Allt Gott

the whole Sto|y

A Thesis by Krist铆n Agnarsd贸ttir

Copyright 2010 This book is a non-commercial work produced as a student research project for educational purposes only. No part of this book may be used or reproduced in any manner without written permission from the author, except in the context of reviews.

Every reasonable attempt has been made to identify owners of copyright. Errors or omissions will be corrected in subsequent editions.

Written, designed and produced by: Krist铆n Agnarsd贸ttir kristinagnars@gmail.com Academy of Art University 79 New Montgomery Street, San Francisco, CA 94105 Department Director Phil Hamlett

www.alltgott.org

the whole Sto|y

A Thesis by Krist铆n Agnarsd贸ttir

This project is dedicated to Iceland, the best little club I could ever want to belong to.

contents

16 Fjรถlskylda (Family) 32 Hreint (Clean) 44 Samvinna (Together) 50 Hugmynd (Idea) 78 Vegur (Road) 104 Merki (Brand) 138 Vรถrur (Products) 154 Kynning (Promotion) 167 Viรฐauki (Appendix)

todo bien

alles gut

tout vas bien

Allt Gott: means ‘all the good’ or ‘everything good’ as a description. It can also mean ‘everything is good’, as in response to a social greeting (‘How are you?’).

It can also be used in a similar manner as the phrase:

–It’s All Good

e. family

fjölskylda A nation so tiny and homogenous […] almost requires a new classification. Really, it’s less a nation than one big extended family.

(Michael Lewis, Vanity Fair, February 2009)

Through Thick & Thin

For Better or for Worse

Just Deal With it

Calling Iceland close-knit is an understatement if there ever

This close-knit family is also completely related, literally.

was one. Sharing that small piece of land far up in the North

In fact there is a site where Icelanders can trace their ancestry

Atlantic; the dark almost never-ending days of winter, and

to see how closely they connect to one another. The gene

the endless sunlight of the short summer, calls for a support

pool is so homogenous that it is being singled out for research

system and companionship and that is hard to match.

to isolate disease creating genes within our DNA. The

During the long winters, where it seems you will literally

Icelandic DNA is not that of some sissies. The forefathers

never see the light of day again, locals seek solace in each

of Iceland have suffered through many great tragedies and

other. They look for comfort, support, and unity in the dark,

hardships. Awesome disasters, extreme weather and a land

ultimately finding the humor and coping mechanisms

that refused to provide. For instance the volcanic eruption

necessary for surviving. When the sun finally does emerge,

of Lakagigar in 1784, the world’s largest recorded lava flow,

it feels like it will never set, and this is when the party

poured for over eight months and killed more than half of

really begins. The joy shared amongst Icelanders over the

the nation’s livestock. This lead to a famine that killed over

simple things is an amazing experience. Enjoying a glass

25% of Iceland’s population. Volcanic eruptions, avalanches,

of wine outside in the sun with a friend, grilling fish on the

famines, and epidemics, which have lasted until modern times,

patio, taking a walk without being equipped like an arctic

taught Icelanders valuable lessons. It taught them how to

explorer, these are some simple joys. There is also the daily

survive. They had to deal with the insane climate, eat just

pleasure of not going to and from work in complete darkness.

about anything, and most importantly, adopt the attitude

This is what gives Icelanders an extra hop in their step,

necessary to keep going. This attitude has thankfully been

a gleam in their eye, and turns the smirk to a laughter that

passed down through generations. In today’s Iceland

lingers. These joys are best shared with as many people

there is still a very low tolerance for whining; there’s a strong

as possible, for as long as possible. Because together–as a

work ethic, and an atmosphere that leaves little room for

family–they have survived yet another Icelandic winter.

mucking about and complicating things.

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n at i o n a l p r i d e

More patriotic than a Texas state fair. We have the b e s t water, t he strongest men and the prettiest women. We like to say Napoleon had an Iceland-syndrome.

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Pride & Patriots In the United States, national pride is linked with patriotism,

ways of demonstrating superiority. They have no army, no

flag waving, NRA memberships, Republicans, conservative

clout to speak of when it comes to international relations.

values, and aggressive foreign policy. But this is not what

Iceland was passed around between Scandinavian monarchies

Iceland’s national pride consists of. Icelandic pride is the

for hundreds of years, and the nation has always fought for

love of the land, the nature, the magnificent panoramic views

its independence tooth and nail.

at every turn, the unspoiled quality of our wast and desolate

So perhaps it is only natural for them to want to shout their

highlands, and the clean water we have been blessed with.

pride from every cliff. However, it is not as obnoxious when

Icelanders are extremely proud of their literature, language,

the micro-nations do that. Some say it borders on being cute,

poetry, and appreciation for the arts. They are proud of the

like that little terrier in the park with the attitude, you

values they share, that they are all in this together, that they

know the one – barking at the big Rottweiler.

want everyone to be born as equals – not just on paper.

This is not an unnatural ego for a small nation to develop, but pride can turn to bragging. Icelanders overestimate themselves as small nations often do. In any conversation with foreigners Icelanders will, as if on cue, mention at least three of what they would consider Iceland’s latest feats.

They brag about the quality of Iceland’s stuff, quantity of it, or what place Iceland ranked in a recent world poll.

An Icelander might be surprised that everyone hadn’t heard that Iceland placed in the top five in the latest UN International Water Quality poll or the like. It certainly was talked about it in Iceland. Perhaps this is the small nation making up for a lack of other things. Iceland has no typical

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S h e e p & P e o p l e r at i o

Even though less than five percent of the population is engaged in agriculture, the sheep still outnumber Icelanders. At one point in time people barely managed to outnumber the sheep, accounting for 50.1% of the combined population. This is mainly attributed to the eruption of LakagĂ­gar from 1783 to 1785 which had disastrous effects on agriculture and wiped out most of the sheep population. Since Iceland at the time relied on the sheep so much for sustenance, it took a toll on the human population as well.

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317,630 I n h a b i ta n t s

January 1, 2010

Av e r age age

l i f e e x p e c ta nc y

G ov e r n m e n t

37.2

81.5

930AD

Average 2009

2009. Women 83.3, Men 79.7.

We love to protest and overthrow our governments. Google it.

The ruling chiefs established a republican constitution and an assembly called Alþingi, the oldest parliament in the world.

Ge o gr a p h i c a l s i z e

Size wise, think Virginia. The distortion of flat maps always make us look a little bigger. Total 39,769 mi 2/103.000 km 2 . 63% of which is in complete desolation.

The eruption shown here is Eyjafjallajökull – sorry about that one.

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L i t e r ac y

99.9%

4.38

Ages 15-74.

Original works produced yearly in the Icelandic language per 1000 inhabitants.

online

93% Households with computers.

Per capita publication of books and magazines is the highest in the world.

s m a rt a l e c

33% B.A. or higher. 30-34 year old.

k n ow you r l i m i t s

Fa m i ly va l u e s

758,000 km2 Sea area within national fishing boundaries or 293,000 sq. miles.

Iceland has exclusive rights to lucrative fishing grounds up to 200 nautical miles off the coast. This is completely unheard of anywhere else in the world. The only war that Iceland has ever fought was to protect those fishing grounds, and fish was, until recently, the main export of Iceland.

f o o d pa l e t t e

c h r i s t m as s p i r i t

13 Among the things eaten during the off season are sheep heads.

Icelandic Santa Clauses are made up of 13 brothers – more like hooligans than jolly old fat men.

New parents get nine months paid leave, six for mom and three for dad. This ensures that parents have enough time to bond with the new family member. Mothers are less likely to exit the workforce for an extended period of time, or even entirely.

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6+3

public Sw imming pools

We could have a pool party for the whole country. 0.39375 pools per 1000 inhabitants. Equal to San Francisco having 300 swimming pools.

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Frozen Assets

The Week That Was Iceland, a nation of only 317,000 inhabitants finds itself in a

What Iceland does know is precisely how much trouble

unique situation, they need to find new ways of surviving.

the society is in. How much this will affect the services

Early October 2008, Iceland’s economy collapsed in a span

provided, the health care, the education, these are the corner

of only several days. The collapse sent the number one

stones of the Icelandic society. Iceland knows that if it does

country on the United Nation’s human development index

not find ways to innovate (new opportunities, new industries)

into a complete financial crisis. What happened was that

it faces a very dark future.

Iceland’s three major banks went under in one week, and were consequently taken over by the Icelandic government.

Brain Drain

By the fall of the first bank, a big snowball effect was already

Now, two years after this catastrophe, Icelanders feel they

in place–within a few days the other two large banks went

have been patient enough. Long-term unemployment has

down as well. Entire industries were temporarily wiped out

started taking its toll on the nation, families, and individuals.

with the fall of the banks, due to a credit crisis. This thesis

Industries have been sitting idle at their end of the table,

does not go into the details of the collapse, as that is a topic

hoping the solution will come to them.

all on it’s own.

People have lost faith in their elected representatives,

1

The total of banking losses is still being debated for many

governments have been overthrown and the one currently

reasons, but it is a lot. The nation’s debt is still being figured

in power is heavily debated every day. Understandably

out, but it is many times that of the Icelandic GDP. The

so, as unpopular decisions and difficult cuts need to be made.

stock market did not crash, it collapsed. All of this will be

Iceland is also facing the “brain-drain” effect. The foreign

figured out with time, but the losses are tied to the national

workforce in Iceland diminished as workers returned home

currency, which was taken off the market by the government,

from a collapsed job market in Iceland. Furthermore,

and is being held on life support currently by the Central Bank.

Icelanders have now begun looking for greener pastures. Big

1 The Special Investigative Committee’s executive summary for the English language can be found in the appendix.

heavily due to cutbacks and lack of credit) are now unable

industries such as health care and technology (suffering

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to compete with their neighboring countries. Those studying abroad are not returning home. Which is a serious issue on its own–their education is funded in part by governmental loans for the direct purpose of educating the country, and building its future. A final negative factor is the regulations of the International Monetary Fund. Their goal is to help the bottom line, not the family. This is a bitter pill to swallow for a country taken down by that very same thinking.

Needless to say, with all that has happened, Iceland faces big challenges in its economic future. However, this situation, like every cloud, has a silver lining. It is a nation filled with bright, educated minds who have always been resourceful and very hard working. The danger is, if they do not gain hope in their homeland, mass emigration will become a reality.

However, this situation, like every cloud, has a silver lining. It is a nation filled with bright, educated minds who have always been resourceful and very hard working. The danger is, if they do not gain hope in their homeland, mass emigration will become a reality.

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e. clean

h|eint Iceland has all the makings of a unique manufacturing landscape, clean air, an abundance of renewable energy, and a protected workforce.

h o t s p r i n gs

wat e r fa l l s

Produces Geothermal Energy and some serious smells.

Used for Hydropower and pretty tourist pictures.

600 200

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Second Glance

At first glance, Iceland is a cold, barren place, and the idea

are easily quantifiable in the bottom line of any company,

of manufacturing in these harsh conditions would be less

but it is not the only way that products are green.

than ideal. However, there is an unseen bounty of resources

The third advantage of manufacturing in Iceland is the social

that actually give a great advantage. With the increasing

impact of a work environment that is supported by strong labor

concern over the ecological impact of manufacturing, the

laws. The country is completely unionized, so any products

biggest advantage is the advanced levels of eco-friendliness

coming out of Iceland come with a clean conscience.

that already are in place. Iceland has extremely clean energy sources and about 81% of its primary energy source is

Always Small Farms

derived from domestically produced renewable sources.

The production of dairy, lamb, and other agricultural exports

Hydroelectric and geothermal energy production are the

originates on small family farms. While other countries

sole sources of power.

are trying to battle the food industry’s factory farms by

Up until now, the only industries taking advantage of the

supporting small farms and traditional methods, Icelandic

geological qualities of Iceland have been dirty industries

farms never deviated from this ideal. This is not to say that

that need obscene amounts of electricity. The process of

they are primitive. In fact, they are utilizing advanced

smelting metals, like aluminum and iron, is the main abuse

technologies to insure quality, rather than stretch the limits

of Iceland’s cheap power. In turn, these giant, international

of production. All of the farms in the MS Icelandic Dairy

companies use their presence in Iceland to green-wash their

Cooperative produce using only 100% carbon-free electricity.

image abroad. But the Icelandic people want and believe

This environmental advantage exceeds the counterbalance

the country can stand for something better.

for the methane output inherent in local ruminant agriculture.

The second advantage is the abundance of clean, pure, water.

The production of lamb follows tradition; the sheep are left

There is no difference in water quality between what is

free to wander the countryside. The concept of ‘free range’

straight from the tap and the best bottled spring water.

doesn’t begin to describe their freedom. Their diet includes

This means that any liquid products are imbued with this

many wild herbs, which gives an excellent flavor to the meat,

purity, as is any food production. These natural resources

in essence the sheep are marinating in the fields.

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U t i l i z at i o n o f ge o t h e r m a l e n e rgy

Industry

Fish Farming

Heating

Snow Melting

Green Houses

Swimming Pools Electricity Generation Total use of geothermal energy in 2008 was 39 PJ.

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A l lt G o tt T he W hole S tor y

H r e i nt

Calling the Icelandic shee{ ‘free range’ is, at the ve|y least, an understate\ent.

Exports of goods

Up until recently, marine products were Iceland's main source of income and export. The fisheries shaped their export industry and were only surpassed a couple of years ago by industries such as aluminum factories, taking advantage of the abundance of energy available.

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miscellaneous 8.2%

agricultural 1.5%

Marine Products 41.7 %

INdustrial products 48.6%

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A l lt G o tt T he W hole S tor y

H r e i nt

Plenty of Fish in the Sea? For most of its history Iceland has kept to itself, staying out of international disputes. However, when it came to fishing, it’s main source of livelihood and export economy, Iceland was prepared to fight to protect and expand its waters.

Iceland’s decision to increase its territorial fishing territory, and the resulting skirmishes with British vessels, became known as the “Cod Wars”.

The wars were characterized by clashes between Icelandic gunships and British warships. Trawlers and vessels were colliding off the coast of Iceland. British vessels fishing under security escort of the Royal Navy. Nets were cut, and shots were fired, some were blanks, but some weren’t. Finally in 1976, a stopgap agreement was made with Britain. Since then British fishing boats have respected the 200 mile limit, and no new violence has erupted. Interestingly Iceland claims the tiny islet of Kolbeinsey, 65 mi north of the mainland in the Arctic Ocean, as part of the country. It is little more than a tiny speck, about 970 sq.feet, and is continually being eroded. Eventhough it is expected to disappear in the near future, Kolbeinsey adds 3700 sq. mi to Iceland’s territorial fishing waters. This makes it the most important piece of offshore rock in the North Atlantic. At least while the island is still there.

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e. collaboration

sa\VINNA Iceland needs to go back to its roots and what has always been its forte–working together.

Bringing Back The Classics

Common Goals Now, in Iceland, government means good. There is a

began in Iceland, the farmers needed to move from being

deep-rooted faith in the role of government in Iceland.

self-sufficient farms to more market driven structures. The

Throughout history the government has aided people,

milk farmers formed a collective with the support of the

households, industries, and commerce with good effects.

