-ever loss in 2001. Mr Barnevik departed late in the year as concern over the company's debts and trading prospects mounted.

Chris Heminway, analyst at Lehman Brothers, said: "He created ABB, notwithstanding its current difficulties, fashioning a big and successful icon out of a couple of regional companies and a handful of acquisitions."

The debate over Mr Barnevik's legacy rages. Some argue it has been undone since he ceded executive control of ABB in 1996 to move to Investor. But those who see in his reign the seeds of its decline are now in the ascendancy in the investment communities of Sweden and Switzerland, particularly now his pension arrangements have tarnished him further.

Mr Heminway said: "His was a very successful generation of management but he failed to take ABB onwards. He created 20 mini-ABBs in 20 countries around the world, which was fine when ABB's markets were national markets, but when their customers globalised, the company failed to keep up."

ABB has also suffered criticism for its accounting methods under Mr Barnevik, in particular over the way the company met its margin targets.

Others argue that Mr Barnevik's gilt-edged reputation led to an "egocentric" company. One senior analyst at a Swedish investment house argued that celebrity abroad proved more alluring than the prospect of facing difficult decisions at home.

"He wanted to have a kick for himself, and he used a lot of time and energy on political issues, all that time at Davos or meeting Chinese leaders or talking about Eastern European poverty. He always looked to me like he found it too boring to handle the day-to-day streamlining of the business. ABB developed a snobbish attitude, thinking they were better than everybody else, that became dangerous," the analyst said.

Insiders at ABB, though, still speak of the pride he was able to engender in the group and his charismatic leadership. "He is still an outstanding personality," said one. "Few people who worked with him thought of him as anything other than purposeful and efficient. That is why everyone was so shocked and disappointed when they discovered how these pension arrangements had been made." So far, Mr Barnevik has proved reluctant to comment on his pension arrangements, describing them only as "an American payment system in a European environment".

If his apology on Thursday is sufficient to see him into another year at AstraZeneca, he will at least have a chance to ensure that his career does not end so disappointingly.


The scandal of Percy Barnevik's pension pay-out only came to light by accident last year, when ABB was preparing a financial document for the Securities and Exchange Commission, the US super-regulator. Mr Barnevik personally approved his £61m lump sum payment in the run-up to his retirement from day-to-day management in 1996. No other members of the board saw the terms of the settlement.

Mr Barnevik moved to a penthouse flat in London after receiving the cash, which is now the subject of an investigation by the Swiss tax authorities, who are considering whether it should have been subject to social insurance taxes.

ABB revealed the scale of the awards in February when it reported its first-ever annual loss, saying it was seeking to recover some of the money paid to Mr Barnevik and to Goran Lindahl, his protégé and successor as chief executive. Mr Lindahl's £35m award was approved only by Mr Barnevik in his role as chairman in 2000. Both quickly agreed to pay back more than half their sums.

The fall-out from the revelations cost the pair significant jobs. Within 24 hours Mr Barnevik had agreed to quit as chairman of Investor, the Wallenberg family investment vehicle that controls two-fifths of the Swedish market. And Mr Lindahl will no longer take over as chairman of Anglo American in the summer as planned. He has also quit a corporate recruitment role with the United Nations.

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