Caso Carvajal S.A.

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IVAN LANSBERG KEL872
Carvajal, S.A.:
Building on a Century of Business Growth and Family Values
Carvajal has to be reinvented every day . . .
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—Alfredo Carvajal, former CEO of Carvajal, S.A.
In early 2011, Alberto Carvajal and Mary Alice Crump looked up from the financials spread
across the table. “It looks better than it really is,” Mary said, pointing at the latest results for the
seven subsidiaries of family-owned holding company Carvajal, S.A., based in Cali, Colombia.
Alberto, 49, was chairman of Carvajal’s board; Mary, 56, was also a member of the holding-
company board and sat on the family council she formerly had headed. Both were fourth-
generation members of the family that had built Carvajal, one of Latin America’s largest and
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most distinguished family businesses.
For more than a century, Carvajal had provided printing-related and other products and
services to markets within and outside of Latin America, growing into a leader in sectors that
included Yellow Pages, notebooks, and textbooks, as well as office furniture, all helping to fund
the family’s philanthropic efforts. Although most business units continued to show solid growth,
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Mary and Alberto were concerned about this trend’s longevity. Specifically, Carvajal’s flagship
businesses faced the emergence of digital technology and diminishing demand for paper-based
products. “How can our Yellow Pages compete with Google?” Mary said to Alberto, confessing
that she herself found Google much easier to use than their own digital Yellow Pages, even when
she was seeking local information.
To compound the business challenges, Carvajal was under new leadership in the form of the
company’s first non-family CEO, Ricardo Obregon, a well-established Colombian executive.
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Obregon and the Carvajal family had to navigate the company’s complex governance network so
they could represent the interests of nearly 300 current or future family shareholders and spouses.
Among the issues the family and business had to tackle were shrinking revenues and margins, as
well as the possibility of going public to gain new capital. Could the family and its business meet
market challenges while maintaining Carvajal’s iconic identity and practices—along with family
harmony? How could the many stakeholders communicate most effectively to develop the best
strategic solutions?
With these issues in mind, Mary and Alberto returned to the financials on the table.
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©2014 by the Kellogg School of Management at Northwestern University. This case was prepared by Professor Ivan Lansberg, Mary
Alice Crump of the Carvajal family, and Sachin Waikar. Cases are developed solely as the basis for class discussion. Cases are not
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CARVAJAL, S.A. KEL872
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History
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The business that became Carvajal, S.A., was founded in Cali on October 29, 1904, by
Manuel Carvajal Valencia, then 53, and his two eldest sons: Alberto, 23, and Hernando, 20. Over
the next century, both the business and the family expanded rapidly.
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Born in Popayán, Colombia, Manuel had been a professor, politician, and journalist before
starting his own business. Carvajal began as a printer, publishing a weekly newspaper called El
Día (“The Day”). Exhibit 1 provides a timeline of key business events in Carvajal’s history.
After Manuel died in 1912, his sons continued to run the business, expanding into selling paper
products (e.g., notebooks) and other office supplies. They also purchased a lithographic printing
machine from Germany and moved into offset printing, helping the business weather the Great
Depression in the 1930s. In the 1950s and 1960s, new business units were established (e.g.,
FESA for personalized stationery and Publicar for Yellow Pages), along with international
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operations (in Puerto Rico) and the Fundación Carvajal, a philanthropy to which the family
originally donated 40 percent of its company stock. Over the next decades, Carvajal grew quickly
through acquisitions, strategic partnerships, and global market expansion.
Manuel and his wife, Micaela Borrero Borrero, had six children: four sons, Alberto,
Hernando, Mario, and Manuel José, and two daughters, Ana and Josefina. Ana became a Catholic
nun; Josefina never married. Thus, the four brothers’ families became the ongoing branches of the
Carvajal family: Carvajal Lourido (Alberto), Carvajal Sinisterra (Hernando), Carvajal Rodewaldt
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(Manuel José), and Carvajal Quelquejeu (Mario). Exhibit 2 presents a family tree depicting all
generations. By 2011, the Carvajal family was in its sixth generation since the founding of the
company. The last member of the second generation had died in 1972. The third, fourth, fifth, and
sixth generations had 8, 60, 120, and 22 living members, respectively, bringing the current total—
combining 210 direct descendants and 70 spouses—to 280 family members. Family news was
shared through a family web page and a semiannual newsletter, El Día. The family placed a high
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premium on unity and educational achievement. Many members of recent generations had
graduated from top-notch universities worldwide and had secured positions with leading
multinationals, such as BMW, Colgate, Apple, and Bose.
The Business in 2011

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In 2011, the Carvajal holding company provided back-office services to the broad
organization. The company’s total revenues in 2010 were $1.7 billion. Exhibits 3 and 4 provide
Carvajal’s overall revenues for the past twenty years, along with information about all
subsidiaries. The business had offices in sixteen countries, nine of which had manufacturing
plants, and served sixty countries across five continents. Carvajal employed 23,000 people,
including 28 from the family. In early 2011, the company modified the names of the operating
companies to place them more clearly under the Carvajal brand umbrella. According to Mary, the
Carvajal business name had never “gone away,” but the family had de-emphasized it during
Colombia’s turbulent years in an effort to maintain a low profile when many of the country’s
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prominent families became kidnapping targets of drug cartels and guerrilla groups. By 2011,
Carvajal faced a very different sociopolitical and business environment from that of previous
decades. Colombia had been transformed from a country ravaged by civil war and narcotics
trafficking to one of the region’s fastest-growing economies, with a 2010 gross domestic product
2 KELLOGG SCHOOL OF MANAGEMENT

