Yılmaz’ means ‘dauntless’. ‘Argüden’ means ‘honorable’, ‘guide for integrity’ and is pronounced as ‘argue then’, as in the phrase “if you don’t agree, argue then.”
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That’s the Job
Minding My Own Business

On his book “That’s the Job”, Bülent Eczacıbaşı covers topics on management, economy, sustainability, society and art&culture with 10 different academicians and experts of respective areas. Dr. Argüden contributed to the book with an interview on good governance and management.

Conversation with Yılmaz Argüden and Özlem Yıldırım-Öktem

Bülent Eczacıbaşı

I am delighted to welcome such eminent academics; welcome Dr Özlem Yıldırım-Öktem and Dr Yılmaz Argüden. We’ll stick to first names from now on if it’s all right with you. 

First of all, as you know, I represent the second generation in a family company, where I currently serve as chairman of the board. I am familiar with numerous beleaguered family companies, and others struggling to cope with the issues of handover between generations. Some are very well known to me as their executives, founders and founders’ children are amongst my close friends. I would like to suggest that we start our debate by touching on the issues of family businesses. 

Family companies have become far too conspicuous of late. Unless I’m very much mistaken, that is, and they had always attracted such attention? Research is conducted, associations are established, courses are offered in business schools, and countless conferences and seminars focus on the issues of family businesses. I personally receive frequent invitations to deliver speeches.  

At one time, better known large partnerships seemed to be more prominent. That family businesses formed the backbone of the nation’s economy, however, might not have been as widely appreciated as it is today. Leaving aside the matter of public recognition or lack thereof, the fact remains that family businesses make the majority of production in numerous economies. That is why they are considered to be important to economies and countries. 

We also know that family companies have their own problems. One concerns lack of longevity, in particular the wastage at handover time between generations: family companies fold due to a variety of reasons as management is passed down from the founder to the children and more crucially, to the grandchildren. These reasons appear to stem from the unique structure of family companies. Business and economic agendas have recently witnessed a rise in the number of private equity funds acquiring troubled second- or third generation family businesses and restructuring them in order to create value. On the other hand, family companies also have strengths. Their capacity for longer-term management perspectives enable them to pursue goals far beyond short-term gains. They place much more importance on the sustainability of their business and healthy handover to future generations. They can waive short-term advantages as they prioritise contribution to society. Family companies can be extremely successful provided they embrace agility and adaptability. In view of all this, therefore, I’m actually quite optimistic about the future of family companies. 

There are two points that I find particularly intriguing. The first concerns the capacity of family companies in Turkey to cope with the ailments specific to their kind; how well prepared are they to deal with the problems that await them? What, in your view, could be done to improve governance in family companies?

And the second is, is there any situation specific to Turkey? Something stemming from the culture, something that exacerbates the troubles of family companies, making those troubles virtually insurmountable? Take the prevalent lack of trust that frequently comes to the agenda; does it create an obstacle to handing over to professionals, for instance? Shall we probe these points a little? 

 

Özlem Yıldırım-Öktem

You’re absolutely right; academic interest in family companies has been growing. Over the years, there has been a marked increase in the number of features on this type of business in reputable academic publications, as well as the number of publications focusing solely on family companies. Similar essays appear not only in magazines on enterprise, but also on administration, management, and various disciplines of social sciences. The curriculums of several leading management colleges abroad include courses on family businesses. 

The main reason this field attracts the attention of scholars and management schools is that family companies play a major role in the economies of many countries. Well over half the publicly traded companies in America and western Europe are controlled by families, for instance. Again, a major proportion of the firms on the S&P 500 or Fortune 500 are also run by families. And it’s not just the First World either; business groups known in Turkey as ‘family holdings’ are the major actors in the economies of newly industrialising countries such as Argentina, South Korea, India, Malaysia and Taiwan. As we know from similar holdings here, a major feature of this organisational form is that shareholding is dominated by the family, and family members play an active role in management. 

You’ve just made a very good point: you mentioned trust when you spoke about the management of family companies. I happen to agree that in Turkey they adopt a management model based on trust. This is an aspect that partly stems from the collective nature of Turkish culture. Individuality ranks low, so trust and loyalty outrank talent and competence in recruitment and promotion. Relationships eclipse professionalism. Kinship and origin are enormously important in SMEs. Their relatively small size allows reasonably competent management by family members, however few they may be in numbers. 

