Jeroen Drost (SHV): 'There is Leeway for Strong Wills'
Founded in 1896, the Coal Trading Association (“Steenkolen Handels-Vereeniging”), does not much resemble today’s SHV. The discovery of gas in Slochteren marked a stark change in course for the largest family company in the Netherlands. Focusing on a single activity makes you vulnerable. Too vulnerable. That is why SHV now operates in energy (SHV Energy, ONE-Dyas), technical services (ERIKS), animal and fish feed (Nutreco), investments (NPM Capital), heavy lifting and transport (Mammoet), and testing, inspection and certification (Kiwa), and owns a chain of food and hospitality wholesalers in South America (Makro). SHV now has 55,000 employees working in 69 countries around the world. The expansion of its activities has indeed brought major changes to the company, but certainly not to its underlying corporate philosophy. Quite the contrary: Building a successful enterprise, with a focus on the long term, has always been the goal. This year, the company made this goal explicit in its commitment: “Courage to care for generations to come”. Jeroen Drost, Chair of the Executive Board of SHV since 2016, and by virtue of this role also non-executive director at several group companies, is tasked with safeguarding the continuity of SHV in a rapidly changing world, in collaboration with the Executive Boards and the Managements of the group companies. It is no small task, as he will tell you himself. “If I have learned anything, recently in any case, it is that any form of certainty is an illusion.” In this process, Drost must factor in the interests of the shareholders.
You have served in a number of non-executive director roles in different business models. What are similarities and differences in the position of non-executive director in the different types of companies: Exchange-listed, private equity and family firms?
‘The common denominators are supervising the Board and serving the interests of all stakeholders. What differs is the relationship with shareholders. Within a listed firm, this relationship is formally regulated. This is far less true in private equity and family settings. This does not change the role of a NED: You are still independent and still represent the interests of the corporation.’
The direct relationship with shareholders in a family firm poses a greater threat to the independence of the non-executive director.
‘This should not create any additional pressure as long as both parties stick to their own roles. Knowing the shareholders and having direct contact with them also makes things easier. In an exchange-listed environment, it is rather complicated to hold regular discussions with anonymous shareholders. At SHV, we have three non-execswith family ties, and eight who are independent. Everyone must be clear on what to expect from one another. If the family only wants the non-executive directors to serve the interests of the family, the non-executive directors will have a harder time maintaining their own independence and monitoring the interests of all shareholders. A lack of clear agreements could indeed give rise to tense situations. There is absolutely no question of that at SHV, by the way.’
SHV is a group of companies. How is the management structure designed?
‘The group companies and the holding company form a whole. The group companies are managed by their own Boards of Directors, which are responsible for the day-to-day affairs of the company. Above these we have the Executive Board of SHV, of which I am Chair. The Executive Board is responsible for matters like capital allocation, management appointments, general strategy and overarching corporate philosophy, including norms and values. We believe in a decentralized structure that makes decisions close to the market, all based on trust. We have been doing it that way for 125 years. That is why we attach a great deal of value to selecting the management teams for the groups. Ultimately, they will be doing the work for us.’
You describe SHV as a whole, but one whose structure has undergone major changes over time.
‘After the coal trade, we diversified across different companies. This means the role and involvement of the holding company differs from when SHV had only one activity. But in terms of the underlying corporate philosophy, the norms and values, little has changed in 125 years. In the spirit of the times and due to increased regulation, management has indeed become more formalized, with lots of additional requirements. That has indeed influenced how we manage the group as a whole.’
A while ago, SHV had some negative press as several corruption scandals unfolded. How do you strike a balance between local decision-making and keeping control over the parts?
‘Of course those things never should have happened. We used to operate more based on trust, on norms and values, and on knowing people. The fact that we now have a formal auditing side does not make so much of a difference. Corruption did not belong in our organization then, it does not belong here now, and it will never be tolerated.’
At SHV, the family does not play an executive role in management: They are only represented on the Supervisory Board and of course as shareholders. Does SHV still bear the hallmarks of a traditional family firm?
‘Naturally. Everything we do is intended to safeguard the continuity of SHV for future generations. Because this is a family company, we can make investment decisions for the long term. We do not even have to submit quarterly or semi-annual reports. SHV is certainly a professional company. It is no place for family hobbies.’
The long-term orientation may make it more difficult to create the necessary sense of urgency to make short-term decisions.
‘That is indeed the main pitfall for any family firm. But without enough short-term profit and cash flow, there will be no long term. The sense of urgency arises in dialog with the groups. If things are really going downhill, we will act. Compared to exchange-listed firms, we do have the luxury of more time to fix and improve things. There is leeway for strong wills. We can decide to accept losses to a certain extent if there is something we believe in over the longer term.’
A second potential pitfall of a family firm is a lack of opposing views.
‘SHV has an excellent solution for this. The critical approach needed to keep each other focused is guaranteed at various levels. We can pose critical questions within the privacy of a private company.’
