Family Firms and Institutionalization

Murat Çemberci
Management Concept

Goals

Mission

Vision
Principles of Ratiolanility

Profitability

Effectiveness
(Effective use of resources)

Efficiency
(Efficient use of resources)
 Functions of Business
Basic functions Support functions
• Management and • Purchasing
organization • Supply
• Production • Supply Chain Management
• Marketing • R&D
• Accounting • Innovation
• Finance
• Human resources
management
• Corporate
Communications
 R&D and Innovation
R&D Innovation
• Scientific Research
• Radical
• Applied Development
• Incremental
 Functions of Management
• Planning
• Organizing (Direct)
• Coordinate
• Orders-command
• Auditing (checking)
General Status of SMEs in Turkey

Middle (50-249)
%1.3

Small (10-49)
%4.2

Micro (1-9)
%94,5

Total Businesses
Total SMEs Total Big Businesses
 Distribution of SMEs by Industry

Service

Manifacture
Others

Others: Energy, Mining, Costruction

Distribution of employment in SMEs by Industy

Business
Service

Other service

Manifacture

Others

Others: Energy, Mining, Costruction

 The distribution of the value added of
SMEs by Industry

Business
Service

Other service

Manifacture
Others

Others: Energy, Mining, Costruction

The place of SMEs in the economy in Turkey

% 81 of Total
Employment

% 62 of Total
Investments
Fundamental problems of SMEs in Turkey

• Management and Organization Problems

• Scale Problems
• Financial Problems
• Qualified Person Problems
• Marketing Problems
• Efficiency, quality, standardization and
environment
• Innovation
• Lack of project-based work
 Family Firms with numbers
In the World
• 80% of the family businesses
disappear before they pass
the third generation.
• Two percent of the remaining
20% of the companies remain
in the same family.
• 13% sold to foreign
companies
• 5% are being transferred to
the public.
• Only 2% go through the
fourth generation.
In Turkey
• 85% of the family businesses
disappear before they pass
the third generation.
• Two percent of the remaining
15% of the companies remain
in the same family.
• 8% are sold to foreign
companies.
• 4% are being transferred to
the public.
• Only 1% go through the
fourth generation.
 Family Firms
• Although there are different definitions of family
companies in the literature, there is no common
definition.
• Çünkü aile şirketlerinin kuruluş şekli, girişimcinin
kişilik özellikleri, ailenin kültürel
özellikleri, işletmenin içinde bulunduğu
sektör gibi faktörler aile şirketinin yapısını
etkiler.
 Indicator of Family Firms
• Ownership of the company belongs to the
family.
• The company's current management is in
the hands of the family.
• Voting control is in the family.
• The founders of the company are family
members.
• Different generations are actively involved
in management.
 Defination of Family Firms

• Family businesses are founded by one or

more of the family members.
• The top management of the family business
and the majority of the partners consist of
family members.
• In these businesses, individuals strive to
fulfill their family goals and succeed.
 Defination of Family Firms

• Family business belongs to a family.

• The management of the family firm is
transferred from generation to generation
among family members.
• Strategic decisions are given by the family.
• The management of the business is
controlled by the family.
• The management is affected by a family.
 Common features of family businesses

• The majority of the working capital in family firms

belongs to a certain family.
• Family companies are employed by family members as
managers and other positions.
• The business is managed by a family member or
members.
• There are also other individuals in the management of
the family firms outside of the family.
• The business has the same family for several
generations.
 Institution Management

Institution Management is a combination of

laws, regulations and related voluntary
private sector practices that enable a
company to attract financial resources and
human resources in such a way that it does
not harm the interests of the right holders
and the public, and thus to ensure its
stability by creating economic gains in the
long term for its shareholders.
 Institution Management
• Institution Management is concerned with how
and by whom enterprises are managed and
controlled.
• Corporate governance, which regulates the
relations between different parties, such as
general manager, management, shareholders
and employees, in decision-making about the
direction and performance of the enterprise,
also ensures that the family and other
stakeholders, who provide their income with
the profitability of the enterprise, think in the
same direction.
 Institutionalization
• The combination of management, control
and ownership in the same person or in the
same family, is a factor that removes the
enterprise from institutionalization.
• In this sense, corporate governance aims to
provide professional and non-family
members to take part in the enterprise and
to provide a systematic management.
• So institutionalization and institution
management are complementary concepts.
 Institutionalization
• Institutionalization means the standardization
of repetitive actions and habits within the
communities or the rules to be followed.
• For example, actions such as addressing and
greeting methods of one's employees, methods
of rewarding and punishment, ways of making
decisions, and ways in which they can
communicate with customers can be expressed
as institutionalization.
 Institutionalization
• Organizations with a high level of
institutionalization will keep the operation
of the enterprise away from personal values
and beliefs by influencing the mission,
purpose, rules and values and their
environment which are established in the
institution after adapting to the
environmental conditions.
 Institutionalization
• Institutionalization is a process of establishing
an organization structure according to the
developments, having the rules, standards,
procedures independent from the individuals,
establishing the systems that follow the
changing environmental conditions and making
the organizational structure in accordance
with the developments, making its own
communication and making methods culture
and thus adopting a distinctive identity
different from the other enterprises.
 Institutionalization

