Unlike western Europeans and Japanese, who excel at operating as communities, the Turks are at their best as families. The family is extended, strongly male-dominated, patriarchal and autocratic. It commands more loyalty than the community or the state. During eight centuries of Ottoman rule – when all land belonged to the sultan and private-property rights were difficult to establish – the family was the main source of security. It still is.
The Turkish private sector is dominated by families. Outside state-owned businesses, banking and industry is almost exclusively family-owned. And with the founders of many companies dying or growing old, managing a transition to the next generation is becoming an acute problem. For Turkish patriarchs, consultants McKinsey’s statistics about the survival rate of private companies are scary. Worldwide, more than a third of family-owned firms break up through bankruptcy or sale when the the founder dies. After the second generation expires the rate is 70%.
No performance culture
A McKinsey survey of business leaders’ aspirations in Turkey has shown that the “family side” is one of the most important factors limiting growth and productivity. The fact that the family is the leader, shareholder and manager brings complications. Although they hate to admit it the patriarchs suffer from the “family first” syndrome and place family before business. There is no performance culture governing succession or the present ability of family members. Usually, power is passed on to the oldest male child, who is not necessarily that entrepreneurial.
Klaus Mund, McKinsey’s Turkey director, says these weaknesses are aggravated by the lack of clear business plans, scattered portfolios, weak human resources management, personalized decision-making processes and a lack of institutional capabilities.
Turkish businessmen aren’t blind to these problems. Many of them, Mund points out, recognize that family role and organisational build-up must be addressed. “But this is not a big wave going through Turkish families. A number of them have done something. A number have recognized the issue. But you still find the founders who are dealing with the business in the good old way. It’s like a big oak. If you have a big oak there are no other small trees growing. Its shadow is just too big.”
Few patriarchs are doing much more than placing their trust in the next generation. For some firms – for example, pharmaceuticals conglomerate Eczacibasi and Enka, probably Turkey’s largest construction company – this has worked. In both cases the eldest sons have taken over and the firms still prosper. But in others the sons are no match for their fathers. In some cases daughters have more experience and ambition than sons. But it’s unthinkable that the males should be bypassed.
Only a few companies are trying systematically to separate family and business and institutionalize their operations. “I don’t see much evidence of institutionalization,” says a senior Turkish manager. “The thinking is short term and opportunistic. Turkey is occupied by an army of companies that want to turn the corner as quickly as possible.”
On occasions this lack of bureaucratized, time-consuming decision-making can be advantageous. Family businesses mostly make decisions verbally and fast and there’s not much systematic analysis. As a senior manager with experience of multinational and Turkish companies points out: “A multinational sees that companies are going under and has an opportunity to pick up one for a song but cannot move fast enough because the decision-making process is bureaucratized. A Turkish patriarch walks in, makes an audacious decision, and makes a lot of money.”
Just as often, though, ill-informed decisions can prove costly, he says. “In a multinational there is a chain of command, and decisions are mulled over by staff groups. In a Turkish family business this will take the form of friends and family whispering into the shareholder’s ear. The chain of command is informal. You don’t know who the shareholder is talking to, he may be talking to all kinds of people. It may be some of your own employees. He may be talking to his mother, his pilot or an old schoolmate. Any one of these may be as influential as the CEO.
“I don’t see much sign of institutionalization outside Sabanci and Koc [the largest two conglomerates],” says a western banker. “Even with these I have my doubts.”
Sabanci (see box) is in the process of separating family and business. Koc started to do this much earlier but there is discord in the second generation, which took over when the legendary Vehbi Koc died about three years ago. Moreover, the third generation has yet to show any entrepreneurial flair or enthusiasm.
Evolution not revolution
McKinsey’s Mund believes families will slowly come round to doing things more professionally. “When you look around the world there are very rarely situations where you move from one structure to a drastically different structure unless there is severe outside pressure. A large company in South America went from a ‘family running the business’ to a ‘family only on the board’ solution in just 18 months. The reason was that the company’s profits were under severe pressure. This is not the case in many Turkish companies. So there is no catalytic event from the outside that drives such a change. Such a change [in Turkey] usually comes out of the owners when they recognize that they cannot go on like this. So the change is slower – it’s a process that may take five years to happen.”