Icelandic government (subsidizing 25% of all milk farmer’s

We feel unified with our government on a grand scale, and

starting costs) known as Mjólkursamsalan (MS Icelandic

not removed from it. The cooperative movement has a long

Dairy). They then joined forces in the processing, selling,

history in Icelandic society; its food production, and

distribution and marketing of their products. Today the

commercial activities. It is probably the main reason that

coopertive organization includes over 700 of Iceland´s family

Icelanders managed to rise from poverty, to relative

owned farms and other milk producers across the country,

prosperity, in the short period of time after World War II.

all working together towards the same goal. Their manifesto

All the way up until the late 1990’s, Icelandic exporting

is to farm ethically and treat livestock humanly, in keeping

activities were organized into cooperatives. Since fishing

with Iceland’s progressive standards of livestock wellbeing.

was Iceland’s main export for a long time, it is one of the

The lamb and wool industries have changed the least over

bigger cooperative systems in the country. The members of

time, the old way of doing things is still the best way. All

the fishing cooperatives were the owners of the fishing fleets.

summer the sheep are left free to wander and feed on the

By uniting their sales efforts into a few cooperatives, it was

wild grasses and herbs. In the fall, farmers ride together into

believed that it would maximize the value of the fish exports.

the mountains to retrieve all the sheep. They are herded

The boats in each village sold to a small company commonly

into a coral shaped like a wagon-wheel, where the sheep are

known as the freezing plant. These would in turn answer

sorted and split up accordingly as marked by their owner.

to a general exporting cooperative which took care of logistics

This roundup is cooperation at its purest, and is a moment

and distributing. Similar structures existed for dairy farmers

of national pride. Anyone with a connection to one of

and commerce operations. Icelandic dairy has a history rich

these farmers will try to get involved and help out, or at least

in cooperation and joining forces. As urban development

bring their kids and watch. These sortings become little

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A Do Over festivals of autumn, and after the day of hard labor everyone

Although many of these structures still exist, some missteps

has a couple shots of BrennivĂ­n to celebrate.

were taken in recent history. The younger generation

Many of the commerce collectives began with the farmers

did not have much faith in the cooperative system, so the

joining forces to buy feed and supplies needed for their

cooperatives were broken up, and put on the stock market.

farms. This teamwork expanded to the exporting of their

Smaller exporters now started to compete for the foreign

products and forming coalitions with foreign and domestic

customers. Investment companies took over some of the

buyers. Later on when these operations became well

collectives in the fish industries. This led to the declining

established, they opened shops to sell the imported goods

export value of fish. Supermarket chains bought out many

gathered in exchange for their exports. Those shops

commercial collectives. The break-up of the cooperative

prospered as the local general stores and began to pool their

structure transferred power from the food producers to

buying and distribution efforts with neighboring stores

the food distributors. With the economy struggling, these

using the collective model.

companies have suffered great losses. Thankfully, it is not too late for Iceland to turn the ship around, and go back to what always worked for them: working together with a unified goal of efficiency and shared interests.

Icelanders should revisit the old days of cooperatives, and come together as one; they have been weakened on an individual level. This is the way to learn from past mistakes, move on, and improve as a nation.

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The nation needs to go back to its roots, and to the things that have always been its fo|te.

Iceland’s strengths lie in the natu|al farming, the dai|y products, quality fish, the sustainable use of wool and salmon skin, cultural he|itage, and old language. Its potential lies in the mom & pop shops c|eated at kitchen tables.

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e. idea

huG\ynd A new way of doing things the old way.

Backstory

Far, Far Away A year into my studies, Iceland suffered an economic crisis,

necessary to make life in Iceland bearable. The faith in our

a collapse of the entire economy. The over stretched banks

people was under attack. The faith in our companies,

went down within one week, bringing industries with them,

institutions, and government vanished as anger spiraled out

and eventually, the people. Being on the other end of the

of control. People took to the streets, lashing out by

world, in a bountiful land that is Northern California, was

throwing eggs at the house of parliament, the banks, the

an odd place to experience what was going on back home.

politicians–anyone and everyone who could be blamed.

I was so removed from the situation, spending my days doing

People seemed to turn on each other too, and the nation

what seemed frivolous and unimportant in the grand

began to polarize into those who had “participated” in

scheme of it all. Meanwhile back home, protest went on as

the preceding boom (perceived as the wrong doers) and

the disbelief of my people turned into anger, then outrage,

those who had not.

and finally desperation. Where the government was merely managing to keep basic services going such as medicine

Lack of Reputation

imports. They barely kept international sanctions at bay, and

At this point in time, I was entertaining a few ideas for

kept the banks open, but offering heavily limited services.

my master’s thesis. But as time went on and the level of

The Icelandic government was not equipped at all to deal

desperation rose in Iceland, I couldn’t help but focus on one

with the colossal state of emergency, or even begin to

issue. How will Iceland survive this? What is the future?

figure out how they could get us out of it. Or, worse yet,

How can we innovate and adapt, as we have before? We

how they could take some of the responsibility.

deal with problems by rolling up our sleeves and getting

My personal experience of the situation was one of grief and

down to it, but roll up our sleeves and do what?

sorrow. Being so far away kept the anger to a minimum. My

I started thinking back to my years working in export,

heart broke as everything I love so much about my country

and my family’s time spent in the fishing town of Grimsby

was being attacked. The stability and social security, and

England, where my father sold and distributed fish to

equality not only typical of Nordic countries, but also

retailers and commercial industries. I thought of the struggles

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of Iceland as country-of-origin. Iceland has never been very

logical view of foreign countries, their people, and products.

pro-active at creating its own image, so its brand was

Nations are more open to some cultures than others.

subject to whatever topical issue was going on, by generalized

Politically we are friendlier to some of our neighbors. So we

predispositions, or by historical prejudices and assumptions.

might have different views and perceptions of the countries

Therefore, very unreliable; the brand seemed like a fluttering

both near and far. However, there is usually a common thread

leaf in the wind. A brand so weak that you wonder if there

which most people can agree on. A generalization that is

is a reputation left to consider.

What do We Do?

beyond cultural bias, political differences, or euro-centrism.

For example; while some wine makers in Napa might laugh at the idea that the French make the ‘best’ wine, we can agree

I have lived abroad for several extended periods of my life.

on the fact that they don’t make ‘bad’ wine. In fact, overall,

Cultural struggles, adaptation periods, and barriers are no

the French make good wine. The Italians, similarly, we can

strangers to me. It is only natural that I have become somewhat

agree make good food. This assumption can be made, whether

fascinated by the subject of national brands, perceptions,

you call yourself a pasta person or not–good food they do make.

and national stereotypes. The reputation of Iceland: myths,

We can state that beautiful design comes from Denmark,

untruths, and a handful of silly assumptions, I have heard

great engineering from Germany, and that state of the art

plenty about it. Sometimes I am amazed how much people

electronics come from Japan. I could of course go

know, but then I am also surprised by how skewed that

on and on. But on this line of thinking, I felt that there isn’t one

knowledge is. When Björk arrived on the music scene, and

thing that Iceland is known for. We don’t have a mantra, a

was followed by SigurRós, many made the assumption

big bullet point. I wondered if there was a way of being more

that we were all that peculiar, seriously. For a time, some

pro-active. We could be more conscious in our efforts, and

perceived us as lunatic whale murderers, when in fact we

stop separating marketing from manufacturing. I wondered if

hunted fewer whales than Alaska. But assumptions such as

there was another way of doing business for Iceland? I

these are only natural. People don’t always have a completely

wondered if there was a new way of doing things the old way?

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Business Concept

Allt Gott is a non-profit collective of Icelandic products and manufacturers. In essence, the collective is owned by its members and affiliates of the industries, and is run by a board of directors, as outlined in Owners & Organization.

They operate under a common manifesto and share a common goal. The goal is to expand Iceland’s role within the global consumer economy and strengthen Iceland’s export brand. The collective functions as an aid to nurture the Icelandic manufacturing industry. Giving existing

Allt Gott will represent Icelandic manufacturing both domestically and abroad, as well as show what Iceland as country-of-origin stands for.

companies a pathway to export, and new businesses a better chance at a sustainable growth.

Allt Gott furthermore serves as a strategic consultant for manufacturers, constantly monitoring the market and looking for new opportunities and/or niche markets for Icelandic products. Allt Gott will represent Icelandic manufacturing both domestically and abroad, as well as show what Iceland as country-of-origin stands for.

Through cohesive visuals, marketing placement, and pooled logistical costs, the manufacturers will operate in a better economical climate and have a better chance at developing their products and customer base. Finally, the collective, by strengthening the local manufacturing industry, aims at increasing Iceland’s income in foreign currency.

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Expand Iceland’s role within the global consumer economy.

Increase

Boost

presence of Icelandic products globally.

manufacturing industry in Iceland.

create

unify

Promote

a pathway that eases growing pains for new businesses in Iceland.

visual language of export goods.

Iceland as a place of sustainable manufacturing.

WEB SITE educate about Iceland as country-of-origin.

publicity

packaging

materials promoting Icelandic products.

for all participating export goods.

Collective of Icelandic exports and promotional strategies.

A l lt G o tt

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Ide a

Objective

Goals

Goals & Objectives The main goal of Allt Gott can be explained as follows in this OGSM diagram. An OGSM model is a tool to chart all objectives, goals, strategies, and measures of the collective.

It demonstrates their main purpose, and makes sure that everything functions logically as a solution to a problem and serves the common goal to strengthen the initial objective. strategies

The OGSM model is divided into the categories; Objective, Goals, Strategies and Measures. The first being the most clear, and the rest derived from that objective and it’s goals.

Current Situation This thesis started as a master’s thesis in Graphic Design at measures

the Academy of Art University, San Francisco, California.

Its sole creator, Kristín Agnarsdóttir, is an MFA candidate in Graphic Design. Kristín is Icelandic and has lived in the UK, US, and Spain, as well as her native country. Kristín has worked in exports, imports, and graphic design in the past and has considerable resources on the subject. Kristín developed all graphic materials, packaging, and all brand guidelines. The story of the thesis can be found in further detail at the beginning of this chapter.

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Owners & Organization

Board of Directors

Confederation of Icelandic Employers

Ministr y of Industr y, Trade & Tourism

Elected Member Representative

Future Organization & Management Allt Gott is a non-profit organization owned in part by the Icelandic Government and in part by its members, making it essentially a governmentally aided cooperative. The board is made up of; cooperative members, representatives from the Ministry of Trade, Energy & Tourism, and finally by representatives of the Confederation of Icelandic Employers & Industries or similar.

A management team will be hired. The team will consist of business professionals from the export and manufacturing industry; as well as the creator and Creative Director, Krist铆n Agnarsd贸ttir. A modern marketing team will be built consisting of people with skill sets and experience well suited for being innovative in modern marketing (social marketing, blogs, word of mouth etc). Allt Gott will set out to hire entrepreneurs that are used to being at square one, optimists that love a challenge, and finally those who are used to thinking outside the box. A focus will be on attracting employees with solid knowledge and a deep understanding of the global consumer market.

A l lt G o tt

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Elected Member Representative

Advisor y Senior Level Member

management

Chief Executive Officer

Chief Financial Officer

Human r esources 1

Creative Director

Director of Shipping & Distribution

Marketing Director

2011

2012

2013

2014

2015

2016

2017

2018

Chief Executive Officer

1

1

1

1

1

1

1

1

Chief Financial Officer

1

1

1

1

1

1

1

1

Marketing Director

1

1

1

1

1

1

1

1

Marketing Team (Incl. Director)

2

4

5

5

5

5

5

5

Distribution Director.

1

1

1

1

1

1

1

1

Distribution Team

2

3

4

4

5

5

5

5

Creative Director (Executive)

1

1

1

1

1

1

1

1

Creative Team (Incl. Director)

1

2

2

2

2

2

2

2

Administration & Accounting

1

2

2

3

4

4

4

4

11

16

18

19

21

21

21

21

Total Staff 1

Management Case Scenario.

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Product Description

Pooled Shipping, Insurance, and Distribution costs. access to experts' knowledge of the foreign market.

Unified & Cohesive visual message. efficient, effective Communication, and Logistical Services.

Competitive Advantage

â&#x20AC;&#x2DC;econo\ies o< scale.'

Access to local ma|keting >now how and ex{ertise.

Ex{osure To the |ight niche o| mass \arket.

Production & Services

Derivative Products

Other Considerations

For the first few years, the cooperative will also offer

One of the main considerations for the brand of Allt Gott

supporting services. This will include market analysis on

will be product quality control. An application process will

specific regions in Europe and the US, business

be in place to insure that the products belonging to the

communication services, and making sales agreements.

brand fit within the concept of the Allt Gott brand. Allt

Production & Service

Gott will be built on high-quality manufacturing of boutique style goods. This is necessary in order to minimize

One of the biggest services supplied by Allt Gott is the

a negative cross effect, keeping the brand concise and

pooling of costs, created by economies of scale. As POP

cohesive – and the message clear.

(point of purchase) price of many goods can return only about 30-40% to the manufacturer, there is a lot of room to

Cyclical Future Prediction

pool the costs of transportation, marketing and insurance.

This arrangement lasts as long as it is in the interest of the

Production of the “raw goods” remains in the hands of the

members to let the cooperative handle their business affairs.

manufacturing company, but branding and packaging

As the members grow in size there will come a time that

material is provided for members. Furthermore, Allt Gott is

they can, and want, to handle their export activities on their

responsible for providing the services listed in Product

own, such as by expanding their staff to increase capa-

Description such as the shipping and distribution services,

bilities in the global market. The cooperative will as such

communications, and all document processing. For example

continue to exist as new members replace the ones leaving.

a company such as Ístex; a woolen product manufacturer, would continue to manufacture their product. The branding visuals (hangtags, stitching etc.) would come from Allt Gott.

The collective would take over the product and handle all shipping, distribution, product flow management, sales agreements, marketing, and promotions.

A l lt G o tt

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Ide a

Marketing, Sales & Competition

Need

Market Size & Analysis

Following the financial collapse, local businesses have

The cooperative is not only meant to assist the existing

been struggling greatly and have faced many new challenges.

manufacturers, it is also going to boost the industry and

Not only are they individually small; they are also very

give new ideas a chance to flourish. One of the main objectives

small on a global scale. The credit and financing available

of the cooperative is to take on a nurturing role, open up a

before has now disappeared, or is strictly conditioned

path for new opportunities, and not only operate within the

and ver y conservative. Now, two years after the collapse,

market in its current state.

the market is still somewhat paralyzed. Investors are

In researching this project two markets were analyzed; the

very timid and nervous. Currently, the banks are constricted

current exports versus manufacturing. Opportunities lie in

by either the government or by the IMF. Naturally the banks

utilizing the current manufacturing entities, expanding on what

are also extremely timid and afraid of risks following the

is currently being produced, and implementing new business

collapse. Thus, companies have very limited growth options.

opportunities within the industry.

The Icelandic economy needs new innovative ways of

Exports from Iceland have grown due to a weak currency.

recuperating. Investors and companies can come together

This gives the Icelandic products a competitive edge. In

and create more opportunities, and a brighter economic

2009, exports outside of aluminum (one of the country's

future for Iceland, where emphasis is on many small and

main exports) grew by 31%, with the currency at a value

medium sized companies.

26% lower than years before. Manufacturing shrank by 3%

With the existence of Allt Gott, the manufacturing industry

while exports managed to grow by 4.1% in volume. Again,

can unite and operate under a common goal. With pooled

this can be linked to a favorable rate for export.

transportation and insurance costs, alongside targeted local marketing, they can grow on a global level; while still focusing on strengthening the small businesses. A unified effort has always been the way for Iceland to succeed and stay competitive, and export is no exception.

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Competition

Target Businesses

Online retailers already exist offering Icelandic goods directly

Small manufacturing businesses will be the main audience

to the consumer, f.x. nammi.is, butik.is, and icelandmarket.is.

of the cooperative. It will also need a base of founding

Although no direct competitors exist in the current situation,

members–more established companies with a substantial

attempts have been made at strengthening Iceland’s image

history and perhaps some experience in exports. The

in other areas, such as tourism and culture. In 1999 Iceland

cooperative also operates as an incentive for new companies

Naturally was launched in the US. The program was mainly

to sprout and new ideas to develop.

directed at introducing Iceland and its culture to Americans;

Although the Allt Gott brand will include many different

i.e. Iceland’s tourism brand and cultural brand. The program

genres of consumer goods, a main focus will persist. The

was created to increase awareness of Iceland, it’s tourism and

products shall be representative of Iceland’s export brand.

food culture, as well as a place of business opportunities.

They will be quality, boutique style products; food, drink,

It used marketing tools that included events such as musical

health and beauty, industrial design, and textiles.

appearances, food festivals, print advertisements, monthly sweepstakes, and other promotional techniques.

Member Demands & Expectations

The government paid for a large part of the IN campaign

Manufacturers in Iceland expect and need the government

budget, with the private sector covering the rest. The

to aid them in building a new foundation for the Icelandic

government and members made a unified effort to oversee,

economy. As members of the Allt Gott collective they will

or at least manage, what kind of messages were being

be expecting to get quality services in the form of market

portrayed about Iceland to the world.

analysis, logistical and export expertise, strong visuals, and solid marketing strategies to boost sales and production.

Furthermore, the manufacturers want the chance to grow in an economically sustainable way, where their personal risk is minimized, and they are nurtured by the collective.

A l lt G o tt

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Ide a

Marketing Strategy The concept and idea of Allt Gott will be communicated through official channels such as: The Ministry of Industry, Energy and Trade, business assisting operations such as The Confederation of Icelandic Employers, grass-roots entrepreneurial programs such as the Academy Idea Center and The Ministry of Ideas. Communicating Allt Gott to existing manufacturers is crucial for the starting years. Working closely with educational institutions, think tanks and the like, is also a vital role in the future of Allt Gott. That is where the future opportunities lie and ideas are born.