KEL872 CARVAJAL, S.A.
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of $432 billion and estimated annual growth of 4.5 percent. President Alvaro Uribe’s regime had
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promoted these changes by fighting the drug trade and introducing pro-market policies.
At the heart of Carvajal’s long-term success had been a vision, a mission, and a set of values
emphasizing both profitability and community focus. The company’s vision statement—“To
become a leading Latin American multinational and the preferred provider of products and
services, upholding the highest standards of excellence and quality”—reflected the family’s deep
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commitment to enhancing social value and the well-being of the communities in which they
operated:
Carvajal, S.A., is a multinational company that operates with social consciousness and a
commitment to doing things well, to contribute to the productivity and human
development of its clients, offering innovative products and services that are competitive
and profitable in order to guarantee sustainable growth.1
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“Doing things well” was the motto by which Carvajal had become known throughout
Colombia. The company’s stated values (see Exhibit 5) emphasized exemplary business
practices, the highest ethical standards, and the importance of modeling a commitment to the
communities in which the business operated. For example, as an investor in a multinational
satellite TV provider, Carvajal had maintained a strong stance against providing channels with
adult content in Colombia. But the satellite TV company opted to offer such content locally, with
the backing of several of Carvajal’s co-investors. Carvajal pulled out of the investment. “People
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know Carvajal stands for more than just money; we did not want to have our name associated
with programming we consider antithetical to the family’s values,” former CEO Alfredo Carvajal
said. “Our business is an institution, and it must be treated with the respect it deserves.”
The Governance of Carvajal

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Carvajal’s holding company was managed by the company’s CEO and a team of vice
presidents representing five critical staff areas: strategic, financial, R&D, human resources, and
legal. The architecture of its governance comprised the holding company’s board and the boards
of the subsidiaries. Outside of the business but linked closely to it were a family council and
Inversantamonica, S.A., a family investment company.
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Boards of Directors
The governance of Carvajal had evolved into a system of separate boards of directors for the
holding company and for each of the operating companies below it.
HOLDING-COMPANY BOARD
In 2011, Carvajal’s holding-company board included nine members: five independent (i.e.,
non-family) and four family directors. Fourth-generation family member Alberto Carvajal was
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chairman of the board. Remaining family directors included one member from each of the third,
fourth, and fifth generations—though not by design. The board met monthly with the CEO, who,
1
Carvajal, S.A., “Nuestra Misión/Visión,” http://www.carvajal.com/nuestra-empresa/mision (accessed September 30, 2013).
KELLOGG SCHOOL OF MANAGEMENT 3

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together with the chairman, prepared an agenda for the meeting. “At the meeting we [CEO and
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VP team] have to present a continuously improving business trend,” Obregon said.
As part of the family’s protocol, or constitution, Carvajal’s family council (see “Family
Governance” section below) had developed a comprehensive set of guidelines for board
composition and director selection. The council determined the number of family and
independent2 directors and stipulated that all directors be elected by the Shareholders Assembly,
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which was composed of all shareowners, including some spouses. Independent candidates for the
board could be presented by the family council or by the board of directors to a nominating
committee that comprised the board chair, two independent directors chosen by the board, the
family-council president (i.e., chair), and the company’s CEO. Prospective family directors were
to submit their CVs (or have their CVs submitted by another family member) to the executive
search firm that had been retained to evaluate Carvajal board members. The firm would then
present the best candidates to the nominating committee. The nominating committee introduced
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suitable independent and family director candidates to the Shareholders Assembly for final
confirmation. The board chair and family-council president also worked with the search firm to
develop comprehensive criteria for the selection of new directors. Exhibit 6 shows selection
criteria for family directors. Family members currently working for the company were not
eligible for board membership. The board chair could be an independent or a family director.
Board members were elected for renewable one-year periods, up to a maximum of ten years total.
The board set the retirement age for directors at 70.
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By 2011, many independent directors had revolved through the board. “Previous directors
were more local and knew the family better,” Alfredo said. “Now members are selected for their
track record as successful business people.” Current directors included highly successful
entrepreneurs, family business leaders, and former cabinet members of Colombia’s government,
all of whom understood the Carvajal family’s strong principles and values. “These independent
directors are the best we’ve ever had,” said Gerardo Carvajal, 57, chair of the family council. The
board was also responsible for annual evaluation of the CEO and had just completed a 360-degree
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assessment of Obregon.
OPERATING-COMPANY BOARDS
Each of the seven operating companies under the Carvajal holding company had its own
board with a majority of independent directors and some from the family. The holding company’s
CEO and board chair selected operating-company directors, with a focus on finding members
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with relevant industry experience. This focus on experience had resulted in a strong group of
independent and family directors on the subsidiary boards, a feature missing from many Latin
American family businesses. As was the case for Alfredo, Alberto, and Mary, service on an
operating-company board could lead to election to the holding-company board, though the former
experience was not required for the latter. The holding-company board approved major decisions
by the operating-company boards. The operating-company boards were seen as having a strategic
role, which required industry-specific expertise, as opposed to the broader business portfolio
management skills required of holding-company board directors.
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“Independent” directors, as discussed in this case, are those board members who are neither family members nor executives within
the business.

