Tested by French, scrapped by Swedes

ON THURSDAY, the Swedish business establishment finally penetrated the thickest Teflon coating in the country when Pehr Gyllenhammar, the chairman of Volvo, resigned after rebellious shareholders had scuppered his company's mega- merger with Renault.

It is, though, not the first instance of PG, as he is known in Sweden, losing his touch. Christer Zetterberg was hired as chief executive and presumed successor, but was eventually sacked amid bitter recriminations when Volvo revealed that a golden handshake of pounds 6m had coincided with a loss of more than pounds 400m.

PG nevertheless remains the archetypal Euro-businessman, a fixture at all the classiest Euro-gatherings, a director of the FT-to-Madame Tussaud's conglomerate Pearson and of the Dutch electrical giant Philips. PG is also a fluent French speaker who enjoys sporting a lapel button marking his Legion d'Honneur.

Typically, he blamed his defeat on the anti-European sentiment that is growing as fast in Sweden as anywhere else in Europe. But to the Swedish business establishment the biggest mystery is not that he was finally forced out after more than 20 years as head of Volvo, but that he lasted so long - and still remains popular among the great Swedish public, who have regularly voted him their favourite businessman over the years.

Mr Gyllenhammar was a rising star at Skandia, the insurance group, when he married the daughter of Gunnar Engellau, the terrifying tyrant who transformed Volvo into a by-word for reliability and was one of the few Swedish industrialists not to work under the influence of the otherwise all- powerful Wallenberg family. Mr Gyllenhammar took over from his father-in-law in 1971 and became chairman 12 years later. He spent the two decades in an obsessional - and invariably unsuccessful - quest for diversification.

He defends his policy by pointing to the fate of other middle-sized motor groups such as Jaguar, Rover, Citroen, Lancia and Alfa-Romeo - although opponents point to the continuing success of BMW. The Volvo estate itself remains the favourite vehicle in a variety of valuable niche markets.

'The real reason for his relative neglect of Volvo's motor business,' says a British merchant banker, 'is that somewhere in his psyche there's a deep dislike of making cars; perhaps he was simply trying to get out of his father-in-law's shadow.'

PG himself agrees with his wife's expressed opinion that his mistakes spring from the fact that he is too nave and impulsive.

In 1978, he proposed to sell 40 per cent of the company to the Norwegians in order to get into the oil business (and assemble cars in Norway). Cars, you see, went with energy.

The mega-merger never came off and the by-product, a merger with the Beijerinvest investment and oil trading conglomerate, fell apart within two years, leaving a decade-long tail of losses from oil trading.

Worse was to come with his involvement with the once highly trendy Fermenta animal- health business. This came apart with the revelation that Rifat el Sayed, the man behind Fermenta, was not as academically or financially distinguished as PG had supposed.

Before the Revolvo (or Volvault?) debacle, PG's previous defeat was over Procordia, a holding company that brought together some of Sweden's proudest brand names, like Pripps beer and Ramlosa mineral water.

The government went along with PG's plans for dividing it into two, even though he had written a book in which he spelt out his ambition to be the chairman of a half-public, half- private group.

PG was no luckier with his ideas for revolutionising the car making business. In 1974 he built two new factories designed to get away from the traditional approach to assembling cars. In his plants computers would direct components to a series of 'work teams.' Long recognised as a disastrous initiative by everyone except PG, the two factories were closed down only last year.

Then came the - ultimately abortive - master-stroke, the merger with Renault. Unfortunately, it would have left the French firmly in charge, with Swedish shareholders holding only 35 per cent of the shares.

And the French government would control a golden share enabling it to block takeovers without any corresponding privilege for the Swedes.

Swedish opposition forced the French Prime Minister to make unusually soothing noises, including claims that the French government would not use its golden share in Renault after the company was privatised.

But in the end, Swedish nationalism combined with the distrust of PG felt by some institutional investors scuppered the deal.

If there's one consolation for PG, it is that he is not alone. For he followed another charismatic leader, Jan Carlzon of SAS, the former package tour salesman who was the scapegoat after the collapse of another international mega-merger.

No, not Richard Giordano leaving BOC for his new job at British Gas. It's art by Gilbert and George, part of BOC's expensive collection of contemporary works, as pictured in Art & Business, by art consultant Marjory Jacobson.