Price & Policy For these services the members pay the cooperatives an annual membership fee; a percentage of the export value of their products (7%). The members receive for this fee the services and advantages listed in Competitive Advantage.

With each membership comes a voting right on all communally handled matters. One member equals one vote to keep within the cooperative spirit. There will be visionary boards and committees in place, where the larger founding members take on an important role in the future of Allt Gott.

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7%

annual <ee Based on Expo|t |evenue

Ask & Offer

Exit Strategies

Possible Ex it paths:

For the brand to build successfully, a long term commitment is needed. In fifteen years the aim would be for the brand to

Allt Gott is bought up by the manufacturing industry

have built a considerable credibility, and be categorized as a

(Icelandic Confederation of Icelandic Employers,

love brand. The revenues generated would make it possible

Confederation of Industry or similar).

for the cooperative to be completely free from governmental support and therefore self-sustained.

A healthy environment has been created and members are ready to take off. Allt Gott maintains its role in visuals and becomes part of the Industry of Energy and Trade in the form of events in target European and US cities.

Allt Gott is bought up by members and stays within the form of a cooperative.

The possibility exists that Allt Gott is only active in the nurturing stages of the manufacturing industry. Once a healthy, sustainable export market has been created the cooperative ceases to exist. At this point its employees and expertise will transfer to former members and manufacturing companies.

A l lt G o tt

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Ide a

Financial Projections

Primary Years & Government The business model of Allt Gott accounts for some governmental and industry support for the first eight years.

An annual support of 50 m.ISK, for a total of 400 m.ISK over the eight start-up years. This is not an unusual role for the Icelandic government to take, especially during times like these. The government plays a big role in stimulating the economy and industry. Most recently, in the spring of 2010, The Ministry of Industry, Trade, and Tourism took part in a joint effort to rescue the fast approaching summer tourism season. The tourism industry had suffered many cancellations and difficulties due to the volcanic eruption at EyjafjallajĂśkull. They had to act quickly as there was only so much time before the peak of the season. The effort took the form of a web site and viral campaign titled â&#x20AC;&#x2DC;Inspired by Iceland.â&#x20AC;&#x2122; The campaign used storytelling and celebrity endorsements in the form of narratives and memories, mixed with videos and more traditional promotional collateral.

The project appealed to the nation to spread the message through social media, and once again this demonstrated the strength of unified effort; the project was considered a great success and lessened the blow.

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Revenue Model M anagement Case

Target Market When approaching the potential target market for Allt Gott, I

estimated how much of the current domestic manufacturing

looked at the current exporting figures for Icelandic

market could start to export through Allt Gott. Only a

industry. When looking at FOB value (Freight on Board) of

small fraction of this market would start to export through

each specific industry, I could pinpoint the ones that I

Allt Gott but it would rapidly increase in the first three

assumed could be a potential market for Allt Gott. That is

years as Allt Gott would become established as a brand.

how I came down to the assumption that the value of the target export market for Allt Gott is around 26 billion ISK.

New Opportunities

I then used the assumption that from this target market Allt

This is where new companies are established, as people

Gott could attract 2.5% of this market in the first year and

will see the opportunity in a bigger market with the help of

reach 5.5% in five years time.

Allt Gottâ&#x20AC;&#x2122;s expertise in exporting. It is also estimated that

Potential Target Market

this market will grow fast, but from a very low starting point.

The same methodology was used to estimate the value of the

Annual Governmental Support

potential export market. By going through current exporting

The business model accounts for some governmental and

figures I determined which specific industries could be potential

industry support for the first eight years. An annual support

members for Allt Gott. I then used the assumption that

of 50 m.ISK for a total of 400 m.ISK.

of this potential market, Allt Gott could attract 1% of this market in the first year and reach 2.5% in five years time

Summary of Revenue Assumptions

as this market is a bit more speculative.

All assumptions are rather conservative and this is a revenue model that I believe could work well. However, it does

Current domestic manufacturing

depend on a successful introduction to the Icelandic market,

This category consists of the analysis of the current domestic

which shouldnâ&#x20AC;&#x2122;t be too expensive. A table of revenue inputs

manufacturing industry that is not yet exporting. It was

can be found below.

A l lt G o tt

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Ide a

Revenue Inputs:

Cooperative Fee Value Of Target Export Market*

2011

7%

2012

2013

7%

2014

7%

7%

2015

7%

2016

7%

2017

7%

2018

7%

25,919

26,697

27,498

28,323

29,172

30,048

30,949

31,877

19

20

20

21

21

22

23

23

Proportion Of Target Market To A llt Gott

2.5%

3.5%

4.5%

5.0%

5.5%

5.5%

5.5%

5.5%

Proportion Of Potential Market **

1.0%

1.5%

2.0%

2.5%

2.5%

2.5%

2.5%

2.5%

Current Manufacturing Will Start Export

10 0

30 0

50 0

70 0

750

750

750

750

New Export Opportunities Total

50

10 0

150

20 0

250

30 0

350

40 0

A nnual Government Support (For First Eight Startup Years)

50

50

50

50

50

50

50

50

Value Of Potential Export Market **

Interest Revenue

5%

5%

5%

5%

5%

5%

5%

5%

All figures are in millions Icelandic kr贸na (ISK) unless otherwise stated.

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Minimum Operational Costs

Human Resources

Board of Directors

This applies to all staff outside of Board of Directors. The

The Allt Gott board of directors is made up of the following;

main focus will be on maintaining a strong, modern,

elected members of the collective, representatives from

marketing team, combined with a very efficient shipping

The Ministry of Trade, Energy, and Tourism, and of The

and distribution department. In both cases, attracting

Icelandic Confederation of Employers or of The Icelandic

passionate employees with experience and solid knowledge

Confederation of Industries. A final member on the board of

is essential to build a successful team.

directors will be an experienced individual with knowledge

Marketing Budget & Team

This member will be serving an advisory role on the board.

The budget for marketing is directly linked to annual turnover.

All board members are elected and appointed at annual

The budget will cover all publishing, campaigns, and all

meetings of the Allt Gott collective.

promotional efforts. Another budgetary focus will be to retain a strong marketing team, as listed in Human Resources.

Communications

on a senior level of the export market and distribution.

Shipping & Distribution Shipping and distribution is calculated into FOB (Freight on Board) price of products and therefore does not need

All digital communications as well as person to person

special consideration in operation costs.

meetings. Contractual efforts and services, both legal and

There is a possibility of developing different fee or revenue

conceptual. Foreign language copy editing and translation

categories dependant on the product. The different fee

services. Travelling costs and trade show expenses

categories would distinguish between products with a

concerning employees and all fees.

long shelf life (textiles for example) vs. fresh or refrigerated foods, as they call for very different shipping methods and

Office Expenses

urgency. This is an option that would have to be further

Overhead, rental costs, utilities, supplies, and technology

defined in the future stages of developing the collective.

costs and maintenance.

A l lt G o tt

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Ide a

Oper ationa l costs:

2011

2012

2013

2014

2015

2016

2017

2018

Human Resources (staff only)

75.4

98.2

107.3

111.8

121.0

121.0

121.0

121.0

Marketing Budget as 20% of Turnover

11.2

18.7

26.4

32.4

36.5

37.8

39.2

40.7

Communications

6.0

6.2

6.4

6.6

6.8

7.0

7.2

7.4

Office Expenses

6.0

6.2

6.4

6.6

6.8

7.0

7.2

7.4

Board of Directors (0.6 M.KR. p.a. average)

3.0

3.1

3.2

3.3

3.4

3.5

3.6

3.7

All figures are in millions Icelandic kr贸na (ISK) unless otherwise stated.

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Turnover & Profit Growth

Turnover & Profit Growth

m.ISK

250

20 0

150

10 0

50

2011

2012

2013

2014

2015

2016

A nnual Turnover

All figures are in millions Icelandic kr贸na (ISK) unless otherwise stated.

A l lt G o tt

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T he W hole S tor y

Ide a

2017

2018

Profit Thereof

Financial Forecast

Financi a ls

2011

2012

2013

2014

2015

2016

2017

2018

Cooperative Fee Revenue

55.9

93.4

132.1

162.2

182.4

189.2

196.2

203.3

A nnual Government Support

50.0

50.0

50.0

50.0

50.0

50.0

50.0

50.0

105.9

143.4

182.1

212. 2

232.4

239. 2

246. 2

253. 3

Human Resources (Staff Only)

75.4

98.2

107.3

111.8

121.0

121.0

121.0

121.0

Marketing Budget (As % Of Turnover)

11.2

18.7

26.4

32.4

36.5

37.8

39.2

40.7

Communications (Trade Shows Etc.)

6.0

6.2

6.4

6.6

6.8

7.0

7.2

7.4

Office Expenses, Overhead

6.0

6.2

6.4

6.6

6.8

7.0

7.2

7.4

Board Of Directors

3.0

3.1

3.2

3.3

3.4

3.5

3.6

3.7

101. 5

132. 3

149.6

160.7

174. 3

176. 2

178.1

180.1

Gross Margin

4.3

11.1

32.5

51.5

58.0

63.0

68.1

73.2

Other Items (Interest Etc.)

0.0

0.3

0.8

2.2

4.4

6.9

9.8

13.0

(0.8)

(2.1)

(6.0)

(9.7)

(11.2)

(12.6)

(14.0)

(15.5)

Net Income

3.6

9.4

27. 3

4 4.0

51. 2

57.4

63.9

70.7

Cash At Beginning Of Year

0.0

6.6

16.0

43.3

87.3

138.5

195.8

259.7

Cash At Year End

3.6

16.0

4. 3

87. 3

138. 5

195. 8

259.7

330. 3

Income Statement

Total Turnover Cost Items:

Total Costs

Ta x Payments

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For Consideration The financial forecast above is a management case, and could be determined as a growth case, but still a fairly realistic one. If the assumptions given in this case will hold, a bright future is ahead for Allt Gott as well as the Icelandic manufacturing industry.

A more conservative base case and a down case can be found in the appendix of this volume. These plans were made according to what would be determined as very conservative and sustainable growth. All manufacturing and export data was sourced from hagstofa.is All numbers and amounts are based on the Icelandic Krona, and are quoted in Million ISK, unless otherwise stated.

It is challenging to give it an exact value for print, but at the time of this project, it ranged from 130 ISK to the dollar, ending at around 111 ISK for the USD near time of print.

A l lt G o tt

H ugm y nd

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Ide a

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e. road

vegu| Thinking about my home in such a positive way has been one of the most creatively rewarding experiences I have ever had.

A l lt G o tt T he W hole S tor y

V egu r

Beyond Beautiful Waterfalls

Cool, Edgy & Aloof One of my initial steps in this project was to dive into the

come to mind. But in today’s competitive market, I simply

world of nation branding. Without getting a grasp of the

don’t think a waterfall would cut it. Lots of countries have

complex concept of nation branding, I couldn’t feel confident

breathtaking landscape, and although I am moved to tears by

about embarking on a critical analysis of one of its subset

the incredible beauty of the western fjords of Iceland, I

concepts. The concept of country-of-origin brands.

doubt a Scotsman would be. I am not saying I feel these

Very quickly into my research my initial suspicions were

efforts should all be the same message either.

validated. Iceland has been guilty of over estimating its

I don’t believe the answer is to try and show the country from

reputation. Small efforts had been made, but were usually

every angle, every which way. That is a sure way to end up

guilty of being too vague, or of trying to please everyone.

missing most of them. Behind attempts at creating a positive

In one case, it just seemed a mishmash of too many ideas.

image of a nation (including its products, culture, investment

In these efforts I also noticed a habit of capitalizing on trends

opportunities, and tourism culture etc.) there needs to be an

such as “cool” and “on the edge” etc., which seemed concepts

extremely thoughtful process, with a common thread that

highly subjective to context. On the edge of what? It seemed

unifies the approach. That common thread for Iceland is the

to me that the key concepts and adjectives were being derived

people, the unspoiled nature, and the language. I sadly

from a handful of articles written by journalists. They came

noticed that our language, so amazingly preserved throughout

from New York or London, highly praising the crazy nightlife.

the ages, and such a positive part of our own identities and

Or else, they had visited the Blue Lagoon during a layover.

national pride, is entirely missing from the branding efforts I

Buzz words without any support. Fair enough. Some of these

have seen so far. That is a missed opportunity if there ever

were aimed at promoting Iceland’s culture, food, or green

was one. I know nobody likes tongue twisters, but I could

energy. Naturally these would not have anything to do with

pronounce ’Chiquita’ way before I knew what it meant,

Iceland’s exports.

and I am glad the bananas are not simply called ’girl’. I believe

Take for instance, your typical tourism campaign. The wild

we underestimate everyone else’s abilities to pronounce

outdoors, the endless sky, and perhaps a pretty waterfall

our words, and miss the importance of being memorable.

A l lt G o tt

V egu r

T he W hole S tor y

Road

I sadly noticed that our language, so amazingly preserved throughout the ages, and such a positive part of our own identities and national pride, is entirely missing from the efforts I have seen so far.

That is a missed opportunity, if there ever was one.

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Road

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A l lt G o tt

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T he W hole S tor y

Road

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The aesthetics are what I envision Iceland to be; a folksy quality with a naive undertone. The drawings and characters I made were very influenced by the friendly and folksy culture I see my country being.

A l lt G o tt T he W hole S tor y

V egu r

Old Meets New Developing the aesthetics for Allt Gott made me very excited to dive into more traditional methods. I researched Icelandic wood engraving, the shapes of the Viking era, and Icelandic art. I felt I wanted to try and work within those worlds and keep away from a computer for as long as possible. I was a little out of my comfort zone surely, but that quickly changed. The experience was extremely rewarding, I began with pen and ink investigations of the textures that lie at the heart of our traditional icons and national stereotypes. As I continued to hand draw and develop each element on its own I no longer felt uncomfortable with a pen, instead of a mouse, in my hand. To further develop the aesthetics through the silk screen medium was so fitting for a project of this manner. Silk screen has the small scale handmade quality of the lo-fi aesthetic.

The drawings and characters I made were very influenced by the friendly and folksy culture I see reflected in my country. This aesthetic is what I envision my homeland to be; a folksy quality with a naive undertone. I always hear seagulls and waves when I look at the drawings.

T hes is

Academ y of A rt U n i ve r s i t y

K r i s t 铆 n A g n a r s d贸 t t i r

W i nt e r 2 010

9 0 / 91

A l lt G o tt

V egu r

T he W hole S tor y

Road

T hes is

Academ y of A rt U n i ve r s i t y

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A l lt G o tt

V egu r

T he W hole S tor y

Road

T hes is

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A l lt G o tt

V egu r

T he W hole S tor y

Road

T hes is

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A l lt G o tt

V egu r

T he W hole S tor y

Road

T hes is

Academ y of A rt U n i ve r s i t y

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W i nt e r 2 010

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A l lt G o tt T he W hole S tor y

V egu r

T hes is

Academ y of A rt U n i ve r s i t y

K r i s t 铆 n A g n a r s d贸 t t i r

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e. brand

me|ki Allt Gott is about quality, about togetherness, all in a cozy little stamp. The stamp of approval.

Icelandic stamp

French stamp

Spanish stamp

German stamp

All over the world The logo ca n f unction in ma ny di f ferent la ng uages a lthoug h on ly five a re show n a nd set i n t hese g u idel i nes; Eng l ish, Icela nd ic, French, G er ma n, a nd Spa n ish. T he holder ci rcle ca n t a ke a ny ot her la ng uage a nd it shou ld on ly be used in Eng lish in countries where Eng lish is the first la ng uage.

A l lt G o tt me r k i T he W hole S tor y

B ra nd

The Stamp Of Approval

The Allt Gott stamp of approval is strong, traditional, and

version is used of both parties’ marks. This friendship

light. The inspiration comes from old letters, traditional

between the two companies is visualized with the distinct

signs and postage stamps. That was a time when quality and

ampersand of the primary typeface of Allt Gott.

craftsmanship were something you could hang your hat on.