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Family Governance
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The family created its protocol in 1995 with two broad objectives: (1) to preserve the
integrity of Carvajal as a family business, one that seeks to increase its equity in accord with its
stated values and principles and (2) to preserve family unity. The document was structured into
chapters on topics that included the family’s values, business and family governance (e.g.,
selection of board and family-council members), and policies for dealing with such matters as
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ownership transfers, employment of family members, and relations with the community. Exhibit
7 provides more details on the protocol’s “stated truths” and its guidelines for the family.
The family council was created in 1993 to provide broad governance for the Carvajal family.
The council consisted of ten family members elected by the branches without regard for
ownership percentages. In 2011, the council included members from both the fourth and fifth
generations. Exhibit 8 lists, by branch, members elected to the family council. The Sinisterra
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branch had more council members because it was larger than the other branches. The council was
headed by Gerardo Carvajal. Prospective family-council members could nominate themselves or
be nominated by another family member whenever the council chair notified members of open
positions. The board chair and family-council chair selected members without sharing
information about nominees with other family members.
The family council met monthly for half a day to discuss the relationship between the family
and the organization and to develop proposals to make to the broader family at the annual
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Shareholders Assembly. In 2011, for example, the family council was in the process of
establishing an office to help the family with legal and tax issues. At the yearly Family
Assembly—which included all blood-related family members age 18 and older, along with their
spouses—members gathered to elect family-council members and ratify the council’s proposals.
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The Special Committee
Carvajal’s special committee aided the CEO in making decisions about family members
working in the company, a role that the holding-company board felt uncomfortable taking. All
members of the non-family, three-person committee were to have worked with the company or its
board. The family council chose two members; the holding-company board chose the third. The
special committee regularly collected information and provided guidance on the performance
appraisal and career development of the 28 family-member employees. As Alfredo said, “The
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committee’s purpose is largely to provide the CEO with cover in case he has to take decisive
action on family members.” The CEO retained ultimate authority over personnel decisions.
Inversantamonica, S.A.
In 1998, the family created Inversantamonica, S.A., an investment company that was a
legally separate entity from Carvajal, S.A. The firm was led by Alberto Carvajal, the chairman of
the holding-company board, who had worked with Carvajal for 25 years, including stints with the
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Yellow Pages business and the company’s Mexico operations. Inversantamonica had a board
composed of three family members, one former Carvajal executive, and one independent.
Inversantamonica was established to grow a pool of funds that could be used to pay dividends to
shareholders if the company could not. “We don’t do high-volume or high-risk trading,” Alberto

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said, noting that he worked with the private wealth-management departments of established
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investment banks and some independent funds to make investment decisions.
The investment company was also responsible for distributing Carvajal’s “social dividend,” a
payment used to ensure all family members enjoyed a minimum standard of living with regard to
housing, healthcare, education, and other basic needs. All family members, regardless of
ownership percentage, received the same social dividend. Inversantamonica also covered some
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non-business family expenses (e.g., for family members’ graduate education). Inversantamonica
was also designed to be a stock redemption fund for any Carvajal shares put up for sale by family
members. The family’s protocol stipulated steps for the sale of family shares, and the number of
shares Inversantamonica could purchase in a given period was limited. Recently, the fund had
also been used to purchase real estate previously controlled by the holding company.
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Leadership and Succession at Carvajal
Beginning with founder Manuel Carvajal Valencia, Carvajal, S.A., had been led by a family
member for more than a century. The third generation’s tenure, which began in the late 1930s
with Manuel Carvajal Sinisterra, had been the longest, and family CEOs of Carvajal had a general
pattern of long tenures. Exhibit 9 shows each Carvajal CEO’s period of service.
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To determine the successor to Alfredo Carvajal, now 73 and the last of the third-generation
CEOs, the holding-company board followed a process laid out in the family’s protocol.
Independent board members (at the time, the board still included several Carvajal executives) had
to select, by consensus, a new CEO—from a pool of internal executive candidates, who could be
either family or non-family—to present to the family directors. If the independent directors could
not reach consensus, they were required to propose three candidates: two family members and
one non-family. If the independent members presented an individual candidate the family
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directors failed to approve, then a similar trio of candidates was to be identified. Collectively, the
board was to elect the CEO—either the individual candidate or one from among the trio. Upon
election of the CEO, the board was to announce the new executive at the Family Assembly. To
replace Alfredo, the independent board members considered two family members carefully for
the CEO position, ultimately opting to broaden the search externally. Alfredo asked that two
senior members of the family (both had worked in the business for many years) be kept informed
of the independent board members’ thinking regarding the CEO search. “I wanted people from
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[the third] generation involved,” Alfredo said. “I felt their blessing was important and would help
the family accept the decision.”
The board ultimately chose Ricardo Obregon, 64 in 2011, as Carvajal’s new CEO. The
Carvajal family knew Obregon from his strong management track record in Colombia; he had led
Bavaria, a major brewing company, and the Colombia operation of automaker Renault, both of
which were controlled by one of Latin America’s largest, most successful family companies.
Obregon’s extensive leadership experience and familiarity with family companies swayed the
board in his favor. Obregon took pride in the fact that he had “worked for a family” his entire
career. “Carvajal has to be reinvented every day,” Alfredo said. “We needed someone who
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understood our business and culture and was prepared to make changes—but not changing by
destroying.”
Obregon initially believed he could lead the Cali-based company without relocating from
Bogotá. In response, Alfredo said that Carvajal and La Fundación Carvajal were such strong

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institutions in Cali that having a commuting CEO was not tenable. Obregon agreed to move to
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Cali. Alfredo noted that being passed over “was difficult for the family candidates, but they
accepted it, largely because they respected our protocol.” After departing the CEO position,
Alfredo became a holding-company board member and chaired the Carvajal Pulp & Paper board.
From start to finish, the search for a new CEO took more than two years. Obregon began as
Carvajal’s chief executive in August 2008. Early in his tenure, Obregon reorganized the holding
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company, reducing its headcount from more than 200 to about 40 by shifting people to the
operating companies and the shared-services unit. Obregon also made suggestions regarding
candidates for new operating-company CEOs, and the holding-company board approved three of
these after vetoing several others. In 2011, of the seven operating-company CEOs, two were
family members. Obregon’s early moves were scrutinized carefully by the family, and several in
the family noted that Alfredo made clear to the new CEO that he should slow down the pace of
the changes he was driving at the start of his tenure.
Ownership of Carvajal
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La Fundación Carvajal, the family’s foundation, owned 23 percent of the business. That
figure had decreased from the longstanding 40 percent in 2006, when Carvajal merged its
international and Colombia-based operations. The foundation focused its philanthropic programs
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on “vulnerable families”—those lacking the income to cover basic needs—in priority zones
within Cali. Family members owned the remaining 77 percent of the business. All blood relatives
were owners or owners-to-be. Because of the family’s growing size, upon the transfer of
ownership from the third to the fourth generation, no member of the younger generation was
expected to own more than 2 percent of the holding company’s shares. Still, many family
members depended on the company dividends for basic living expenses. Alberto pointed out that
Carvajal had a history of reinvesting most of its profits, keeping dividends relatively small. For
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example, 2010 dividends were approximately $12–15 million, representing no more than 18
percent of net earnings. That was significantly less than the 30 percent paid out as dividends by
typical Colombian family businesses. On the plus side, however, “we’re used to receiving the
same dividend regardless of profits,” Alberto said.
Challenges for Carvajal

