We Know The Limits Of A Company, What Are The Limits Of A Family? What I’ve Learned in Our Family Business Is Not a Secret, and I’m Sharing It!

As a member of an entrepreneurial family and the owner of a 75-year-old family business, it is impossible not to be concerned with what has been written about the management of family businesses. Academic knowledge produced regarding the management of Family Businesses is just now under development. Articles and research about Family Businesses are always similar, and the articles I’ve read seem to repeat themselves, as I’ve learned a lot about Family Business through experience. I read articles that tell the stories of different family businesses that are interesting and more instructive. For example, a recent article describing the problems caused by the Spanish retail giant El Corte Ingles not implementing corporate governance principles suitable for growth, while the family was growing was quite interesting (1). Indeed, as a company expands from generation to generation, corporate governance principles must be shaped according to the new outfit. Otherwise, family members' conflicts within the board of directors, as observed in El Corte Ingles, can have very devastating consequences.

In the early 2000s, I read two books on family business management, one is Family Business, Key Issues (2) and the other is Family Business as Paradox (3). I haven't come across any very different content since then. Generally, in these books, the differences between family businesses and other companies and the characteristics that make family businesses successful and unsuccessful are listed as follows: partnership structure, family growth, role conflicts, professionalization and institutionalization issues, family habits, lack of motivation, generation conflicts and transfer problems (2).

These issues are perfectly explained in the two aforementioned books. To begin with, it is emphasized that the primary focus of a family is to seek harmony and the main goal of work is to pursue performance. It is said that this is the main point of the potential for conflict because it is a paradox. It is later mentioned that success in family businesses can only be achieved with a transparent, clear, and trust-based corporate management system. Strong leadership that ensures continuous change is important in family businesses. This strong leadership creates an organizational culture that keeps up with constant change and achieves success in this way (4). Different things happen if the family grows faster than the company or the company grows faster than the family. In the first situation, the family needs to meet their needs through the company, while in the other, business and professional efficiency are essential (5). In the January-February 2021 issue of HBR, in Baron and Lachenauer’s article entitled, ‘Build a Family Business That Lasts’ (6), I once again did not find a very differing opinion. The authors emphasize that family businesses have come to the fore with scandals, but the family business model has been successfully continuing for centuries. Then they ask, "Which one is right". Are family businesses fragile or more durable than their counterparts? While 85% of all companies in the world are family businesses, more than 95% of companies in Turkey are family businesses (7). The authors say that in public companies, the owners are investors. Their impact on the company is limited. In a family business, a small number of people own the shares, and these people are related to each other and have a high level of ability in directing the company. Studies show that family businesses are both more successful and longer-lasting than other companies. This is because families think longterm and invest in innovation and new products for the future (8). The book provides a summary of family business management information:

• In family businesses, business owners have five basic rights. These are shareholder structure design, corporate governance decisions, success definition, way of informing and how to transfer to the next generation.

• Regarding shareholding issues, these decisions should be made: Will it be owned by one person or will actively working family members be included and will all members be given equal shares; will it be family or subordinates, such as the CEO, who make the decisions? Each of these has its advantages and disadvantages. What is important here is that no matter what method is chosen, the capital structure does not deteriorate, a liquidity problem does not occur, and there is no management weakness as a result of conflicts.

• Corporate governance decision is about how much control the family will have or how much freedom it will give to management. The rules are clear in good family businesses.

• Here, the authors suggest a four-room model, to think of business like a four-room house. Partners (first room) set high-level goals and select the board (second room); the board monitors the business and hires the CEO, management (third room) recommends business strategies and manages operations, family members (fourth room) build the family union and nurture the next generation. Since the board and management report to the owners, the three rooms overlap. At the top is the owners' room. The family room, which is very important in maintaining the emotional connection of family members with the business is located next to the other three rooms emphasizing the importance of the family's influence and unity at all levels. Everyone's role is clear in a well-managed family business. The four-room model clarifies hierarchies and boundaries in management. However, I think it is utopic because, for example, there should be a family consisting of all these qualities and number of individuals and the income of the work will be enough for everyone! This is rare.

• Having clear strategies for family businesses ensures longevity by satisfying their owners financially and otherwise. Families need emotional bonding with their companies in the long run. They may say, "This represents our grandfather's personal sacrifice to offer us a better life." In the absence of emotional bonding, it may be more tempting for owners to sell stocks.

• What information will be shared with family members is important. A lack of effective communication is a major cause of the collapse of many family businesses. Three issues are crucial to successfully handing over to the next generation: 1) A transfer of assets 2) A transfer of roles 3) Developing the skills of the next generation.

The authors of the HBR article actually made an extensive summary of the HBR Family Business Handbook (9). Some important issues that are not included in the article but are included in the book are:

• We have to anticipate what will happen when the next generation takes over. An unplanned transition would be too risky. It is beneficial to prepare and coordinate the transition plan in advance.