The AG stamp is often stamped on products and therefore a

The AG stamp is designed to give a monogram stamp of

slight rotation and free-form placement is encouraged.

approval to our products. Its lightness and stamp inspiration

Slightly off to the side, towards a corner, feel free to improvise

is to communicate that this exists on top of another brand;

but avoid bleeding the stamp off the page. Also, the stamp

the stamp of an umbrella brand. It holds together, unifies, and

will frequently overlap existing graphic elements such as one

assists. The stamp also communicates the journey behind

of the illustration characters. See stamping and rotation for

the product with its hint of postal markings. The Allt Gott

more information on usage. This chapter demonstrates how to

stamp further references traditional styles of collectives and

use the identity across different platforms, so that the

monograms, small entities, boutiques and old apothecaries.

the Allt Gott voice can be as consistent as possible while

The stamp is in two parts; first the hand-rendered signature

maintaining that necessary lo-fi boutique quality.

AG monogram, which is inspired by black lettering of earlier days. Secondly, the text within the holder circle is modified Neutraface Slab and it’s used to further explain the function of the collective and can be used in many languages.

Our logo is the cornerstone of the Allt Gott identity and is to be applied to all internal and external communications.

The primary stamp is to be applied in its entirety whenever possible. It is designed to work at a larger scale to reference the overlapping or ’cover’ brand of Allt Gott. The simplified monogram version is only for use with the original product manufacturer’s logotype, in which case a simplified

A l lt G o tt me r k i T he W hole S tor y

10 6 / 10 7

english stamp

A l lt G o tt me r k i T he W hole S tor y

architecture of the symbol

9째 - 6째

knockout with extra weight

limited color version

minimum size

clear space

3x

width: 2.6 cm / 1â&#x20AC;&#x153;

1x

3x

1x

Limited color & knockout logos When working with limited colors, contrast of the logo to the background must be taken into consideration. Only use the stamp on a white, black, or crea m back g rou nd. For clear space be aware that the proportions can be switched where the single spacing is at the left and top, and triple on right and bottom. Thus there are two things to be aware of: is it being stamped such that the placement and negative space are played with, or is it being placed on a grid with other elements?

A l lt G o tt me r k i T he W hole S tor y

B ra nd

Stamping overlap

friendship stamping

& Rotations & cooperations Stamping Overlap references the stamping usage and slight rotation common with the AG stamp. It is then placed on top of an illustration or background element, preferably hanging off the edge of an element on a quiet space. The stamp is then rotated per the rotation rules.

Friendship stamping is where Allt Gott is used with the original product manufacturer or members logotype. Both marks are used and seal the friendship with the alternate swash ampersand of the primary typeface.

T hes is

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buoy orange

lava Red

CMYK 0 65 95 0

CMYK 0 85 100 0

RGB

244 109 0

RGB

210 80 42

SPot

Pms 1505 c

SPot

Pms 172 c

light Cream

dark cream

CMYK 4 2 5 0

CMYK 7 4 12 0

RGB

242 242 247

RGB

235 235 222

SPot

Pms 9043 c

SPot

Pms 9103 c

winter blue

dusk blue

CMYK 16 0 6 0

CMYK 55 15 25 0

RGB

211 233 237

RGB

138 176 184

SPot

Pms 628 c

SPot

Pms 631 c

winter Grey

midnight black

CMYK 65 55 40 15

CMYK 40 0 0 100

RGB

99 102 115

RGB

15 23 26

SPot

Pms 430 c

SPot

Pms black 6 c

A l lt G o tt me r k i T he W hole S tor y

B ra nd

Visibility on The High Seas

Allt Gott’s colors are inspired by small ports, ships and the fjords of the Icelandic coastline. It is a dark winter morning filled with an overwhelming pitch-black sky and the murky mountains. Later in the day the sun finally arrives and the once murky mountains are snow covered after all, the sky is impossibly blue and everything becomes incredibly vibrant.

Our signature orange color is inspired by the traditional neon overalls, buoys, lighthouse accents, and netting details.

The traditional uniform of any Icelandic fishermen is neon orange overalls complete with matching hat. The material choice serves a clear purpose; to keep them dry and also to maximise visibility in the dark, as the days are black in the long winters. The signature color is chosen for the same reason as the inspirational objects; for the color’s extraordinary visibility in any situation. The bright color assists efforts when going out to sea, which traditionally is what brings home the ‘bacon’ in Icelandic culture. The nation now finds itself at a point when it is time to roll up the sleeves, buckle on the overalls and go fishing.

The blues and grays are inspired by winter, by the oceans, the summer skies, and the blue-tone rock formations of the dramatic mountains. The gray and blue-black are from the winter skies and the lava fields. The lights are inspired by the soils and minerals in the geothermal fields, and by the bright snow.

T hes is

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loud friendly A l lt G o tt me r k i T he W hole S tor y

â&#x20AC;&#x201C;no matter what the language

Loud, Friendly, & Traditional

Display Friendliness

Traditional Content

Our primary typeface was chosen to be loud but still

Our secondary typeface of King’s Caslon was chosen to bring

extremely friendly looking. It is like a funny word shouted

in the traditional style. The typeface is a custom cut from

in your ear. It represents the language and how the words

Dalton Maag, created for King’s College in London. It is, as

make you want to giggle, but it was also chosen to mimic the

the name suggests, derived from the classic typeface,

swashy swirly illustrative style of the Allt Gott brand. It

Caslon, an old favorite of typographers.

is used to create mystery – to make people wonder what all those big funny words are. Eloquent is perfect for this purpose.

Character Voices

Eloquent is a much-requested digital revival of an old Didone

A third typographic element exists, and only on packaging

style [meaning in the style of Bodoni and Didot] photo-

materials, that of Strangelove Narrow, a hand drawn sans

typepositing face Pistilli Roman. Eloquent was released by

serif based on the Dr. Strangelove film titles. This typeface

Veer in 2010.

is very tertiary and is only for little call-outs and blurb

Pistilli Roman is a typeface collaboratively designed by

displays, acting as if the illustrated characters had drawn

Herb Lubalin and John Pistilli. Given the technology of the

that on after the fact.

time when Pistilli Roman was produced, the typeface was only designed and made functional for use on a typositor.

After the demise of photo-type and typositor machines, the typeface was never revisited and as a result, the typeface has never officially been digitized. Besides Pistilli Roman’s rare appearance inside of the type specimen book titled ‘Phil’s Photo Book’ (published in 1985), it is a largely unknown and mysterious typeface. The only acknowledged versions of the original hard copy photo-types for Pistilli Roman are located in Brooklyn, NY with a company named Incipit.

A l lt G o tt me r k i T he W hole S tor y

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Eloquent Regular

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Display typeface Eloquent is used for all titles and there is a strong system in place for this typeface. Display words are in Icelandic and set in Regular with the added touch of additional swash glyphs available. Be mindful when choosing glyphs and watch optical kerning and justification. Eloquent Italic is primarily chosen for English translations or tag lines following, and are then set in lowercase and at 25% of the Icelandic word size.

T hes is

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King’s caslon regular

King’s caslon bold

æ Æ þÞ ö Ö

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Kings caslon italic

Kings caslon bold italic

æ ÆþÞ ö Ö

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content typeface Dalton Maag’s King’s Caslon is a typeface derived from their custom typography for King’s College, London. Designed by Maag Ltd; Ron Carpenter, Veronika Burian and Marc Weymann. These weights are for all normal information, such as body copy, tables and informational labels on packaging. Especially those under 16 points and in the case of headers and larger displays of information should be used in conjunction with King’s Caslon Display weights detailed on the opposite page.

A l lt G o tt me r k i T he W hole S tor y

B ra nd

King’s caslon display regular

Strangelove Next Narrow

æÆþÞ ö Ö

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King’s caslon display italic

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content typeface alternate

packaging supportive typeface

The display version King’s Caslon has slightly thinner hairlines than the regular version and is to be used for any usage over 16 points and is intended for headers and sub-headers as a companion for the King’s Caslon Regular in body copy.

The Strangelove Next familiy is used only as secondary display typography in the packaging system; for that quirky, secondary voice. Strangelove Next is inspired by Stanley Kubrick’s movie “Dr. Strangelove” whose original titles where designed by Pablo Ferro.

T hes is

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stationery

A l lt G o tt me r k i T he W hole S tor y

B ra nd

T hes is

Academ y of A rt U n i ve r s i t y

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A l lt G o tt me r k i T he W hole S tor y

Folks of Fire & Ice

The illustrations are one of the strongest commodities of the Allt Gott identity. The illustrations are based on national characters and stereotypes. Milkmaids, fishermen, viking boats, and farming utensils. The illustrations always refer to either a slightly old fashioned symbol of industry, or more mystical cultures, such as the Viking ancestry.

When creating the illustrations, be careful to have a balance of flat plains with detailed textures so as not to be too heavy or plain. All the characters have an appearance of folksiness and friendliness. They can exist on their own, or as a part of a scene. Feel free to close your eyes and imagine a light breeze of an ocean village, complete with sounds of seagulls, crows, and cold refreshing wind.

T hes is

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Brynþóra As a farmer, she gets up at the crack of dawn every day. She has a dry sense of humor, a popular coping mechanism of rural life, and a no-fuss attitude about her. She knows all her cows by name, especially the ones which always drag their feet when it’s time to fall in line and return to the barn for milking.

A l lt G o tt me r k i T he W hole S tor y

B ra nd

Haraldur A fourth generation fisherman most comfortable in winter. He has absolutely no tolerance for neurosis, self-doubt, or diddle-daddling.

Haraldur can not imagine a life outside of his birthplace in Arnarfjörður, and why should he– it’s a breathtakingly beautiful place.

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Ingólfur Has been training horses since he graduated from college with a degree in agriculture. He grows organic tomatoes and cucumbers, perhaps not the most diverse farm selection, but you haven’t tried the tomatoes.

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B ra nd

ARI This feisty puffin lives alongside hundreds of his pals in the cliffs of Vestmanneyjar, an island town of 4,000 people off the south coast of Iceland. The town has a yearly festival where up to 10,000 people travel from the mainland for half a week of merriness and singing.

Ari usually tries to stay away.

T hes is

Academ y of A rt U n i ve r s i t y

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Flekka Can usually be found grazing or napping just off the main drag in the south-west areas of Iceland. Her name comes, as is popular with sheep names, from her appearance and means â&#x20AC;&#x2122;patchyâ&#x20AC;&#x2122;. This is obviously inspired by her white head attached to the dark body.

A l lt G o tt me r k i T he W hole S tor y

B ra nd

T hes is

Academ y of A rt U n i ve r s i t y

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A l lt G o tt me r k i T he W hole S tor y

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T hes is

Academ y of A rt U n i ve r s i t y

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A l lt G o tt me r k i T he W hole S tor y

B ra nd

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Academ y of A rt U n i ve r s i t y

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Hrefna Queen of the North-Atlantic.

Hrefna glides between the fjords feasting on cod, haddock, halibut, and all the great fish of the ocean.

In the summer time she enjoys the attention brought by the whale watching boats.

A l lt G o tt me r k i T he W hole S tor y

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T hes is

Academ y of A rt U n i ve r s i t y

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illustration Scenes The characters of the Allt Gott brand can exist together in a scene. This is usually reserved for either digital animated use, or in a large environmental graphic. For instance on backwalls of train platforms such as exist on the London underground transportation, or on construction site barricades in metropolitan areas.

A l lt G o tt me r k i T he W hole S tor y

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e. products

Vöru| Lamb and salmon of quality challenged by no one. And we stand by that statement. Water so fresh you’ll think you’re on top of the world –which is where it came from, and dairy that will knock those awesome woolen socks right off you.

Storytellers

A big purpose of the Allt Gott collective is strengthening the Icelandic ‘country-of-origin’ brand. Aside from promotional materials, such as environmental graphics, the products are the strongest line of communication to the consumer. It is therefore integral to the package design to keep a strong focus on the background of the product.

This is implemented on all Allt Gott products in the form of a 'reveal.' Labels are opened, tags are flipped, and bands are unwrapped. This interactive packaging is used to educate.

First to tell the story of the company or the place of origin.

Secondly to tell the story of the product, and it's historical context within Icelandic culture. By putting into narrative the background of the product, a bond or friendship is created between the consumer and the manufacturers. The consumer learns where this is from, and most importantly, what the company behind it stands for. As the consumer has contact with additional Allt Gott products and narratives, a deeper understanding of the ‘country-of-origin’ develops. The illustrations of the Allt Gott brand come into play within the packaging as representations of various elements.

They can represent the actual manufacturer–a milkmaid, a fisherman; or as the product itself–sheep, fish.

A l lt G o tt

VÖRU R

T he W hole S tor y

P ro duc t s

T hes is

Academ y of A rt U n i ve r s i t y

K r i s t 铆 n A g n a r s d贸 t t i r

W i nt e r 2 010

14 0 / 141

A l lt G o tt

VĂ&#x2013;RU R

T he W hole S tor y

P ro duc t s

T hes is

Academ y of A rt U n i ve r s i t y

K r i s t 铆 n A g n a r s d贸 t t i r

W i nt e r 2 010

142 / 14 3

A l lt G o tt

VĂ&#x2013;RU R

T he W hole S tor y

P ro duc t s

T hes is

Academ y of A rt U n i ve r s i t y

K r i s t 铆 n A g n a r s d贸 t t i r

W i nt e r 2 010

14 4 / 14 5

A l lt G o tt

VĂ&#x2013;RU R

T he W hole S tor y

P ro duc t s

T hes is

Academ y of A rt U n i ve r s i t y

K r i s t 铆 n A g n a r s d贸 t t i r

W i nt e r 2 010

14 6 / 147

A l lt G o tt

VĂ&#x2013;RU R

T he W hole S tor y

P ro duc t s

T hes is

Academ y of A rt U n i ve r s i t y

K r i s t 铆 n A g n a r s d贸 t t i r

W i nt e r 2 010

14 8 / 149

A l lt G o tt

VĂ&#x2013;RU R

T he W hole S tor y

P ro duc t s

T hes is

Academ y of A rt U n i ve r s i t y

K r i s t 铆 n A g n a r s d贸 t t i r

W i nt e r 2 010

1 5 0 / 1 51

A l lt G o tt

VĂ&#x2013;RU R

T he W hole S tor y

Sub - C h ap t e r

e. promotion

kynning We want to kill them with kindness. What we would most like to do is stand right beside people on the platform, and when they least expect it, yell ‘hæ!’ Because we want to be liked, but we also want to be memorable.

A l lt G o tt KY N N I NG T he W hole S tor y

Sub - C h ap t e r

A l lt G o tt KY N N I NG T he W hole S tor y

P romo t ion

T hes is

Academ y of A rt U n i ve r s i t y

K r i s t 铆 n A g n a r s d贸 t t i r

W i nt e r 2 010

1 5 6 / 1 57

A l lt G o tt KY N N I NG T he W hole S tor y

P romo t ion

T hes is

Academ y of A rt U n i ve r s i t y

K r i s t 铆 n A g n a r s d贸 t t i r

W i nt e r 2 010

1 5 8 / 1 59

A l lt G o tt KY N N I NG T he W hole S tor y

P romo t ion

T hes is

Academ y of A rt U n i ve r s i t y

K r i s t 铆 n A g n a r s d贸 t t i r

W i nt e r 2 010

16 0 / 161

Allt Gott home page

A l lt G o tt KY N N I NG T he W hole S tor y

P romo t ion

T hes is

Academ y of A rt U n i ve r s i t y

K r i s t 铆 n A g n a r s d贸 t t i r

W i nt e r 2 010

16 4 / 16 5

Animation

A l lt G o tt KY N N I NG T he W hole S tor y

P romo t ion

T hes is

Academ y of A rt U n i ve r s i t y

K r i s t 铆 n A g n a r s d贸 t t i r

W i nt e r 2 010

16 6 / 167

Online Presence

The Allt Gott web site is a place where the consumer can find practical information as well as dive into the world of the Allt Gott brand. The site starts off with a short animation, where the folksy characters are introduced to the viewer.

The main page follows the aesthetic of a local newspaper.

Articles on the manufacturers, the products, and what their latest developments are, will be at the forefront. Content will include information on the products and their historical context within Icelandic culture, along with lighthearted pieces, recipes etc.

The Allt Gott web site also serves as a community board for the members of Allt Gott, as they are spread out all over the country and donâ&#x20AC;&#x2122;t share a common office. Members play an active role in both content creation, and editing of the web site; as it is the most fluent form of communication.

The online presence of Allt Gott will be expanded by social media tools: Facebook pages, Tweets, etc. This will maintain a closer casual friendship with the customer. Members take the lead in creating this content, and will frequently post little details of their day to day life: the snow that just came down, or how the product batch is looking, etc. This will strengthen the concept of the manufacturers being friends with their customers, and not just a faceless company.