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In 2011, Carvajal faced ongoing challenges related to the deepening maturity of many of its
businesses. The family and business also had to navigate the new relationship with Carvajal’s
first non-family CEO, along with the complex relationships among several governance bodies.
Business and Financial Challenges
In the new millennium, Carvajal’s businesses were under steadily increasing pressure due to
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advancements in technology and competition. Most of the businesses were mature. Subsidiaries
with stronger growth potential included those focused on the packaging and education industries.
“Barriers to entry into Carvajal’s businesses are much lower now due to technology,” said
independent director Luis Ernesto Mejia, a member of a successful car battery–manufacturing
family business and Secretary of Energy under Colombia’s President Uribe.

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Obregon saw Carvajal’s business challenges largely through the lens of profitability. “The
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family has asked us to return a significantly larger percent on capital invested. That means we
have to add millions in value every year.” He mentioned a “seven-year plan” to “reach industry
standards across businesses,” with the goal of raising the annual growth in value for the family
from its current rate of 9 percent to 13.5 percent.
Carvajal had been investigating the possibility of going public with individual operating
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companies or the entire holding company to gain a large infusion of cash. Multiple family
members recalled that Alfredo was adamantly opposed to taking the holding company public.
Others, including family-council member Luis Felipe Carvajal, saw benefits in a large initial
public offering (IPO) for the holding company. The family approached the IPO discussion very
carefully, largely to ensure that they preserved Carvajal’s strong reputation in the community by
avoiding the perception they were willing to trade the company name for cash.
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Obregon had his own hypotheses about these matters: “Some independent board members
may want to grow by selling shares outside the family, but the family may not agree with this.”
The CEO believed that taking the holding company public would be difficult. “We would leave a
lot of money on the table,” he said. He noted that the printing-related businesses would have to be
“fixed” before a public offering, and that the holding company’s operating margins would have to
be raised from its current 6 percent to at least 9 percent. He believed Carvajal could achieve this
by avoiding the losses (about $45 million) several businesses had faced in 2010.
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Aside from the IPO issue, it was clear that the family was growing faster than the company.
“Every generation gets poorer,” an outside consultant told Carvajal’s board, pointing out that
families grow exponentially while most businesses grow linearly, at best. It wasn’t clear whether
the family had done the analysis to determine the level of growth needed to sustain future
generations. This was particularly critical given the family’s historical aversion to risk. The
Carvajal family’s capital was already failing to yield what it might have in other investments, and
there was concern that some shareholders might seek better returns outside the company. “The
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family expects the dividend to increase or at least stay the same, even when profits are down,”
Alberto said. Gerardo added, “Now may be the best time to formalize a dividend policy, as
there’s not too much money to pay out.” There was a growing fear that the fifth and subsequent
generations would be less willing to tolerate low returns on capital and would sell their shares,
especially because more and more younger-generation members had left Colombia, reducing their
commitment to the business.
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The question arose as to whether having the Inversantamonica fund as a back-up source of
dividends affected the strategy or key decisions regarding delivery of liquidity to shareholders.
Alberto dismissed this issue. “The CEO doesn’t know what’s in the fund,” he said, noting that as
head of the fund he sought approval from the family council for some investments, with no input
from the CEO and his leadership team. Nonetheless, some directors wondered whether the fund
weakened the business’s sense of urgency.
Organizational Challenges
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Carvajal faced multiple challenges related to communication, motivation, and alignment

within its “governance network” across the business and family.

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BETWEEN THE FAMILY AND THE CEO
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Among the largest questions were those concerning the family’s relationship and interactions
with Obregon. How could the family communicate with the new CEO without being disrespectful
to the holding-company board? Should some issues be raised with the CEO directly by the
family, without going through the board? Given the implications of the strategic changes being
considered for the family, its wealth, and its standing in the community, what should be the most
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effective linkage between shareholders and the CEO?
Communicating the family’s values to and helping Obregon and his team imbue the
company’s culture and management structure with them—without encroaching too much into the
business or compromising the lines of authority—posed a significant challenge. Alfredo had
helped indoctrinate the new CEO on the family’s approach, but learning the “Carvajal way”
remained an ongoing process. Early in Obregon’s tenure, Carvajal co-owned a small company
that had been incurring losses for years. When one of Carvajal’s co-investors pushed to declare it
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bankrupt, Alberto told Obregon, “Our company history is to live up to our financial
responsibilities; our name is the most important asset we own.” Subsequently, Obregon decided
that Carvajal would purchase the co-investor’s shares at a nominal price, rather than pursuing the
bankruptcy option. By 2011, the company had been turned around.
Despite this shared understanding of the values, it was difficult at times to know when and
how the family should communicate with Obregon without relying exclusively on the family
directors on the holding board. “Communication between the family and Ricardo, unmediated by
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the board, is important,” Alfredo said. “When dividends dry up, it is like dropping an atomic
bomb on a family business—particularly at our stage, when so many of our shareholders depend
on the liquidity the business generates.” Alfredo approached Alberto and discussed his concern
that Obregon would lose family support if business performance declined. Alfredo suggested that
having key family directors in the holding company talk to Obregon, without the independent
board members present, might be helpful. “Ricardo was eager to get feedback from the family,”
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Alfredo said. “But I worry about the independent directors feeling sidelined.”
Alberto recalled how he had approached Obregon regarding another issue: metrics. The new
CEO had brought in an expert to assess Carvajal share values based on an economic value added
(EVA) method. Alberto said, “I knew this was discrepant with how the ‘The Street’ would value
our company, and I told Gerardo [the family council chair] that we had to discuss this with
Ricardo.” Alberto and Gerardo told Obregon that the EVA method might be appropriate to use
for evaluating the company’s (and his) performance, but more orthodox valuation methods should
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be used for internal stock redemption purposes. “We were particularly concerned that the EVA
method might unrealistically inflate the stock value, affect shareholder expectations, and create a
run on the bank. Fortunately, we acted quickly and Ricardo agreed,” Alberto said.
“Ricardo’s prior boss was one of Colombia’s most renowned entrepreneurs and was advising
him constantly,” Alberto said. “Ricardo may have expected that here.” For his part, however,
Obregon realized that “the two families are very different. The Carvajals are very low profile;
they place a high level of trust on the management and holding board.” This was a welcome
change for Obregon: “This family is so respectful and humble; it was a revelation. This is the
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most freedom and responsibility I’ve ever had.” Alfredo pointed out that more direct
communications with the family might make it easier for Obregon but that continually
circumventing the board would represent a “slippery slope.” In fact, Obregon was unaccustomed
to a board as strong and active as Carvajal’s. “He’s used to being contradicted by the owner, not