Outsiders stand little chance of rising to senior management in small family firms – and even less if they’re women. Family holdings, on the other hand, are organised differently, being both very large and operating as they do in a wide range of sectors. In this case, there simply aren’t enough members of the family; nor would it be reasonable to expect family members to possess the necessary knowledge or experience. So they try to keep control by holding key positions and serving on the boards of several subsidiaries simultaneously – but senior management inevitably includes outsiders. All the same, seniority within the holding appears to be no less important than training and talent. Reaching the top level of management in family holdings is arguably predicated on trust, holding-specific knowledge, experience and relationships. 

 

Yılmaz Argüden

I’d be delighted to add a few more points. 

One of the main reasons why institutionalisation, that is, moving into professional management, has risen on the agenda of late is timing; the period of transition of authority to the second or third generations in Turkey’s history of industrialisation has just started. Consequently, encountering related problems for the first time raises sensitivity. Success and failure stories around them compel families to pay closer attention to the matter of institutionalisation. Family companies have major advantages as well as difficulties.   

The second reason is the recent recognition of the value of long-term vision family companies possess. Having given their own names to their businesses, families see into a much longer term and place an even greater value on sustainability and prestige. Long-term vision is an enormously important trait today. The impact of businesses on the world’s resources or their stakeholders has now become a quantifiable aspect, leading to increased social sensitivity and responsiveness, all of which encourages longer-term thinking. And indeed, the increase in the number of companies embracing ‘sustainable development goals’ is a good example of the progress in this area. 

The worst troubles for family firms are caused by blurring of relationships amongst shareholder, manager and family. If we could treat them independently, we could resolve the majority of their problems. I know it won’t be enough on its own, but I am convinced that is the crux of the matter. The founders generally possess all three, which unfortunately saddles subsequent generations with similar expectations. The senior member of the family, being the founder, is also the greatest shareholder. As the original entrepreneur who has successfully built the business from day one, he is the top- and most powerful executive. The likelihood of succeeding in all these roles on one’s own, however, decreases down the generations. In actual fact, it is quite rare for even the founders to continue to succeed in all areas throughout their lives. Family tradition, in the meanwhile, may well delay the recognition of this fact. The increase in the number of potential heirs adds another complication, since their wish to undertake more responsibility and assume more authority may not always be commensurate with their levels of competence. 

 

ÖYÖ

Especially from the third generation onwards… By this stage, cousins have joined the management. Intense competition amongst cousins, in particular those close in age, may come into play – which may even lead to breaks from the company. We’ve seen it happen in some large family holdings. 

 

YA

The element of trust is hugely important in Turkey. Sadly, we tend to trust individuals rather than institutions. Yet trust in any institution, – family business or not – necessitates the formation of systems that enable such trust, if, that is, they are to flourish as they enjoy longevity. The single greatest obstacle here is our social culture: one that would support adequate query and collective judgment is sorely lacking. 

Do what your dad says at home, your teacher at school, your commander – if you’re doing your national service – and your boss at work; that’s the prevailing attitude. Do what X says or Y says, and in time, people lose their capacity for independent thinking; they don’t query enough, and if they do, it’s not done openly, transparently. No, it takes the form of gossip instead. So our collective judgment skills don’t develop sufficiently. That’s why executive boards seem to be dominated by the decisions of the boss instead of considering matters from different viewpoints. Everything goes to the boss. Which increases the risk of errors and jeopardises sustainability. 

In short, the cultural dimension plays a major part in the root causes of issues confronting family companies. Habits acquired from the earliest days of the firm don’t always stand the test of time, and lack of preparation for separating roles is another factor. 

 

ÖYÖ

Family firms may hinder rational decision making, and not only in matters of recruitment. For instance, sentimental attachment may cause reluctance to let go of the earliest enterprises that formed the core of the holding company, however dormant those businesses may be. The family may fail to take rational decisions concerning internal processes or even more important strategic areas. That being said, a considerable body of academic research demonstrates that being a family business has no detrimental effect on performance, growth or even internationalisation. So it wouldn’t be fair to suggest that ‘family in management damages the company’; family members can make significant contributions to the business. Their psychological and social capital is higher than outsiders could ever have. First and foremost, running businesses that carry their name, family members think much longer term. They have much greater motivation to advance the business. They can rank the interests of the company well above their personal ones. Outside managers can hardly be expected to adopt similar long-term views, or prioritise the interests of the company over their own. The family’s social capital is also a far more powerful factor compared to that of executives from outside. They have for years nurtured bonds of trust within the company and relationships with external stakeholders. Both internal and external stakeholders regard family members as permanent personnel, and prefer to conduct their relationships with the company through those family members. Relationships are enormously important where institutions don’t run well. The family’s social capital, therefore, constitutes a major asset for the company. 