One thing hindering transfer from the first generation is that retirement seems to be inconceivable for Turkish tycoons. Husnu Ozyegin, one of the shrewdest businessmen in Turkey, is determined to leave his business feet first. After 11 years, Finansbank, which he set up with $8 million, is at the heart of a conglomerate that’s probably worth 10 times as much. “I can sell everything but what am I going to do with the money?” he asks. “I’ve spent some of the happiest moments of my life in this office. Why should I leave?”
For Ozyegin, succession is settled. His 23-year-old, US-educated son Murat will return after a stint at US investment bank Bear Stearns. But he won’t come in at the top. “I am not going to be one of those Turkish businessmen who give their sons a board position as soon as they step out of university,” says Ozyegin. “My son will start at the bottom and walk up the stairs.”
Ayhan Sahenk, who owns three banks including Garanti – one of Turkey’s top-three, all family owned – is typical of Turkish business patriarchs who can’t let go. More than five years ago he ostensibly retired, hiring a former central bank governor, Zekeriya Yildirim, to manage the handover to his son and daughter. In effect, though, this has meant running his business – which includes Dogus, one of Turkey’s largest construction companies – from home rather than the office.
Vitali Hakko started work in the late 1920s as a 13-year-old shop assistant in Istanbul’s bazaar. He became the owner of Turkey’s most elegant clothing department chain, Vakko, and in theory retired years ago. But at 83 he comes to work almost every day and his schedule is as packed as it was in his youth. His son and cousins are in day-to-day charge but although Hakko denies it, he’s still highly active. “No, no,” he protests, “the boys show me deference and sometimes ask my advice. But I am a retired man. They’re in charge.” But he still occupies his old room at the clothing factory and when he’s there – almost every day – everyone knows who the boss is.
For more than 60 years Vakko has been an aggressive family-owned and run business. Last year about 20% of its equity was floated but Hakko still believes that for a company to be successful “the driving wheel should always be held by one person”.
Ishak Alaton is another retiree who can’t stay away from the office. He is one of the two owners of Alarko, a group concentrating on real-estate development with a market value of over $300 million. At 71, Alaton says his only goal is to make himself “unimportant, useless and dispensable” while the younger generation takes over and he can devote more time to tennis and philosophy, his life-long passions. But when he tells Euromoneythis, he’s in his office with a full diary in front of him and a telephone that never seems to stop ringing.
More and more companies are going public but this does not mean the fading away of the families that founded them. Many do it because of tax advantages. It also means that a company’s market value is formalized, making life easier for shareholders who want to dispose of shares and retire to the Mediterranean coast. The number of companies that have more than 25% of their equity publicly traded is minimal. Fewer than half of the 500 largest companies have gone public.
Taking people out of boxes
One experiment in transformation is taking place at Uzel, Turkey’s largest tractor manufacturer. Onder Uzel, whose family owns the $350 million turnover company, has entrusted the job to Yale graduate Mehmet Kahya. Kahya worked for Sabanci for 20 years before going over to CarnaudMetalbox as its Turkish chief executive officer.
“When I went to CMB I realized what high-calibre people I had been with at Sabanci,” he says. “And at CMB Turkey the calibre of the people were above the average of CMB worldwide.” But there was one critical difference. The CMB system was superior to Turkey’s patriarchal system which can create “operational blindness”.
Kahya says: “In CMB in four years all the machinery we had started with we had changed. The workers who operated the machines were encouraged to participate. They were highly motivated. They had ideas that were taken seriously which led to the improvement of all the equipment we had.”
When Kahya arrived at work on his first day as general director of Uzel in July 1998 his employees stood at attention and some even gave him a military salute. But he believes it is a matter of “taking people out or their boxes, moving from an environment of not trusting to one of trust, exchanging silent people for those who are free to speak and be creative. Turks are people who hunger for success. If they feel that they will be recognized for their success they exceed their potential”.
Uzel started the year with a new organization chart. The board is dominated by family members and Onder Uzel is still hand-on CEO but all the companies are led by professionals. “If we had not done this,” says Kahya, “five years from now it might have been too late.”
Headline: Sabanci: towards the fifth generation
Source: Euromoney
Date: February 1999
The Sabanci group, a Fortune 500 company with a turnover of nearly $9 billion in 1997, is one of a handful in Turkey that is making a serious attempt to institutionalize a heavily family dominated structure.
