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Family business

How ‘social dividend’ ensures unity down the generations

Published 15 February 2023 in Family business • 7 min read

Based in Colombia, Carvajal SA is one of the world’s largest manufacturers of paper notebooks. For more than 30 years, all family members have been given free or heavily subsidized access to education, healthcare, and housing. Cristina Carvajal, president of the family council, explains to Anouk Lavoie and Peter Vogel why the scheme has been instrumental in the company’s continued success. 

For any family enterprise that’s handing control from one generation to the next, finding ways to engage heirs at an early stage and prepare them for their future roles in the family business are keys to long-term success. 

Colombia-based Carvajal SA, one of the world’s largest paper notebook makers, hasensured those two qualities define how the eponymous controlling family has approached its development of the next generation of leaders throughits 118-year history.Initially a newspaper publisher,Cali-headquarteredCarvajal has over the past century expanded into the paper and packaging, technology, and real-estate industriesacross Latin America and beyond. 

The family adopted a novel approach to developing the next generation known as the “social dividend” – a benefit established in 1990 to provide all family members with free or heavily subsidized education, healthcare, and housing. The dividend also supports their professional development and preserves family unity. 

“The social dividend is a very important part of what glues this family together,” said Cristina Carvajal, President of the Carvajal Family Council, which oversees governance and ownership of the business and runs activities that strengthen family ties. “This family has been very generous, and that makes the rest of the family feel that they want to give back. 

“It’s very nice to feel that no matter where you are and no matter what you need, the family will back you up. We don’t need to be together all the time, or meeting all the time, but there’s a family unity, and that is key for the next generations to come.”   

Arguably the most unique aspect of the social dividend – which funds 70% of school and university tuition fees in addition to a one-off home purchase –is that it levels the playing field.That means all 300+family members have access to these benefits, regardless of the number of shares they own, or will eventually own, in the business. As the sixth generation arrives and the wealth gap amongst different branches of the family increases, the dividend guarantees the same opportunities to those who are less well off financially.  

Yet that is not the only strategy for succession planning that is being successfully deployed by the family.Younger relatives are offered internships in the company’s various business units, as well as in the Carvajal Foundation (a non-profit organization aiming to improve quality of life in the most vulnerable communities such as Valle del Cauca), and the investment fund that pays the social dividend.

Cristina Carvajal with part of the family history archive. The company dates back to 1904.

Those internships can help empower the next generation and give them an opportunity to begin thinking about creating their own legacy.Cristina Carvajal points out that some hesitation in changing the company’s usual way of doing business hobbled the succession process when the third generation of the family – her parents’ generation – was handing over control to the fourth.   

“The third generation had a hard time empowering the fourth,” she said. “They asked, ‘Why do you want to change something that has worked for a long time?’ That resistance is where most of the tension comes from, and those have been the hardest issues that we’ve faced.”  

That rift prompted the family to take steps to ensure that it does not repeat the same mistakes when it comes to nurturing the fifth generation.Those steps include the creation in 2018 of the NextGens Boards program,  an initiative that allows family members aged 25-40 to join the board of directors of the Carvajal business, the foundation, or the family council for two years. Having NextGens on boards develops future leadership talent and boosts family harmony.   

“The fifth generation needs to get educated,” said Carvajal. “This company is going to be theirs one day, and they need to be good shareholders. That’s where the board program comes in very handy. We have discovered a lot of talent in our younger family members with this program.”   

The success of the family’s approach to nurturing the next generation is evident in the longevity of the business.The company was founded in 1904 by Manuel Carvajal Valencia, the family’s patriarch, who sold his wife’s farm to buy a printing machine and publish theweekly newspaper El Día. His sons, Hernando and Alberto, grew the business when he imported printing machines from Germany and expanded into selling paper products such as notebooks. 

It’s very nice to feel that no matter where you are and no matter what you need, the family will back you up. We don’t need to be together all the time, or meeting all the time, but there’s a family unity, and that is key for the next generations to come.

The company established new business units in the 1950s and 60s, for example printing the Yellow Pages telephone directories, and expanded across and beyond Latin America. As of 2021, it employed 17,000 people and generated annual revenue of $900 million.Carvajal is still entirely family owned, though a quarter of its equity belongs to the Carvajal Foundation (in 1960, the family decided to donate 24% of its shares to a charity dedicated to social development and poverty alleviation). 

Cristina Carvajal believes that communicating openly is a key part of what keeps the family together, even as it expands. That means empowering family members to have hard conversations respectfully, a transformation that has been led by Pedro Carvajal, a fourth-generation scion who became CEOin 2020. 

“We’re a family that is very respectful of feelings,” she said. “And in that sense, it has been very difficult for us to deal with conflict. So sometimes it’s easier not to speak about it because you’re very mindful of not hurting other people’s feelings. But I think that has changed a lot with Pedro and his way of communicating and being transparent. 

“I personally have insisted to the family that I want to hear everything – the good, the bad and the ugly. And the family has felt more comfortable in speaking up on difficult issues that we didn’t deal with before.”     

That strategic approach to communication includes employing a community manager to keep the various family members, 30% of whom live outside Colombia, talking. This approach includes sharing company information through groups on Instagram, Facebook, TikTok, and a magazine published three times a year named El Día – a nod to the origins of the business.“It’s hard to keep a family of 300+ members together. And I think the key for that is communication,” Carvajal explained.

We needed to have strong family governance and some rules to be able to work together. I think that has been key in upholding family unity. I am convinced that unless there's family unity, it's very difficult to pass over control from one generation to another.

“I lived outside of Colombia for 26 years, and I still feel close to the family because I knew what was happening in the business, I knew what was happening with the family. For us, it´s very important that the family feels close – that as a shareholder you know how the company started, the work of previous generations, and how the company is doing now so we start strengthening the ‘Carvajal Heart’ from an early age.” 

Moreover, she believes that such communication has been key for the family’s governance structures to succeed. These structures include the family council that she leads, which was established in the 1990s. 

“We needed to have strong family governance and some rules to be able to work together,” she said. “And I think that has been key in upholding family unity. I am convinced that unless there’s family unity, it’s very difficult to pass over control from one generation to another.” 

In 2022, the family became the 27th winner of the IMD Global Family Business Award, recognizing Carvajal’s dynamism and resilience over several generations as well as its high standards of governance. 

Carvajal is clear that finding new ways to engage young heirs is key to future-proofing the business. Those ways include CarvaLab, an entrepreneurial ecosystem that helps family members launch new business ventures and provides funding for them.   

“We tried to glue the family together through many different processes, and we failed until we found that in our DNA there’s entrepreneurship. So, this is a new branch that we are starting to open up,” she said. “It’s because of family unity that the fifth generation has gotten together and worked on fostering this entrepreneurship community. If you take care of family unity, a lot of magical things happen – and I’m sure that we’re going to be here for many more years.” 

Authors

Anouk Lavoie

Anouk Lavoie Orlick

Research Associate at IMD

Anouk Lavoie is a Research Associate at IMD. Her work focuses mainly on leadership, entrepreneurship, and family business.

Peter Voegel - IMD Professor

Peter Vogel

Professor of Family Business and Entrepreneurship at IMD

Peter Vogel is Professor of Family Business and Entrepreneurship, Director of the Global Family Business Center, and Debiopharm Chair for Family Philanthropy at IMD. He is Program Director of Leading the Family Business, Leading the Family Office, and Lean Entrepreneurship. Named in the Poets&Quants 2022 list of the best 40 MBA professors under the age of 40, Peter has been published in peer-reviewed academic journals and, has written a number of books, book chapters and scientific and practitioner-oriented reports.

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