FINANCIAL TIMESFRIDAY NOVEMBER 12 1999

On a bright Novembermorning in centralStockholm, 100 ana-

lysts and journalists troopedthrough the city's streets to attend the capital mar-kets day of Vasakronan,a Swedish real estate company.

There would be nothingunusual in this ifVasakronan were a quotedcompany sharing its ideason strategy, markets andprospects with its investors.But Vasakronan is 100 percent state-owned and yester-day's capital markets daywas just the sort of market -friendly behaviour theSwedish government wantsto encourage. The aim is topromote transparency andcomparisons with listedcompanies in its sector, andhelp make the companyitself more efficient.

"Any marginal improve-ment in the performance ofstate-owned companies willhave an effect on the wholeSwedish economy," says Dag Detter, an investmentbanker-turned-civil servantwho is leading the efficiencydrive within the ministry ofindustry.

For years, state ownershipand Swedish politics weremixed up and there was lit-tle attempt to manage com-panies professionally. Todaythe emphasis is firmly onactive management.

Private sector disciplinesare being brought to bear onstate-owned companies, irre-spective of whether they

are eventually privatised.Sweden has fully or partial-ly privatised some state-owned companies, such asNordbanken, the bankinggroup, and AssiDoman, theforestry group, and is likelyto continue the process, butits approach is pragmaticand it has ruled out privatis-ing companies with naturalmonopolies.

According to a senior offi-cial in the UK Treasury,

countries such as the UKand Italy are also seeking tomanage their state assetsmore professionally, and theissue is receiving close atten-tion from the Organisationfor Economic Co-operationand Development.

What di f ferentiatesSweden is the scale anddiversity of its holdings, andthe cohesive approach it istrying to bring to the 60companies it owns or part

owns. They range fromTelia, the former telecomsmonopoly being mergedwith Telia of Norway andVattenfall, the country'sbiggest utility, to the RoyalOpera and Royal DramaticTheatre. The companieshave a combined turnoverof SKr286bn (Pounds 21.2bn)and are worth aboutSKr500bn, about a quarterof the whole of Swedish-owned industry.

INSIDE TRACKMANAGEMENT PUBLIC SECTOR:

Welcome to the ways of the marketSweden is learning private sector ways, but resisting wholesale privatisation, saysChristopher Brown-Humes

James Sassoon, head ofprivatisation at WarburgDillon Read in London, says:"Many countries think abouthow do we privatise compa-nies, rather than how do welook after the companies wehave and manage themactively.

"The Swedish initiative isparticularly interesting,because it is the firstEuropean government torevisit this area, andbecause of the size anddiversity of the governmentholdings."

Too often with privatisa-tion and asset managementprogrammes different statecompanies remain under thecontrol of different min-istries and a coherentapproach becomes impossi-ble to implement because ofpower struggles betweenthem.

Sweden feels it has largelygot around this problem bybringing 80 per cent of itsstate-owned assets under thewing of the Ministry ofIndustry and giving one min-ister overall responsibilityfor state-owned companies.

The attempt to inject mar-ket discipline has led theministry to recruit peoplewith backgrounds in capitalmarkets to head the civilservice unit responsible forstate enterprises. Prepara-tory work has also includedderegulating a number ofindustries to promote com-

petition in areas such astelecoms and power.

According to Mr Detter,the words "economic value-added" - the attempt to cre-ate, and measure the cre-ation of, shareholder value -are very much part of histeam's lexicon. He says theefficiency drive aims toachieve five things. First, tomake companies more trans-parent and benchmark themagainst their competitors.Companies are expected topublish detailed financialinformation and annualreports, and host capitalmarkets days, as if theywere listed companies. Somehave been assessed by inde-pendent analysts.

The second aim is toincrease focus. One compa-ny that has come under par-ticular scrutiny is SJ, thestate railway operator. Thegovernment is encouragingit to divest its non-coreactivities such as ferries,hotels and restaurants sothat it can concentrate onits passenger and cargoactivities.

Daniel Johannesson, SJchief executive, says: "Ourgoals are purely of a finan-cial and service qualitynature. SJ is no longer aninstrument for transportpolicy but seen by govern-ment as a commercial trans-port operator."

Next, the drive aims to getpeople with private sector

experience on to the boardsof state-owned companies.In the last year, about 40 percent of the board membershave been replaced in theeight largest state-controlledcompanies.

Fourth, it intends to makethe capital structure ofstate-owned groups moreefficient. There are plans totake up to SKr15bn in sur-plus capital out of their bal-ance sheets and increase theamount paid in annual divi-dends by around SKr4bn ayear to SKr12bn.

The ministry is also look-ing at privatising the debt ofsome companies - as analternative to privatisingthe equity - as a way to getthem a credit rating. MrDetter accepts this couldincrease borrowing costs,but argues the dynamiceffects of the move on com-panies should outweighthat. Two com-panies wherethis is being considered arethe national grid and thecivil aviation authority.

Last, it aims to implementincentive programmes. Thisis a controversial areabecause it could be seen asgoing against the public sec-tor ethos. But it is also away of recruiting and retain-ing talent that might other-wise be lost to the privatesector.

Vasakronan is piloting anincentive scheme thatrewards employees for meet-

ing targets over a three-yearcycle. Hakan Bryngelson,chief executive, says thecompany's salary structureis competitive with rivals inthe private sector, but headmits it is hard for state-owned companies to repli-cate the share option pro-grammes that are increas-ingly a feature of Swedishcorporate life.

It is too early to judge thesuccess of the Swedish pro-gramme. However, it is clearthat it marks a distinctiveapproach to managing state-owned companies. This is asrelevant to countries thathave already sold off bigchunks of their assets, butstill have some more diffi-cult cases on their books, asit is to those just startingout on the privatisationprocess.

As one observer of theSwedish programme says:"This is the opposite of whatMrs Thatcher was doing inBritain in the 1980s. Shetook the view that statecompanies would onlybecome efficient once theywere in the private sector,and she didn't mind sellingcom-panies cheaply toachieve her aims. TheSwedish way should ensurethat taxpayers get reason-able returns, if and whenthe companies that it ownsare eventually privatised."

© THE FINANCIAL TIMES LIMITED 2003