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What do Ozempic, Lego bricks, and Carlsberg lager have in common?
Their parent companies all hail from Denmark, for one, but they also share a corporate structure that’s common for the Nordic country — a system in which a foundation holds a majority of the voting power.
About half of Denmark’s 28 largest companies share this dual-class structure, where the stock is divided into Class A and B. Class A shares are typically not available on the public markets. At Novo Nordisk (NOVO), those shares are wholly owned by the Novo Nordisk Foundation, which also holds a small amount of Class B shares.
Since each Class A share is entitled to 100 votes while each Class B share only gets 10 votes, the foundation controls roughly 77% of the voting power, despite holding around 28% of shares.
The blockbuster success of GLP-1 drugs has put Novo Nordisk — and the 100-year-old company’s unique structure — in the spotlight. On Monday, the pharmaceutical giant was named Yahoo Finance’s Company of the Year after an impressive year of sales for the diabetes-turned-weight loss drug Ozempic.
An insular structure with pros and cons
In many ways, Novo is not all that different from tech companies like Meta (META) and Alphabet (GOOG, GOOGL), which famously and controversially have dual-class structures that give founders like Mark Zuckerberg the majority of votes.
Novo Nordisk Foundation’s nine-person board includes former Novo CEO and current board chairman Lars Rebien Sørensen, University of Copenhagen professor Liselotte Højgaard, Massachusetts Institute of Technology biologist Christopher A. Voigt, and a number of employee representatives.
Concentrating voting power to one person or a select few has its own set of problems and advantages, experts contend.
“It’s rather insular, with pros and cons,” Cornell professor Nick Fabrizio told Yahoo Finance. “So you’re not as at-risk from short-term investors or corporate raiders or short sellers. … But, on the other hand, it’s hard to make changes from the outside.”
That insular quality is a large part of where the controversy comes from, as critics and concerned academics suggest that it’s a more autocratic system, one that could be abused by the wrong people.
“As a corporate governance expert, I will say that dual-class structure is just a bad design,” Stevens Institute of Technology professor Suman Banerjee told Yahoo Finance. “But I’m also hesitant to say that Novo Nordisk has done anything bad, and they’ve survived for so long.”
Banerjee is careful to note that, while Novo Nordisk does have a dual-class share structure, it seems to have truly worked for the company.
“The market is assessing our performance on a daily basis, but then we also have this stable anchor in the foundation, which has a controlling stake, and they have a forever mindset in what we do,” said current Novo Nordisk CEO Lars Fruergaard Jørgensen in an exclusive interview with Yahoo Finance.
He added: “We’re not chasing short-term returns, but we’re really trying to build value for the long term, with an eye for the social responsibility, the environmental responsibility, and of course, staying a healthy company from a financial point of view.”
By definition, dual-class structures aren’t necessarily forever — and while they have benefits, especially early in a company’s life, those benefits may degrade over time.
“Founders will argue that they have a vision, and they need a period of time in which to implement that vision and strategy,” Alon Kapen, partner at Farrell Fritz, told Yahoo Finance. “The studies also show that over time — that’s 5, 6, 7, 8 years over time — that utility diminishes. So, what we’ve seen is efforts to sunset these dual-class structures to no more than seven years.”
The Danish brand of capitalism
Denmark has a long history of industrial foundations and is a world leader in the model. Beyond Novo, Carlsberg, and Lego, other Danish companies predominantly controlled by foundations include shipping behemoth Maersk, manufacturer Danfoss, and pharma rival Lundbeck.
A 2018 Deloitte report showed that Danish foundations had been steadily growing their resources over the first decades of the 21st century. It’s a model that has kept many companies linked to the Danish economy, while competitors merged, got acquired, or became increasingly international. (One example of what can happen: Swedish Astra and British Zeneca merged in 1999; AstraZeneca’s (AZN) headquarters is now in the UK.)
Though the model has gained and retained steam in Denmark, it has long been out of vogue in the US. There were many foundation-owned firms in the US at the beginning of the 20th century before the Tax Reform Act of 1969 essentially nixed the model.
The relationship between growth and a dual-class system is complex. On one hand, experts say the system allows the company to avoid shortsightedness and pursue long-term goals over quarterly results.
However, when it comes to profits, the objectives of the foundation can be somewhat at odds with corporate aims.
“One of the [Novo Nordisk] Foundation’s two objectives is to provide a stable basis for the commercial and research activities conducted by Novo Nordisk (and the other companies in the Novo Group),” said Kapen. “This objective would tend to promote growth.”
Kapen added: “The other objective is to support scientific and humanitarian purposes — a noble objective but not one that necessarily promotes economic growth.”
The foundation, however, is a beneficiary of Novo’s commercial success. As its profits have grown over time, so have its dividends — providing greater funds to the nonprofit, which gives grants toward preventing cardiometabolic diseases, solving health inequities, creating sustainable technologies, and supporting the life sciences ecosystem.
Over 2021 and 2022, the foundation has donated over 16 billion Danish kroner — roughly $2.35 billion — and is projected to give out more than 9 billion kroner this year.
It can be a mutually beneficial relationship, but investors should ultimately proceed with caution when it comes to Novo and other dual-class structured companies, experts say, as there is no way to affect change in a downturn.
As OpenAI’s saga has shown, having limited visibility into the decision-making of the controlling entity makes it more important for investors to understand the risks of the company. That lack of transparency and consolidated voting power could also be a drawback during sell-offs, as institutional investors can’t band together to demand change, so the only way through is out.
Despite the inherent risks, Novo right now benefits from a simple reality — it’s hard to argue with success.
“Novo is a huge success story,” said Kapen. “It’s got some blockbuster drugs. They’ve been in the news a lot, but the stock has quadrupled over the last few years, so maybe that’s an argument in favor of the dual-class structure.”
The Novo Nordisk Foundation didn’t return Yahoo Finance’s request to be interviewed for this story.
Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on X, formerly Twitter, at @agarfinks and on LinkedIn.
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