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CASE ANALYSIS CRITIQUE

Submitted to:

LORD EDDIE I. AGUILAR, MBA, CPA

Submitted by:

MAIDY JANE ESBER, CPA


SAHARA KARLEEN FERRER, CPA
MARVELOUS SILVA, CPA
JOHNVIR TORREON, CPA

JULY 21, 2018


TABLE OF CONTENTS

Summary…………………………………….……………………… 1

Insights ………………………………………….…………………. 4

Conclusion……………………………………………….………… 5

References………………………………………………………..... 5

Appendix A – SUZANO GROUP (SUZANO)


CASE ANALYSIS CRITIQUE

TITLE : SUZANO GROUP (SUZANO)


AUTHOR : Mike Lubrano and Daniel Blume
SOURCE : Global Corporate Governance Forum, International Finance Corporation (IFC);
Organisation of Economic Co-operation and Development (OECD), 2006. Case
studies of governance practices. Companies circle of the Latin American corporate
governance roundtable. Washington, D.D.: World Bank Group

SUMMARY

Suzano Group ( Suzano ) was built in line of philosophy of business by the founding family of
Ferrers. From Leon Ferrer who started this 94 years ago to his son Max Feffer, succeeded him on 2001.

In early 1930s, the company’s first paper machine was bought which lead them to continuous
growth and improvement. When they discovered eucalyptus producing pulp, Suzano upgrade the
process on 1950s. On 1970s, the group made the decision to invest in the petrochemical industry,
strongly believing that usage of plastic in packaging would be in demand in the future.

Figure 1. SUZANO’S TIMELINE

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Early 2000, Suzano under administration of Max Feffer abolished the unproductive positions
and create its baseline for company’s growth strategy for the industry. In which, industry of pulp and
paper and petrochemicals. Since this will require them huge investment, they seen the importance of
building relationship with capital providers to sustain development. Following year, Suzano Group was
divided into separate entities named Suzano Papel e Celulose and Suzano Petroquímica. Full
reformation was started in the leadership of 3rd generation to safeguard that these companies will
progress and sustain lasting. In line with this, the Feffers decided to free the company from threats of
mainly depending its sustenance on controlling shareholders capital.

With this goal, corporate governance standards of Suzano were benchmarked with best
performances where focused to both the management and investment markets strategies of both firms.

Suzano accomplished the execution of management standards with the three pillars: 1) family
control, which conveys a long-term vision, reputation and common values for the group; (2)
professional management and performance monitoring; and (3) partnership with the capital markets.
Suzano Holdings was established for the owners to have centralized policies for both companies.

In line with the management changes, group of professional executives from external and
internal were hired. While the new management arrangement at Suzano Holding aligned corporate
works and assignments that had been replicated in the subsidiaries, causing to a 30% cost reduction.

The enactment of the different group management model was patterned to a significant
modification in the role of the controlling shareholders—they left the executive function to focus on
strategic direction and management oversight.

By 2003, Suzano Papel e Celulose becomes a listed company which result the holdings of
controlling group were decreased. As per the Suzano Papel e Celulose shareholders’ agreement, the
Board is composed of 9 members, of whom 5 are elected by the controlling shareholder, 3 are
independent and 1 member is elected by BNDES (National Economic and Social Development Bank
of Brazil). The Board of Directors has three committees namely: The Management Committee, The
Sustainability and Strategy Committee, and The Audit Committee. The senior management team of
Suzano Papel e Celulose is composed of 8 professional executives. Both companies, Suzano Papel e
Celulose and Suzano Petroquímica, corporate governance strategies are provided by Suzano Holding,
and the CEOs of each firm are responsible for their execution, with provision as needed from affected
departments. Any division of the firms can suggest improvements in corporate governance practices.

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Figure 1. ORGANIZATIONAL TABLE

Suzano Petroquímica used to be a holding company with shared control spots in some Brazilian
petrochemical corporations. With its promising opportunities, they emphasized the importance of
building partnership with the capital markets. And therefore lead them to stricter management policies.

Like Suzano Papel e Celulose, the Board of Directors of Suzano Petroquímica has three
committees: the Sustainability and Strategy Committee; the Audit Committee; and the Management
Committee. Senior management is composed of 4 execuitives and unlike before, they have decided to
separate the Chairman of the Board and CEO positions.

In order to sustain partnership with the capital market, Suzano needs to balance the rights of
shareholders of its subsidiaries. In June 2006, Suzano group published its Code of Conduct, applicable
to all its businesses. The Code of Conduct comprises procedures and rules of behavior for all people
working in Suzano group companies. The Boards of Suzano Papel e Celulose and Suzano Petroquímica
have designated a Remuneration Commission composed of Board members of each company.

