Reference no: EM132202663
Success through Good Governance..
The essential principles of excellence in management have been in place in the Suzano Group since the beginning of its history. Accountability, commitment to client satisfaction and respect for people, the community and the environment are central elements of the philosophy inherited from its founders, Leon Feffer and his son, Max Feffer, who led the company until 2001. High standards of corporate governance, as these are understood in today’s corporate world, have been introduced more recently in the Suzano Group’s history. The Group began implementing improved governance practices as a result of a broad renewal process that took place beginning in 2001. In that year, Suzano Papel e Celulose acquired Cia. Vale do Rio Doce’s interest in Bahia Sul and took one of its most important steps towards achieving the growth strategy of the Group.
Governance Changes as Part of a Global Renewal Process
As Suzano’s expansion plans were in progress and as the Group’s management faced the challenge of implementing them without the presence of the founders, Suzano realized the need for a new management model for its businesses. In order to guarantee the continuity of the corporation, it was essential to implement a professional governance and management model, independent from the controlling family and committed to the company’s growth targets. This process started in 2002 with the change in Suzano Papel e Celulose’s management. In the following year, the transformation of the Group’s management model was completed with the creation of Suzano Holding, providing the controlling shareholders with a professional platform to supervise the activities of both the paper & pulp and petrochemical businesses, while establishing corporate policies in terms of planning, budgeting, auditing, performance assessment, and leadership development. Meeting the challenge of growth in two capital-intensive industries requires even higher standards of corporate governance. Accessing the capital market is an essential instrument of the Group’s financial strategy, and this means responding to additional investor demands for modern governance practices, which reinforce value creation to shareholders.
Accordingly, excellence in corporate governance has been incorporated into the Group’s philosophy, following the example of the quality management principles that have been a pillar since Suzano’s foundation. Together with innovation and social responsibility, the other two pillars of Suzano Group’s values, good corporate governance is an essential part of achieving sustainability.
Suzano Group’s adoption of best corporate governance practices began with the Board of Directors of the paper and pulp company. The Chairman of the Board of Directors is no longer the company’s CEO. No member of the Board of Directors belongs to the top management, and the link between the Board and senior management is established through the Managing Committee. The Strategy Committee, in turn, is responsible for the strategic planning and overseeing implementation.
The Results
The modernization of the management model and the adoption of good governance practices, coupled with a long-term capital market strategy, had a clear impact on both the paper & pulp and petrochemical companies’ economic value.Suzano Papel e Celulose increased its market capitalization from R$ 333 million in 2002, to R$ 1.5 billion at the end of 2004. The daily average trading volume of its listed shares, also influenced by the free float after the public offering, increased from less than R$ 1 million in 2003 to approximately R$ 6 million in 2004. The company is part of the IBRX 50 Index since September 2004. The value of Suzano Petroquímica’s shares increased 119% in 2004, twice the performance of the IBOVESPA (BOVESPA index). Its market capitalization went from R$ 671 million to R$ 1.5 billion during the same period. The daily average trading volume of its listed shares rose from R$ 104,000 in 2003 to R$ 642,000 in 2004. After the follow-on equity offering, this average rose to more than R$ 2 million, resulting on the company’s joining the IBRX 100 Index in January 2005. In both follow-on equity offerings, management introduced new mechanisms to promote retail investor participation. An innovative brokers’ syndicate was formed to advance this objective, with commissions linked to the number of orders received from individuals. This strategy became a benchmark in Brazilian market in subsequent equity deals.
The Future
The repositioning in the capital market of the two companies, Suzano Papel e Celulose and Suzano Petroquímica is just beginning and is part of the corporate sustainability philosophy of the Group. It is a strategic decision founded on the assumption that sustainability of the business does not rely exclusively on profitability: it needs to be embraced by all stakeholders. The capital market is intimately linked to sustainability, as it assists in the financing of growth, the reduction of cost of capital, institutional image improvement, and provides an exit mechanism for the members of the controlling group over time. The most appropriate corporate governance practices are the ones that best align interests towards the ultimate goal. Construction of a governance framework is necessarily dynamic, because it has to adapt to the peculiarities and specificities of each moment. In the near future, one of Suzano Group’s goals is the structuring of a corporate Auditing Model. Internal Auditing groups already report directly to their respective Boards, ensuring greater independence.
To stimulate the development of the Brazilian capital market and attract more retail investors to the Stock Exchange, Suzano Group, in partnership with other companies and institutions founded the National Investors Institute (“Instituto Nacional de Investidores—INI”), whose target is to provide up-to-date knowledge and education about stock market to individuals through the creation of investment clubs.
Explain the major implications of corporate governance practices at Suzano Group.
Give suggestions to improve the practices of Corporate Governance & Business Ethics in Suzano Group. Justify your suggestions by facts.