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Carvajal Family Business – One of the 100-year-old successful family companies in the World

Carvajal, one of the oldest family business from Columbia, is 115 years old. The group was founded in 1904 by Manuel Carvajal, a Colombian educator, and erstwhile politician.

Carvajal started from a small print shop to become one of the largest paper product conglomerates in Latin America. The company has contributed to Colombia's economic and intellectual development ever since. The Carvajal group diversified into 12 sectors - publishing, packaging products, technology, education, paper and pulp - run through 20 operating companies spread over 16 countries with work force of 23,000.

Throughout the 20th century the firm was led by descendants of the founder. In 2008, the first non-family CEO, Ricardo Obregon (Obregon) had been hired over two family candidates to lead the business. In 2014, Obregon was to oversee a complex governance network that included a holding company with seven operating companies, their management, and respective boards, a family council, and 280 members (including spouses) of a shareholding family in its sixth generation.

Carvajal’s business and family leaders had to face several market issues and decisions that included the possibility of taking the operating companies and the holding company public while maintaining the business’s long traditions of unity, respect, strong ethics, and philanthropy.

The governance of Carvajal evolved into a system of separate boards of directors for the holding company and for each of the operating companies below it.

They created the family protocol or constitution with two main objectives: (1) to preserve integrity of the family business (2) to preserve family unity..

Important family governance guidelines and practices laid down include:

The protocol defines family’s values, selection of board and family council members as well as policies to address matters pertaining to ownership, dividends, and employment of family members in business etc.

Their Board comprised of a mix of family members and independent directors. The selection of an independent director and family member to the Board is based on a set of criteria. It does not stipulate that there should be representation of each family branch or a proportional representation according to ownership share.

They have shareholders’ agreement which defines rules for sale of shares among other things.

The family council is elected by Family Assembly. Family Assembly meets once a year- all family members over 18 years of age participate. They ratify the decisions of family council.

The CEO is elected out of a pool of family and non-family executives. In 2008, the first non-family executive was appointed as the CEO. The process has been clearly laid down.

A Special Committee (of 3 persons) was established to aid the CEO is making decisions about the family members working in the business. This committee is independent from the Holding-company board.

The 3 persons include non-family members who have either worked with the company or its board. Of these, 2 are chosen by the Family Council and the third by the holding-company board.

The committee regularly collected information and guided on the performance appraisal and career development of the 28 family member employees.

The CEO retained ultimate authority over personnel decisions

The family had created an investment company as a separate legal entity from Carvajal S.A. to maintain and grow a pool of funds that could be used to pay dividends to shareholders, if the company could not. It also ensured a “social dividend” – a payment used to ensure all family members enjoy a minimum standard of living pertaining to housing, healthcare, education & other basic needs. This social dividend was paid irrespective of their ownership percentage.

Carvajal family, is among those 100-year old families that have avoided falling into the trap of “Shirt sleeves to shirt sleeves in three generations”. They did it by consciously committing themselves to a robust family ad corporate governance processes, thereby enabling perpetuity and prosperity.

This company is studied for the best practices, Family Governance, professionalization. A case is written by Kellogg’s Business School. It is quoted as 100-year-old successful family company in the book “Borrowed from your grandchildren” written by Dennis Jaffe.

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