Melanie Stern is Section Editor of Families in Business magazine.
Johan H Andresen, CEO of Norwegian venture capital investor Ferd, talks about 2003's board professionalisation process, and why an emphasis on good governance can see the company achieve its goals
"A community is like a ship," celebrated 19th century Norwegian playwright Henrik Ibsen once said. "Everyone ought to be prepared to take the helm."
Johan H Andresen must think along similar lines. The 42-year old CEO and fifth family generation of Ferd, Norway's diversified private equity/venture capital investor, has spent a good deal of the past year hiring and professionalising the boards of his entrepreneurial investment powerhouse. His aim: to ensure they can steer Ferd to future success – with or without their principal.
In May this year, jettisoning 155 years of Ferd tradition, Johan split the roles of board chairperson and company CEO - previously held by him and his forefathers before him, relinquishing the chairmanship to managing director of Norwegian banking group SpareBank 1 Gruppen, Gunn Waersted.
Also on the board is Norsk Hydro's vice-president of corporate mergers and acquisitions Wenche Agerup; one-use medical supplies manufacturer Unomedical's managing director Henrik Brandt, who last year saw the company through its sale from family-owned Maersk Medical to Nordic Capital; Urban Jansson, the first non-family CEO of investment company Ratos who later took it to market; and Jo Lunder, chairman of Russian telcom giant Vimpelcom – 25%-owned by Norwegian counterpart Telenor.
The previous month, Johan completed the creation of a new board of directors for Elopak, its food and drink packaging manufacturer. He remained chairman, but installed some shrewd strategic knowledge centres in Claes-Goran Beckeman, a senior vice president for Swedish paper-and-plastics manufacturer SCA and a former director at its nearest rival Tetra-Pak; former Gilette Corporation executive VP of commercial operations Jorgen Wedel; and industrial production expert, Olav Volldal.
The changes were part of a wider effort to sharpen the focus of Ferd's chief aim – 'to become Norway's best private owner' – through the tenets of unrivalled, totally independent management and professional, open practices, from the top to the bottom of the organisation. Many in the business of reporting on global corporations, like those within the corporations, now call this 'social responsibility'.
Ferd's five main business areas are Ferd Private Equity, the company which manages a portfolio of 100% or majority-owned sport and pharma business; Ferd Invest, which manages the companies' external equity portfolio; Ferd Venture, which manages the company's venture capital funds; Ferd Real Estate; and Elopak.
As an 'active investor' in all its companies, it is vital to Ferd's bottom line that it provides its investments with directors who can drive growth and ultimately, financial returns.
"I realised that to attain the necessary clout – internally and externally – to perform the responsibilities it was made for, we had to professionalise; there had to be a split between the board and the owner," Johan explains to Families In Business. "I needed a board I can bring issues to, that can make decisions independently on matters such as fund allocation, risk levels, group strategy and evaluation of our managers. For that to happen there needed to be a clear-cut division of responsibilities and tasks between the top bodies. Now I've got an organisation that I am certain can function without me."
Additionally, the hires signal to clients and prospects that Ferd is evolving within a global, professionalised, corporate space. In particular, Gunn's standing and contacts in the region's financial markets – not only as the MD of a pre-eminent financial institution but as a member of Norway's financial markets authority FNH – are sure to come in handy to Ferd as it concentrates on its private equity and venture capital companies.
The company reached a milestone in that aim this year, with the creation of a private equity fund intended to attract global investment to Norway and the surrounding regions.
This followed the inauguration last year of Energy Ventures, its energy-technology fund initiated by Ferd and partners and the first of its funds managed from outside Ferd – a trend Johan thinks may have legs. "We're taking more of an interest in direct investments that aren't necessarily managed by us, but by competent outsiders in a fund structure where Ferd allocates both capital and personnel," he reveals. "We want to be an international presence and with this aim we're going to expand Elopak, then Swix Sport (a sport clothing and accessories company), and then raise foreign capital through the first tranche of our new private equity fund," he continues. "There's an opening in the Norwegian market, particularly in deal size, that we are going to step right into."
The work Ferd has done to its management coal-face is manifold. Since 1998, the company has tried hard to forge a new image for itself focused on its active investor role, to get away from its roots in the tobacco industry – starting with Johan's first decision in the CEO role to sell that part of the business and focus on active investment elsewhere.
In 1778, under the ownership of the Jacobsen family, the fledgling company was granted a royal charter to produce and sell tobacco. By the time Johan's great-grandfather bought the company from its second owner Johann Ludwig Tiedmann 71 years later, the re-named JL Tiedmanns Tobaksfabrik was the biggest tobacco player in Norway.
In 1998 – the year Johan assumed leadership of the company from his father – the family sold JL Tiedmanns Tobaksfabrik to Danish producer Skandinavisk Tobakskompagni (ST Group) and turned its attention to Elopak and its start-up investment business. Johan has, however, retained a 17% stake in the company and a seat on ST Group's board.
In 2002, JL Tiedmanns was fully acquitted by the Norwegian High Court of negligence against the estate of Robert Lund, who died of lung cancer after smoking the same brand of the company's rolling tobacco for 40 years. While the company came away victorious, the high-profile lawsuit illustrated a new order for the industry where many similar cases were being won by plaintiffs overseas, at costs to the defendant running into millions.
