Peter Wallenberg was never intended to rule the family empire. His illustrious father Marcus, the previous patriarch of Europe's pre-eminent industrial dynasty, often told Peter so--and told friends, business partners, even the newspapers. "He told me I was not competent and capable, that I never did anything good. He always picked out the things he didn't like," Wallenberg, now 70, recalls of those humiliating days, without apparent rancor. "He gave me calluses on my soul."

But fate decreed that Peter would after all come to lead the 140-year-old empire that dominates Swedish industry, and today, as he enters semiretirement, the man some once regarded as a clown can claim the last laugh. During his 14 years at the helm, the company, whose world-class businesses produce everything from paper to mobile phones and account for about 45% of the Swedish stock market, has defied predictions of its demise. It has weathered a devastating early-1990s recession, bested all challengers to corporate leadership in Sweden--and chalked up in the process an average 20% annual return for investors in the family holding company. "Nobody has given Peter Wallenberg credit," says millionaire Swedish property developer Sven-Olof Johansson, who has waged battle against the empire. Detractors may claim that Wallenberg had as much luck as skill. But luck is a bankable commodity, and as Johansson points out, the current patriarch "has the best track record in the history of the Wallenbergs."

Now, with a huge cash reserve and a new generation waiting in the wings, the empire has reached a turning point: it is preparing to break out of its Nordic redoubt and cut its reliance on heavy industry. Wallenberg officials say they are mapping out forays into Europe, Asia and the U.S. with new investments in hot fields such as information technology, media and health care. Foreign ventures and the treacherous world of high tech pose a major risk to a paternalistic organization with nationalistic roots, but history warns against underestimating the family. "They'll act quite carefully," predicts a Stockholm stock analyst. "They have a high degree of credibility."

The Wallenbergs' new strategy and their financial acumen were on display this spring when they sold half of Scania, a thriving truckmaker, for $2.7 billion in one of the largest initial public offerings ever traded on the New York Stock Exchange, a shrewd deal that fetched a far higher price than expected. In June they took another step away from manufacturing by agreeing to let America's General Motors, already a fifty-fifty joint partner in Saab Automobile, take up to 100% ownership by the year 2000. Foreign investors have been piling into the Wallenbergs' main industrial holding company, Investor, which is planning a stock-market listing in the U.S. later this year.

Included in the Wallenberg "sphere"--the family's preferred term for its empire--are such blue chips as appliance-maker Electrolux; STORA, Europe's largest forest-products company; SKF, the ball-bearing maker; Ericsson, a leader in mobile telephones; SAS, the Scandinavian airline; Astra, a fast-growing pharmaceutical firm; and ABB Asea Brown Boveri, the globe-girdling Swiss-Swedish engineering firm. All that rose from the original cornerstone of the empire, Enskilda Banken, which was founded in 1856 by Andre Oscar Wallenberg and grew into Sweden's second largest bank, now called S-E Banken. The bank, and later Investor, slowly acquired the industrial holdings, often in rescue operations, but lately the group has backed younger outfits specializing in computer services, broadcasting and medical technology.

The firms operate largely independently and have their own stock listings, but most are Wallenberg-controlled behind the scenes, in line with the family motto, "Esse non vidare," which to the Wallenbergs means that it's better to be than to be seen. Three family trusts own 40% of the votes of Investor, which often has only a minority stake in the companies. The key to the empire's power is its clutch of so-called A shares, which usually have 10 times the voting rights of the regular B shares. In Electrolux, for instance, Investor has only 1.3% of the equity but 45% of the votes. Many of the companies' chairmen sit on Investor's board, often informally consulting one another on sailing or ski trips. The Wallenbergs' credo is active ownership and long-term investment. "We're not a conglomerate; we're a mixture of Warren Buffett's Berkshire Hathaway and a Japanese keiretsu," says Claes Dahlback, Investor's long-serving president. Famed U.S. investor Buffett became a billionaire through his strategic stakes in a variety of firms, while the companies in a keiretsu industrial grouping share a common corporate culture.

Peter's father Marcus Wallenberg groomed as heir his other son Marc, placing him in the bank while Peter was sidelined as an overseas salesman and later an executive for Atlas Copco, a Stockholm-based mining-equipment firm. But Marc committed suicide in 1971, and suddenly the outcast was in line to take over, to the skepticism of many. The father was a towering public figure--tennis champion, industrial statesman, diplomat (and a cousin of Raoul Wallenberg, who saved thousands of Hungarian Jews in World War II). Marcus was as tall and austere as Peter was round and rumpled. "There were a lot of people who didn't think he was clever enough," recalls Bo Henning, a top union official on Copco's board.

When his father died in 1982, the scornful remarks were still ringing in Peter's ears, "but it only made me more determined," he says. Peter relied on the experienced lieutenants around him and displayed a knack for picking talented executives. Equally important, says business journalist and author Ronald Fagerfjall, "he changed the strategy of the companies toward market domination, whereas before they had been more niche players." Lucky winds helped the new tack: Sweden's stock market soared 1,162% in the 1980s, and devaluations of the krona boosted foreign sales. But those halcyon days almost set the company up for catastrophe. In the early 1990s, Investor nearly collapsed after it borrowed heavily for a leveraged buyout right before a huge recession, and a property crisis almost destroyed S-E Banken. But the sphere weathered the storm and in 1994 witnessed the downfall of Pehr Gyllenhammar, head of automaker Volvo and the Wallenbergs' only major Swedish rival, when he resigned after a proposed merger with Renault collapsed. Says Fagerfjall: "[The Wallenbergs] have never been as dominant."

Peter displays a salesman's garrulous bonhomie and speaks accentless English from his years abroad. ("I can cuss pretty well in American," he boasts.) Despite his power, most of the money is tied up in the foundations. His personal wealth doesn't even make him the richest man in the country, although he has come under fire from small shareholders for taking $1 million in annual director's fees. Not always popular in socialist Sweden, the Wallenbergs are at least respected today as long-term capitalists in a world of quick-buck corporate sharks.

Thrice married and thrice divorced, Wallenberg has picked his son Jacob and nephew Marcus, both 40, to lead the empire into the next generation. "The boys," as Peter calls them, are graduates of American universities and a Wallenberg-style boot camp of posts in banking and industry. Marcus is now executive vice president of Investor, and Jacob is deputy managing director of the bank. Though both are as yet unproven, the investment community is relaxed about the transition--the younger men may be quicker to enter new fields and shed some of the portfolio's historical baggage.

Can they perpetuate the dynasty? "Without Peter, the family would have expired 15 years ago, but now it is the end. Just the structure is there," says economist Nils Lundgren of Nordbanken. Globalization and more demanding foreign investors spell an end to the old ways, the theory goes. But David Bartal, author of The Empire, a new book about the family, offers some words of caution: "Every decade the empire is declared dead, and the obituary is always premature."