• Four main game-changing events should be taken into account: 1) Death and premature deaths can cause great emotional shock to family businesses. 2) New additions in the family, and marriages change existing relationships. 3) Inequalities: Sometimes doing everything equally creates inequality. 4) The need for proper/healthy behavior: If the inappropriate behavior of family members cannot be prevented before reaching a crisis level, family relations can be damaged.

• Before family members get involved in the job, they should conduct an audit and consultation, think thoroughly, and make a decision. Once you're in, it's hard to get out because you can't give up on your family.

• Having business owners in family businesses creates different disputes. Because family members have the right to make the rules, as well as to change the rules.

• Family offices have 3 basic functions. They manage family investments, provide services, and manage corporate management systems and processes.

When it comes to a family business, I understand a structure where the family is in charge of the business which they have founded and actively works, develops the business, and fulfills the job requirements while doing the job. If there is such a structure, a family business would be of great benefit to the development of the business. Because in this structure, time and opportunities are spent without being regarded as sacrifices. You are business oriented. Maybe there is a lack of capital, but since this is known, work is done accordingly.

Enterprise capability and speed get ahead in family businesses. Low cost and efficiency are provided. These are the benefits of being a family business.

It is true that, despite the negative past judgments, family businesses have succeeded in institutionalizing and creating great structures. There are especially good examples around. IBM, Ford, Unilever, P&G, Toyota are the first examples that come to my mind. When we look at what their common features are, we see that they are becoming public and even global corporations besides being family businesses. The share of families in these companies is now low, around 5-15%. However, family members are still active and working in these companies. Other shareholders also rely on these people and keep them in charge. They are successful after all.

Successful management in family businesses is only possible by establishing a balance between professionals and family. The balance between family and professionals can be established by treating both parties the same. You will allow professionals to take advantage of the value created by the company as if they were family members. These are long-term practices. This may include making someone a shareholder or giving a premium on shares. It can also be done by operating with significant amounts of premiums and adding premiums to be paid in future years according to the results.

It is also important that family members behave genuinely professionally. It is a good method to evaluate and remunerate them according to their success in their work just as professionals are treated as if there is no difference. For example, what is my situation while working in the company as a family member? When I look at what privileges I have, I see the following: I have flexible working hours, but when I calculate the time, I see that I work harder. My second privilege is that I can park my car comfortably in a wider place. I'm not looking for a parking spot. I also go in and out of the back door with my own key. These privileges satisfy me. What are my disadvantages? I cannot benefit from the premium system that other professionals benefit from. But otherwise, I'll have to pay more taxes anyway.

While this is the case in family businesses, companies where no family is in charge, are successful if managed well and there are many examples of this in the world.

There are funds (private equities); what do they do, they buy a company by collecting money from everyone. The companies managed by a fund can be successful. However, there is a situation where this success is confined to a short time. Because fund companies are obliged to manage a fund. This is for a maximum of 5 years. The life of your work with this money is 3 to 5 years. You have to be successful in that short time. Can a brand be created and cultivated in those companies or new category being created? I do not know. It seems like it is more like polishing and milking of brands and categories!

As can be seen in the aforementioned literature regarding family businesses, the process of leaving the company for family members who are shareholders is difficult. We had this experience in 1986. Fortunately, it was a no-fuss and noiseless separation, but it was still a difficult process to manage. It was difficult because it was the first time it had happened to us. It was new for everyone. We completed the process by mutually acquitting each other in writing.

The company was positively affected by this separation. Because we worked hard to pay off our debt to other members. Around 17% of the shares had changed hands. We gave whatever we had in exchange for 17%. We weren't very rich at that time!

As for why we underwent the process of separation: In Ülker, Sabri Bey, his child me, his son in law, and my dear uncle Asım Bey, and his two sons were involved. So, there were six bosses for one business. We were in a situation, where all of us acting as boss and we had to deal with such artificial problems like managing each other. My uncle and father said, "Let's separate the business and keep our kinship." They said they decided to separate the business to stay relatives. We also complied with this decision. The process developed like this.

As I mentioned before, neither my uncle nor my father left an inheritance when they died. They distributed their goods to their children while they were alive. To die without property is also good in terms of calculation in the hereafter. They stood over us and saw what and how much their children could do. My father asked me "how should we do it?" as he was transferring his property to us. “You are two siblings, according to our religion, a boy gets 2 shares and a girl 1 share. “How should we handle this?” I said, “With so many goods there is no need for such a thing.” I proposed we divide things equally. When he asked, ‘Are you sure?’ I replied, ‘my only request is that my share is a little more, so I can keep my word." We did it accordingly. This continued like this until today. Does this situation please everyone? Is every job done right? I do not know. But our business has not been damaged as a result and we continue like this. My sister had said several times "I wish I was a man so that I could help you more." She couldn't do it herself, but thankfully her son Ali took over our company and he is doing more than just help.