 

YA

I’d like to highlight two additional points. The first is the choice of professionals. Not necessarily exclusively for businesses; it matters in all kinds of choices. Loyalty overshadows competence on two counts in our society. The first is the attitude sometimes prevalent in firms run by bosses who either don’t know quite what to do, or plan it well enough: ‘Whenever I make a decision, it must be obeyed straightaway, and without question; do as I say!’ Consequently, the approach that values loyalty over competence says, ‘I’d better pick loyal managers to prevent divisions, and to make sure my decisions are carried out without question.’ It’s quite hard to pick the best even where this mentality is not present, at any rate. It begs the question of how to define the best in the first place. Not everyone or every company may have the skill to define the best. Because if you don’t know what to do, you may fail to define the appropriate best. 

Assuming you’ve defined what you want, and which skills are essential to it, the crucial process of selection comes next. You’ll have to cast your net as wide as possible in order to extend the reach of your announcement. You’ll be inundated with hundreds or even thousands of CVs, which you’ll have to sift through in order to pick the best – in other words, you will have to make an investment. Otherwise, you might ask three friends if they know of anyone with the traits you’d defined; one might come up with someone from the community or family. You’ve therefore picked someone who’s kith and kin, neighbourhood- or schoolmate of someone you know. We do need to be aware of the potential for weakness here, both for the company and society in general. Firstly, the development of competence levels in companies is insufficient. I find this to be a very serious flaw. I mean, it is important for recruitment processes to be based on competence, processes that require major investment; otherwise you’ll never get the quality you want. The second is the damage done to the rate of social progress when the message is ‘it’s whom you know’ instead of ‘it’s what you know; you have to develop yourself if you want to succeed.’

One reason for turning to acquaintances is the fear that the new recruit might brandish unquestionable, exclusive authority. Any company that has adopted good governance practices can, however, easily manage this process far better. In other words, the issue stems from the lack of solid governance in the mechanisms of the company. There is a great ad that says, ‘Uncontrolled power is no power.’ Therefore, no one should be the sole authority, not even the boss. If, however, you’ve not embraced this culture, if you say, ‘I’m the boss, I’ve founded this business, I’ll make it fly if I want, or sink if I want,’ then the worry about being unable to check the person you’ve empowered comes into play, leading to the approach that goes: ‘Best to appoint my son, my niece, or my acquaintance.’ 

I therefore see the problem as stemming from both the recruitment phase, and the deficiencies in the system of checks, monitoring and direction once selected candidates are authorised. 

 

BE

I wonder whether it would be useful to clarify certain concepts used also by you, as they are concepts that will confront us quite frequently. One of these is institutionalisation and the other is governance. The terms ‘corporate trust’ or ‘corporate management’ occasionally replace the latter. Would it make sense, in order to avoid confusion, to stick with governance and carry on? 

Now; are we all agreed on these definitions? Institutionalisation, as far as I understand, means the stage when an institution is able to survive and flourish without depending on the presence of specific personalities. Companies can start and develop without institutionalisation, but their longevity is predicated on its successful implementation. That is what we have observed to date, at any rate. Institutionalisation allows companies to develop their own methods, structures and processes independent of people, thereby creating the infrastructure that enables continuity without dependence on the presence of specific individuals. Obstacles may stand in the way, of course. My personal observations reveal the greatest single impediment to be the lack of rules defining the relationship between the family members and corporate management. What are the rules and principles defining the appointment of family members to positions in the company; how are they promoted, how do they leave their jobs and even sell their shares? Failure to establish such rules stands in the way of institutionalisation, and causes numerous complications. 

One of these is lack of clarity in the environment where professionals live and work. They don’t know the rules, since those rules have not been defined or written down and so vary from one person to the next. There have been some attempts to formulate family constitutions; an idea I believe to be very useful indeed. I also know it’s easier said than done. These constitutions lay out the principles and rules as agreed by the entire family, and regulate the relationship of family members with the organisation and their actions after the founder has handed over. The greatest challenge here might well be the timing. It’s not something you can do at the drop of a hat. Or more precisely, the larger the number of shareholders or family members actively working in the business, the harder it gets. The most appropriate time is in the lifetime of the founder. Any founder who wields personal authority over the family to create a family constitution does a great service to both the business and the family. Miss that opportunity, and it might be missed for ever, no matter how much I hate to say it…  

 

YA

It gets harder. 

