Introduction
Carvajal S.A is a family business which was founded on the 29th October 1904 and is located in Cali, in Columbia. The business was founded by a man by the name Emmanuel together with two of his eldest sons. The business began as a printing and publishing business. It has since expanded into the sale of notebooks, yellow pages and office furniture even outside the country. With the emergence of new consumer trends such as the internet, the business is faced with a lot of competition such as the availability of the services provided by the business over the internet. The business is also faced with challenges which are related to being a family-owned business. This is a report on the Carvajal S.A family business analyzing the challenges facing the family business as well as ways in which these challenges can be minimized.
Challenges related to Carvajal S.A and Mitigation
Rapidly maturing products
Carvajal printing business had grown rapidly over the years since the foundation of the business in 1904. Since 2010 the business had seized to grow and in some of its branches were making losses. With the emergence of the digital era and the internet consumers were finding the internet and applications such as Google easier to use. The company was unable to make further growth despite the constant efforts it was making. Before the year 2008, the family had been making a steady growth. Between the 2008 and 2010 the family business had streamlined and had not shown any significant profits. Instead the family business made a loss in the year 2009. The family business should venture into other business which are in line with emerging trends and which have the potential for further growth.
New Players, threats and stiff competition
The business’s leading threat is the emergence of online services which allowed users to access similar services over the internet. The company’s initial business was the provision of services such as printing and publishing. With the emergence of digital technology, Google and other internet providers were proving to be more effective as compared to their printing services. Demand for printing and publishing services were going down at a rapid rate. New technology was offering stiff competition for the Carvajal business. The family business needs out to embrace the new trends by making their services online. The company can open website where their customers can access their services online.
Family Governance
CEO’s at the company led the family business for long tenures and all CEO’s except the current one were family members. It is a challenge adjusting to this new leadership which the company was unaccustomed to. The family members were having lesser and lesser time to commit to the family business. The family’s success was based on education and most members were grandaunts from recognized universities worldwide and were handling important jobs in major corporations such as BMW, Apple, Colgate and Bose among others. Out of the company’s 23,000 employees only 28 of them were family members. Family board members were not allowed to work for the company. The company also sought the help of a search firm in order to evaluate the best candidates for board membership. All prospects for these positions were expected to submit their CVs to the search firm. The number of family board members was also decided by the board prior to elections.
Legacy
The holding company board often had difficulties making decisions concerning employees of the company who were family members. The family also had a protocol which dictated its governance. This protocol which was published in 1995 was meant to protect the integrity of the business as well as maintain unity in the family. The protocol was implemented with the use of a family council which held meetings once in a month for half a day. The major purpose of these meetings was to discuss the relationship of the family to the business.
Intergeneration
Since its foundation the family business was on the sixth generation with the family growing up to 300 members. With the expansion of the company and the decline in revenues, the current generation was expected to have around 2% of the business’s shares. The company’s dividends had reduced tremendously to 18% which was 30% less compared to the speculated expectations of a successful Columbian business. In 2010 the company had made losses amounting to 45 million USD. The family business was experiencing a decline in revenue. The revenue brought in by the family business was going down rapidly while the family continued to expand. This was causing a major challenge for the business with family members relying heavily on the family business for income.
Investment philosophy
The company had an investment branch whose main purpose was to ensure that family members lived up to a certain minimal living standard. The company was also responsible for taking care of the education expenses for other family members. Family members were also entitled to a certain amount of dividend. The family business was faced with the challenge of sustaining future generations. While the growth of the family was exponential, the growth of the company was linear. As a result, the family business was unable to keep up with the growth of the business.
Culture
Low dividends were becoming a major concern for the family business. With most of the family members relying on the business for income, the low dividends were becoming a major concern among the family members. Family members expected the dividends from the family business to remain constant. With the low income from the business the need to sell shares and go public was becoming a major challenge. Most family members had also left Columbia for other countries and the family members had less interest and commitment in the family business.
Optimizing projects
Legacy
The Carvajal family business spent a large sum of its revenue assisting the homeless. This is a culture that the family business must uphold despite other factors affecting the business such as losses. Upholding the reputation of the family business while at the same time maintaining the profitability of the family business was also a major concern. As part of upholding the company’s values, the family business had difficulties accepting major failures in the business. A branch of the family business which had been making tremendous losses over the years and should have been named bankrupt for a couple of years was still running. The proposal to declare the branch bankrupt was turned down to protect the family business name with the claims that the move have negative effects on the reputation of the family business. By family tradition, the family business believed that they were always responsible for their finances and the family name was the business’s greatest asset.
Succession
For the past five generations, the family had been led by a family member. Maintaining distance between the business and family issues was also another challenge. Family members were heavily invested in the family business. With the need to keep regular watch of the family business and an independent CEO, there was a big possibility of the independent board being sidelined. The concerns of the board members had to be in sync with those of the family members. The professionalism of the family council was also another concern for the family business. Family members who belonged to both the family council and the holding board faced challenges when deciding which issues were relevant to the family members and those that strictly belonged to the holding council.
Dynamics of the Latin American Culture
The Latin America culture is strongly built on family. The culture calls for personal relationships which are extended into the manner in which they carry out their business operations . The process of finding a successor normally took the family business up to 2 years. This also poses a major challenge for the business. Recruitment is considered an expensive process especially when the process extends over a long period of time. The most important requirement for the company’s employees was an understanding of the family’s values. The Latin American culture is based on personal relationships which are known to take a lot of the family business’s time which is an important resource for the business .
