Center for Corporate Governance

Phone: +45 3815 2515

Mail: ccg@cbs.dk

The Project

Industrial foundations are foundations which own business companies.  Well known examples are Robert Bosch, A. P. Møller Maersk, Bertelsmann or the Tata group. This special combination of charity and business is not uncommon in Northern Europe, but we know relatively little about them.  This site is dedicated to a research project which will try to shed some light on them – how many there are, how they are regulated, how they influence the companies that they own and so on. The project is conducted at the Center for Corporate Governance, Copenhagen Business School from 2011 to 2015.

Central research questions

The project poses 10 central research questions

  1. What is the economic importance of industrial foundations?
  2. How have they developed historically?
  3. What has been the impact of foundation legislation?
  4. What impact has taxation had?
  5. What are the economic consequences of foundation ownership?
  6. What is the international evidence?
  7. What is the capital structure of the foundations?
  8. How do the foundations exercise corporate governance?
  9. What is the role of the charters?
  10. What role does charity play?

Unanswered questions

1. Industrial foundations play a particularly important role in Danish industry, but we lack a more precise picture of their numbers and significance both in Denmark and internationally.  In which countries are they important? Which industries?  How has foundation ownership evolved over time? Is foundation ownership, as some might think, a historical artefact which has become progressively less important over time? Or is it growing in importance?

2. We need to know more about the historical origins of the industrial foundations, how and why they came about and how they have achieved the special position they have today.  Were they motivated by charity, corporate control, taxation or other factors?  Why are they so common in Northern Europe?

3. The Legislation on foundation is obviously one of the most important framework conditions for the industrial foundations. In many countries it is not allowed that foundations own companies (Kronke, 1988). In addition to that, foundation law regulates the governance of foundations in different ways. It is thus appropriate to study the international foundation legislation and to try to explain how it has evolved over time.

4. Taxation is a particularly important question because it is vital to the existence and behavior of the foundations. For example, U.S. tax law discourages foundations from having a controlling influence in businesses companies and obliges them to distribute 5% of assets annually.  We intend to conduct a comparative international study and to try to form an assessment of the appropriate taxation principles.

5. How do foundation-owned companies perform? The relatively good performance on foundation-owned companies is the core result in the existing research because it indicates that foundation-ownership is an economically efficient construction and not an anachronism. Performance studies are conducted on a relatively limited data material, however, and deserve further documentation. Furthermore,  economic performance can be measured in many ways – including productivity and productivity development, structural change and innovation – and therefore more research is called for. Another interesting question is whether there are specific industries or other niches in which the foundation owned companies have comparative strengths and weaknesses.

6. How many foundation-owned companies are there internationally?  How  is foundation ownership governed in the largest firms?  We lack systematic knowledge of foundation ownership internationally  including the number of foundation-owned companies, their economic significance and performance as well as governance practices in leading international foundation-owned companies such as Bertelsmann or Tata.

7. What is an appropriate capital structure for a foundation-owned firm?  For an industrial foundation? It is clear that foundation ownership can affect both the capital structure and financial planning of companies, including dividend policy, debt /equity ratios and debt maturity.  Currently, we have no systematic knowledge about these issues.

8. What is an appropriate governance structure? Who should sit on the boards of industrial foundations or their companies? Corporate governance in foundation-owned companies is another underresearched subject. It is clear that foundation boards have special responsibilities with regard to corporate governance, but it is equally clear that the corporate governance recommendations for listed companies cannot be mechanically transferred to the foundations or the foundation-owned companies.  Effective corporate governance in foundations will depend on a satisfactory knowledge base.

9. What is the role of foundation charters? The charters of the foundation are a decisive influence on their structure and behavior, but we know almost nothing systematic. Charter changes is another key area which has not been explored. We do not know, if the charter constraints can be said to be a disadvantage for the foundations ore the companies that they own (and if so when and how). We also miss the basis for evaluating  current practices with respect to charter changes.

10. Is charity in industrial foundations different?  There is a fairly large international literature on foundations and philanthropy, but we know very little about Danish charity (e.g, how much to the foundation donate s and to what?) and how it is influenced by business ownership. Is it appropriate or inappropriate, for example, that there are relations between business and philanthropy or must there be Chinese walls between them? How can the two goals be reconciled? Can you generalize about the considerations that should have priority?

Of course there are several other  issues that deserve to be examined, but the questions above should make it clear that we know very little, and that there are many important themes to explore, which has relevance for both foundation practices and for policy discussions. The 10 questions will form the basis for research questions that can be addressed empirically.



What is a foundation?
Foundations are separate legal personalities with their own boards, charters and financial statements. A foundation is defined in the Danish Dictionary as a “private institution which administers an endowment which has been donated or set aside  for distribution to certain, typically charitable purposes or for the operation of a business.  They are similar to irrevocable trusts in common law. Their purpose and non-profit status sets foundations aside from other funds such as private equity funds, venture funds, hedge funds, pension funds, etc.

What is an industrial foundation?
An industrial foundation is a company that owns the majority of a business company. The company will typically be a limited company in which the fund owns the majority of the shares. In rare cases, the industrial foundation may do business in its own capacity. There are also cases where the foundation control s a company through a large minority stake and would then by some be considered an industrial foundation. In others cases, foundations do not consider themselves to be  industrial foundations, even though they own the majority of a business company.

How many industrial foundations is there in Denmark?
According to the Commerce and Companies Agency approx. 1200, but most of them are small. There are maybe 100 economically important industrial foundations.

Is industrial foundations a Danish phenomena?

Yes, Industrial foundations are clearly more important in Denmark than in other countries (compared to the size of the nation). Industrial foundations account for 1/5 of private sector employment in Denmark.

What are some of the most important companies owned by industrial foundations?
A. P. Møller-Mærsk, Carlsberg, Novo Nordisk, Novozymes, Grundfos, Danfoss, William Demant Holding (Oticon), J. Lauritzen, H. Lundbeck, Villum Kan Rasmussen  (Velux), Rambøll, COWI, Skandinavisk Holding, Falck  m. fl. – are all owned by Foundations.

Do the Industrial foundations have any impact on Danish economy?
The foundation-owned companies have a turnover of more than 600 billion dollars and has more than 300,000 employees.  This is roughly 1/5 of total turnover in Danish private business and 22% of employment,  but much of it is abroad. The foundation-owned companies account for the vast majority of private Danish research.  Compared  to publicly listed companies in Denmark and the other Nordic countries, they also have fair accounting profitability  – a return of 7.6% on equity compared to 5.7% for listed companies from 2003 -2008.

Do the foundations pay tax?
Yes, the Danish foundations pay 25% of their taxable income in taxes. They can deduct their expenses to charity, consolidation and provisioning from their taxable income, however. In order not to discriminate foundations that own companies compared to foundations that do business directly though the foundation structure, there is some degree of joint taxation between foundations and majority-owned subsidiaries.

What impact do the foundations donations have?
Through donations, the foundations finance a significant proportion of  pharmaceutical research and development in Denmark in addition to contributions to art, culture, education, buildings and social projects, primarily in Denmark.

Are there any industrial foundations abroad?
Yes there is. Industrial foundations own some large and important companies such as Robert Bosch, Bertelsmann, Trelleborg, Kavli, Norske Veritas among others. Beside in Denmark also particularly in Germany, Holland, Sweden and Norway, but one of the world’s largest companies – the Indian Tata Group – is also the foundation-owned.