 

BE

Much harder. Because establishing these balances may not please everyone equally.

It is only the founders and their authority that will ultimately push through family constitutions. It probably makes sense, therefore, to make the following recommendation: family firms must pay attention this matter, draw up the relevant documentation and implement their guidelines in a timely fashion. 

 

YA

My definition of institutionalisation 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 organisation is institutionalised. Rather like the North Star; inaccessible perhaps, but it’s still necessary to proceed in that direction.

Your focus is on the relationship between the family and the firm, but corporate institutionalisation is also important, and it’s connected with transfer of power, making decisions based on scientific data and accountability across the board. The relationship between the family and the firm is certainly a vital factor in determining the top executives and the direction of the firm. Family constitutions might well represent a major step towards professional management in the way they outline the relationships between the family and the business, the decision mechanisms and shareholder relations; that, however, is not the total extent of institutionalisation. I’m convinced of the need to go much deeper to cover business processes and human resources systems. 

 

BE

I agree.

 

YA

Drawing up a family constitution is a critical process of thinking, well beyond merely writing a document. In a game with well-known rules, all the players are able to develop themselves and their competences as well as dream about their part. Dreams created outside are much harder to reconcile with rules established subsequently. The sooner, therefore, the family constitution is drawn up, the better all expectations are managed, inside the family itself as well as the company. You’re absolutely right there. 

That’s why I think it’s a good idea to recommend to all family companies to see to this matter, preferably under the founder, and the sooner, the better. 

 

BE

Absolutely. Özlem? 

 

ÖYÖ

Best to anticipate problems well before they arise, put them forward and share them. Might even make sense to adopt a participatory approach here. 

The founder’s perspective is critical. That is the family member with the greatest sentimental attachment to the company. The most reluctant to share the decision-making authority. Developing mechanisms such as family meetings, family council, and the family constitution during the founder’s tenure will define the framework of relationships both amongst family members and their dealings with other personnel as well as outline the duties and responsibilities of both parties. Family constitutions also forestall a number of problems pertaining to matters of inheritance and ownership in large families. Family meetings or councils help separate the work day from family life, as they provide a forum for important discussions such as the appointment or promotion of non-family executives, for instance. So voting takes place, seeking an absolute majority in important matters that concern the entire family.

 

BE

Yes. I do want to add a comment. You’re absolutely right, of course; institutionalisation is not merely professional management defining the rules amongst family members. It also involves identifying and establishing other processes and rules concerning the running of the company; establishing internal company rules is the easy part here.

 

YA

Correct.

 

BE

The real challenge here lies in determining the rules that govern the relationships between the family and professional staff, as that’s where emotions and family relationships etc enter the equation. 

I’d like to give an example from our own establishment here if I might. My father Nejat Eczacıbaşı was the founder of Eczacıbaşı; he had full confidence in professional staff and management. As he also did in institutionalisation; yet when you look at the development of the Eczacıbaşı Group in his tenure, you’d be amazed by the delay in establishing guidelines for the family-company relationship – in view of his preferences and personality, that is. And this was a man who was one of the founding members of the Turkish Education Foundation alongside Vehbi Koç, someone who had founded the Turkish Management Association. 

 

YA

Which happens to be hugely important. It has fostered some of the most highly esteemed managers and thinkers of Turkey, and made a considerable contribution to the field of management in its time.

 

BE

My father spent a good deal of time thinking, writing and speaking about this topic. And was one the founders of the Istanbul University’s Institute of Business Administration. Yet, despite all that dedication, he never fully implemented any of it in his own business. Family members carried on playing their parts in top management, their relationships complicated and undefined. Although all the companies in the group were entrusted to professional managers, the most senior position in the group had yet to be appointed formally, with a clear job description. And in this sense, institutionalisation remained incomplete. 

Have we completed it? I do have to admit we’ve yet to get there. We are still in the process, and are firmly sailing towards very important objectives. I’m trying to express just how difficult it is. You’re right, of course; the guidelines cover in-house rules, but they’re not particularly difficult to formulate for families and senior management embracing professional administration. I mean, that’s not the hard part. The hard part concerns family members. 

 

YA

I think what matters here is this: you’re absolutely right; because, like I’d just mentioned, family members are shareholders, have to carry out their managerial roles, and are family members to boot. Besides, families don’t usually play favourites.

