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FOSS - analysing the future

FOCUS: FOSS

Marc Smith is acting editor of Families in Business.

FOSS, the world's leading provider of analytical instruments, has just celebrated its 50th birthday. Marc Smith talks to the founder and his son about FOSS's unique governance structure, its innovative new product development and branching out into South America

High risk is not the first characteristic that springs to mind when you speak to Nils Foss, the softly spoken patriarch of FOSS A/S – the world's leading provider of analytical instruments for the food, agricultural, chemical and pharmaceutical industries. But while building the business up with the minimal fuss one naturally associates with Scandinavian family firms, Nils displayed a machiavellian quality when, in 1984, he called a family meeting and told his three children he was thinking about selling the company.

"I really didn't mean it," he says with the rose-tinted nostalgia that comes easily with a business that turned over €183 million in 2006. "I didn't feel like selling but it was a possibility and I wanted to tempt my children to see what reaction they had – it was most definitely a deliberate ploy."

Fortunately for him, Peter, Pernille and Nils Christian all wanted to keep the second-generation Danish firm in the family. "It was an eye-opener," admits eldest son Peter, who took over the reins from Nils last year. "Until then I had been pretty convinced that I couldn't work closely together with my father and family on business matters. But, when that question came up, it was a moment of truth."

A history of feuds
In 1887 Nils's grandfather, Alexander Foss, formed FL Smidth & Co, a global cement company that remains one of Denmark's largest industrial empires, in partnership with Poul Larsen and Frederik Læssøe Smidth. Ten years later, the firm commanded a third of the world market for cement machinery and, as it grew, drew criticism for effectively controlling the price of cement.
 
When Smidth died in 1899, Foss and Larsen divided up the work between them. Foss concentrated on societal issues, and helping to strengthen the firm's reputation and influence in the corridors of power, and growing the business internationally.

However, an agreement that the founders drew up back in 1887, which stated that the one who outlived the others would inherit the entire company, began to cause tensions as the company expanded during the 1920s. Foss, fired by the belief that what was right for a small company with few assets was not right for one that had become a world leader employing hundreds of staff, began to argue that it was unreasonable that one family should inherit what had been created collectively. Larsen was not interested in renegotiating the original arrangement and the dispute led to Foss's resignation in 1923. With ill health taking its toll over the following couple of years, Foss agreed to Larsen's stringent terms that ensured just a 10% share would go to Foss family. The Larsen family received 88% with the Smidth family getting just 2%.

Alexander Foss died in 1925, but his son, Erling (Nils's father), joined the company's Paris branch. However, the bad blood that had surfaced between Alexander and Larsen escalated and Erling was eventually sacked. Despite this bitter feud, Nils Foss continued the family tradition when he took a sabbatical from FOSS to become president and CEO of FL Smidth from 1967 to 1974.

Learning from the past
Nils founded FOSS in 1956 with the simple idea of automating time-consuming analytical methods in a cost-efficient manner. The first instruments were developed to test moisture in grain. These were followed by analytical solutions for the dairy industry, a major business area alongside the analysis of meat, edible oils and wine.
 
It is clear that Nils took his grandfather's experiences on board when it came to deciding the fate of his own company, but it has clearly informed FOSS's governance structure too.

Nils introduced the idea of FOSS family governance in 2004 and, over the course of 14 months, the family developed a code that everyone now abides by. His daughter Pernille was given the task of finding out what every family member wanted from such a code and from that they have what they believe is necessary to enable future generations of the Foss family to take the business on. Highlights include:
- Family members are defined as direct descendants of Nils Foss.
- Future generations are involved in the firm from an early age, with tours, quizzes and traineeships on offer.
- Family members should gain work experience outside of the company, and preferably abroad, for three years.
- Birthright does not guarantee a management role – family members have to have qualifications that are at least the equal of other applicants.
- A sibling council meets regularly to discuss family matters related to FOSS family governance.

What's more, Nils has firm ideas on how the management of a family business should be structured. "I am a believer in the three tier board of directors," he elaborates. "One third should be employees, one third should be family members with general business knowledge and one third should be external members with business expertise that is useful to the company."
 