A l lt G o tt KY N N I NG T he W hole S tor y

P romo t ion

T hes is

Academ y of A rt U n i ve r s i t y

K r i s t 铆 n A g n a r s d贸 t t i r

W i nt e r 2 010

16 8 / 169

Twitter feed Allt Gottâ&#x20AC;&#x2122;s web-site features a live custom feed of any content relating to itâ&#x20AC;&#x2122;s products. Furthermore, the departments and manufacturers will be avid content providers with updates on their production, products, work flow, and information from their day-to-day lives.

A l lt G o tt KY N N I NG T he W hole S tor y

P romo t ion

T hes is

Academ y of A rt U n i ve r s i t y

K r i s t 铆 n A g n a r s d贸 t t i r

W i nt e r 2 010

170 / 171

A l lt G o tt KY N N I NG T he W hole S tor y

P romo t ion

T hes is

Academ y of A rt U n i ve r s i t y

K r i s t 铆 n A g n a r s d贸 t t i r

W i nt e r 2 010

172 / 173

The Bootstraps

A nation standing at a cross roads, and it can decide which

special little something involved that keeps people there.

road it wants to go down. There is the way it has already

This is not only a love of the nature around you, but also

been going, but there is also a chance for a new direction, a

love for the other people suffering there with you. The over-

do-over. With this choice comes the importance of being

whelming sense of unity; this is what makes it natural for

mindful, stepping back and figuring out what Iceland wants

you subsidize day-care, to keep public health services and

to be when it grows up. For a while they thought they

social benefits intact–even if these programs are maintained

wanted to be bankers, they dabbled in capitalism in its purest

at the cost of you personally accumulating wealth. This is

form; outlandish wages and very low regulation. Due to the

that complete sense of belonging, it is through the isolation

small size of the country, this greed imploded very quickly.

that everyone becomes so closely knit. Iceland believes that

Now we have an opportunity to step back and start fresh.

everyone should be as happy as possible, and this will allow

Iceland knows the importance of working together. This is

the society as a whole to thrive.

the tool that we have; but it is up to the people to decide what to do with it. There are easy ways and quick fixes, but at some point or other, the country needs to have a longer vision in mind.

This project started out as an exploration. A ‘wouldn’t it be neat if we did that’ sort of thing. There were lots of blanks to fill in, lots of ‘what ifs.’ The more I explored into Iceland’s economic and social history, the more apparent it became: the way of the collective is ingrained into the very core of Iceland. This was not exactly surprising news. Who would really live in such a cold place? You get longer days, cheaper wine, hotter summers, and most of the things your heart desires, on either side of the Atlantic. So there must be a

A l lt G o tt v i ðau k i T he W hole S tor y

A p p e nd i x

e. appendix

Viรฐauki

Selected Bibliography

Nation Branding Concepts, Issues, Practice.

Keith Dinnie Hýbýlahættir á Miðöldum Arnheiður SIgurðardóttir 18th Century Iceland Frank Ponzi Made to Stick Chip Heath & Dan Heath Lovemarks Kevin Roberts Collapse Jared Diamond Zag: #1 Brand Strategies Marty Neumeier Iceland Naturally documents Iceland on the Edge documents Icelandic Embassy and web.

Time Articles Cracks in the Ice: A Meltdown in Iceland.

Nobody´s Baby.

Brand Aid – Not Band Aid Monocle Articles Simple Remedy. May 09 Q-A Guðjón Már Guðjónsson.

Dark Horizons.February 09 Brand Issues - Paula Scher on Brand America

The Economist Evolution and climate change Iceland’s banking crisis Iceland and the EU Agricultural Subsidies: Ploughing On Cold Comfort for Iceland Cash & Local Council: Icelandic Saga Iceland faces the worst of times Iceland: Not-so-nice land A survey of the sea: An Icelandic success

Confederation of Icelandic Industries www.si.is

NewsweekArticles No Country for Sick Men. Universal Health Care Is a Moral Choice

Morgunblaðið www.mbl.is

Vanity Fair Articles Frozen Assets Wall Street on the Tundra

Britannica Online www.britannica.com

Confederation of Icelandic Employers www.sa.is Invest in Iceland www.invest.is MS Iceland Dairy www.ms.is Vísir / Fréttablaðið www.visir.is

Norden Cooperation www.norden.org

VXCD Articles (various)

Wikipedia www.wikipedia.org

Listasafn Íslands www.listasafn.is

Iceland Statistics hagstofa.is

Denmark Limited www.denmarklimited.com

Data Market www.datamarket.is

The Reykjavik Grapevine www.grapevine.is

Icelandic Magazine Archive www.timarit.is

A l lt G o tt

V i ðau k i

T he W hole S tor y

A p p e nd i x

T hes is

Academ y of A rt U n i ve r s i t y

K r i s t 铆 n A g n a r s d贸 t t i r

W i nt e r 2 010

176 / 177

Base Case Scenario

Turnover & Profit Growth

m.ISK

20 0

150

10 0

50

2011

2012

2013

2014

All figures are in millions Icelandic kr贸na (ISK) unless otherwise stated.

2015

2016

A nnual Turnover

A l lt G o tt

V i 冒au k i

T he W hole S tor y

A p p e nd i x

2017

2018

Profit Thereof

Financi a l For ecast

2011

2012

2013

2014

2015

2016

2017

2018

Cooperative Fee Revenue

37.7

58.4

70.0

75.7

81.5

87.4

93.4

99.4

A nnual Government Support

50.0

50.0

50.0

50.0

50.0

50.0

50.0

50.0

Total Turnover

87.7

108.4

120.0

125.7

131. 5

137.4

143.4

149.4

75.4

84.5

84.5

89.0

93.6

93.6

93.6

93.6

Marketing Budget (As % of Turnover)

7.5

11.7

14.0

15.1

16.3

17.5

18.7

19.9

Communications (Trade Shows Etc.)

6.0

6.2

6.4

6.6

6.8

7.0

7.2

7.4

Office Expenses, Overhead

6.0

6.2

6.4

6.6

6.8

7.0

7.2

7.4

Board Of Directors

3.0

3.1

3.2

3.3

3.4

3.5

3.6

3.7

Total Costs

97.9

111.6

114.4

120.6

126. 8

128. 5

130. 2

131.9

Gross Margin

10.2

-3.2

5.6

5.1

4.7

8.9

13.2

17.5

Other Items (Interest Etc.)

0.0

(0.3)

(0.5)

(0.2)

0.1

0.3

0.7

1.2

Ta x Payments

1.8

0.6

(0.9)

(0.9)

(0.9)

(1.7)

(2.5)

(3.4)

(8. 3)

(2.9)

4. 2

4.1

4.0

7.6

11.4

15.4

0.0

(5.3)

(7.6)

(2.4)

2.0

6.0

13.5

24.9

(8. 3)

(8. 3)

(3.4)

1.7

6.0

13. 5

24.9

40. 3

Income Statement

Cost Items: Human Resources (Staff Only)

Net Income Cash At Beginning Of Year Cash At Year End

All figures are in millions Icelandic kr贸na (ISK) unless otherwise stated.

T hes is

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178 / 17 9

Revenue Inputs:

Cooperative Fee Value Of Target Export Market*

2011

7%

2012

2013

7%

7%

2014

7%

2015

7%

2016

7%

2017

7%

2018

7%

25,919

26,697

27,498

28,323

29,172

30,048

30,949

31,877

19

20

20

21

21

22

23

23

Proportion Of Target Market To AG

1.5%

2.0%

2.0%

2.0%

2.0%

2.0%

2.0%

2.0%

Proportion Of Potential Market **

0.5%

1.0%

1.0%

1.0%

1.0%

1.0%

1.0%

1.0%

Current Manufacturing Will Start Export

10 0

20 0

30 0

315

331

347

365

383

New Export Opportunities Total

50

10 0

150

20 0

250

30 0

350

40 0

A nnual Government Support (For First Eight Startup Years)

50

50

50

50

50

50

50

50

Value Of Potential Export Market **

Interest Revenue

5%

5%

5%

5%

5%

5%

5%

5%

All figures are in millions Icelandic kr贸na (ISK) unless otherwise stated.

Revenue Costs:

2011

2012

2013

2014

2015

2016

2017

2018

75.4

84.5

84.5

89.0

93.6

93.6

93.6

93.6

Marketing Budget As 20% Of Turnover

7.5

11.7

14.0

15.1

16.3

17.5

18.7

19.9

Communications

6.0

6.2

6.4

6.6

6.8

7.0

7.2

7.4

Office Expenses

6.0

6.2

6.4

6.6

6.8

7.0

7.2

7.4

Board Of Directors (0.6 P.A. Average)

3.0

3.1

3.2

3.3

3.4

3.5

3.6

3.7

Human Resources (Staff Only)

All figures are in millions Icelandic kr贸na (ISK) unless otherwise stated.

A l lt G o tt

V i 冒au k i

T he W hole S tor y

A p p e nd i x

Human Resources

2011

2012

2013

2014

2015

2016

2017

2018

Chief Executive Officer

1

1

1

1

1

1

1

1

Chief Financial Officer

1

1

1

1

1

1

1

1

Marketing Director

1

1

1

1

1

1

1

1

Marketing Team (Incl. Director)

2

2

2

2

2

2

2

2

Distribution Director.

1

1

1

1

1

1

1

1

Distribution Team

2

2

2

3

3

3

3

3

Creative Director (Executive)

1

1

1

1

1

1

1

1

Creative Team (Incl. Director)

1

2

2

2

2

2

2

2

Administration & Accounting

1

1

1

1

2

2

2

2

11

13

13

14

15

15

15

15

Total Staff

Scenario Summary In the following base case the assumptions are more conservative than in the management case presented in the thesis. With a first year achieving slower growth than in the management case a revenue of roughly ISK 90m is estimated and then 9% compound annual growth rate in the 5 years to follow. HR growth has been reduced, with 14 employees by the end of 2016 compared to 21 people in the management case at the same point in time. Other assumptions have been kept the same resulting in gross margin of ISK 14m in 2016 and profit of ISK 12m.

Accumulated profit or retained earnings at 2016 would amount to ISK 29m for those first six years of business in the base case scenario. Given those assumptions the case would work and would help a lot of Icelandic producers to establish their export, even though Allt Gott would not be generating a lot of profit.

T hes is

Academ y of A rt U n i ve r s i t y

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W i nt e r 2 010

18 0 / 181

Down Case Scenario

Turnover & Profit Growth

m.ISK

20 0

150.

10 0

50

2011

2012

2013

2014

All figures are in millions Icelandic kr贸na (ISK) unless otherwise stated.

2015

2016

A nnual Turnover

A l lt G o tt

V i 冒au k i

T he W hole S tor y

A p p e nd i x

2017

2018

Profit/Loss Thereof

Financi a l for ecast

2011

2012

2013

2014

2015

2016

2017

2018

Cooperative Fee revenue

25.9

36.0

47.8

59.2

72.4

77.8

83.3

88.9

A nnual Government Support

50.0

50.0

50.0

50.0

50.0

50.0

50.0

50.0

Total Turnover

75.9

86.0

97. 8

109. 2

122.4

127. 8

133. 3

138.9

70.8

75.4

70.8

75.4

75.4

79.9

84.5

84.5

Marketing budget (as % of turnover)

5.2

7.2

9.6

11.8

14.5

15.6

16.7

17.8

Communications (Trade shows etc.)

6.0

6.2

6.4

6.6

6.8

7.0

7.2

7.4

Office Expenses, Overhead

6.0

6.2

6.4

6.6

6.8

7.0

7.2

7.4

Board of Directors

3.0

3.1

3.2

3.3

3.4

3.5

3.6

3.7

91.0

98.0

96. 3

103.6

106.7

112.9

119.0

120.7

(15.1)

(12.0)

1.5

5.6

15.6

14.9

14.2

18.2

Other Items (interest etc.)

0.0

(0.6)

(1.2)

(1.0)

(0.7)

0.2

0.8

1.4

Ta x Payments

2.7

2.3

(0.1)

(0.8)

(2.7)

(2.7)

(2.7)

(3.5)

(12.4)

(10.4)

0. 3

3. 8

12. 3

12.4

12. 3

16.0

0.0

(9.4)

(18.5)

(15.9)

(10.1)

3.5

15.9

28.2

(12.4)

(19. 8)

(18. 3)

(12.1)

2. 2

15.9

28. 2

4 4. 3

Income Statement

Cost Items: Human Resources (Staff only)

Total Costs Gross Margin

Net Income Cash at Beginning of Year Cash at Year end

All figures are in millions Icelandic kr贸na (ISK) unless otherwise stated.

T hes is

Academ y of A rt U n i ve r s i t y

K r i s t 铆 n A g n a r s d贸 t t i r

W i nt e r 2 010

18 2 / 18 3

Revenue Inputs:

Cooperative Fee Value Of Target Export Market*

2011

7%

2012

2013

7%

7%

2014

7%

2015

7%

2016

7%

2017

7%

2018

7%

25,919

26,697

27,498

28,323

29,172

30,048

30,949

31,877

19

20

20

21

21

22

23

23

Proportion Of Target Market To Ag

1.0%

1.3%

1.5%

1.8%

2.0%

2.0%

2.0%

2.0%

Proportion Of Potential Market **

0.5%

1.0%

1.0%

1.0%

1.0%

1.0%

1.0%

1.0%

Current Manufacturing Will Start Export

60

80

120

150

20 0

210

221

232

New Export Opportunities Total

50

10 0

150

20 0

250

30 0

350

40 0

A nnual Government Support (For First Eight Startup Years)

50

50

50

50

50

50

50

50

Value Of Potential Export Market **

Interest Revenue

5%

5%

5%

5%

5%

5%

5%

5%

All figures are in millions Icelandic kr贸na (ISK) unless otherwise stated.

Revenue costs:

2011

2012

2013

2014

2015

2016

2017

2018

Human Resources (staff only)

70.8

75.4

70.8

75.4

75.4

79.9

84.5

84.5

Marketing Budget as 20% of turnover

5.2

7.2

9.6

11.8

14.5

15.6

16.7

17.8

Communications

6.0

6.2

6.4

6.6

6.8

7.0

7.2

7.4

Office Expenses

6.0

6.2

6.4

6.6

6.8

7.0

7.2

7.4

Board of Directors (0.6 p.a. average)

3.0

3.1

3.2

3.3

3.4

3.5

3.6

3.7

All figures are in millions Icelandic kr贸na (ISK) unless otherwise stated.

A l lt G o tt

V i 冒au k i

T he W hole S tor y

A p p e nd i x

Human r esources

2011

2012

2013

2014

2015

2016

2017

2018

Chief Executive Officer

1

1

1

1

1

1

1

1

Chief Financial Officer

1

1

1

1

1

1

1

1

Marketing Director

1

1

1

1

1

1

1

1

Marketing Team (Incl. Director)

2

2

2

2

2

2

2

2

Distribution Director.

1

1

1

1

1

1

1

1

Distribution Team

1

1

1

2

2

2

3

3

Creative Director (Executive)

1

1

1

1

1

1

1

1

Creative Team (Incl. Director)

1

2

1

1

1

1

1

1

Administration & Accounting

1

1

1

1

2

2

2

2

10

11

10

11

11

12

13

13

Total Staff

Scenario Summary In this down case the assumptions are negative. With a poor start and revenue in the first year of around ISK 75m.

It is then estimated to grow with compound annual growth rate of 11% in the next 5 years. HR growth has been reduced more than in the base case, with 12 employees by the end of 2016 compared to 21 people in the management case at the same point in time. Other assumptions have been kept the same resulting in a turnaround in 2013 and then gross margin of ISK 10m in 2016 and profit of ISK 8m.

Accumulated profit or retained earnings at 2016 would amount to ISK6 m for those first six years of business in this down case scenario. Given those assumptions Allt Gott would need a strong financial sponsor for the first 2-3 years of business but should be able to stand on its own after that.

