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Wahlroos unwilling to compromise on corporate capital returns

24.10.2012 16:20
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"How much less return is a managing director allowed to achieve in order to save a single job?"

Pro News/Katja Palhus/Juhani Artto

“How much less return is a managing director allowed to achieve in order to save a single job? If you start thinking this way, you lose touch with how you should rate your work as a managing director,” the prominent Finnish business figure Björn Wahlroos said on Wednesday at the seminar of the Nordic Financial Unions (NFU) in Helsinki.

“A company must always make the best possible return,” he insisted.

Wahlroos, who chairs the boards of Nordea and Sampo, sees no alternative to this way of thinking, and does not believe in the existence of patient and far-sighted shareholders. “If a pension fund is managed so that pensioners get five per cent less return than would be possible, the fund’s managing director has to be changed, no matter how socially responsible the fund’s activities are,” he explained.

Wahlroos has earlier stated that returns on capital investments should amount to 15 per cent or more. “It’s clearest if companies think about their returns, and other matters are left to legislation,” he said.

Concerning cases where Nordea’s and Sampo’s competitors use their funds to support civil society and local companies, Wahlroos was asked whether this is a good investment or a waste of money. “I don’t believe in 90 per cent of what such companies tell us,” he replied. “If I ask about environmental issues I believe that I’ll be shown beautiful brochures that will be thrown into the bin as soon as I leave the room.”

According to Wahlroos, environmental concerns and other aspects of responsibility are complex issues for businesses. Companies have to prove to their shareholders that their activities are rational in the long run. “It’s more honest to focus on targets for returns that can be explicitly measured,” he added.

High returns – high risks

A contrasting view was set out in a video presentation by Thomas Franzén, who recently headed a financial crisis commission appointed by the Swedish government. “Winners adapt by accepting lower returns,” he said, stating that demands for high returns on capital are short-sighted.

“High demands lead to the taking of risks from the perspectives of companies and society. Interest rates and inflation are now low, making it especially difficult to achieve the kinds of staggering returns that were earlier possible,” explained Franzén.

Franzén is critical of the way companies continuously distribute dividends among shareholders. He prefers investments that guarantee stability and growth. “Trade unions are also shareholders, and they should take their shareholders’ responsibilities seriously,” he added.

Return on capital is not a conventional item for the agenda of a trade union seminar, but the topic was chosen since demands for high returns on capital lie behind many current trends in business life.

“It’s because of such demands that jobs are cut, companies are reorganized, and employees are urged to work ever more efficiently,” explained Christina Colclough, General Secretary of the NFU.