Is it easy for two families to run a company? Maintaining partnerships, family or not, depends on the understanding of partnerships. A very good example of partnership can be seen in the Yazıcı and Özilhan families of the Anadolu Group. Although the Yazıcı family has more shares, the Özilhan Family manages the company. Two partners can succeed without being from the same family.

At Yıldız Holding, we manage our business by finding everyone's priority important. Our personal priority is important. When we look at the business, it is also a legal entity and it has its own priorities. While at work, you have to do whatever the job requires. The work itself is the boss. We prepared it, we cooked it, now we will eat it. So, we will share the profit. What are we going to do with that money? Everyone will do whatever they want. If he wants, he will put it back into the business. If he wants, he will take it elsewhere or spend it. What will be the result of this; he or she will have more opportunities at work or they will have more opportunities elsewhere. This is how I look at this.

When Yahya was younger, they asked him in elementary school and he said, "When I grow up, I will help my father." Yahya grew up, kept his word and chose to take part in our business. My two sons are studying at university. I tell them "You are free to do whatever you want", just as my father treated me. I don't know what they will do, but I want them to act according to their abilities and wishes.

I call the young people in our family my children, not Generation Y. Some are young, some are older, some are cheerful, and some are dignified. Years ago the Y generation had come to the fore. I won’t hide it, I was prejudiced. I thought they didn't care about the world. I was so wrong. When I worked with them, I saw that they care about the world, think about many issues, and try to find solutions to them. I'm learning from them now. I am sure that I will learn more from Generation Z as well. Working with young people requires both care and excitement. These generations will determine the business model of the future.

Every generation Y and every generation Z do not have the same characteristics as if they came out of the lathe because they were born between certain years. Since they are born in different periods of the time, there may even be differences in their perspective of the world, but they are born to the achievements of the world at the time of their birth and they try to transcend that world.

Also, what I know is that the children of each new generation will be a generation that will force the other more than they force us.

So why would I want to work with my children? I may have such a desire to be with them more and to see them more. Yes, family businesses are different organizations that have a lot of emotion. Family businesses are not homogeneous and are not alike. Because no family is alike. Trying to commonise families is the main problem of those researching family businesses (10). Another fundamental problem is the definition of "Family". Check out the family businesses that have succeeded, first one person started the company and succeeded with his own skills. Later, when family members became interested in the successful company that appealed to them, it became a family business. In other words, it is a wrong logic to say "We are a family, let's start a company and do family business". I know a lot of "families" that have failed this way. They have very good professional lives but quit their jobs because a husband and wife decide to make a family business. Then they lose what they have got. Therefore, in the title of the article, we know what the definition of the company in a Family Company means and its boundaries, but do we know the limits of the family, that is, what it means to them? As I said, it is incorrect to propose a recipe by heart or try to resemble another family business without knowing the establishment history of family businesses by individuals. As Henry Ford said, ‘Coming together is the beginning. Keeping together is moving forward. Working together is a success.’

I hope that what you have read so far has been useful.

Note: This article is open source and can be cited by mentioning the author. Does not require copyright.

en.muratulker.com

Bibliography

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(3) Schuman A., Ward, John L., and Stacy Stutz. (2010) Family Business as Paradox, Palgrave, pg. 210.  

(4)Kamaci, K. (2019). ‘Aile Isletmelerinde Kurumsallasma (Institutionalization in Family Businesses’), Egitim Kitabevi (Education Bookstore), pg.131.

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Banegil, Tomas M., Barroso Ascension, and Tato-Jimenez, Juan-Luis, (2013), ‘Family growth versus family firm growth: Professional management and succession process’, Management Research: The Journal of the Iberoamerican Academy of Management Vol. 11 No. 1, 2013 pgs. 58-76

(6). Lachenauer R. and Baron J., (2021), ‘Build a Family Business That Lasts’, HBR, January-February. 

(7). Kırtas, M.G. (2018), ‘Uzun Omurlu Turk Aile Isletmelerinin Surdurulebilirligine Iliskin Coklu Ornek Olay Arastirmasi (Multiple Case Study on the Sustainability of Long-Lasting Turkish Family Businesses’, Journal of Economics and Management Research/ Vol. 7 / Issue 1 / June 2018.

(8) Hiebl M.R.V. (2014), "Risk aversion in the family business: the dark side of caution", Journal of Business Strategy, Vol. 35 I.5; pgs. 38 – 42

(9) Lachenauer R. and Baron J., HBR’s Family Business Handbook, HBR, 2021.

(10) Kraus S., Harms, R., and Fink M., (2011), ‘Family Firm Research: Sketching a Research Field’, International Journal of Entrepreneurship and Innovation Management Vol. 13, No. 1, pgs.32-47.