T hes is

Academ y of A rt U n i ve r s i t y

K r i s t 铆 n A g n a r s d贸 t t i r

W i nt e r 2 010

18 4 / 18 5

Report of the Special Investigation Commission (SIC) Summa ry of the r eport 's ma in conclusions1

Summary of the Report’s Main Conclusions Explanations

These incentives included the banks’ incentive schemes, as

for the collapse of Glitnir Bank hf., Kaupthing Bank hf. and

well as the high leverage of the major owners. It should have

Landsbanki Íslands hf. are first and foremost to be found in

been clear to the supervisory authorities that such incentives

their rapid expansion and their subsequent size when they

existed and that there was reason for concern over this rapid

tumbled in October 2008. Their balance sheets and lending

growth. However, it mis evident that the Financial Supervisory

portfolios expanded beyond the capacity of their own infra-

Authority FME, the institution that bore the main responsi-

structure. Management and supervision did not keep up with

bility for monitoring the activities of the banks, did not grow in

the rapid expansion of lending. Growth in lending by the

the same proportion as the banks, and its practices did not keep

banks’ parent companies averaged nearly 50% from the begin-

up with the rapid changes in the banks’ practices.

ning of 2004 until their collapse. Lending to holding compa-

Access to international financial markets was, for the banks,

nies grew at the fastest and steadiest pace, on the one hand,

the principal premise for their big growth. This was especially

and to foreign parties on the other hand.1 Growth in lending

the case in the years 2004 to 2006. These years saw the banks’

to foreign parties was significantly more rapid. The growth

biggest growth. There were mainly two reasons why inter-

was especially rapid during the latter part of 2007. The banks’

national financial markets opened their doors to the banks,

rapid lending growth had the effect that their asset portfolios

firstly, because of their good credit rating. This was to some

became fraught with high risk. Numerous examples in the

extent inherited from the Treasury. Secondly, they had access

report corroborate that conclusion.

to European markets, on the basis of the EEA Agreement.

In general, such large-scale and high-risk growth is not compat-

In 2005, Glitnir, Kaupthing Bank and Landsbanki got hold

ible with the long-term interests of solid banks. On the other

of around EUR 14 billion in foreign debt securities markets.

hand, there were strong incentives for growth within the banks.

This amount was slightly higher than Iceland’s gross domestic

1 This is the English executive summary taken directly from the SIC report at the Icelandic Parliament web-site: sic.althingi.is. No amendments were made to the original text. The Special Investigation Commission (SIC) delivered its report to Althingi on April 12 2010. The Commission was established by Act No. 142/2008 by Althingi, the Icelandic Parliament, in December 2008, to investigate and analyze the processes leading to the collapse of the three main banks in Iceland. Members of the Commission are Supreme Court Judge, Mr. Páll Hreinsson, Parliamentary Ombudsman of Iceland, Mr. Tryggvi Gunnarsson, and Mrs. Sigríður Benediktsdóttir Ph.D., lecturer and associate chair at Yale University, USA.

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product Chapter 2 1. The Central Bank of Iceland defines

capacity as owners. The examination conducted by the SIC of

“foreign parties” as parties (natural persons or legal entities)

the largest exposures at Glitnir, Kaupthing Bank, Landsbanki

domiciled abroad. Such parties are not necessarily unrelated

and Straumur-Burðarás revealed that in all of the banks, their

to Iceland. For example, if an Icelandic-owned company that

principal owners were among the largest borrowers.

is registered in Luxembourg takes out a loan in an Icelandic

At Glitnir Bank hf. the largest borrowers were Baugur Group

bank, that loan, according to this definition, is made out to a

hf. and companies affiliated to Baugur. The accelerated pace

“foreign party” in that year and doubles the amount in debt

of Glitnir’s growth in lending to this group just after mid-year

securities issued the previous year. The terms for these debt

2007 is of particular interest. At that time, a new Board of

securities were very favourable, only about 20 points over the

Directors had been elected for Glitnir since parties affiliated

benchmark interest rate. When funding in the European debt

with Baugur and FL Group had significantly increased their

securities markets became more difficult, the debt securities

stake in the bank. When the bank collapsed, its outstanding

market in the US opened up. That opening was largely due to

loans to Baugur and affiliated companies amounted to over

collateralised debt obligations (CDOs). Icelandic bank securi-

ISK 250 billion (a little less than EUR 2 billion). This amount

ties were packaged into these CDOs because of the high credit

was equal to 70% of the bank’s equity base.

rating of the Icelandic financial undertakings. At the same

The largest shareholder of Kaupthing Bank, Exista hf., was

time, they paid, as a rule, high interest rates, considering their

also the bank’s second largest debtor. The largest debtor

credit rating. Thus, the Icelandic banks were the “cheapest” in

was Robert Tchenguiz, a shareholder and board member of

light of their credit rating from the rating agencies. Therefore,

Exista. When the bank collapsed, Exista’s outstanding debt to

they were ideal for raising the average rating of a collateralised

Kaupthing Bank amounted to well over ISK 200 billion.

debt obligation. It is clear that the Icelandic banks acted with

When Landsbanki collapsed, Björgólfur Thor Björgólfsson and

far too much haste when issuing debt securities in international

companies affiliated to him were the bank’s largest debtors.

markets. It was evident that sooner or later interest rates would

Björgólfur Guðmundsson was the bank’s third largest debtor.

go up and that credit markets would tighten again.

In total, their obligations to the bank amounted to well over

When the banking system had become far too big, relative to

ISK 200 billion. This amount was higher than Landsbanki

the size of the Icelandic economy, the governmental authori-

Group’s equity. Mr. Thor Björgólfsson was also the largest

ties needed to respond. No later that 2006 it would have

shareholder of Straumur- Burðarás and chairman of the Board

been necessary to take action, if there was to be any chance

of Directors of that bank. Mr. Björgólfur Thor Björgólfsson and

of preventing the collapse of the banks, without severely

Mr. Björgólfur Guðmundsson were both, along with affiliated

impacting upon the value of their assets. Neither that year nor

parties, among the largest debtors of the bank and together they

the next did the authorities try, in a decisive way, to have the

constituted the bank’s largest group of borrowers.

banks reduce the size of their balance sheets. Furthermore,

The owners of the banks received substantial facilities

the authorities did not exert themselves in order to have

through the banks’ subsidiaries that operated money market

one or more of the three big banks move their headquarters

funds. An investigation into the investments of money market

abroad. On the contrary, it was the policy of the coalition of

funds under the aegis of the management companies of the

the Independence Party and the Social Democratic Alliance,

big banks revealed that the funds invested a great deal in

according to their coalition agreement of 23 May 2007, to

securities connected to the owners of the banks. It is difficult

ensure that financial activities could continue to grow domesti-

to see how chance alone could have been the reason behind

cally and expand into new fields of competition with other

those investment decisions.

market areas. It was also the policy of the government that

During a hearing, an owner of one of the banks, who also had

the domestic multinational corporations would see it to their

been a board member of the bank, said he believed that the bank

advantage to have their headquarters remain in Iceland.

“had been very happy to have [him] as a borrower”.2 Generally

The largest owners of all the big banks had abnormally easy

speaking, bank employees are not in a good position to assess

access to credit at the banks they owned, apparently in their

objectively whether the bank’s owner is a good borrower or not.

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Towards the end of 2007 and in 2008 the banks started to

against loss it is intended to be. Here this is referred to as “weak

face constraints in their operations. It seems that the bound-

equity”. Weak equity in the three banks amounted to about ISK

aries between the interests of the banks and the interests of

300 billion by mid year 2008. At the same time, the capital base

their largest shareholders were often fuzzy and that the banks

of the banks was about ISK 1,186 billion in total. Weak equity,

put more emphasis on backing up their owners, thus going

therefore, represented more than 25% of the banks’ capital base.

beyond normal practices. The operations of the Icelandic

If only the core component of the capital base is examined, i.e.

banks were, in many ways, characterised by their maximising

shareholders’ equity, according to the annual accounts, less

the interests of the larger shareholders, who managed the

intangible assets, the weak equity of the three banks amounted

banks, rather than running solid banks with the interests of all

to more than 50% of the core component in mid year 2008.

shareholders in mind, where due responsibility was demon-

In addition to the risk that the banks carried on account of

strated towards their creditors.

their own shares, the SIC assessed how much risk they carried

The concentrated risk of the Icelandic banks had already

from each other’s shares. Here this is referred to as “cross-

become dangerously high, well before their collapse. This

financing”. Around mid year 2008, direct financing by the

applies both to lending to certain groups within each bank, as

banks of their own shares, as well as cross-financing of the

well as how the same groups also constituted high risk exposures

other banks’ shares, amounted to about ISK 400 billion. If

in more than one bank. For that reason the systemic exposure

only the core component of the capital base is examined this

risk attributed to the loans became significant. The clearest

amounted to about 70% of the core component in 2008.

example is Baugur Group and affiliated companies. The group’s

The SIC is of the opinion that the financing of owners’ equity

outstanding liabilities to the three banks amounted to EUR 5.5

in the Icelandic banking system had been based, to such

billion, when at their highest level, which was at the time about

a great extent, on borrowing from the system itself that its

11 % of total lending by the parent companies of the banks and

stability was threatened. The shares owned by the biggest

about 53 % of their aggregated equity base. Other groups had

shareholders of the banks were especially leveraged. This

substantial outstanding liabilities to more than one bank: Exista,

resulted in the banks and their biggest owners being very

Mr. Björgólfur Thor Björgólfsson, Mr. Björgólfur Guðmundsson

sensitive to losses and the lowering of share prices.

and Mr. Ólafur Ólafsson. The risks stemming from these parties

Overstatement of a bank’s equity increases its growth

were somewhat less than that from Baugur and affiliated compa-

potential. However, the bank’s ability to deal with setbacks

nies. 2. Statement by Mr. Björgólfur Guðmundsson before the

decreases at the same time. The risk of bankruptcy is thereby

SIC on 10 January 2010, p. 41.

increased. Under these circumstances, the loss to depositors

The capital ratio of Glitnir, Kaupthing Bank and Landsbanki

and other creditors becomes greater than it would otherwise

was, in their annual reports, always slightly above the statu-

have been. If the bank in question is systemically important, as

tory minimum. However, these capital ratios did not reflect

was the case with all of these three banks in Iceland, the costs

the real strength of the banks and the financial system as a

to society will also be significant, as has been the case.

whole or the capacity to withstand shock. This was due to

The SIC investigation into the Icelandic banks’ operations

considerable risk exposure stemming from the banks’ own

indicates that, as a consequence wider authorisation for the

shares, both through primary collaterals and forward contracts

operations of financial institutions in the last few years, their

on their own shares. If equity no longer provides a cushion

operational risk increased significantly. It is especially note-

for protecting depositors and creditors it is not equity in the

worthy that the freedom of credit institutions to engage in

economic sense. Under such circumstances it is no longer

riskier investments was significantly increased in this period.

possible to take the capital ratio into account when evaluating

They were i.a. authorised to engage in investment banking

the strength of a financial institution, as the risk of loss stem-

in conjunction with the traditional activities of a commercial

ming from the institution’s own shares lies with itself.

bank, although this scope for increased risk-taking did not go

The banks had invested their funds in their own shares. Share

hand in hand with satisfactory restraints and increased equity

capital, financed by the company itself, is not the protection

requirements. The FME had the power to require increased

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equity of financial institutions, i.a. in case of increased opera-

on whether, and if so, how, i.e. on what data or information,

tional risk. This power, however, was never exercised.

the bank’s board based its decisions, when deciding on a policy

In the last decade, the economic policy of the Icelandic author-

which differed from that suggested by the chief economist.

ities hasaimed at maintaining maximum long-term economic

The CBI attempted to curb domestic demand by lifting the

growth. It is the opinion of the SIC that neither the state’s

policy rate. Meanwhile, the CBI expanded its liquidity provi-

budget policy nor its monetary policy adequately addressed

sion to financial institutions significantly. From the autumn

economic fluctuations, overexpansion and growing imbalance

of 2005 to the beginning of October 2008, the stock of loans

in the economy. Unfortunately, it seems to be unavoidable to

against collateral from the CBI increased from ISK 30 billion to

conclude that the state’s budget policy increased in fact the

ISK 500 billion. At the beginning of October 2008, loans from

imbalance. The policy of the CBI was not sufficiently restric-

the CBI to financial institutions against collateral in securities

tive and its actions too limited to render the desired results in

and letters of credit in the three large banks amounted to ISK

the fight against increased leverage and underlying inflation.

300 billion. The CBI authorisation to provide credit institutions

The authorities decided to lower taxes during an economic

with loans by buying securities according to Article 7 of Act No.

expansion period. This was done despite expert advice and

36/2001 falls under the condition that these are granted against

even against the better judgement of policy makers who

collateral that the bank considers eligible. Although the CBI was

made the decision. This decision was highly reproachable.

aware of the weaknesses of the banks it nonetheless provided

The changes made to the lending guidelines at the Housing

volumes of loans against collateral in the banks’ securities. This

Financing Fund in 2004 also fuelled expansion. The changes

knowledge can barely be seen as compatible with what the

in the lending guidelines were one of the biggest mistakes in

aforementioned legal provision on valid collateral stipulates.

monetary and fiscal management made in the period leading

At the beginning of 2006, the Icelandic krona was much

up to the banks’ collapse. That mistake was made with full

stronger than was sustainable in the long-term. The current

knowledge of the likely consequences. The repercussions

account deficit was over 16% of GDP. The national balance

were quick to emerge and the consequences were even greater

sheet appeared weak, as liabilities in foreign currencies in

under the global low interest rate environment at the time.

excess of assets nearly amounted to the GDP of the country.

These decisions in fiscal and monetary management and

At that time, all the prerequisites for a financial crisis were in

others named in the report exacerbated the imbalance in the

place. The research department of Danske Bank drew atten-

economy. They were a factor in forcing an adjustment of the

tion to the economic imbalances in Iceland. In its view, there

imbalances, which ended with a very hard landing.

were signs that the current account deficit would reach 20% in

It was mostly left to the Central Bank of Iceland (CBI) to

2006. It was pointed out that the unemployment rate was 1%

counteract the effects of the expansion and for this reason the

and wage growth had been 7% annually. As a result the krona

bank began to raise interest rates in the spring of 2004. The

depreciated rapidly in March 2006. CDS spreads on Iceland

bank was, however, unhurried in its decisions to lift rates.

and the banks rose. The situation calmed down in the middle

While considering the steps towards monetary tightening it

of 2006. However, imbalances in the economy continued to

continually seems to have been expecting budget restraint

grow more rapidly than before. All developments increased the

measures by the government. Time and again, the bank called

likelihood of a serious financial crisis significantly.

for such measures. However, no such decisions were made.

The summer of 2007 saw the onset of an international

In the latter half of 2005, it had become evident that the CBI

financial crisis. It hit in the wake of unusually low real

interest rates were too low.

interests, easy access to loans, little fluctuation of economic

Within the CBI, opinions frequently diverged on what should be

indicators, and widespread increase in asset values. These

the desirable level for the policy rate. The Board of Governors

circumstances led to growing weaknesses in the interna-

of the CBI was more often in favour of less restraint than the

tional financial system, which emerged following extensive

chief economist of the Bank had proposed. Minutes of meet-

amortisation precipitated by a sharp fall in the value of CDOs

ings by the Board of Governors of the CBI do not shed a light

containing U.S. sub-prime mortgages in 2007. The major

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financial markets were rendered virtually inoperable. This

In addition to borrowing in Iceland, the largest Icelandic

proved especially difficult for the Icelandic banks. They had

investment companies had been doing business with foreign

become increasingly dependent on funding through inter-

banks and borrowed from them as well. Several of these loans

national financial markets. The Icelandic banks were faced

were secured with domestic securities as collateral. As the

with either raising further deposits or seeking other ways of

winter of 2007-2008 progressed share prices fell. By then

funding themselves. In the latter half of 2007, securities for

the quality of collateral declined for the Icelandic invest-

over EUR 2 billion would fall due. A further EUR 3 billion

ment companies. Foreign creditors made margin calls. Glitnir,

would fall due in 2008.