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the board,” Alfredo said. Obregon agreed: “The previous boards I worked with were typically just
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told of the owner’s final decisions.”
Moreover, Obregon’s natural style was consultative; he generally left space for others’
opinions before providing his own. “I want to be a CEO who doesn’t try to decide everything. I
want to listen to the board’s input and seek their agreement,” he said. In general, Obregon
believed strongly in seeking guidance from shareholders. “The company needs to have an owner;
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otherwise managers run it,” he said. In line with this, Mejia said, “Ricardo doesn’t take the lead at
board meetings,” suggesting that Obregon leaves that role to board chair Alberto. Although some
leaders at Carvajal appreciated that deference, others believed the circumstances facing the
business called for more assertive management. “This is not a democracy,” Alberto said.
“Ricardo has to act the way we’ve always acted. He has to carry the flag, not constantly asking
for the family’s feedback.” Alberto noted that Obregon had acted quite independently by pushing
through the rebranding initiative, which called for changing Carvajal’s longstanding logo and
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motto (from “Doing things well” to “Makes the difference”). “Ricardo made [it] clear he would
drive this significant process,” Alberto said.
Obregon also shared information with the full shareholder group twice annually in half-day
meetings at the Family Assembly.
BETWEEN THE FAMILY AND THE BOARD

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Referring to the family’s communication with the holding-company board, Mary said, “We
try to mimic a public company. There’s not much contact between the large group of family
shareholders and the board.” Alfredo amplified this point: “I want a ‘Great Wall’ between the
broader family and the board. Otherwise we will end up mixing the business of the family with
the family business.” Alberto agreed that it was important that independent board members be
empowered to derive value from their professional skills but also that the family’s values and
“DNA” must be retained simultaneously. “It’s always a tough balancing act,” he said. Carvajal’s
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governance architecture called for family directors on the holding board to represent the broader
family’s values and perspective on strategic matters. “That’s why it’s important to choose the
right family members to serve on the holding board,” Luis Felipe said. Moreover, it was
understood that the independent directors faced difficulty weighing in deeply on Carvajal’s day-
to-day operations. “They come here just once a month for a few hours,” Alberto said. Still,
independent board members believed they understood Carvajal’s approach and values well
because of the company’s history and high profile. “Carvajal is an icon,” Mejia said. “Many
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family businesses, including my own, carefully follow Carvajal’s lead in management and
governance.”
Managing communication between the family council and the holding-company board
represented another tricky issue. “The board and family council should communicate on
fundamental issues through their respective representatives: the chairman of the board and the
chairman of the family council,” Alberto said. He noted key issues worth discussing, including
how the family’s values are represented in management, risk, debt levels, liquidity, and the
desirability of IPOs. “The issues are deep, but the list is not long,” Alfredo said.
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Yet the family-council members had to ensure that the company’s well-being was aligned
with their own. Luis Felipe believed the council should have access to “privileged information the
broader family doesn’t have.” He continued, “When talking about selling shares, the family
council doesn’t talk about valuation because that’s privileged information; I feel that weakens the
discussion. The CEO should communicate with the family council about important issues like

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company performance.” Luis Felipe felt Obregon was performing better on this measure than
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previous, family-member, CEOs had, but wished that the family council made key decisions
before the Shareholder Assembly rather than opening up these sensitive issues to the larger group.
“We don’t need to take everything to everybody,” he said. With regard to keeping the family
council better informed, Mary said, “Luis and I are still ‘outsiders,’ as we haven’t worked for the
company. People like Gerardo have been with the company a long time, so they know more.”
Mary noted that it was hard for her to know what information to share between the holding-
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company board and the family council, as she sat on both. “I feel the chairman of the board
should communicate with the family-council head,” she said. Yet she agreed that it would be
important to endow the family council with greater authority as the fourth generation became
more involved: “If the role of the council is not clear and its domain of authority is vague, it will
be too scattered and lose its appeal.”
Some family members felt that the family council lacked the rigor and professionalism—that
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is, education and managerial experience—of the holding-company board and that this hampered
communications between the two. “The family council needs to be able to engage with the board
on an equal footing,” Gerardo said. “The council needs to develop a clearer vision of what the
family wants the business to do. We have a company vision, but we should also have a family
vision.” Mary and Gerardo agreed that family-council members needed a deeper understanding of
business issues to communicate more effectively with the board. Gerardo also believed the
council needed to help the broader family understand how to participate more fully in the
Shareholder Assembly—including discussion of issues such as dividends and Carvajal’s potential
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expansion into new geographic markets, such as the United States. Gerardo and Mary pointed out
that the family had no shortage of accomplished business professionals whose input could be
useful, even if their insights had to be secured by video conference. Gerardo had also tried to
change the selection of family-council members to break past the traditional insistence on family
branch representation. “It should be the best people in the family—irrespective of what branch
they are from,” he said. Though his initial proposal to revise the selection system had not passed,
a more recent proposal to compose the council of four branch representatives and six merit-based
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family members (as selected by an outside search firm) was expected to be adopted.
WITHIN THE HOLDING-COMPANY BOARD
In 2011, Carvajal’s independent board members were highly successful businesspeople with
strong opinions about the company’s strategy. “The independent members focus on the company,
not the family,” Alfredo said. Mejia agreed that independent members should think beyond
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economics to understand the family’s needs and priorities, and that he and the other independents
could have made more efforts to ask about these. Mejia also believed the independent board
members generally wielded more influence than the family directors: “The independent members
participate more actively on the board than the family members.” He acknowledged that the
independent members could make decisions more easily than the family members, as there are
“fewer feelings” involved.
BETWEEN OPERATING COMPANIES AND THE HOLDING COMPANY
Though the boards of Carvajal’s holding company and its subsidiaries historically had
Do
interacted with mutual respect, the hierarchical relationship led to some tension. For example, the
holding company had rejected a strategic plan presented by the Carvajal Spaces board. “It can be
an inefficient system,” Mary said. “If the holding board has most of the power, it can be
challenging for the operating boards.” Mejia added that the deep respect between boards
sometimes lengthened the time it took to make important decisions.