The implementation of high standard governance practices and partnership with the capital
market remain to empower both Suzano Papel e Celulose and Suzano Petroquímica to bring out their
strategic expansion of operations. Such as when, Suzano Papel e Celulose’s investing in its second pulp
line at Mucuri and the acquisition of 50% of Ripasa S.A. Celulose e Papel, which produces pulp,
printing and writing paper, specialty papers, paperboard and cardboards. The attainment of control of

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Polibrasil allowed Suzano Petroquímica to become a firm with its own operations, streamlining its
structure, providing more transparency and easing the understanding of its activities in the marketplace.

INSIGHTS/REFLECTIONS

The 3rd generation of Feffer family has designed Suzano model in good governance which
completed by 2003. The model emphasizes the complete separation of family’s finances from those of
the group and they sees it as essential for its success. We see this as a way to gain the trust of the market
on its capital market domination as part of their agenda of succeeding growth strategies.

To sustain the growth, they need partnership with the capital markets as they strongly stressed
that growth cannot be sustained inclusively or on relying with the profitability performance of the
company. However, this separation of wealth does not mean relinquishment of control over the
operation. Still, the presence of the family control over the group operations is apparently in placed in
the form of creating a holding company which have streamlined its function down to subsidiaries to
avoid duplications. This is one they are to be proud as this reduces the cost by 30% as they said.

After assessing that their governance model is in place, they started public offering to launch
their agenda of capital market domination and initiating their growth. This reduced the controlling
interest of the family but not losing their control.

The group is really giving importance on independence and credibility of the financial reporting
by assigning 3 independent board members to oversee the quality and independence of the external
auditors and internal auditors as well as the implementation of Code of Conduct and corporate policies.
We really appreciate the establishment of Sustainability and Strategy Committee as this is considered
as apparent commitment of the group on its growth strategies.

On the acquisition of Polibrasil by Suzano Petroquimica S.A. led the family to be involved in
the operation. Hiring operating officers from the market as they did could be the best way of compensate
the lack of technical expertise of the controlling family but we suspected that it failed to align their
Code of Conduct with the governance model for this industry which have a different culture in place.

Following the principles of good governance, it seems that the corporation has complied most
of it, if not all. For instance, the Strategic Direction, Management Oversight, Risk Management and
Audit Evaluation of the company is well supported with Management Committee and Sustainability
and Strategy Committee as well as the Audit Committee. The presence of the 1 board director elected
by BNDES (National Economic and Social Development bank of Brazil) demonstrates stakeholder
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participation. This is further demonstrated by increasing part in forums where issues of corporate
governance and capital markets development are permanently discussed. Apparently, all these anchored
with its growth strategies. One thing we observed of the noncompliance of one of the principles of good
governance is the conflict of interest when it comes to compensation of the board of directors and top
executives. The corporate group established this Remuneration Commission which is composed of
Board members of each subsidiary company. Well, it makes sense that there is a conflict of interest in
this set up. Though it is said that the group seeks to align executive incentives with the objectives of the
companies and their shareholders but the question is – how do they do it?

Lastly, the company seems to underestimate profitability performance to sustainability of the


company’s growth, instead, the group relies more on capital market support. The group has forgot that
the capital market seeks return. Once return on investment is provided, this sustains to gain support
from capital market on company’s growth strategy.

CONCLUSION

Building a great company is hard. But sustaining and developing it to makes it more difficult.
Having good foundation of business principles and philosophy and endless perseverance to improve
was a key for the Feffers to manage and make the company stay at the top up to this time. Suzano
Group, although a family business, was open to opportunities and align its procedures, policies to the
best practices even if it means reducing their control. Suzano Group may set as an encouragement to
big companies in which they able sacrifice controls to growth and advancement goals of the firm. The
company also proves that having a good and updated management standards will greatly affects firm’s
growth strategies. Having visions, corporate governance goal may become a reason for a company to
never stop improving and aiming for the best.

REFERENCES:

Global Corporate Governance Forum, International Finance Corporation (IFC); Organisation of


Economic Co-operation and Development (OECD), 2006. Case studies of governance practices.
Companies circle of the Latin American corporate governance roundtable. Washington, D.D.: World
Bank Group

Suzano Pulp and Paper Presentation. Retrieved from


http://ri.suzano.com.br/enu/3836/Eng_Apresentao_Suzano.pdf

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