The Latin American culture is heavily rooted in groups. They operate in groups and rarely perform activities as individuals. This explains the foundation of the family business. In the Carvajal business model, all family members are owners or future owners of the family business. Charity is also another aspect of the Latin America culture . They are very philanthropic and invest heavily in taking care of the less privileged in the society. The company had an investment fund through which the company funds such activities in the event that the family business does not generate enough revenue to sustain such trends. Among the priorities of a business philanthropy should only be done if the business is generating enough revenue. Corporate social responsibility programs should also be aligned within a company’s line of business and profitable for the business.
Rules are an important aspect within this culture. Although these rules can be bent once in a while, the reference to a certain context must be maintained at all times . This culture is responsible for some poor business decisions by the family business. The family business continues to run a non-profitable company so as to uphold the status of the family business. Successful businesses make decisions depending on the situation at hand. There are no rules as to decision making in the business. Business decisions should be made in order to suit the situation and ensure that the business remains highly profitable. If a family value is causing a business losses, then the value is of no use to the business.
This culture also recognizes the family as the most fundamental unit in the society. As a result family representation is a crucial aspect even in the family business . Some of the family members may not have the expertise in the business world that is necessary for the success of the family business. Some of the family business may also have separate lives and goals which do not align to the goals of the family business. Some family members of the Carvajal family hold reputable positions in other reputable organization leaving them with less time for the family business. As the family continues to grow, distance between family members continues to increase and the importance of the family business starts to loose meaning to the latter generations. Some of the Carvajal family members have moved out of Columbia and less committed to the business. The low returns from the business are also responsible for the loss of interest in the business.
Communication in the Latin America culture is strictly hierarchical . Information is passed from top to bottom although it is done with the use of informal methods . With an independent CEO at the Carvajal the normal protocol is that the information should first be addressed through the board members before it reaches the family members. With an independent CEO, and the heavily invested family members the function of the holding council is at risk. The holding council is likely to be sidelined with decisions and information being passed from the CEO to the family members directly.
Challenges facing family businesses
Family businesses are based locally and are great asset to the community. They are deeply rooted in culture and the community they exist in and are source of employment for most members in the community. Most of these businesses are multigenerational and exist for a long time as compared to public owned businesses . Family business are however faced with a number of challenges which are associated with conflict between family members, incompetent future generations and the need to keep up with certain lifestyles despite the current status of the business.
Family members to a family business are often faced with the challenge of maintaining their responsibilities to these businesses while at the same time remaining entitled to the rights that arise from being members of the family business. With time, the balance between responsibilities and rights shifts . Family members shift their interest in the business while at the same time expecting the benefits that come with the family business. Carvajal family members expect to live within a certain lifestyle which is catered by the family business. These family members also expect certain benefits such as the funding of their graduate education. Each member of the Carvajal family business is entitled to a certain dividend whether they are working for the company or not. Only a very small percent of the family members are involved in the family business with most of them moving out of Columbia due to the lack of commitment to the family business. As a result, most of the younger generation at the Carvajal family business are considering the option of selling the family business to the public. With newer generations, the commitment to the family business seems to go down and the family business faces the risk of being completely lost to the family. The family business is incapable of keeping up with the growth of the family and as a result it is unable to sustain newer generations . The dividends are most likely to go down with each generation. Leadership also poses a challenge as newer generations might fail to produce leaders who are capable of maintaining the profitability of the family business. For a long time the family business was under the leadership of a family member until the sixth generation when the family business had to seek an independent CEO.
Conflicts are also a major challenge which faces family businesses. The benefits of the family business are extended to spouses of the family members. Conflicts within family members such as expensive divorces will extend such expenses to the family business. The actions of future generations could have adverse effects on the family business. While businesses are governed by rationale, family is based on emotional attachments . In the business aspect, businesses pay individuals according to the service rendered by the individual to the business. On the other hand, family will offer support to the family member so long as the family member is in need of their support. Conflicts among family members are more common with the expansion of the family. This challenge has been put away by most family businesses by ensuring that the younger generation is part of the family business by offering them employment opportunities at the family business.
Diversity of roles also poses a major challenge for the family members. With every generation the number of family members involved in the family business increases. The roles of these family members in the business are also intertwined with most of them being owner, employee and part of the board of directors. This causes a complexity to the business including the fact that these family members have different skill, interests and needs . For the Carvajal family business there is the family council and the holding council. Some members of the holding council are also part of the family council. The diversification of these roles can however be used to the advantage of the family business if they are managed properly. It is important that boundaries between these roles is drawn by highlighting the different perspectives. Open communication and honesty is an important strategy to ensure that the diversity of roles does not result in more conflicts for the business .
Conclusion
In conclusion multigenerational family businesses are faced by a number of challenges. The conflict of issues related to business and those that are family related causes various challenges to the business. Family members are entitled to certain benefits from the family business which include dividends and a certain lifestyle. The Latin America culture causes a great challenge to these businesses. The Latin American culture upholds the family reputation highly which results in poor decisions in regards to the business. With each generation, multigenerational businesses are incapable of keeping up with the growth of the family. The dividends to each family member reduces with each generation leading to a decline in the amount of commitment to the family business. Family members should be responsible for the family business by ensuring that most of them are employed at the family business. Proper planning is also necessary to ensure that the growth of the family business will match that of the family through generations. The Latin American culture which believes that the family name is the biggest asset of a family business is misleading and has negative effects for the business.
Works Cited
IOR. Colomia. 2016. web. 18 April 2016. <http://www.iorworld.com/colombia-pages-493.php>.
Schwass, Joachim. "Family Businesses: Successes and Failures." International Institute for Management Development (1988): 1. print.