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Moreover, it was unclear how closely Obregon worked with the operating-company CEOs. “I
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would like for him to see the heads of the operating companies as part of his close team—not just
the VPs of the holding company,” Alberto said. “His involvement with them is important.” Thus
some concern arose that Obregon focused disproportionate attention on the performance of the
holding company rather than taking a more day-to-day view of the subsidiaries’ challenges. Still,
Mary noted that Obregon had been more involved with the operating companies than his
predecessors, allowing for better collaboration with the holding company. “He goes to the
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operating-company board meetings,” she said, “and that has helped those boards.”
WITHIN THE FAMILY
In general, the Carvajal family showed few signs of divisiveness. “Branches aren’t very
important to us anymore,” Mary said. “For example, only two of the four branches are
represented on the holding board right now.” Luis Felipe pointed out that branch representation
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had seemed more important to the third generation.
At the same time, some family members registered concern regarding others’ commitment to
the family council. “I often end up spending much of my time chasing council members to get
things done,” Gerardo said. “Maybe they lack intrinsic motivation.” Mary agreed: “We need more
family-council members who can dedicate quality time to the group.” Gerardo himself struggled
to make the council’s work a priority, as he had recently been named CEO of one of the operating
companies experiencing performance challenges.
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Preserving Returns and Respect
Overarching all of the challenges was the family’s intense focus on maintaining the
company’s strong returns, historic values, and emphasis on respect. “We are an extremely
respectful family,” Mary said. “No one here will think to confront the CEO and say, ‘What are
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you doing?’” This sense of respect had many benefits. Alfredo said, “Our shareholders will
accept changes and sacrifices because they care deeply about the company well beyond the
financial aspects of ownership.” But the value also had downsides. “The family has been too
respectful of CEOs’ decisions in the past, and it has affected the company negatively,” Luis
Felipe said.
Doing what was best for the business while respecting the family’s values was an ongoing
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challenge. “Sometimes the evolution of the business can bump up against our family’s values,”
Mary said. That was not to say that the family had little voice within the business. Despite
ownership that grew increasingly fragmented with each generation, Carvajal’s shareholders had
clear influence on the business through their representatives, including family directors and
family-council leaders. But could those representatives act quickly and wield appropriate
influence with the company’s management to protect the family’s interests amidst growing
business challenges? Were they potentially too passive in the face of looming threats?
There was little time to spare. Based partly on its tradition of respectfulness, Carvajal tended
Do
to prolong decisions, as was the case with choosing the new CEO. “It took a year and a half to
select a new family board member,” Luis Felipe said. “Carvajal will fail if this continues to be the
norm. We don’t have the luxury of time anymore.” Mejia agreed that Carvajal might have been
acting too slowly, and sometimes with suboptimal priorities: “They take more time than they
should to make hard decisions, and sometimes rescue businesses even if they’re losing money.”
Mejia noted that the independent board members had raised with Obregon the need to make

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decisions quickly but believed that perhaps family members had “intervened” in this matter. Mary
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was quick to counter that this perception was inaccurate: “The family doesn’t talk to Ricardo
directly, but he tries to take them into account and wonders what they are thinking.”
“The fifth generation should be worried, not because the organization can’t change, but
because the market seems to be changing so much faster than the Carvajals’ ability to adapt,”
Mejia said. But he agreed that in Obregon’s place he also would wait for feedback from the
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family. “The board is going at the speed needed,” Obregon said. “We in management need to
move faster.” He referred to preserving the legacy of Carvajal as “the piano on my shoulders” and
said he believed the family was willing to wait to see larger returns. Still, he worried that the
family at some point might see his interests as misaligned with theirs: “They may think that if
management can’t move fast enough it’s better for me to sell my shares and get out.”
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Carvajal’s Sixth Generation and Beyond
By 2011, the Carvajal family was in its sixth generation, a group including 22 members and
counting; the eldest sixth-generation member was 15 years old. The previous generations—
especially those deeply involved in governing the business and family, such as Alberto and
Mary—were strongly devoted to preserving the family’s legacy of solid business practices,
protection of family well-being, and community service, all bound together by a deep sense of
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respect and tradition.
How could Carvajal reinvent itself—internally and externally—quickly enough to handle the
major market challenges it faced and leave a meaningful legacy for future generations? Was the
enterprise’s governance system an overall strength or weakness?
As Mary and Alberto pondered answers to this question, both wondered how future
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generations of Carvajals would look back on the current leadership’s decisions and how these
descendants would judge their actions at this critical inflection point in the history of their
family’s business.
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Exhibit 1: Carvajal Business Milestones: 1904–2010

