Since taking the chairman's seat at Investor 10 months ago, Percy Barnevik has launched a high-profile effort to modernize the Wallenberg corporate empire. He has installed new executives and pushed for cost-cutting at companies the Wallenberg holding company owns major stakes in. And he has called for diversifying the clubby boards of Wallenberg companies--part of his plan to boost shareholder returns.
Now, Barnevik faces a sterner test than he bargained for in Astra, the Wallenbergs' largest holding, representing 27% of their portfolio. Astra's stock has underperformed over the past year, reflecting worries about its prospects. CEO Hkan Mogren is under fire for failing to develop hot new drugs and for losing control of top lieutenants, some of whom have been accused of sexual improprieties and misuse of corporate funds. Now, with litigation pending, Mogren is being accused by former executives of fostering a corporate culture that encouraged such abuses through his own high living at Astra's expense. Mogren denies the accusation.
If Barnevik is serious about reform, he must deal decisively with the strategic and sleaze problems at Astra. He should launch his own investigation of what has gone on at the company and oversee a strategic review. Mogren may have to step down. After raising hopes that the Wallenberg empire will become more accountable to shareholders, it's time for Barnevik to deliver. Otherwise, he risks letting Astra slide into the margins of the global drug industry. Says Lars-Erik Forsgardh, CEO of the Swedish Shareholders Assn.: "Everybody expects [Barnevik] to do something about the situation at Astra."
Barnevik won't comment. Investor says Astra must sort out its own problems. That's ducking responsibility. Investor is Astra's biggest shareholder, controlling 12% of its voting stock. Astra's chairman is Bo Berggren, a longtime Wallenberg exec; its vice-chairman is family scion Marcus Wallenberg; and Investor President Claes Dahlback also sits on the board. They may be reluctant to discipline a close associate: Mogren serves on the Investor board and those of Wallenberg companies Stora and Incentive.
Investor executives seem to be in a quandary about what to do at Astra. They have taken the line that nothing beyond personal excess is wrong with Astra--insisting that Mogren is the victim of a witch hunt, brought on in part by his haughty style. They also note that Astra's stock has been the hot performer in their portfolio until recently. "Discussions" are going on between the board and Astra's management, an Investor executive says, but major changes are unlikely soon.
Astra's problems go far beyond high living. Its former U.S. head, Lars Bildman, has pled guilty to filing false tax returns in the U.S., and two other honchos have left under clouded circumstances. The Swedish prosecutor's office is about to depose one of them, Astra's ex-Nordic head, Anders Lonner. That could lead to new disclosures about Astra's corporate practices and Mogren's spending habits.
Like it or not, Barnevik may have to face a stark choice: Fix Astra quickly or allow the drugmaker to derail his plans to forge the Investor companies into a top-flight global network. Astra has delivered stellar returns for the Wallenbergs and other shareholders over the years. But that's no excuse for ignoring problems that could get even uglier and more painful if they are allowed to fester.