A Rip in the Sea - Bülent Eczacıbaşı

YA

My definition of institutionalization is this: If everyone in an institution knows what to do in any given situation and does it without having to check with someone else first, then that organization has institutionalized. It’s rather like the North Star; unreachable perhaps, but providing the right direction.

Your focus is on the relationship between family and firm, but corporate institutional development is also important, and it’s related to the transfer of power, making decisions based on data, and across-the-board accountability. The relationship between family and firm is of course vital in determining the top executives and direction of the firm. Family constitutions represent a major step towards professional management in the way they outline decision mechanisms, shareholder relations, and relationships between the family and the business. But institutional development is more than that; it should go much further to include business processes and human resources systems.

BE

I agree.

YA

A family constitution is much more than a document, it’s a critical thinking process. In a game with clear rules, all players are able to develop themselves and their competencies and envision their roles. Aspirations that do not have this guidance are subsequently much harder to align with the rules. So, the sooner the family constitution is prepared, the better everyone can manage expectations in the family as well as in the company. You’re absolutely right there.

That’s why I think it’s a good idea to recommend to all family companies to do this while the founder is alive, and the sooner the better.

ÖYÖ

I think it’s best to anticipate problems before they arise, put them forward, and talk about them. It might even make sense to adopt a participatory approach here.

The founder’s perspective is critical because this particular family member has the greatest sentimental attachment to the company and is the most hesitant about sharing decision-making authority. Mechanisms like family meetings, family councils, and family constitutions, if developed during the founder’s tenure, will help to define the framework of relationships between family members and with other personnel as well as reciprocal duties and responsibilities. Family constitutions can also prevent problems related to inheritance and ownership in extended families. Family meetings or councils also help to separate the work day from family life. They provide a forum for discussing the appointment or promotion of non-family executives, for instance. This way, family members can vote on important matters concerning the entire family through a system of qualified majority voting.

BE

I’d like to add something to what you’ve both said. You’re absolutely right, of course. Institutionalization is not merely defining the rules that apply between professional management and family members; it also involves identifying and establishing other processes and rules for running the company. Establishing internal company rules is the easy part, though.

YA

Correct.

BE

The real challenge is determining the rules that govern the relationships between family and professional staff, as that’s where emotions and family relationships come into play.

I’d like to give an example from our own companies. My father, Nejat Eczacıbaşı, was the founder of the Eczacıbaşı Group. He had complete confidence in professional staff and management and was a firm believer in institutionalization. Yet, despite major advances in professional management during his tenure, there was a surprising delay in the establishment of guidelines for family-company relationships in view of his preferences and personality, that is. After all, he founded the Turkish Management Association in order to train professional managers for Turkey, and he supported Vehbi Koç’s initiative to establish the Turkish Education Foundation.

YA

A hugely important association. It trained some of the most respected managers and thinkers in Turkey and made a considerable contribution to the field of management in its day.

BE

My father spent a good deal of time thinking, writing and speaking about this topic. He was one of the founders of Istanbul University’s Institute of Business Administration. Despite all that dedication, he was never able to fully implement institutionalization in his own business. Family members continued to play a role in top management, and the relationships remained complicated and undefined. Although all group companies were entrusted to professional managers, the most senior position in the group had yet to be appointed to a professional with a clear job description. So in this sense, institutionalization remained incomplete.

Have we completed it? I have to admit we haven’t. We’re still working on it, though we’re making progress towards very important goals. I’m trying to express how difficult the process is. You’re right, of course, institutionalization requires formalizing internal company rules. But formulating these rules is not particularly difficult for families and senior management embracing professional administration. They can hire consultants and experts. The hard part concerns family members.

YA

You’re absolutely right because, as I said earlier, in addition to being family members, they are also shareholders and motivated to be managers as well. Families can’t treat siblings differently.

When it comes to managerial appointments, however, companies that can’t treat them differently will never be able to institutionalize.