Carvajal

Andrea Iammatteo                                                                                   4/25/17

MGT 677                                                                 Case Brief #5: Carvajal, S.A.

At Carvajal, most business units demonstrated solid growth, but executives questioned the longevity of this ongoing trend. Carvajal’s flagship businesses faced the emergence of digital technology and diminishing demand for paper-based products in the market. The current problem was how they were going to compete with Google because of its ease of use in comparison to their own products. Since Carvajal is a family business, it has a complex governance network and needed to represent the interests of nearly 300 current or future family shareholders and spouses. The company needed to figure out how to tackle shrinking revenues and margins, and the possibility of going public to gain new capital, while maintaining identity and practices and family harmony.

Organizationally, once the CEO position was filled by Ricardo Obregon after Alfredo Carvajal, many changes were made. He reorganized the holding company, reduced its headcount, and made suggestions for new operating-company CEOs. Obregon’s early changes were scrutinized by the Carvajal family and Alfredo made clear to Obregon that he should slow down the pace of the changes he was making. Also, percentages of family ownership of the business were diminishing because of growing family size, meaning that no member of the younger generation was expected to own more than 2% of holding company’s shares. This was a problem because many family members depended on the company dividends for basic living expenses.

Ongoing challenges for Carvajal arose in relation to the deepening maturity of its businesses, and the new relationship with its first non-family CEO. Carvajal’s businesses were under increasing pressure due to advancements in technology and competition. There were also problems within Carvajal due to disagreement between executives, board members, and family members as to whether the company should go public or not to gain a large infusion of cash. With the differing opinions, and careful approach to discussions, all parties involved were torn on what to do about the company in this situation. Another issue faced by Carvajal, was the fact that the family was growing faster than the company. It was becoming apparent that some shareholders might seek better returns outside of the company. Also, the backup source of dividends in Inversantamonica may have been affecting the strategy and key decisions being made, and potentially was weakening the business’s sense of urgency.