But when the children reach management positions – a company managed by several managers with no hierarchy can’t be institutionalised. 

 

BE

Quite.

 

YA

Consequently, one person needs to assume different roles. One major problem is when the founder or president remains as boss for longer than necessary. I mean, the failure to manage the transition period and handover can create weakness in family businesses. The training of the younger generation is essential and requires planning, as is retirement for the most senior manager representing the family when the time is right, whether that is the founder or a member of the second or third generation. This is as much a business matter as one of personal development. Put it this way: even people in the pink of health suffer when they are removed from the work environment if they have no hobbies and had, for years and years, dedicated their whole lives to work. Yet no one can be an effective manager past a certain age. Just as your 100m sprint time changes over the years, so does your management skill. That’s why it’s essential to start planning the transition processes well ahead of time. Unless top managers set aside time to develop their hobbies or engage in social projects, handing over in a timely fashion becomes difficult. 

As for the young: if we expect the next generation to take responsibility in company management, but have failed to define the criteria by which to raise the children, then appointing one child over another at the last minute damages family relationships. If the rules are clear, on the other hand, then everyone knows who is due to take up which role. That’s why the earlier those rules are set, differentiating various roles, the easier it is to manage the transition. This differentiation process deserves significant communication and preparation. The better it’s handled, the easier it is to distance the emotional aspect from the family’s relationship with the business. I’d like to conclude with one further point: I would advise that independents constitute the majority in boards of directors, in particular – either as a significant majority or a significant number. 

 

BE

We’ll get there. 

 

YA

Because that can also be a factor checking the effect of family relationships on management. 

 

BE

Yes. Yes. Now, I’d like to add a little something, since we’re on concepts. We’ve said ‘governance’, and pointed out that it’s occasionally also known as ‘corporate trust’ or ‘corporate management’. I don’t think we actually focused on the definition of governance. Would it make sense to define it as the way a business conducts its relationships with its board of directors, shareholders, personnel, customers, suppliers and society – in other words, with all its stakeholders – under the principles of equality, transparency, accountability and responsibility? Have I left anything out?

 

YA

‘Management’ and ‘governance’ are two separate concepts; it is essential to differentiate between the two, and to assimilate and understand ‘governance’. 

In any case, weakness in governance leads to a reluctance to hand over managerial authority. People have been striving to establish sets of rules to manage clashes and different interests ever since they formed tribes or small communities. You have to appoint someone/s to manage everyday matters as organisations grow and problems become more varied. Monitoring the running of management as well as the roles of the board of directors, family members and shareholders – rather like the principle of separation of powers in state administration, or boards of trustees in non-governmental organisations and general councils, directing, monitoring and inspecting managers – all these topics fall into the remit of governance.  

Governance is the formation of the strategic direction and the method of checking managers, their authority and limits. It is governance that responds to the questions of ‘what to do’ and ‘which boundaries and rules to respect in doing so’. ‘How to do it’ within those boundaries falls to management.

I would like to add the following governance principles to the four you’ve expressed. The first is consistency. Let me highlight why it matters. Whatever people do, they do it in a relationship with other stakeholders, whom they need. It’s quite costly to communicate to everyone what you’re doing, and why, every step of the way. So, if you’re consistent, you’re managing expectations. It is as critical for a company to manage stakeholder expectations as it is for the economy in general. Consistency in every stage of stakeholder relationships builds stakeholder trust in the company. That doesn’t mean that once you’ve set off you’re never going to veer away; however, when you do change direction, your communication needs to be much more effective. All the same, I think consistency is important from this point of view. 

I’d like to mention a second principle. And that is effectiveness. No one’s interested in a manager who’s merely transparent, responsible and fair, but fails to get results. What matters is results, so we have to add the concept of effectiveness. The basis of governance, in any case, seeks effectiveness and fairness, effectiveness and transparency, and effectiveness and accountability – not effectiveness as you skirt around the rules. But there’s no point in being accountable if you’re not getting results. This also matters in my view. 

And finally, participation and inclusivity; they are also critical. Critical, because listening to stakeholders at decision making stages and allaying their fears matter to the smooth running of operations. 

For instance, if your suppliers are sufficiently well informed about your direction, they can invest accordingly. If they don’t, they can’t invest, and you’ll face problems in procurement. Participation therefore supports transparency and accountability; it’s a culture that fosters trust amongst all stakeholders. That’s why I believe in the value of adding consistency, participation and effectiveness to the principles of good governance.