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1914 1937 1956 1959 1978 (and 2005 2008
Begins Begins Creates first Publicar on) Bico Appoints
selling selling business unit, unit Expands to becomes Ricardo
products FESA, for begins multiple world’s third Obregon
No
paper
in Bogotá custom printing Latin largest as first
products
paper Yellow American notebook non-family
in Cali
products Pages for countries producer CEO
(e.g., letter- major and Spain
head) cities
tC
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
1904 1920 1946 1960 1961 1976 2004

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Carv ajal Opens Creates a Starts Launches Opens Acquires
founded in first office country- Editorial int’l ops in New York controlling
Cali as wide Norma to Puerto Rico; City office interest in
commercial distribution produce starts paper mill
printer and network books foundation Propal
publisher of El (textbooks
Día and
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newspaper by others)
Manuel
Carv ajal
Valencia and
two of his sons
rP
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KELLOGG SCHOOL OF MANAGEMENT
t 14
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KEL872
15
os
rP
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No
Exhibit 2: Carvajal Family Tree
KELLOGG SCHOOL OF MANAGEMENT

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Exhibit 3: Carvajal’s Total Revenues: 1990–2010 (US$ in millions)
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rP
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Exhibit 4: Carvajal Subsidiaries: Products, Revenues, Growth
2009–2010
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2010 Annual
Subsidiary Revenues Growth
(Former Name) Product and Service Areas ($ in millions) (%)
Carvajal Information Yellow Pages and other information 369 9.2
(Publicar) databases, 4,000-person call center
Carvajal Education Office/school supplies, books 338 5.3

(Grupo Norma) (textbooks and others), specialty
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magazines
Carvajal Technology and Services Business process outsourcing, 337 17.0
(Assenda) personalized credit cards, paper-
based checks and lottery tickets
Carvajal Pulp & Paper Premium papers for home and office 297 16.0
(Propal) use
Carvajal Packing Packing solutions, disposable 204 17.9

(Carpak) dinnerware
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Carvajal Communications and Solutions Internal telephone directories, books, 105 10.5
(Cargraphics) and magazines for Carvajal and
other companies
Carvajal Spaces Office furniture 61 1.7
(Mepal)
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Exhibit 5: Carvajal’s Stated Values
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 Client-Oriented: Know and fulfill the needs of our clients in order to maintain short- and
long-term relationships.
 Innovation: Continue our dedication to making and improving products, services, and
processes.
rP
 Integrity: Act with honesty and clarity so that we give confidence to our clients,
supporters, suppliers, shareholders, and the community. Act lawfully and under the legal
framework of all the countries in which we operate.
 Respect: Continue to be willing to recognize, accept, and understand everyone that
interacts with the organization.
 Social Commitment: Fulfill our commitment in the communities in which we operate.
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No
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Exhibit 6: Criteria for Selecting Carvajal Holding-Company Board Members
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THE POSITION
As a member of the board of directors, the director shares the responsibility to safeguard the
interests of the shareholders and to support the company’s strategic development, ensuring that
the managerial work at Carvajal is effective. The director, leveraging his or her knowledge and
rP
experience, contributes ideas, initiatives, and recommendations that will assist the company in
defining and adopting strategies, risk management, evaluation, and appointments of senior
management. This also includes monitoring and controlling performance of the company, among
other functions.
The priorities for the new director will be:
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 Develop a solid business background of Carvajal and a clear view of the competitive
positioning of the group and its subsidiaries
 Provide a fresh perspective, bringing ideas to promote constructive debate within the
board
 Identify business, functional, and geographical areas within Carvajal in which one can
have a particularly significant contribution within the board and/or support or
management consulting
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 Achieve smooth, honest communication and a good relationship with other board
members to continue strengthening the excellent dynamic that currently exists
PROFILE OF THE IDEAL CANDIDATE
Experience
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The director will have solid experience at management level in multinational or local
companies with an international dimension. The candidate will have international experience and
have proven experience in multicultural environments. He or she will have a comprehensive
management profile, ideally combining strengths in the commercial area with financial strength
and understanding of the dynamics of international business.
Although not a prerequisite, in addition to a general understanding of business, the new

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director of the board should ideally have previous experience and have demonstrated a strong
grasp of technical skills as the functional head (sales, marketing, IT, human resources, operations,
etc.) of a company of significant size and complexity.
Competencies
A successful director should have the following experience and critical competencies:
 Strategic orientation, defined as the ability to understand the global and regional
environment of the various businesses, to support the definition of the strategic guidelines
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of the corporation, and to identify and evaluate potential alliances,

investments/divestitures, and options for profitable growth. The person must demonstrate
the ability to conceptualize and define a corporate business plan at the macro level,
anticipating trends and move to concrete actions with positive results.

