Ingvar Kamprad began strategizing Ikea’s succession in his thirties, before his sons were born. At the time, the company was in the midst of a frenzied international expansion. Most entrepreneurs would not have paused to plan their legacies, but Ingvar had higher ambitions than market domination…
Efficiency permeates all aspects of Ikea. It invented flat-packed furniture, minimizing shipping expense and transferring labour costs to the customer. Assembly instruction booklets use diagrams without text to reduce the page count.
On a personal level, Ingvar’s obsession with thrift may seem like an idiosyncrasy, but it’s the foundation for Ikea’s longevity. The organizational structure is designed to avoid taxes and maximize profits. Ingvar sees this as the basis of Ikea’s longevity. “I ensured Ikea could be kept private to secure financial independence and a long term view on investments and business development,” he stated. “I refer to this as securing ‘eternal life’ for Ikea.”
Ingvar began strategizing Ikea’s succession when he was in his thirties, before his sons were born. In the 1970s, he assembled a team of attorneys from across Europe to determine which country’s laws would best protect his legacy. The company was in the midst of a frenzied international expansion. It was so overwhelmed that German executives mistakenly opened a store in Koblenz instead of Konstanz.
Most entrepreneurs would not have paused to plan their legacies, but Ingvar had higher ambitions than market domination. By taking advantage of the pro-business legislation of several countries, Kamprad guaranteed his family’s ownership, shrunk the tax burden to almost nothing, and created a durable culture for employees.
Now 86, Ingvar’s health is in question, but his business model is not. Because Ingvar incorporated a succession plan at an early stage, the corporate DNA of IKEA is engineered for immortality.
KEEPING IT IN THE FAMILY
At the heart of Kamprad’s strategy for Ikea’s longevity is its complex, two-pronged corporate outfit that has long been hidden from the public eye. In 2011, Julia Gin, a legal analyst for the International Labour Organization, published an article documenting its intricately related entities.
The Dutch Ikea foundation owns the physical stores and their business operations. Its five-person executive committee has two seats designated for the Kamprads to maintain their influence.
The other half of Ikea, the Interogo Foundation, is run by Ingvar and his three sons — Peter, Mathias and Jonas. The Ikea Concept belongs to Interogo. The “Sacred Concept” controls the brand name, the trademark rights, and regulations. Consequently, Interogo is inextricably bound to the Ikea Foundation. The physical business is crippled without the Concept. If a store deviates from it, Inter Ikea Holding, a subsidiary of Interogo, has the authority to cut off supplies and remove the offending store’s Ikea sign.
Ikea’s first-ever annual report, in 2010, stated that “sustained profitability gives us resources to grow and offer a better life for the many.” Describing a better bottom-line as altruistic may sound unconvincing, but Ikea’s utopian bent originates from the Swedish social-democratic movement. The philosophy advocated the home as a symbol of class equality. Ingvar quickly saw the mass appeal of the movement and commercialized it. Because of Ikea, college students can buy attractive furniture, as can transient professionals and divorced men. Ikea makes it available and affordable, serving 655 million customers in 2011.
In 1943, Ikea was registered as a company in Sweden but Kamprad was unhappy with the high inheritance and wealth taxes. He decided to emigrate, describing the move as a way to avoid double taxation.
“As an emerging global company, I also had to ensure that we were structured in tax efficient ways to avoid the burden of double taxation,” he explained. “When the family and I moved abroad, we automatically received permission from the National Bank of Sweden to take with us 100,000 kronor per member of the family. That half-million was enough to start a foundation in Switzerland, where real estate may not be owned by foreigners, and to found a whole series of companies in different countries with different tax regulations — from Switzerland and Holland to Panama, Luxembourg, and the Dutch Antilles. Our many lawyers quite often had completed registration of companies in their back pockets in reserve, so the process was soon completed and not particularly expensive. Many of the companies have never been used.”
Ikea made a series of moves to reduce international tax impacts. The Ikea Foundation now operates out of the Netherlands and the Interogo Foundation is headquartered in Liechtenstein. Both foundations are legally regarded as charities and tax exempt.
Kamprad has changed his own address several times to take advantage of tax breaks — he left Sweden for Denmark and finally settled in Switzerland, where he enjoys forgiving taxes for wealthy foreigners.
THE WORLDS BIGGEST “CHARITIES”
The Ikea Foundation, established in 1982, became the world’s biggest charity when Kamprad gifted it 100% of his equity. Due to the Netherlands’ loose definition of charities, the Foundation has been able to retain most of its earnings. It is valued at $36 billion and took in $4.1 billion in 2010.
The Kamprads weren’t so lucky in Liechtenstein, which seemed the obvious choice to preserve the family’s capital for the next generation. Unfortunately for Ingvar, in 2010 his lawyers learned that he could not benefit from the Interogo Foundation’s funds. The foundation had donated too little to receive charity status, even by Lichtenstein’s lenient laws. Kamprad lost $11 billion and dropped from No. 11 to No. 162 on the Forbes 2011 billionaires list.
The continuity of Ikea’s corporate culture, one that Ingvar carefully cultivated, is key to sustaining his legacy. Managers are still trained by Ingvar in Älmhult, IKEA’s birthplace. It’s a small town in Smäland, an austere, remote region of Sweden known for infertile soil and extreme winters. It’s also a landscape where financial imprudence means death. Ingvar’s grandfather, who purchased a farm near Älmhult, became so frustrated with his mounting debt that he shot his hounds and then committed suicide. Describing waste as a mortal sin in The Testament is not a rhetorical flourish. Ingvar is deeply opposed to extravagance and makes no exceptions. Executives fly economy class and are denied reserved parking and private dining rooms.
This egalitarian view extends to the Kamprad children. Though the sons each chair a board of Ikea, Ingvar has been tentative about appointing a successor, and there’s no clear front runner for the role.
It’s a classic dilemma for a wildly successful, singular leader: he’s singular. How can anyone fill his shoes? Ingvar founded Ikea at 17. He spent 70 years painstakingly developing its unique retail formula and business model. The company’s culture and the founder’s personality are one and the same: anti-status, minimalist, populist. Ikea has dubbed itself “The Life Improvement Store” because it aims beyond selling furniture or attracting customers; it’s recruiting converts to a better way of life.
Ingvar has a legal guarantee that his philosophies will survive as long as Ikea does. But can it survive once he’s gone? Is the organizational culture stronger than the founder’s personality? Because of his incredible foresight, Ingvar is confident that Ikea’s business model will endure, but he has reservations about his sons’ involvement in it. They will remain owners, but their future as leaders is more dubious.
We’ll have to wait to find out.
Questions to consider for your business:
- How thoroughly have you minimized tax burdens?
- Has your business model been built around your personality?
- Can your company’s culture survive an ownership transition?