 

BE

We’ve touched on institutionalisation. Where are we when it comes to governance or corporate management? Where are we when it comes to the quality of management? Let’s review them too. 

An overview of what’s been done in Turkey on governance suggests we’re not that far behind. In 2002 TÜSİAD conducted a study, immediately on the heels of which the Capital Markets Board (SPK) published the principles of corporate governance. Both of these studies are based on the OECD principles. In other words, given their dates, they would scotch any suggestion that Turkey might be lagging far behind. Despite these studies, however, we get very poor marks in comparisons between Turkish and international companies’ compliance with corporate governance principles.  

 

ÖYÖ

Yes.

 

BE

We do know that Turkey doesn’t rank particularly high in categories like ‘boards of directors’, ‘investor rights’ and ‘transparency’ in studies carried out by institutions such as McKinsey.

If you were to ask why this matters, well, you know far better than me; this matters on so many counts, and sadly discourages investors too. Investors examine thoroughly the governance of businesses they’re interested in, in the countries they’re going to invest. That we lag behind in these rankings is Turkey’s loss. Why are we so far down? Why have we failed to progress despite doing so much and publishing principles? 

Similarly with management and management quality. Looking at other companies, I do see that we’re quite keen on management trends and new ideas on management. Books published by the gurus of management find immediate followers in Turkey. Some are widely and very successfully implemented. ‘Total Quality Management’ is one example. Since the early 1990s, Total Quality Management attracted a great deal of attention due to the support of the Quality Association (KalDer) and TÜSİAD. Turkish businesses won total quality implementation awards on the European stage. 

Dr Yılmaz Argüden has worked very hard on this topic and has headed the Quality Association, where he’s played a major part in spreading this movement. Total Quality Management aimed to improve corporate management quality. Numerous companies adopted and implemented the TQM ‘excellence model’ in order to improve management quality and achieve a more contemporary, competitive and efficient management structure. As did we at Eczacıbaşı, and to great effect too. TQM is just one example. Many more trends and ideas are embraced and implemented in Turkey. Empowerment, Business Process Engineering, Strategic Management, Balanced Scorecard, Management by Objectives, Learning Organisation, Just-in-time Stock Management and countless new systems were tested and adopted widely in Turkey. Nowadays, ‘sustainability’ and ‘innovation’ have also appeared on the radar. It seems to me that our businesses don’t fail to follow and test global innovations in the field of management… I wonder if they’ve really made the anticipated contributions to the quality of management though. And let’s not limit ourselves to commercial companies either. I mean, let’s take a sweeping look: all types of ventures, commercial concerns, public bodies, institutions of higher education and healthcare, non-governmental organisations and even political parties… How are they all managed? Would it be fair to refer to tangible statistics or studies on Turkey here? Are there any?

 

ÖYÖ

Yes, you’re right. Governance has been high on the agenda, both in the media and academia. But take a look at the situation over the years, and there’s little difference in the way companies are run. The majority of these governance models are developed in Anglo-Saxon environments; but our corporate environments are quite different, as you know. In an American family business, the family shareholding hardly ever exceeds ten or fifteen per cent, but that’s not how it works in Turkey. Here, the family might hold 80 to 100% of the shares – which makes them owner-managers. An outsider in a managerial role would have an audit cost, something that would be unnecessary for an owner-manager. The issue in America is, will the professional manager defend the interests of the shareholders and manage the company honestly? Here, on the other hand, since the manager and the proprietor are one and the same person, the problem is different in the case of public ownership, or where several smaller shareholders are present: will the owner-manager (or the controlling shareholder) look after the rights of the minority shareholders? The practice here tends to present a model that regulates the relationships between the minority shareholders and the controlling shareholder, whereas in America, the minority shareholders function as a check on the professional manager. Given the vast difference in corporate environments, therefore, it wouldn’t be terribly realistic to expect us to import unchanged models developed in the Anglo-Saxon world. Yes, the SPK published the Principles of Corporate Governance, but they were merely advisory. They have no enforcement power. And when they’re merely advisory, you either implement them, or if you don’t…

 

BE

Then you explain. 