While this means that the family does not have a decision-making majority, it does provide a balance that the family believes will enable the firm to succeed in the long term. "So far it has been a very simple task to separate the business and the family," says Peter, "but this probably relates to the fact that the company is going pretty well. Only in times of trouble will it be put to the test, and that hasn't happened yet."

A firm analysis
Today, FOSS analysers test 85% of the world's milk and 80% of the grain traded throughout the world, but the challenges keep on coming. "We definitely see a more competitive environment than five years ago," says Peter. "It seems that a lot of companies believe that food testing has a big future."
 
Testing food traditionally takes place in laboratories, but the future sees testing moving from the labs to platform, in-line and on-farm testing. "The big challenge is to lead this change," explains Peter. "We aim to introduce the testing as early as possible in the value chain."

Unsurprisingly, it is essential to keep pace with the latest technological developments in such a scientific industry. "We have always put a lot of resources into developing new products and we have stepped up these efforts in the last five years," confirms Peter. "The most exciting product development is testing milk on the farm." During milking, for example, an automated system can now analyse a number of constituents in the milk and translate that into hard data about the cow's milk quality, feeding condition, heat, pregnancy and general health. This enables the farmer to make informed decisions and, crucially, it cuts production costs. Farmers can even get the information while lying on a couch at home.

In addition to technology, maintaining the firm's competitiveness is a crucial facet of Peter's brief. And, naturally, it is the emerging markets that are at the forefront of his thoughts as he strives to keep FOSS competitive. "We will keep a very keen eye on what is happening in China and India, more as an opportunity than a threat, because technology is moving round the globe more quickly than it used to."

As if to underline this, FOSS opened a new sales subsidiary in Argentina in May. "We expect South America to become the food provider of the world," says Peter. "In particular, the majority of the world's meat will come from this market, and obviously it is important we are there as our business is closely linked to that commodity."
 
Branching out to discover new territories is a practice that runs through the Foss family, from Alexander through to Peter. "I realised from day one that we couldn't survive by doing business from inside Denmark," says Nils. "So, the natural thing was to start looking outside." This is something Peter agrees with. "It's been part of our business thinking for more than 50 years so it's not really something we think much about," he says. "It's a lot of fun to be a world market leader, especially as we are based in a 'small' nation."

But to enable the firm to remain a world leader, it is imperative that FOSS continues to hire the best people possible. Peter says that they have not yet had a problem recruiting the people he feels are necessary for the company's future success. "We are a hi-tech, global company with strong values," he confirms. "A lot of young people want to work for that sort of company, so what we have to do is to tell the outside world more about us."

To do this they have ratcheted up their recruitment strategy, although Peter admits that, due to the Scandinavian tax system, it not always easy to attract people who have offers from other low-tax economies. Nevertheless, with a state visit to Denmark by the Swedish King encompassing a visit to FOSS headquarters the day following this interview, the company's PR seems in good hands.

Nils stepped down as chairman of the firm in 2006, the 50th anniversary year, believing it is better to leave when running is good. "I am still quite capable, but it was better to leave than wait a couple of years when they would have probably wanted me to go," he says. The anniversary itself was a chance for the firm to thank its staff, customers and suppliers: Scandinavian staff were treated to an opera performance, supper and dance; prospective workers were targeted with a wine tasting competition at the Danish Technical University; and customers were given the chance to win trips to Greenland. The company even supported a book produced by Børsens Forlag, The Courage of Conviction, which tells, in detail, the FOSS story.

Avoiding complacency
As the firm looks to the next 50 years, Nils believes that the company will still be in family hands for the 100th anniversary, but he's not sure after that. "The biggest danger the family faces is thinking that it is clever," he says candidly. "It is all about avoiding complacency."
 
In any event, the make-up of the company in the future lies in the hands of his eight grandchildren, who are all aged 10–24. "It is still early days," admits Peter, "but it is statistically against the odds that even one is both interested and capable of taking over." Nevertheless, with the governance strategies that the family has put in place, and a market-leading business to take to the next level, the next generation of Foss children has the best possible opportunity to succeed in the family firm.

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