Sas - Corporate Governance

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This report is intended to analyze the corporate governance structures and mechanisms of SAS AB and provide an overview of the competitive environment the company operates in. Eventually, a final recommendation about the “buy or sell” decision will be given.

1.

INTRODUCTION

SAS AB is a multinational company operating in the field of air transport. Founded in 1946 as a consortium of local Scandinavian airlines, it is the flag carrier of Denmark, Norway and Sweden. The company is the largest airline of Scandinavia in terms of number of destinations and passengers. The Group complies to the Swedish company law and the Swedish Code of Corporate Governance. SAS AB offers its services through three airlines: Scandinavian Airlines, Widerøe and Blue1. The segment includes SAS Cargo, involved in the field of mail and air freight services, SAS Ground Handling, offering ground handling services and Spirit, a cargo handling company. As we can see from the balance sheet, SAS AB has experienced an overwhelming period of turbulence in the past years. This was due to the general economic downturn and the increased competition in the airline industry. As a consequence the company has incurred in significant financial losses. No dividends have therefore been issued since 2002. Although the main profitability measures (such as ROE, ROA, Net Income and Cash Flows) are currently still negative there is evidence that the company is performing better as their trends are moving upwards (Appendix, Table 1).

2. CORPORATE GOVERNANCE 2.1 OWNERSHIP STRUCTURE The ownership of SAS has a medium degree of concentration: the three largest shareholders own 50% of the company. It is important tough to understand the identity of these owners (Appendix, Table 2). The largest shareholders are the Swedish State (21.4%), followed by the Danish and the Norwegian States (14.30% each). As far as these three investors hold a significant share stake in the firm and cooperate with one another in order to achieve common goals, we could refer to them as blockholders, i.e. shareholders which have a significant influence over the company. According to SAS Corporate Governance Report, each share of the firm confers the right of one vote in the Shareholders’ Meeting, and “no restrictions apply on the number of votes any shareholder is entitled to” (Annual Report 2012). The main blockholders have a considerable power to shape the outcomes of the Shareholders’ Meeting,

that is the company’s highest decision-making body. We could argue that the ownership structure is the result of a strategic choice made by the Scandinavian governments in order to enhance the benefits for every stakeholder. The three governments have invested in this company also in order to enhance Northern European infrastructure and sustain local employment. As theory suggests, the larger the shareholder, the greater the incentive it has to monitor the management (Thomsen and Conyon, 2012). We therefore assume that the blockholders have a great motivation to overcome the problem of information asymmetry that may arise due to the separation of ownership and control. There are also complex control mechanisms that have to be considered, such as pyramids. For instance, the fourth largest shareholder, Knut and Alice Wallenberg Foundation, holds a significant share of SEB, which in turn holds some shares of SAS AB, resulting in a larger indirect ownership of Scandinavian Airlines by the Wallenberg Foundation. The same applies to the Swedish and the Norwegian governments, since they are shareholders of Nordea and DnB respectively (Andreas Krog, 2012). Being a Scandinavian company, SAS AB is administered according to the stakeholder corporate governance model. This model calls for the maximization of value creation for all stakeholders. It is important to bear in mind tough, that due to the separation between ownership and control, agency problems may arise. Type 1 agency problem is not likely to...
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