Viveca Ax:son Johnson’s comment in Nordstjernan’s Annual Report 2018
Since 1890, Nordstjernan has been built by entrepreneurs working in maritime transport, trade and industry. They have all shared the conviction that the best way to manage what their predecessors built up is to develop it. Knowledge about this history provides a long-term perspective on operations today and insights into the future. The company has survived the first and second world war, stock market crashes, political changes and trends. One lesson that can be learnt: hurry slowly. An ocean liner is not turned around all of a sudden; instead it must be done step by step. As a result, unnecessary economic and other setbacks are avoided.
Today we see challenges in the economy and in the world around us, but Swedish business is nonetheless relatively healthy. Nordstjernan owns companies that have their main office in the Nordic region, but many of them operate globally. We have more than 60,000 employees and total revenue of more than SEK 100 billion. Over the past twenty years, Nordstjernan’s total return has been 14 per cent a year, while the Stockholm stock market has gained 8 per cent a year, so we are proud of our employees’ efforts.
1999–2018 – a look back
In 1999, Nordstjernan’s Board of Directors hired Tomas Billing as CEO. He was entrusted with the task of infusing new energy into the company and developing a strategy for the future. The main objective was to increase net asset value. And that has been achieved – Nordstjernan’s net asset value increased from SEK 2.7 billion on 1 January 1999 to SEK 29.8 billion at year-end 2018. Moreover, Nordstjernan paid out SEK 2.5 billion in dividends to its owners during the period. Had Nordstjernan performed in line with the stock market, our net asset value would instead have been around SEK 12 billion and Nordstjernan would have only been about a third of its current size. What accounts for this strong return? I will try to identify a few factors contributing to this positive performance.
Continuity and stability: Nordstjernan has a stable group of owners with an eternal perspective – with the Johnson foundations as its largest owner. We have changed the chairman only once, when Johan Björkman tragically died in 2007. The business concept and strategic focus have been largely unchanged since 1999. We have succeeded in recruiting and retaining many talented, ambitious employees and have gone from 6 to 30 staff. We have worked with many of our senior employees and senior advisors for a long time. Former CEOs and company employees contribute their competence and experience today on the boards of our holdings.
Long-term impatience: With its long-term perspective, Nordstjernan is an owner with a timeframe that differs from the quarterly focus of the stock market and the exit horizon of private equity firms. But this long-term perspective is combined with a large dose of impatience. We can invest over business cycles, and we work in the long term to create healthy companies and long-term value growth.
Delegated decision-making: We do not act as an industrial group with group-wide policies. That means each holding has its own independent Board of Directors, a unique corporate culture and its own strategy work.
A good starting point: In 1999, Nordstjernan had only one holding, NCC, which was doing very poorly at the time. Although NCC has not performed as planned in recent years, the NCC share has generated an average total return of more than 10 per cent a year since 1999.
Good profit trend: Net asset value can increase if we make good deals or if the profits from our holdings are valued higher. But the main reason for Nordstjernan’s good growth in net asset value is the good profit growth in our holdings.
Spreading of risks: NCC accounted for a full 80 per cent of Nordstjernan’s net asset value in 1999. Today NCC is still an important holding for Nordstjernan but constitutes only 8 per cent of its net asset value. Three of our biggest holdings – Rosti, Etac and Dacke Industri – are unlisted companies in different industries. We have succeeded in broadening our operations so that today we have a number of promising holdings for which we see good growth potential in the years ahead.
We have also had some degree of luck. As an owner, I see that we had “luck” in 1999 in finding and hiring the right CEO – Tomas Billing – for the task of developing Nordstjernan.
“Burn the company values folders, rip up the management-by-objectives documents, destroy the inspection reports and start looking for people with character. The management vocabulary in job adverts must be replaced, and prevailing HR philosophies must be discarded...Passion for digital leadership weighs as much as a feather compared to genuine integrity”, writes Susanna Birgersson in Axess.1
In other words, is there a connection – beyond the trends of the day – between character, deeds and results? Over the years, Tomas has proved to be quick, persevering and impatient. He is never ingratiating but instead straightforward, honest; he does not flatter and is not fawning – he does not distinguish between high and low, and never curries favour, not even with the owners. As Tomas now leaves his position as CEO in May, I would like to extend to him warm thanks on behalf of the Board of Directors and the owners for his long-term engagement and inspiring leadership for twenty very successful years. I am proud of what he has achieved together with his team, and I am pleased to have continued access to his time-tested investment expertise as he now continues in the Nordstjernan group as a senior advisor.