• Institutionalization is very important for all

social structures, but is more important for
family businesses.
• The sign of institutionalization in
enterprises is the application of special
organizational forms and the formation of
the organizational field which is accepted
as the area of organizational life.
 Institutionalization

• Institutionalization implies that all

functions and processes of an enterprise are
made within certain rules and systematic.
• The linking of the execution of business
activities to a certain systematic and set of
rules enables the establishment of
corporate culture and the formation of
corporate identity.
 Institutionalization
• The most fundamental philosophy of
institutionalization is that work and processes
are based on a model rather than on a person.
• When jobs and processes are based on a
model, the managers and owners of the
business do not make much sense for the
sustainability of the business.
• As institutionalization brings about
competition and innovation within itself, there
is continuous development.
 Institutionalization
• The first step of institutionalization of
family businesses is the preparation of the
constitution of the family and the company.
 Constitution of Family
The constitution of the family is a powerful
tool, which essentially makes the process
normative and brings its partners together on
the same ground.
Principles of Institution Management

1. Fairness/Equality

2. Transparency

3. Accountability

4. Responsibility
 Principles Institution Management
Fairness/Equality
• This principle means that the company management treats
all shareholders equally, and the protection of
shareholders' rights is realized under this principle.
• In this principle, which is a necessity of a fair management
approach, everyone who is directly or indirectly affected
while performing their activities should be equally distant
from the management.
• This concept should not be considered solely for managers
or stakeholders.
• In other words, a fair policy should be followed for all
employees of the company.
• No distinction should be made between employees on
matters such as promotion, remuneration and work safety.
 Principles Institution Management
Transparency
• Especially in recent years, the financial crisis in our
country and in the World and the company scandals
revealed the importance of this principle and a concept
that should be applied.
• In this context, the methods and standards used by
companies to report their financial status have gained
importance.
• For example, the Sarbanes-Oxley Act, enacted by Enron
and Worldcom, one of the most important corporate
scandals in the US, has made companies more
transparent.
• As a result of the law, the companies had to declare all
activities, in particular their off-balance sheet activities,
in more detail.
 Principles Institution Management
Accountability
• In this principle, while the responsibilities
related to company management should be
clearly defined, the management of the
common interests of the managers and
stakeholders is expressed by the board of
directors.
• This concept has become important to
understand the ways in which people use and
exercise authority and authority and what
methods they use and how they use them.
 Principles Institution Management
Responsibility
• This principle indicates that the activities
carried out on behalf of the company
should be checked for compliance with the
legislation, articles of association and
internal regulations.
• Clearly describing the duties and
responsibilities of the board of directors
and top management is also important in
this principle.
Principles of Institution Management
vs.
Family Firms Management
in TURKEY
The Features of Turkish Family Firms
Number of Partners and Relationship between
partners
 The Features of Turkish Family Firms

• In Turkey, a large part of enterprises,

especially SMEs, is managed as the boss
company.
• The founder of the company determines the
future of the business by acting alone in
giving almost every decision.
 The Features of Turkish Family Firms

• Business owners have often passed from

apprenticeship to boss.
• Company bosses manage their businesses
based on their own experience and the
context of hearsay in management and
financial matters.
• This situation interferes with the transition
of the family businesses to the second
generation and shortens their lives.
 The Features of Turkish Family Firms

• In the research of Family Firms in TURKEY

conducted by KOSGEB, it is obseved that
most of the business owners are primary
and secondary school graduates.
 The Features of Turkish Family Firms

• Most of the family businesses in Turkey are

suppliers, dealers or contract manufacturer
of large enterprises.
• When examined in terms of employmen,
the top five sectors that create the highest
employment of family businesses are
textile, apparel and leather production,
metal goods, furniture, food, beverages,
tobacco, wood and forestry products
sectors.
 Is institutionalization essential for
company management?
• Are all sectors eligible for institutionation?
• Does Institutionalization provide profit?
• Does Institutionalization increase life-span?
• Does Institutionalization increase the sells?
• Does Institutionalization decrease the cost?
 NEPOTISM

• Nepotism is defined as taking part in an

organization, although it does not deserve,
because of belonging to a family, a group, a
country, a community or a community.