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Exhibit 6 (continued)
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 Result-oriented, defined as having a clear understanding of the concepts of value
creation, return on equity, EVA, etc., and the ability to focus work and recommendations
toward achieving specific goals in this regard. The ideal candidate must have a proven
track record in setting and achieving goals, demonstrating a capacity for innovation and
boldness in the design and implementation of strategies.
rP
 Leadership, defined as setting a personal example to target and motivate the team and
peers. The ideal candidate’s style will be participatory and open but assertive, rather than
arrogant and taxing. He or she will be energetic and action-oriented, with strong
communication skills, good interpersonal relationships, and ease in expressing ideas and
recommendations both within and outside the group.
 Collaboration and teamwork, defined as facilitating the work of others by effectively
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delegating and managing people and processes in a structured way. The ideal candidate
will establish effective communication with colleagues, has emotional intelligence to
handle stress and/or conflict well, and will support the team to move forward with
perseverance. He or she will be able to establish an effective working and productive
relationship with other directors and management.
 Seniority, sound judgment, and independence, defined as having credibility and integrity
in his or her opinions and argumentative clarity. The ideal candidate should be a clear and
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transparent communicator who is able to defend his or her ideas, with no hidden agenda.
He or she should be comfortable conveying ideas with clarity and conviction on both a
national and international level. The candidate will be able to establish high-profile
networks and relationships at local, regional, and international levels, creating
development and growth opportunities for the businesses of the corporation.
Personal Characteristics
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The ideal candidate may be Colombian or a foreigner with relevant understanding of the
Latin American business environment and must speak fluent English and Spanish. He or she must
have a strong academic background, ideally with a postgraduate degree from overseas, and
constantly must be updating his or her management skills.
A good director must have intellectual ability, discretion, a balanced sense of responsibility
and perspective, maturity, high performance standards, and the courage to express his or her
No
opinions. Additionally, the candidate will need to have excellent emotional intelligence and high
ethical standards.
Although the ideal candidate should be between 45 and 65, there will be some flexibility,
taking into account the candidate’s experience and ability. It is crucial that candidates have the
commitment and willingness to participate in the board meetings and in at least one committee.
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Exhibit 7: Carvajal Family Protocol’s Stated Truths and Guidelines
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 The owners of Carvajal have always looked at the company as the most important
economic asset for the progress of the community and family.
 The organization has always characterized itself as having a long history of honesty,
moral principles, integrity, professionalism, and good faith.
rP
 The organization has maintained a good relationship with its employees, within a climate
of equity and trust.
 The efficiency, creativity, client orientation, and dynamism of the organization has
expanded its horizon outside of our country.
 The family has donated a portion of the organization’s revenues to La Fundación
Carvajal, and the foundation has made efficient social contributions in recognition of the
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blessings from God.
 The family has a history of respecting its solidarity and harmony.
 The family is committed to maintaining the spirit and unity of its century-long history.
 The family will search for consensus within itself, while respecting dissent, to preserve
unity.
 The family will transmit to all generations a commitment to honor and preserve its
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legacy, values, and Christian principles.
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No
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Exhibit 8: Carvajal Family Council Members (appointed by the Family Assembly
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in November 2010)
Carvajal Lourido Branch

 Mary Alice Crump Carvajal
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 Mauricio Llano Carvajal
Carvajal Sinisterra Branch

 Gerardo Carvajal Leib (chair)
 Lía Castro Carvajal
 Pablo Andrés Guerrero Carvajal
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 Cristina Carvajal Cabrera
Carvajal Quelquejeu Branch

 Gustavo Adolfo Carvajal Sinisterra
 Maria Paula Carvajal Vanegas
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Carvajal Rodewaldt Branch
 Luis Felipe Carvajal Albán
 Diego Carvajal Albán
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Exhibit 9: Carvajal CEOs
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CEO Name Generation Birth–Death CEO Tenure
Manuel Carvajal Valencia 1st 1851–1912 1904–1912
Hernando Carvajal Borrero 2nd 1884–1939 1912–1939
Manuel Carvajal Sinisterra 3th 1916–1971 1939–1971
Jaime Carvajal Sinisterra 3th 1920–1992 1971–1979
rP
Adolfo Carvajal Quelquejeu 3th 1931–2002 1979–1999
Alberto Jose Carvajal Lourido 3th 1923– 1999–2001
Alfredo Carvajal Sinisterra 3th 1936– 2001–2008
Ricardo Obregon Trujillo Non-family 1946– 2008–
Pictured below: Manuel Carvajal Valencia (first-generation founder), Alberto Carvajal Borrero (second-
generation founder), and Hernando Carvajal Borrero (second-generation founder and CEO)
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t

Carvajal has to be reinvented every day . . .

The Business in 2011

2 KELLOGG SCHOOL OF MANAGEMENT

The Governance of Carvajal

KELLOGG SCHOOL OF MANAGEMENT 3

4 KELLOGG SCHOOL OF MANAGEMENT

The Special Committee

KELLOGG SCHOOL OF MANAGEMENT 5

6 KELLOGG SCHOOL OF MANAGEMENT

Challenges for Carvajal

Business and Financial Challenges

KELLOGG SCHOOL OF MANAGEMENT 7

Carvajal faced multiple challenges related to communication, motivation, and alignment

8 KELLOGG SCHOOL OF MANAGEMENT

KELLOGG SCHOOL OF MANAGEMENT 9

BETWEEN THE FAMILY AND THE BOARD

10 KELLOGG SCHOOL OF MANAGEMENT

WITHIN THE HOLDING-COMPANY BOARD

BETWEEN OPERATING COMPANIES AND THE HOLDING COMPANY

KELLOGG SCHOOL OF MANAGEMENT 11

WITHIN THE FAMILY

12 KELLOGG SCHOOL OF MANAGEMENT

KELLOGG SCHOOL OF MANAGEMENT 13

Exhibit 1: Carvajal Business Milestones: 1904–2010

1904 1920 1946 1960 1961 1976 2004

KELLOGG SCHOOL OF MANAGEMENT

Carvajal Education Office/school supplies, books 338 5.3

Carvajal Packing Packing solutions, disposable 204 17.9

16 KELLOGG SCHOOL OF MANAGEMENT

KELLOGG SCHOOL OF MANAGEMENT 17

The priorities for the new director will be:

PROFILE OF THE IDEAL CANDIDATE

Although not a prerequisite, in addition to a general understanding of business, the new

of the corporation, and to identify and evaluate potential alliances,

18 KELLOGG SCHOOL OF MANAGEMENT

KELLOGG SCHOOL OF MANAGEMENT 19

20 KELLOGG SCHOOL OF MANAGEMENT

Carvajal Lourido Branch

Carvajal Sinisterra Branch

Carvajal Quelquejeu Branch

KELLOGG SCHOOL OF MANAGEMENT 21

22 KELLOGG SCHOOL OF MANAGEMENT

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