The hidden costs, however – to the reputation of anyone affiliated in any way with tobacco in these increasingly litigious and ethically-sensitive days – were deemed equally threatening.
Johan had pre-empted this trend in his decision to exit, concurrently updating the company's holding structure to make clear that it was no longer 'operationally' involved in tobacco and re-naming the company Ferd. But how can a company the chose to keep a stake in a tobacco company and a seat on its board say it is not operational in tobacco?
"Good question," Johan responds, but he concedes that the bottom line, as it is for most commercial concerns, is money. "Although it is a minority holding, it has a very high value and provides us with a steady dividend which is useful for a company like ours with fluctuating results," says the chief executive.
He's not joking. In 2003 it was Ferd's best-performing equity investment with a book value of well over €35m (NOK293m), compared to the company's two best performers for the period in operating profit terms, Elopak's €29m (NOK242m) and Ferd Invest's €48m (NOK407m). "We got into this investment as a defensive move and not as a way of exiting tobacco," Johan adds. So, has anything really changed with the new name and 'not operationally involved' strap-line?
"I would say almost everything changed," Johan maintains. "In the past tobacco had a tremendous cashflow but we, on the other hand, were locked into domestic markets on the basis of a licence with ST Group. It is now purely a financial investment; we are part of a company that is doing extremely well with a wider portfolio of products. We have reduced our risks dramatically – by risk I mean future risk – and increased the value of our holding. We are expending far less effort, capital and time on the tobacco business so we can focus on areas where we can make a difference."
While this macro view makes more sense, Johan indicates that the image of the tobacco market as an investment undesirable could prove problematic for Ferd in the future. "Now that we're in this market it isn't necessarily easy to exit. We're locked in as one of three big shareholders in a unlisted company. We would sell our stake if we could achieve the right price, but we might not see the returns I would expect. Remaining on the board is therefore essential to assess the value of that holding."
Clean hands and best practices
Re-branding efforts aside, Johan has opted for the best-practice governance and transparency model rather than the safety net of the private family concern, earning credence from honesty. "We are dependent on two things: attracting the best employees and the best client relationships, and deal flow. All our companies are dependent on ideas coming in from the outside as well as the inside, so having an open culture and policy we believe leads to greater understanding of who we are, what we're trying to achieve and what we can give to others," says Johan. "We have to be open about our results, whether they're great or not so great. We see that as essential to achieving our goals and our vision."
The voyage to professional governance at Ferd is still underway, and indeed it seems that now a very practical annual review has naturally evolved into standard practice for the company. In June, Johan submitted a progress report to the board on the changes implemented so far, and ideas on what core competencies should be invested in to continue being the best owners for Ferd's companies. He expects to put a final proposal for any changes he and the board agree should be made in the autumn.
"We laid down our strategy in 2001 and thought there was a need to review it with the board as they have a pivotal role," the chief executive says. "I would like the board to support my message: we have come quite far but now it is time to raise the bar even higher. I am applying positive pressure on the company to raise its game."
Success and the sucessor
Johan's entry into his family's business was fairly unspectacular. Summer jobs in various factories, and later roles on most of Ferd's company boards; the obligatory management MBA; a couple of years in the US at an Ivy League school and the requisite stint outside Ferd, working for forestry products giant International Paper Company. He returned to the fold in 1998, by way of succession straight to the top.
On hitting the ground, the young ceo set about overhauling the hiring process to ensure the company could attract top-flight professionals, now it was to focus on active investment of companies. "You could safely say these things were not a focus for my father, though they were the ambition," Johan recalls. "I didn't have a map - I had to come up with the ideas - but I managed to sell those ideas to the people we were doing business with. The results of that are only now begining to show."
The 42-year old father of two has never rested on his laurels. His personal work credo to compete, challenge and continually assess has been embodied in the spirit of the company. Mistakes have been made and lessons learned – and turned to Ferd's advantage. One such lesson was the company's focus on investing in start-up companies back in the 1990's, admittedly with mixed results. "It wasn't that we invested in the wrong companies, we just weren't organised. We didn't know what we wanted from those types of investments. Now we're properly structured in our approach and in who we recruit for our investments, and we are pragmatic about ownership; we should be the owners as long as we are the best owners," he believes. "If we don't contribute value to the business then we are by definition destroying it. If that happened we would look at merging, floating or selling."
Johan's belief that he will always embrace floatation or sale of any of its companies, when Ferd finds that others can be better owners, suggests that the family business is slowly moving towards a family office model. The stated aim of Ferd is, as with most switched on corporates, to create value for its shareholders – in this case there is only one shareholder, namely Johan. His father retains a small stake in the tobacco. So could it be that Ferd is just a large, unlisted, managed stock portfolio paying a dividend to the family, ie a family office?
Johan disagrees and explains what fuels Ferd's continued existence as a business. "Our ambition is to create lasting footprints as well as to create value – that is the basis for everything we do. The way we do it separates us from others. As an owner I am interested in the company doing really well and becoming the best in its respective classes. Put it this way, I don't really need the cash," the CEO says.
Johan's belief in good governance as the wind in the sails of success is clear. "We aren't talking about day trading here, we are talking about active ownership. It isn't just about the result –it's about how we get there."