At the beginning of 1995 Sabanci commissioned consultants McKinsey to prepare the blueprint of the transition. One year later the plan was put into effect. But Sakip Sabanci, the 65-year-old patriarch who has been at the helm for more than three decades, says that he had been turning the idea over for more than 15 years.
“I saw too many fortunes being broken up after the father died,” he said. “It is like dividing up a large farm among brothers and sisters. Suddenly the combine harvester becomes superfluous because it is too large for the decimated farm. What was whole and economic ceases to be either.”
He was shocked when he learnt that only 15% of family businesses survive beyond the third generation. “We have partnerships with many international blue-chip companies – Philip Morris, Du Pont, Toyota, Bekaert,” he said. “Every time I got together with them I wanted to know: how did you survive, what did you do, what should we do?”
His question to McKinsey was, he says: “What do you propose we do so that even in the fifth generation Sabanci exists?”
The company was run by five of six Sabanci brothers (since the reorganization one brother has been murdered by terrorists and another died of cancer). A large number of Sabanci children and relatives were in key managerial positions and board seats. In typical family company fashion they were leaders, shareholders and managers at the same time.
The brothers were extraordinarily close and harmonious and all were hands-on managers of high calibre. The group grew very fast. In the three years up to 1997 assets grew by 35% to $10.5 billion and earning before tax 64% to $1.8 billion.
The family was also fecund. “There was an amazing growth not only in the group but in the family,” says a foreign businessmen close to the family. “There are six tribes there. There was pressure to do something. They understood that the growth in the family would not be in line with the growth in the business. Businesses grow faster than families. So in a sense they had to institutionalize and professionalize.”
Says Sabanci: “I knew that whether I want it or not my film will one day come an end. Before the end was written for me I had to make sure that my company survived. It should not come to an end when I died.”
McKinsey gave Sabanci examples of paths taken successfully by other family-owned businesses which once shared his concerns in places as diverse as South America and Japan .
“Their key advice was to separate business and family,” says Sabanci, “not to put family before business. The children should stop saying I want this job in the company or that house on the Bosphorus. The business of family members coming to see top professionals [non-family managers] without making an appointment and making unreasonable demands from them needed to stop.”
The model McKinsey proposed to Sabanci was partial separation of family and business, according to Mehmet Civelek, who as human resources chief played a key role in the reorganization. The focus of the family would be on strategic direction. Sakip Sabanci persuaded the family to reach a consensus on the role of the family on governance and benefits.
On McKinsey’s recommendation a 27-member family council was established that provides a platform for discussing family issues and can elect eight of the 15 Sabanci board members. The conglomerate was broken up into 11 business units of which eight are being run by professionals and three by members of the Sabanci clan. The future focus will be on removing family members from management to board level. Rules were made for family involvement at different levels. But the reins are held by the executive committee, which consists of the three surviving Sabanci brothers and Hasan Gulesci, one of the most trusted of the old-guard professionals.
“The aim is not to smother the family’s entrepreneurial drive and neither was it to discourage new entrepreneurs from rising from among the younger generations,” says Civelek.
Will the reorganization succeed? Civelek believes it will. “Unity among family members assured success,” he says. “Now success will assure unity.”
Families in Turkey are no different from others in other parts of the world, he says. “As long as people make a good dividend they are happy. Quarrels start only when things start going wrong. The Sabancis will make the right decisions because it is in their interest that the group continues to be successful.”
A top-level manager says that since the reorganization more authority has been delegated to professionals and that this is providing positive motivation. “The message clearly is that the top positions in the company are no longer exclusive to family members. But I don’t think this means that they are brushing their children aside. I don’t think the plan was ever for the family to withdraw and leave the field open only to professionals.”
The manager believes that Sabanci will proceed with institutionalization and human resources development and create its own model of a mix of family and professionals.
Sakip Sabanci is satisfied with the new path he has taken. “The charter of the Sabanci holding made in 1967 would not have taken us where we wanted to go,” he says. But he realizes that one thing no organizational chart can provide is entrepreneurial drive.
“I know that the most important person on the boat is the captain,” he says. “[Entrepreneurship] is a god-given gift. Everyone can paint but not everyone is Van Gogh. But what to do so that growth does not stop when the captain changes. That is the question.”