 

ÖYÖ

Precisely. In the beginning, especially, firms neither implemented, nor explained. The only exception, quite probably, was the composition of the boards in finance. Given this is the most strictly regulated sector, financial company boards tend to conform to the suggested proportion of independent executives. Since we’re so different from Anglo-Saxon countries on both corporate and cultural counts, I personally do not expect major changes in the short- and medium terms – in the absence of legal sanctions, that is. Lacking as we do a culture of individualism, our propensity towards professionalism is not high; management tends to proceed on the basis of trust. 

Some of the management trends in the media and textbooks, and even covered in our lectures are similar in my view. Participatory management, for instance, reducing hierarchy in companies, or flatter organisational structures… Foreign companies in Turkey may well be attempting to implement them. Some Turkish firms intent on following western management techniques may also be making similar attempts. But participatory management is not that easy to adapt to a typically local company. Turkish culture isn’t necessarily open to it. The power distance is considerable here. In such cultures, decisions are taken centrally without the participation of individuals – who are loath to criticise their superiors or offer negative feedback. Another thing is Turkish culture’s uncertainty avoidance. How we deal with it is, ‘We know who rules here; let’s do what he says and avoid uncertainty,’ sort of approach. So no amount of teaching is going to popularise new management techniques such as participatory management or flat hierarchies unless they’re assimilated first.

Senior management and boards of directors may well overlap in small Anatolian family firms. The chairman and CEO are usually one and the same person. Which begs the question whether the board of directors actually has a function in the small- and medium-sized family firms. As mentioned in foreign literature on family firms, decisions are often taken at the dining table; by the time the board has convened, the majority of the items are already decided. Boards or senior management rarely include anyone other than male family members. Owners tend to share management with their relations, fellow citizens and school friends. Female managers other than family members are sadly in a very low ratio. The chair generally passes from the father to the eldest son. The governance model of SMEs here shows more similarities with their counterparts in Mediterranean Europe than those in the West. But Germany and Belgium have a different model, one with a two-tier board of directors: an executive board and a supervisory one. The law also stipulates that the chairperson and CEO be two different people. Although there is no such obligation in the UK or America, the proportion of UK companies that have separated these two roles has approached 100% over the years. The drawbacks of giving one single person absolute authority has led to this separation. It is also important from the point of view of monitoring the CEO and enabling the board to remain independent. Different roles may additionally create a synergy. Whilst the CEO is in an executive position and runs the business, the chairperson is able to maintain a longer term perspective. There still are countless public companies in America where these two roles are held by one person. Despite a vast accretion of studies on the potential effects on company performance, there are no clear findings as such. In fact, there are claims that one single individual holding both chairperson and CEO roles speeds decision making. 

In family holdings, in the meanwhile, a very high number of directors double up on the boards of the holdings and the subsidiaries. That means a vast structure is actually run by a very small number of people. A study I conducted with Prof Behlül Üsdiken showed that subsidiaries’ boards were largely formed of family members and a group of senior managers who had risen through the ranks in the holding company and/or worked at the holding company headquarters. The number of ‘independent’ directors is very limited. On the whole, however, the chairperson and CEO roles are now separate in both the holding companies and their subsidiaries. CEOs of subsidiaries might even remain outside the board. 

 

BE

Does the quality of education have an impact here? I mean, regardless of your attempts to implement the most advanced management techniques or teaching, and follow developments around the world, you are ultimately working with a given standard of human resources. I wonder if we encounter obstacles due to the educational backgrounds of the human resources available to our businesses. Worth thinking about. 

 

ÖYÖ

Absolutely. There are long-established Turkish and foreign lycées founded in the final stages of the Ottoman Empire or the early years of the Republic here; sadly, they are far too few in number. Which naturally means secondary education is quite inadequate; even students who manage to get into a decent university in the present admissions test system rarely get what they ought to, since their foundation and general culture levels are so poor. They’re unable to figure out the theme of a piece of text, for instance. Or debate a case study at length. The number of universities offering high quality education is also quite low. It all adds up, starting from lycée onwards, and leaves us with human resources of less than high quality. As might be expected, education in Turkey is partly dependent on financial capacity too. On the whole, family members are well educated from the second generation onwards and trained to take up their posts in the family business. The study I mentioned just now found that education played a major part in the appointment of senior executives in large family holdings. A significant proportion of board members from outside had been educated in long-established universities; the majority of the board members in our samples were Bosphorus- and Middle Eastern Technical Universities’ alumnae.    