Kaupthing Bank and Landsbanki responded by taking over

Despite the success of the Landsbanki Icesave accounts and

the financing so that loans in foreign banks could be repaid.

the Kaupthing Edge accounts, the total deposits in the banks

The Icelandic banks thus lent substantial amounts while expe-

decreased kept shrinking from the autumn of 2007 until their

riencing considerable liquidity problems at the same time.

collapse. So-called wholesale deposits were flowing out of

Loans from foreign banks to Icelandic investors increased

all the banks. The outflow of wholesale deposits from the

the Icelandic banks’ risk because in fact they often acted as

Landsbanki branches in the UK and the Netherlands in the

“lenders of last resort” to these investors. There were a number

year before the collapse of the banks exceeded the inflow of

of reasons for this. First, the Icelandic banks had loaned these

retail deposits into the bank’s Icesave accounts.

parties such amounts that for the banks it was a matter of vital

Collateralised loans increased substantially in all three banks

importance that their debtors would manage to bounce back.

as the liquidity crisis became more widespread. In the autumn

Second, these parties had, in their capacity as owners and

of 2007, the banks’ collateralised loans were some EUR 2

stakeholders, had an abnormally easy access to credit at the

billion, mostly from the CBI. When the banks collapsed they

banks. Thirdly, it was a significant factor that loans to these

had grown to roughly EUR 9 billion and nearly half that sum

parties was to a large extent to fund stock purchases in the

was from the European Central Bank Collateralised loans were

banks themselves. They were thus part of the banks’ attempts

chosen rather than financing through the issue of medium term

to maintain the share prices. Finally, the banks considered that

bonds with maturity of three to five years. They were mostly

the damaging impact of bad publicity would be substantial if

granted for a period of a few weeks, although individual loans

there were repeated instances of large investment companies

were granted for a period up to six months. For the banks,

landing in trouble, such as happened with Gnúpur.

this increased financing through short-term collateralised

As stated before, the banks held a lot of their own shares as

loans escalated their financial risk substantially. Like deposits,

collateral for their lending. With share prices declining, the

collateralised loans are sensitive to changes in market condi-

quality of their loan portfolio declined. This could in turn

tions. This is especially true if the collateralised loans are

affect the banks’ performance and, consequently, the price of

provided by others than central banks. The creditors can,

their stock. Additionally, the employees of the banks in many

for example, reject their renewal or extension on maturity, or

cases owned significant shares in their own bank, sometimes

decide on increased haircut discount.

even financed by the bank itself. The banks already had put

When the liquidity crisis intensified in the international

themselves in a difficult position when share prices started

financial markets there was a substantial increase in foreign

to fall in late 2007, collateral coverage of their stock loans

lending by the three big banks. In the second half of 2007

decreased, and their clients’ positions deteriorated.

lending to foreign parties grew by EUR 11.4 billion. Lending

All the banks purchased their own shares on a large scale in

by the banks’ parent companies to foreign parties increased

automatically matched trades in the Stock Exchange.3 This was

by more than 120% in just six months. The increase was so

particularly the case after the prices of shares started to drop.

substantial that it can be assumed that many of these new

In 2008 the banks were buyers on average in 45% of cases of

clients had turned to the Icelandic banks after other banks

automatically matched trades in their own shares. In compar-

were beginning to slow their lending, and that these clients

ison they were sellers in less than 2% of cases of automati-

had thus been rejected by other banks.

cally matched trades during the same period. This cannot be

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considered to be normal market making on the part of the three

thereof in a formal manner. Therefore, the bank’s assessment of

large banks. It must be assumed that all the banks in this manner

the severity of the situation and the logical course of action and

attempted to elicit abnormal demand for their own shares. For

proposals, based on that assessment, did not go hand in hand.

that purpose they used the leeway that could be created by the

The Prime Minister, the Minister for Foreign Affairs and the

trading conducted by the proprietary trading desks.

Minister of Finance met with the Board of Governors of the

Lending for the purchase of shares in the banks that took

CBI on 7 February 2008. During the meeting, the Chairman

place in late 2007 and all of 2008 were in many cases likely

of the Board of Governors painted a very bleak picture of

to increase the leeway of the proprietary trading desks to buy

the state and future prospects of the Icelandic banks. The

more shares. In some cases care was not taken to prevent situa-

information indicated an imminent danger for the Icelandic

tions where the bank would still bear all the risk of fluctuations

economy. The Board of Governors also met with the Prime

in the price of shares.

Minister and the Minister for Foreign Affairs on 1 April 2008.

In light of the prevailing market situation since the autumn

In that meeting, the Board informed the ministers that GBP

of 2007, the banks found it hard to unwind the risks that had

193 million had been withdrawn from the Icesave accounts

developed within the system. It is appropriate to keep in mind

in London during the previous weekend. The Board also said

that the banks took those risks in their operations when the

that Landsbanki could withstand such an outflow for six days.

market situation was more favourable. A risk is developed

Neither the Prime Minister nor other ministers of the govern-

when it is taken, not when prices start dropping. A large part

ment who were informed about this reacted by resorting to

of the problem that the banks attempted to respond to in the

active and credible measures.

period leading up to their collapse was due to risks that were

It is clear from the events during the year leading up to

already in place within the system when the liquidity crisis

the collapse of the banks that a certain degree of mistrust

occurred in the autumn of 2007. Increased lending to the

and cooperation problems existed between Mr. Oddsson,

owners of the banks, acquisitions of foreign financing, losses

Chairman of the Board of Governors of the CBI, and most

due to buying and selling of their own shares and comparable

of the ministers of the Social Democratic Alliance. It is also

conduct of the banks, to the degree described in the report, can

clear that the previous cooperation in the political arena

hardly be considered as justifiable responses to such a crisis or to

between the Chairman of the Board of Governors of the

be in line with healthy and normal business practices.

CBI and the Prime Minister, as well as their long standing

From November 2007 onwards the Board of Governors of the

friendship, had an influence, as described by the latter, on

CBI became increasingly concerned about the situation that was

the way in which people construed the exchange of informa-

developing in the operational environment of the banks. The

tion between government leaders and the Chairman of the

Board of Governors described these concerns either directly to

Board of Governors of the CBI. In the period leading up to the

the Prime Minister and a small group of ministers, or within the

collapse of the Icelandic banks, Mr. Davíð Oddsson’s previous

platform of the government consultative group. In spite of these

political career thus had an influence, according to the descrip-

concerns there is no evidence that the Board of Governors of the

tion given by the ministers of the government that took office

CBI made available to the government formal propositions for

in May 2007, on how ministers responded to the informa-

necessary measures. Insofar as the CBI considered that it lacked

tion which he provided to them in the course of his duties as

the necessary lawful means to react on its own to the problem at

Chairman of the Board of Governors of the CBI.

hand, it would have been appro- 3. Automatically matched trades

During the meetings of the Board of Governors of the CBI

take place when trading members of the Stock Exchange put in

with ministers, the bank would not be in the habit of handing

their offers and trades occur when offers are matched, that is as

out documents with summarised information, along with the

soon as the matching takes place. It is also possible to negotiate

bank’s review of that information and proposals for actions,

the terms of trades outside the Stock Exchange and announce

where applicable. This is cause for wonder. During some of

the trade subsequently. Such trades are called manual trades.

these meetings very alarming news were heard. The discharge

Appropriate for the Board of Governors to notify the government

of official duties by the Board of Governors of the CBI was, in

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this regard, not as thorough as might have been expected. Due

aforementioned meetings so that he could attend to his duties.

to this fact, the ministers no doubt had difficulties assessing

It is the assessment of the SIC that the government’s actions

the right course of action, not in the least in view of the diffi-

concerning matters relating to the banks were unfocused when

cult relations between the ministers of the Social Democratic

the situation became more dire in the beginning of 2008.

Alliance and the Chairman of the Board of Governors of the

The ministers focused too much on the image crisis facing the

CBI. On the other hand, the ministers apparently did not call

financial institutions rather than the obvious problem, that the

for such proposals and documents from the CBI, once impor-

Icelandic financial system was far too large in relation to the

tant information had been verbally conveyed to them. They

Icelandic economy. When the ministers intended to improve

had, however, ample reason to do so. Furthermore, ministers

the image of the banking system by partaking in public discus-

were not generally in the habit of recording minutes of their

sions, mainly abroad, it was done without any assessment of the

meetings with the Board of Governors, even though there was

financial capability of the state to come to the banks’ assis-

every reason to do so, in light of the important information

tance and without information being available on the cost of a

often communicated there.

possible financial shock.

It has been established that until just before the collapse of the

The consultative group of the Prime Minister’s Office, the

banks there was little discussion within the Icelandic govern-

Ministry of Finance, the Ministry of Business Affairs, the FME

ment of the bank’s standing and of the liquidity crisis which

and the CBI on financial stability and contingency planning was

began towards the end of summer 2007. Nothing suggests,

established by a written agreement on 21 February 2006. The

either from the government’s minutes or the accounts of those

group was a platform for exchange of information and dialogue.

who reported to the SIC, that the ministers of the Icelandic

Its role should be consultative and it would not make decisions

government responsible for economic affairs (the Prime

on measures. In the agreement establishing the consultative

Minister), banking affairs (the Minister of Business Affairs) or

group, composing a joint contingency plan for the government

the state’s finances (the Minister of Finance) submitted to the

was not specified as one if its tasks. However it seems clear that

government a specific report on the problems of the banks or its

both the CBI and the FME looked to the consultative group

possible impact on the state’s economy and finance when the

concerning initiative towards a joint contingency plan and

banks started to face constraints in their operations and until

coordinated actions, not least when it came to actions which

the banking system collapsed in October 2008.

demanded political policy. Thus it seems that the consulta-

In 2008 the Prime Minister had quite a few meetings with the

tive group had in fact gained more value as regards to a plan of

Chairman of the CBI Board of Governors and the CEOs of the

action than the terms of the agreement from 21 February 2006

banks. During the period from February until May 2008 Board

stated. At least it is clear that nowhere else in the administra-

of Governors had at least five meetings with the Prime Minister,

tive body the work of composing a joint contingency plan was

Minister of Finance and the Minister for Foreign Affairs.

being carried out The uncertainty regarding the powers and

Banking affairs came under the domain of the ministry of Mr.

responsibilities of the consultative group seems to have lead to

Björgvin G. Sigurðsson, Minister for Business Affairs. He was

lack of clarity, as to who was in charge, who coordinated and

not summoned to attend any of these meetings, in spite of the

was responsible for contingency preparations on behalf of the

fact that the problems the banks were facing and the liquidity

Icelandic state in the event of a financial shock. In statements by

crisis were being discussed there. In addition, the Minister of

ministers and representatives of the governmental institutions

Business Affairs was apparently neither informed of the meet-

before the SIC, each pointed a finger at the other concerning

ings, nor was he informed of what took place during the meet-

positive obligation and no one assumed responsibility.

ings, with one exception, since he was informed of a meeting

Proposals and documents regarding the necessity of a contin-

that took place on 7 February 2008 in a Social Democratic

gency plan which were introduced to the consultative group by

Alliance parliamentary group meeting on 11 February 2008.

individual institutions, neither received formal resolution there,

As the leader of the government, the Prime Minister had the

nor by ministers with representatives in the group. Therefore

responsibility to inform the Minister of Business Affairs of the

it seems that the group was considerably lacking in targeted

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administration, both by the group itself and the ministers. In

have to meet in case of a financial shock. Work on this had

this context the SIC especially wishes to mention that when the

not been finished when the banks collapsed in October 2008.

banks collapsed there was no joint governmental contingency

Among the consequences was the uncertainty that occurred

plan available. At that point, it was sorely needed.

at the time of the collapse, and later regarding the fund’s issues

The consultative group does not seem to have been successful

on account of deposits in the foreign branches of the Icelandic

either in synchronising its actions regarding projects, which

banks, which were not covered by the Icelandic government’s

obviously could have come under the authority of several

guarantee on deposits in Iceland.

government bodies. At least three ministers, along with two

During the time leading up to the collapse of the banks there

governmental institutions, the CBI and the FME, were involved

were divergent views within the Icelandic administration on

as regards problems related to the Landsbanki Icesave accounts

the obligations of the EEA member states, in case a guarantee

in its foreign branches. Despite this there have been no indica-

scheme, established in accordance with de deposit guarantee

tions that the Icelandic authorities did, at that time, synchronise

directive of the EU, could not meet its payment obligations.

the group’s actions and formally request that Landsbanki transfer

Despite this, the Icelandic authorities did not conduct an

the Icesave accounts to a subsidiary. There is also no indication

enquiry into the available legal sources for the interpretation

that the authorities ever called for a schedule for such a transfer

of such obligations. The examination by the Investigation

from the bank if the authorities assumed the bank was preparing

Commission does not indicate that contemporary sources on

the transfer. Regardless of Landsbanki’s legal authorisation to

this issue provide definitive answers to the aforementioned

operate a branch in London, it was clear that progress in the

matters. Nevertheless, it was important that such an enquiry be

transfer of the Icesave accounts to a subsidiary could be of signif-

conducted, at the latest following queries by foreign govern-

icant importance when it came to the reaction and actions of the

ments in July-August of 2008 about whether the Icelandic state

Icelandic authorities over the coming months, e.g. because of

would guarantee the Icelandic Guarantee Fund’s ability to

the Depositors’ and Investors’ Guarantee Fund and in relations

pay, if its payment obligation would become operative. These

with foreign regulatory bodies and central banks. At this point,

were significant financial interests. Therefore, it was important

it would at least have been reasonable and in accordance with

that ministers, and others within the administration involved

the principles of good governance for the authorities competent

in decision making and communicating with foreign govern-

in regard to these matters to request confirmed plans concerning

ments on the matter, had the means to obtain a clear picture of

the timing of the transfer of the accounts to a subsidiary. This

the legal issues put to the test in this context, and thus able to

would also have been part of being able to monitor and follow up

considered them in their decisions and their replies to questions

on whether the bank’s plans were being carried out.

and demands by foreign governments.

The increased aggregation of deposits by the Icelandic banks

On 15 April 2008 Mr. David Oddsson sent a formal request

in their foreign branches resulted in considerable increase of

for a currency swap agreement to the Bank of England.

the obligations of the Depositors and Investors Guarantee

Mervyn King, Governor of the Bank of England, replied to

Fund (TIF). The biggest influence was the introduction of

Mr. Oddsson’s letter on 23 April and rejected the request by

the Icesave accounts which Landsbanki opened in the UK in

the CBI. However, he declared that foreign central banks

October 2006. In 2007 the share of foreign parties in deposits

could help Iceland find an effective way to reduce the size of

rose to over 50%. The development regarding TIF’s obligations

its banking system. In his opinion, this was the only practical

demanded that the fund’s Board of Directors and the govern-

solution to the problem. In closing, King said that he offered all

ment should consider more thoroughly how able it was to meet

the help he could provide to tackle the issue at hand. The CBI

liabilities that might arise. It was clear that the fund’s assets

did not accept this offer. Instead, a reply was sent to the Bank

were insufficient to fulfil the liabilities it would have to meet

of England, kindly asking it to revise its position regarding the

if larger financial institutions became insolvent. Thus, one of

said swap agreement. There was no reply to that letter.

the challenges that needed to be addressed in the government’s

After the G10 Summit of central bank governors in Basel on

contingency plan was how to fulfil the liabilities the TIF would

4 May 2008, it became clear that neither a currency swap

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agreement with the Bank of England nor with other central

of Governors. There were indications that Glitnir would

banks, with the exception of the Danish, Norwegian and

have difficulties paying back loans due around the middle

Swedish ones, was on offer to the CBI. In a letter to the

of October of the same year. Mr. Baldvinsson requested a

Investigation Commission, Stefan Ingves, Governor of the

collateralised loan to the amount of EUR 600 million. After

Central Bank of Sweden, makes it clear that unclear owner-

the meeting events developed quickly. A few days later, on

ship, along with the banks’ rapid balance sheet growth had led

Monday 29 September 2008, it was publicly announced that

to a dangerous situation and that the Icelandic government did

the Icelandic government would supply Glitnir with EUR 600

neither seem to fully grasp nor understand how to deal with it.

million in exchange for a 75% share in the bank. The SIC is of

In the spring of 2008, only the Danish, Norwegian and

the opinion that it must be strongly criticised how the CBI’s

Swedish central banks were willing to enter into currency

Board of Governors conducted the examination and processing

swap agreements with the CBI, though not without insistence.

of Glitnir’s request. The Glitnir request was not processed on

As a precondition for such agreements, they insisted that

sufficient grounds. For the same reason, the CBI’s Board of

the prime minister pledged to put pressure on the Icelandic

Governors did not have the necessary information to be able to

banks to reduce the size of their balance sheets, in view of the

estimate in an adequate manner whether the action proposed

proposals made by the IMF. The facilities from the Nordic

by the CBI to the government was rational.

