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Olga Kuznietsova K1504290 SSMN362 International Corporate Governance Tutorial 5: Suzano Case Study 1. How did the modernization of corporate governance offer a simple, fair and attractive exit for the controlling family? Access to capital markets provided the controlling family with an easy and attractive exit opportunity. To start with, the family reduced its involvement in the business, making it possible to exit the company’s operations at any time. As a first step of restructuring, the company was separated into 2 separate entities with their own strategic goals and objectives (Suzano Papel e Celulose SA and Suzano Petroquimica), united by a newly-established Suzano Holding. A team of professional executives took over management, including both internal recruitments and marketplace professionals. Controlling shareholders, thus, left the executive function to focus on strategic direction and management oversight. The complete separation of finances of the family from those of the group made the company more independent from the family and vice versa, making the restructuring beneficial to the long-term sustainable growth of Suzano and making it an attractive investment for the family. Since the companies were listed on BOVESPA stock exchange, both of them grew significantly in market capitalisation and share price. Even though the holdings by controlling group (the family) reduces by 4.4% and 10.4% respectively for the two companies, the family gained from the increased share price: from $3.9 in 2003 to $5.88 in 2006 for Suzano Papel e Celulose SA, and from $1.02 to $1.56 for Suzano Petroquimica. This largely benefits the Suzano family because at any time it is possible for them to give up ownership and benefit from the appraised value of their holdings. The family is involved in the governance through the Board of Directors as it determines consistent policies in terms of overarching strategies of the group and its long-term vision, as well as promotes the familyrooted culture of “entrepreneurship, excellence in management, accountability, and commitment to client satisfaction and respect for people, community and environment”. However, the family philosophy is already deeply rooted in the company’s operations. Moreover, the two companies act largely independent from each other, deciding on various acquisitions and strategic direction. Therefore, the corporate restructuring in Suzano benefitted the founding family and provided an excellent opportunity for them to exit the business.

2. Why were corporate governance standards aligned with best practices central to both the management and capital markets strategies of Suzano? The adoption of high standards of corporate governance and partnership with capital markets allowed Suzano Papel e Celulose SA and Suzano Petroquimica to pursue their separate strategic expansion plans. To start with, both pulp and paper and petrochemicals industries are highly capital intensive, therefore, the access to capital markets was essential to the companies’ longterm growth. Suzano Petroquimica was set to become the national leader in petrochemical sector through high quality of assets and opportunities for consolidation and growth. Therefore, its listing on BOVESPA was crucial to raising the $66m required to fulfil its strategic aspirations. Moreover, being listed on Level 2 of BOVESPA was a sign corporate prestige for Suzano Petroquimica, being the first family-run corporation on this tier. At the same time, listing of Suzano Papel e Celulose SA raised $151m for the company, enabling future investments such as acquiring an additional pulp line or a 50% stake in a large producer of pulp, printing and writing paper. More broadly, capital markets provided Suzano with long-term sustainability, financing growth, reduction in the cost of capital (as compared to debt borrowings), improved institutional image and reputation and importantly, a crucial exit mechanism for the controlling family group. At the same time, listing on Brazil’s primary stock exchange required the adoption of high governance standards. Both companies established independent Board, with no member of the Board belonging to the top management team, except for the CEO who also acted as a Chairman for both companies. This decision was explained by the need for consolidation in governance, as well as integration of new culture in the case of Suzano Petroquimica, which in 2005 acquired Polibrasil, becoming the leader in production and trading of polypropylene in Latin America. Suzano family retained certain degree of control over the holding company by generating the strategic vision through controlling the Board. However, both companies established Management, Sustainability and Audit committees with a goal of independent oversight and objective control of the company’s human recourse policies (remuneration, succession), internal controls, quality of financial reporting and achievement of long-term sustainability standards. Therefore, the Board of Directors complied with the widely-accepted standards of high quality corporate governance. Moreover, minority shareholders were given the rights of representation: to elect a member of the Board from the list of three candidates and approving the remuneration at the Annual General Meeting. Therefore, the excellent and constantly improving corporate governance practices supported the company’s success on the capital markets....