The Board of Directors has appointed Peter Hofvenstam to be the new CEO. He knows the company well after twenty years as Deputy CEO and after having been responsible since 2014 for the Unlisted Holdings business unit, which today constitutes roughly half of Nordstjernan’s operations. Peter will build further on the model of developing companies through active ownership and creating continued long-term value growth.
Business needs to be free from government intervention
As Chairman of the Axel and Margaret Ax:son Johnson Foundation for Public Benefit with a focus on the humanities, I have been interested in the sociologist Hans L. Zetterberg, who has focused attention on how life and reality neither can nor should be reduced to “nothing other than” – for example economics, politics, science or religion. Societies that do not live by the motto “everything in moderation” risk running amok, regardless of their good intentions.
If one part of society, with its inherent logic, were to determine the agenda, other parts would soon suffer and society as a whole would thus be weaker. Academic freedom and life, which pursue the truth, are intrinsically different from commerce and business operations, which deal with growth and generating profit. Academia’s pursuit of truth is, at least in the short term, not economically profitable. However, the establishment of new knowledge is a measure of scientific progress, which is closely analogous to profit in business.
Founded in 1947, the Axel and Margaret Ax:son Johnson Foundation for Public Benefit – Nordstjernan’s largest owner – receives 85 per cent of the dividends that come from business operations. So we are a little surprised when contentious claims about the pursuit of private profit are made in the discussion about health care; the bulk of dividends from our companies in this sector go ultimately, as dividends, to public activities and not to the Johnson family’s personal finances. What the Swedish state does through the tax system, we do through dividends: in our case, fund the realm of the humanities. The foundation is constructed to protect the academic sphere’s legitimate need for relative autonomy. Dividends paid to the foundation are to be used for the pursuit of new knowledge and truth, but no demands may be set for earnings and profitability – demands that must categorically be made of Nordstjernan as a business.
Many people today talk about the importance of different stakeholders, but from my horizon, it is easy to understand the importance of not encumbering businesses with other demands than that of safeguarding the owners’ best interest. The focus should be on growth and profit – profit that is then taxed and subsequently invested and paid out in dividends. It is highly detrimental in the long term to consider privately controlled companies as an extension of the state, where long-term value creation is to be subordinated to other politically determined objectives. The Swedish tradition of privately controlled companies with clear ownership has created probably one of the world’s most responsible business communities with the longest-term perspective, one in which many firms are owned by foundations.
Placing profitability demands on universities and researchers that pursue scientific truths would be as counterproductive as asking the business world and companies to be the engine in tackling difficult social challenges beyond the core task of business: creating growth and added value for society in general.
Another sphere that is important to our democratic society is the media. However, they risk losing their autonomy in the “clickonomic” digital era. How can autonomy and individuality be preserved when time and resources are no longer sufficient? Instead of “digging”, people might rely on skilfully written press releases, sponsored articles, a click-friendly focus on the personal and activism that put the soul of journalism in jeopardy. Serious journalism is a sphere of its own, one that can no longer be run under the same economic conditions as previously. Therefore we invest in Axess magasin, Axess TV and the weekly magazine Fokus. In 2018, Fokus, of which we are part-owner, posted a profit for the first time since its launch in 2006.
The business world – companies large and small – can be compared to hunters in hunter-gatherer societies in terms of their importance. Without skilled hunters who can chase down prey and bring it back to the tribe so that people can have their fill, other parts of society cannot survive without entrepreneurs who generate profits. But just as hunters cannot, or should not, keep all the meat for themselves, entrepreneurs should not keep all the profit but need to share it out of enlightened self-interest. However, if hunters are not allowed to keep the lion’s share of their prey, there will soon be little motivation to risk life and limb in such a pursuit. Do bakers wake up at four in the morning so that we can have freshly baked bread out of altruism or out of self-interest? Those who believe that entrepreneurship without enlightened self-interest works can bear in mind what people used to say about the kind of economic system found in the Soviet Union: They pretend to pay us and we pretend to work.
Without strong, competitive, profit-making companies to tax, there are no salaries to pay employees, who can then in turn be taxed. These are taxes that parties in government can distribute to other spheres in society through an active distribution policy – as though politics generated added value – and as a result win the trust of groups of voters. Meanwhile, people do not hesitate to scold “the rich” (the hunters) who “are gorging away”. Remember Anders Borg’s “Swedish business is a special interest”. Might one perhaps still dare say that without entrepreneurs Sweden would come to a standstill?
Stockholm, 11 April 2019
Viveca Ax:son Johnson
Chairman of the Board
1Axess, no 9, December 2018.