central banks were conditional on the Icelandic government

In the end, the actions proposed to the minister concerning

taking action to have the CBI and the FME take certain

Glitnir on Sunday 28 September 2008, were not credible. First

political measures and actions. The ministers signed the decla-

of all, the amount in question was nearly a quarter of the CBI’s

ration in 15 May 2008, along with the Board of Governors

foreign currency reserves. Secondly, Glitnir had encountered

of the CBI. The declaration was not made public, nor was

difficulties concerning financing in foreign markets for about

it presented at a government meeting. The aforementioned

a year. At the same time, the bank was aware that liabilities

promises by the government in the summer of 2008 were not

amounting to EUR 1.4 billion would fall due in the coming six

kept. That did not improve the reputation of the Icelandic

months. This was public information. Thirdly, the CBI had not

authorities with foreign central banks. At this time, the

managed to strengthen its foreign currency reserves in any

Icelandic authorities had become very isolated in the interna-

significant manner despite its declarations of intending to do

tional community. Therefore, they had few to turn to when the

so. To foreign investors and credit-rating agencies it must have

Icelandic banks collapsed in October 2008.

seemed evident that the Icelandic state did not have access to

In 2008, Glitnir had difficulties in funding itself. At the

financing markets either.

beginning of the year it thought of issuing debt securities

The credit rating of Glitnir was lowered on 1 October 2008.

in the international financial market but had to renounce

Subsequently, the difficulties of the bank increased. On the

because of lukewarm reception by investors. Glitnir, on the

basis of loan terms contingent on credit rating, the DZ Bank

other hand, did well in developing the so-called asset-backed

and the Sumitomo Bank made due two loans amounting to

debt securities. They were later useful for taking collater-

a total of EUR 425 million. A credit line for EUR 1 billion

alised loans from the European Central Bank. Glitnir’s debt

with Deutsche Bank was also contingent on credit rating.

securities had large maturity dates in October 2008. Around

The reduced value of the collateral used by Glitnir against

mid-September 2008, it became definitively clear that the

loans resulted in high margin calls on the bank. The sum

sale of assets by a subsidiary of Glitnir in Norway would not

total of margin calls on the bank at this time amounted to

go through. At about that time, the Bayerische Landesbank

EUR 1,100 million. Included therein was a EUR 640 million

refused to extend two loans of the bank, at a total of EUR

margin call from the European Central Bank. That margin

150 million. Finally, market conditions deteriorated rapidly

call was received on Friday 3 October 2008. That action

after the collapse of Lehman Brothers.

was actually postponed temporarily on Sunday 5 October

On 25 September 2008, Mr. Þorsteinn Már Baldvinsson,

2008. In October, over EUR 500 million in collateralised

Chairman of the Board of Glitnir, spoke with the CBI’s Board

loans, acquired by Glitnir from other parties than central

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banks, had reached their maturity date. After the collapse of

Emergency Act were mostly drafted on 4-6 October 2008

Lehman Brothers, the government’s takeover of Glitnir and

under enormous time constraints. Many of those provisions were

the lowering of Glitnir’s credit rating, it was very unlikely

extremely complex and wide-ranging in scope. Those who drew

that these collateralised loans would be refinanced. It was

them up were not assisted by experts in fields bound to feature

absolutely impossible for the Icelandic state to meet payments

extensively in the formulation of the bill, e.g. in the field of

on the aforementioned claims. The government was not able

insolvency law. The Emergency Act was adopted by Althingi

to secure loans in the international finance markets. In the

late on 6 October 2008.

evening of 7 October 2008, the FME decided, on the basis of

Work on state contingency preparations was far from being

Emergency Act (Act No. 125/2008), that a special resolution

organised and thorough. However, it should be noted that the

committee take control of Glitnir.

SIC does not find it possible to claim that the Icelandic banks

After it became clear that the government’s measures in the

could have been saved from collapse even if work on contin-

Glitnir affair had been unsuccessful, a certain chaos seems to

gency preparations during 2008 had been more thorough.

have ensued as regards contingency planning on behalf of the

Such actions should have been launched much earlier. On the

state. The CBI and the government did not act in harmony

other hand, thorough preparations would have contributed

and overall leadership was lacking. No decision was taken

to greatly lessening the damage caused by the collapse of the

with regard to what course to take. By summoning a group

banks. The Icelandic government would then also have been

of specialists on the morning of 4 October 2008, the Prime

able to formulate policies sooner on many of the issues that

Minister finally made a decision and a certain course was set

needed to be decided upon, and would thus have been better

for the issue. This was the third group in a short period of

equipped to react and reply to questions from foreign govern-

time tasked with contingency preparations. The government

ments on urgent issues, i.e. in particular the UK and Dutch

consultative group had discussed contingency plans between

authorities in late summer 2008.

21 February 2006 and 3 October 2008. A group summoned

After the proposed nationalisation of a 75% share of Glitnir

by the CBI worked on contingency planning between 30

was announced, significant outflows of deposits started at

September and 3 October 2008. The new group of experts

Landsbanki and Kaupthing Bank. The banks also had to

on behalf of the Prime Minister worked on contingency plans

contend with margin calls. The European Central Bank issued

from 4 October 2008. In the beginning, this group was not

a EUR 400 million margin call to Landsbanki on Friday 3

given access to all the material from the other two groups.

October 2008. On the evening of Sunday 5 October 2008, the

As an example of how scant the preparations were for this

ECB withdrew the margin call shortly before the bank was

work, the first task of the group was to print out the annual

supposed to open on Monday 6 October 2008. That day, the

accounts of the large financial corporations from the office of

CEOs of Landsbanki wrote a letter to the CBI disclosing that a

one member of the group at the University of Reykjavík. The

significant outflow had taken place from the Icesave accounts

aforementioned procedures by the authorities with regard

in London over the previous weekend. The outflow was said to

to contingency plans for protecting the financial system of

total GBP 318 million. For this reason, the FSA had demanded

the country, and other fundamental interests of state and

that Landsbanki transfer GBP 200 million in cash to the UK in

the nation, were unacceptable. These methods were not in

addition to providing GBP 53 million to the bank’s subsidiary.

keeping with the manner in which nations with developed

Landsbanki requested a loan from the CBI to the amount of

financial markets and administration operate in general.

EUR 500 million. As collateral, the bank offered a selection

Broadly speaking, when it came to drafting the so-called

of debt securities to the amount of EUR 2.8 billion. The CBI

Emergency Act, i.e. Act No. 125/2008, the only thing

turned down the request. The bank did not believe it had suffi-

emerging from the work of the consultative group of the

cient funds, since a large part of the bank’s foreign currency

Icelandic authorities that proved demonstrably useful was

reserves had been loaned to Kaupthing Bank. In the evening

the draft provision which became Article 100a of Act No.

of 6 October 2008, the London branch of Landsbanki was

161/2002 on Financial Undertakings. Other provisions of the

closed down. The following day a special resolution committee

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assumed control of the bank in accordance with a decision by

came about too late for it to be able to keep pace with the

the FME on the basis of the Emergency Act.

developments in the operations of the financial institutions,

On 3 October, 2008, the FSA demanded that Kaupthing

and to carry out its statutory supervisory tasks.

Bank would transfer GBP 1,600 million to Kaupthing Singer

However, not all of the FME’s difficulties can be attributed to

& Friedlander (KSF) before the closing of business on

insufficient financial appropriations. Thus, the FME did not

Monday 6 October, as KSF had violated rules on liquidity

sufficiently concern itself with some basic questions, such as

in Britain. The above-mentioned amount was broken down,

the size of the banking system, and the Authority’s necessary

on the one hand, into GBP 1,100 million because of deposits

reactions in regard to its much too rapid growth.

with Kaupthing Bank, and, on the other hand, GBP 500

Part of the FME’s difficulties was also wrong prioritisation.

million because of margin calls by KSF to Kaupthing Bank.

Although the FME has been in the process of improving and

In the following days, Kaupthing Bank sold assets in order

structuring its IT systems since 2006, much greater emphasis

to raise funds. On 6 October, the bank obtained, inter alia,

should have been placed on installing advanced IT systems.

a loan of EUR 500 million from the CBI against collateral in

Continuous financial monitoring is carried out by collecting

the Danish bank FIH. On the morning of 8 October, the FSA

data from regulated entities, data processing, and expert evalu-

demanded that a total of GBP 300 million be transferred to

ation of the collected data. Such monitoring can not be fully

KSF in London. Kaupthing Bank did not make this payment.

utilised unless the Authority has at its disposal both advanced

On the basis of a special legal authorisation, the UK Treasury

IT systems and experts to process the data. The FME severely

decided to transfer the deposits in the KSF Edge Accounts to

lacked the technical expertise and the equipment necessary

the Dutch bank ING Direct N.V. The transfer took place at

to produce high quality comprehensive surveys of the position

10:00 a.m. on 8 October 2008. Later that same day, KSF was

and development of individual financial institutions from its

placed under cessation of payments. This led to the parent

databases. Therefore, the Authority did not really have the

company Kaupthing Bank hf. being put into moratorium. On

necessary overview of the activities of the financial institutions

the eve of 9 October 2008, a special resolution committee

which was so urgently needed. The difficulties the FME was

took control of the bank in accordance with a decision by the

faced with in processing data from its systems undoubtedly

FME on the basis of the Emergency Act.

greatly reduced its ability to carry out its duties in monitoring

Shortly after the collapse of the banks in November 2008, an

and keeping in check the financial institutions which collapsed

appraisal was carried out of the value of their assets. The results

in the autumn of 2008.

of the asset valuation showed 40% of the booked value at the

In its supervisory duties the FME was lacking in firmness and

time when the banks collapsed. The difference amounts to over

assertiveness, as regards the resolution of and the follow-up of

ISK 7,000 billion.

cases. The Authority did not sufficiently ensure that formal

The FME was not well enough equipped to sufficiently

procedures were followed in cases where it had been discov-

monitor the financial institutions when they collapsed in the

ered that regulated entities did not comply with the laws and

autumn of 2008. Considering the operating expenses of the

regulations applicable to their operations. According to the

FME and its budget up to 2006, it is clear that the growth

clear instructions of Article 10(1) of Act No. 87/1998 on Official

of the Authority did not keep pace with the rapid growth of

Supervision of Financial Activities, the FME shall demand that

the Icelandic financial system, more complicated ownership

a remedy is made within a reasonable time. If a regulated entity

links within the financial market, and increased activity of

does not comply within the allotted time limit, the FME can

regulated entities abroad, and it was not consistent with the

respond, among other things, through coercive instruments.

growing and increasingly complicated tasks entrusted to it

There are examples of cases of this kind where the only action

pursuant to law during the preceding years. The FME’s tasks

taken, in response to a violation of law, was the submission of

demand vast expert knowledge on the operations of banks,

written comments to the relevant financial corporation, without

economics, accounting, and legislation on financial markets.

putting the matter through proper legal channels as well. Such

It is clear, that the increase in the FME’s budgetary resources

shortcomings in the way in which the FME conducted its

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operations with regard to the financial corporations, meant that

repeatedly stated, that other institutions or officials were

insufficient force was applied to ensure that the financial corpo-

responsible for such issues or tasks. Based on these answers,

rations would comply with the law in a targeted and predictable

it may be assumed that the representatives and administra-

manner commensurate with the budget of the FME.

tors of those governmental institutions, that had the role of

Nor did the auditors perform their duties adequately when

monitoring operations in the financial markets and the effects

auditing the financial statements of the financial corporations

of those operations on state economics were, in various cases,

for 2007 and the semiannual statements for 2008. This is true

unaware of who was meant to carry out and take responsi-

in particular of their investigation and assessment of the value

bility for certain aspects of these affairs in the government’s

of loans to the corporations’ biggest clients, the treatment of

daily activities. It is imperative to look carefully to how the

staff-owned shares, and the facilities the financial corporations

obligations of individual institutions and officials may be

provided for the purpose of buying their own shares. With

better defined and delineated, in this respect.

regard to this, it should be pointed out that at the time in ques-

The SIC’s assessment, pursuant to Article 1(1) of Act no.

tion matters had evolved in such a way that there was particular

142/2008, was mainly aimed at the activities of public bodies

reason to pay attention to these factors.

and those who might be responsible for mistakes or negligence

The powerlessness of the government and the authorities,

within the meaning of those terms, as defined in the Act.

when it came to reducing the size of the financial system in

Although the SIC was entrusted with investigating whether

time before a financial shock hit, is evident when looking at the

weaknesses in the operations of the banks and their policies

history related in Chapters 19 and 20. In this context, it should

had played a part in their collapse, the Commission was not

be kept in mind that when a bank provides a company with

expected to address possible criminal conduct of the direc-

a low loan, the bank is in a position to set the terms that shall

tors of the banks in their operations. On the basis of events

apply if the company defaults on payments. On the other hand,

and viewpoints that are described in more detail in individual

if a bank provides a company with such a high loan that the

chapters of this report, the SIC is of the opinion that Mr. Geir

bank may anticipate substantial losses if the company defaults

H. Haarde, then Prime Minister, Mr. Árni M. Mathiesen,

on payments, it is in effect the company that has established

then Minister of Finance, and Mr. Björgvin G. Sigurðsson,

such a grip on the bank that it can have an abnormal impact

then Minister of Business Affairs, showed negligence, within

on the progress of its transactions with the bank. It is also clear

the meaning of Article 1(1) of Act No 142/2008, during

that when the size of the financial system of a country is, for

the time leading up to the collapse of the Icelandic banks,

instance, threefold its gross domestic product, the competent

by omitting to respond in an appropriate fashion to the

authorities of the country have, in general, the potential to set

impending danger for the Icelandic economy that was caused

rules for the financial system to comply with and to ensure

by the deteriorating situation of the banks. The SIC is also

compliance with such rules. However, when the size of the

of the opinion that Mr. Jónas Fr. Jónsson, then Director General

financial system of a country is nine times its gross domestic

of the FME, and Mr. Davíð Oddsson, Mr. Eiríkur Guðnason

product the roles are reversed. This was the case in Iceland.

and Mr. Ingimundur Friðriksson, then Governors of the CBI,

It appears that both the parliament and the government lacked

showed negligence, within the meaning of Article 1(1) of

both the power and the courage to set reasonable limits to the

Act No 142/2008, in the course of particular work during the

financial system. All the energy seems to have been directed at

administration of laws and rules on financial activities, and

keeping the financial system going. It had grown so large, that

monitoring thereof. The Commission’s conclusions regarding

it was impossible to risk that even one part of it would collapse.

this subject are more closely described in Chapter 21. Apart

In replies made by administrators of governmental institu-

from instances and situations, which the SIC considers to

tions who reported to the SIC, the statement was frequently

constitute negligence in this sense, its more detailed criticisms

encountered that it did not fall under the functional area

and rebukes regarding the government’s efforts during the

of the person concerned, or his institution, to address or

time leading up to the collapse of the banks, may be found in

take responsibility for the project in question. It was also

the conclusions at the end of individual chapters.

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TA> e. thank you To Ben Boothby for all his help.

To my friends Sigurður Arnljótsson, Anna Margrét Björnsson, Birna Anna Björnsdóttir, Anna Hjartardóttir, Jón Kaldal and many others for editorial advice and vital input.

To Rut Steinsen especially for crunching numbers with me, editing, advising, and showing about as much enthusiasm and support as one could ask for.

To Helga Guðný Theodórs for so much help, advice, inspiration and an eye for detail. Ingólfur Guðmundsson for the great animation. My cousin, Pétur Sturluson, for his stunning photography.

To the good people at MS Iceland Dairies and at Stóra Ármót, Selfoss, for welcoming me.

To my instructors, Arvi Miquel Santos, Jay Wilkinson, Carrie Ann Plank, Phil Hamlett, and many more for their great critiques, words of encouragements and for pushing me in this process.

To my classmates at Academy of Art. Linda Ólafsdóttir, Alda Rose Cartwright, Mike Andersen, Jenny Pan, Elizabeth Vereker, Lauren Mulkey and many others for advice.

To mom and dad. For so much.

>K

Paper: Finch 80lb Text Printer: Andresen, San Francisco Bindery: The Key, Oakland Cover: Paper Source bookcloth in Tangerine, Foil Stamping Typography: Kings Caslon by DaltonMaag, Dr. Strangelove by Veer and Eloquent by Veer Photography: Kristín Agnarsdóttir.

Pétur Sturluson p. 35,77,104.

Flickr Creative Common License p 19, 38,55,154,159. Nordic Photos p.8, 42, 44. Lauren Mulkey p.88.

Apple p.164,165, 168,169.

Executive Summary taken directly from the English language translation of the SIC report at sic.althingi.is. p. 179 Techonology: Adobe InDesign, Lightroom, After Effects, Photoshop, Illustrator, Dreamweaver.

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