• Is nepotism always objectionable?

 Organization Development in Family
Firms in TURKEY
• Job definition • Family Constitution
• Task defination • Change Management
• Conflict Management
• authority and
responsibility • Organizational Learning
• Organizational culture
• Enpowerment
• Job Analaysis
• Job processes and
Process analysis
While management in family businesses is transferred to the
new generation, what kind of problems ocur? What should
they do?

• The effectiveness of the wives

• Family education backround
• Number of children
• Regional Attitudes and behaviors
• Differences in perception and understanding
arising from the generation difference between
father and son
• Adverse effects on the new generation of high-
level economic conditions
• The current management has an expectation from
new generation more than its capacity.
 Conclussion
• Türkiye’deki aile işletmelerinin ortaklık
yapılarından akrabalık ilişkilerine, karar
almada yasadıkları sorunlardan kuşak
çatışmalarına, sermaye sahiplerinin eğitim
seviyelerinden yönetimi devredecekleri
ikinci nesille yasadıkları kuşak çatışmalarına
kadar pek çok konunun başlıklar halinde
değerlendirilip, geçmişte yapılan
araştırmalarla desteklen öneriler sunulması
gerekmektedir.
 Conclussion
• In these enterprises, which are generally
composed of family members and relatives,
there are a number of conflicts in the culture
of the country in the second generation
because the children of different parents will
take over the administration.
• In order to prevent these conflicts, the merit
criterion must be taken into consideration
when transferring management to the second
generation. In this way, while the children of
different mothers and fathers take over the
management, possible problems between
these families will be prevented.
 Conclussion
• Cyclically, the growth of the business
volume of companies means the growth of
its scales.
• In such cases, the functions of both business
and management become more complex.
For this reason, senior management, who
do not adopt corporate governance
principles, have serious problems in making
decisions and practices.
 Conclussion
• Genelde söz sahibi bir tek kişi olan ve “Patron
Şirketi” olarak da anılan bu tür işletmelerde,
sermaye sahiplerinin aldıkları bazı kararlar şirketleri
son derece zor durumlara düşürebilmektedir.
• In this process, the dissemination, implementation
and placement of the meeting and consultation
culture within the enterprise may prevent potential
losses.
• In the meantime, it should not be denied that the
bosses, who are the only officials in all decisions,
have an extremely important tacit knowledge
volume.
 Conclussion
• These types of managers, which are not
high in educational levels, are very
important and noteworthy about the
information they acquire with the
knowledge and experience from the past.
• However, in a number of studies it is
mentioned that the rapid and sensible
moments of the crisis can be resulted with
bad experiences.
 Conclussion
• Business managers, who have received
mostly primary and secondary education,
are generally sensitive to the training of
second generations.
• Many of the second generation members
who have been educated in universities in
developed countries find different working
conditions when they have finished training
and have returned to the country and the
press.
 Conclussion
• This difference is not only valid for the
second generation but also for those who
will transfer the management.
• Managers who have been trained in the
culture and market conditions of their own
countries and who have internalized their
knowledge in their experiences; they
compare the information obtained by
second generation members at universities
in developed countries.
 Conclussion
• As a result of this comparison, very serious
generations and information conflicts are
being experienced. In such cases, the second
generation members must not stay away from
both the country's culture and the relevant
market conditions during their higher
education.
• At this stage, it is necessary to consider and
evaluate the innovation and dynamism of the
second generation members who acquire the
most up-to-date information and modern
application examples in developed countries.
 Conclussion
• SMEs acting as dynamos for the economies of the
country must be managed according to the
principles of institutionalization management.
This will provide a competitive advantage to
countries.
• These institutions, which are gradually decreasing
to the next generation, will be able to maintain
their assets for a longer period of time and
provide employment and liveliness in the
economy.
 Conclussion
• Companies that maintain their long-term
presence will be able to compete in both
world markets and create and manage
brands worldwide.
• Considering the time taken for a product to
become a brand in market conditions, the
importance of these companies that survive
for a long time and continue from
generation to generation will emerge.
 Conclussion
• Bu aşamada, ülke içinde oluşturulacak bir
kurumsal yönetim bilincinin, kanunlar ve
yönetmeliklerle desteklenmesi, önümüzdeki
süreçte oluşacak tüm yönetim yapılarının
kurumsal yönetim ilkeleri değerlendirilerek
kurulması sürece katkı sağlayacaktır.
• Bu sayede ülkede yer alan kurumların büyük
bir bölümünde kurumsal yönetim ilkeleri
daha çok oranda uygulanacaktır.
*Capital ve
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Araştırması’nda
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yanından 565 işletme
sahibinin katıldığı
anket.
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