SHV has developed into a range of different companies. How did this structure come about?
‘SHV is a family-owned company geared for continuity. In addition, shareholders also receive dividends. Shares are difficult to sell. As a Board, we must ensure enough cash flow to cover the dividend. The rest is invested in growing the group companies, to create long-term value. To generate enough cash flow in a volatile world, SHV has diversified into different activities, both in terms of geography and sectors.
Back when SHV still mainly traded in coal, the discovery of gas in Slochteren had a profound impact. It threatened the company’s main activity. Now that was a disruption! So we decided to diversify, as a buffer against disruptions and upheavals. Because SHV does not want to be primarily associated with oil and gas, we acquired Nutreco six years ago. Animal feed is a whole different ballgame, after all. Diversity in our activities has brought us stable results, – even in COVID times. The negative impact on ERIKS and Mammoet was offset by strong performances from SHV Energy and Nutreco. The market where NPM Capital operates recovered this year, while animal feed is back on the decline.’
Has SHV set a maximum number of group companies?
‘As a four-person Board, if we want to be able to immerse ourselves in the developments and challenges of the various groups, ten companies is the max. Any more than that, and you essentially become an investor. In that case, you would be better to put your money in BlackRock or Robeco than to set up a holding company with 100 employees. With just two activities as well, an overarching holding company is not preferred. SHV currently has eight group companies. I do not think we will go to ten, or to two.’
Is there any cross-pollination between the groups, if the activities are so diverse?
‘Good people are our greatest asset. The variety of activities allows us to train people well and offer them careers across different companies and continents, and to safeguard SHV’s culture. Since SHV is active in so many countries and sectors, we also have a good picture of what all is going on in the world. When the coronavirus broke out in China in late 2019, we quickly understood the potential impact here and we were somewhat prepared. The same goes for digitization and innovation. What is happening in one sector can be applied in another. For instance, we are currently looking at deploying drones in Nutreco for inspection purposes. Applications are also possible for Kiwa and ERIKS.’
Our current times call for organizations with purpose. Family firms often have this built in, but sometimes do not make it explicit. How would you describe this for SHV?
‘The main thing is in fact having the ‘courage to care’: For our employees, for our clients, and for society. For instance, we have a Makro organization in Venezuela, a country that has had major economic problems for many years. We also see this in the results of our companies there. But for us, that is no reason to stop or sell off those operations. Our people there work hard, and have been making good money for us for years, so now we will take care of them. No one at SHV suggested considering any other course of action. SHV has always had the ‘courage to care’. We made that explicit this year. Integrity is sacrosanct here, which is why the past wrongdoings have no place at all here at SHV. We will do business with integrity, or not at all. End of story! Maintaining the culture of the company in a time when we cannot get together physically is a major challenge. People who started working at SHV two years ago have hardly even been at the office, if at all. It is not easy to maintain cohesion like this.’
Another hallmark of our current times is sustainability. How is SHV contributing towards a more sustainable economy?
‘SHV has been around for 125 years, and we intend to be around for at least another 125. That requires a sustainable business model. In everything we do, we consider the interests of all stakeholders. If one stakeholder comes up short, the business model is no longer sustainable.
As for CO2 emissions, we are committed to the Paris Agreement and we want to go even further. Our companies also contribute towards this goal with their business model. Almost all new clients of SHV Energy switch from fuel oil to LPG. That reduces CO2 emissions by 20% right off the bat. With BioLPG, which they also supply, that figure is 80%.
Antibiotic resistance is one of the major challenges facing humanity, and one of its causes is the use of antibiotics in animal feed. Years ago, Nutreco started developing feed to reduce or possibly even eliminate the use of antibiotics. As a family firm, we are also trying to increase transparency around our finances. Not because we have to, but because we want to.’
How does SHV determine its strategy over the longer term in these uncertain and turbulent times?
‘If I have learned anything recently, it is that any form of certainty is an illusion. Aside from corona, a whole lot of other things are going on right now such as the energy transition, and all the technological developments. The rate of disruption is ever increasing. That is why it is so important to keep the organization agile. I certainly do not expect the pace of change to slow down.’
Agility also means mistakes may be made. Decisions do not always turn out as planned. How does SHV respond in these cases?
‘There is nothing wrong with making mistakes. The trick is to learn from them so it does not happen again, and to share your knowledge. And we are strong-willed enough to try new things. The worst case would be if SHV lost its entrepreneurial spirit. Right now, for instance, we are looking at a new way to distribute LPG in Brazil. It may not work, but at least we will have tried and learned a great deal for our trouble.’
Finally, what is your personal ambition at SHV? What do you hope to accomplish?
‘A Chair of the Board can only have one ambition, and that is to leave the company better off than before. The goal is for SHV’s next 125 years to be just as successful as its last 125 years. If I can make my contribution, I will consider it quite an honor.’
This article was published in Management Scope 01 2022.
This article was last changed on 15-12-2021