 

YA

I have a slightly different view. I do believe there has been progress in Turkey in governance. ‘Turks think with their eyes.’ We do know how to follow good examples. Consequently, what matters is creating good examples and presenting them as such. The Principles of Corporate Governance set by the Capital Markets Board and the new Turkish Commercial Code have triggered significant progress in governance. I would like to mention the highly progressive first draft prepared by Prof Ünal Tekinalp at this point. Despite some backtracking later, it all led to the inclusion in our Commercial Code of principles important to corporate governance. 

True, the SPK regulations are now enforceable; all the same, what matters is that the more evident the benefits of good practice, the more families and bosses want to employ independent directors. One thing to keep in mind is the matter of culture though. As we all agree, where it’s still a little shaky, there is the tendency to run the business as the boss wants rather than abide by good governance. An issue I believe will eventually be sorted out in time, certainly through training. Consequently, I see an increased tendency to recruit better directors in Turkey. Is this universal? No. But it is a general trend; slow as it is, I sense we’re making headway. I also believe that companies who embrace this culture are more successful at accessing resources on international markets and managing risk. In any case, the greatest motivation to employ independent directors should come from their contribution to success and not simply in order to conform to a rule. Let’s face it, no matter how good those rules and regulations are, they’re never going to suffice on their own. Every rule can be broken. Take the SPK definition of independence, for instance: it’s possible to find countless candidates who may conform to the definition, but won’t be independent mentally. 

Therefore, no amount of rules or restrictions will matter as much as the capacity for critical thinking and independence of thought. Recognition of this fact triggers change. 

Independence in boards of directors is essential to act as a filter to correctly assess the suggestions coming from management. No single director has power on his or her own. Power lies in the board, not in individuals. If the directors share the same point of view, that is, if the filtration slits line up, the filter can’t do its job. The more varied those points of view, the less chance there is of letting mistakes through. Obviously, mistakes still happen. But there will be far fewer; that’s why diversity in boards of directors is so useful. This concept must not be limited to gender representation either. Different sectors and disciplines, age and seniority in the company are all factors that enrich diversity and reduce mistakes. That’s why independent directors have the potential to offer extremely critical contribution so long as they display independence of thought. They do help balance the emotional viewpoints of family members in family companies in particular. 

 

ÖYÖ

Destined to remain on paper unless embraced, in my opinion. I remember an interview with someone who’d served as a board director in a family holding. He’d said, ‘There was a total of nine in the board. Only the chairman was a family member, but we figured out his preference from his facial expression, and that’s the direction we took.’ In other words, I’m not convinced that the proportion of outsider or independent directors is a definitive indication. 

Take the ‘independent’ directors on the boards of subsidiary companies who retired from the holding company a while back; their independence is obviously debatable. 

 

BE

Another concept that’s attracted a good deal of attention both abroad and at home is entrepreneurship.  The success stories kindled by new technologies, opportunities offered by digital technology and the internet, and young businesspeople making enormous fortunes in a short time have all played their part here. Today several associations and foundations in Turkey guide and develop entrepreneurship, and there are courses on entrepreneurship in universities. Old ideas are now changing: ‘Is entrepreneurship an innate characteristic, or can it be acquired?’ This is a question I face from time to time. Once upon a time, entrepreneurship was believed to be a personality trait. You could teach management, but not the enterprising spirit; you were either born with it or you weren’t. Entrepreneurs and managers were popularly believed to possess different characteristics. Yet today, the general consensus is that entrepreneurship is a discipline that can be taught and fostered. 

I believe this training to be useful in more ways than merely guiding young people who want to become entrepreneurs. Training young people destined to become executives in family companies does bolster the dynamism and enterprising spirit of the company. Not to mention the necessity for managers to maintain an entrepreneurial viewpoint. We need companies where managers are leaders as well as entrepreneurs. 

What would you like to add to these thoughts, given your vast experience in your fields?

 

YA

I agree with most of that. But I would like to touch on a couple of points. Firstly, hardship is what lies at the source of entrepreneurship and innovation. ‘Plight makes might.’ You only generate solutions when you’re pushed. The reason mobile telephone technology was developed in Northern Europe was the expense of laying cables under the ice. That’s what triggered the progress. The reason Japan is the most advanced country in miniaturisation, the reason for all their innovation in this field is that it is a country of over one hundred million people living on an archipelago. They’re short of space. So they’re very successful in architecture and car design – since they know how to use space so well.

Consequently, as plight makes might, entrepreneurs generally come from people who’ve struggled and so that particular quality is more developed. That’s why fewer entrepreneurs emerge from the well-heeled, since a relatively comfortable environment doesn’t trigger the entrepreneurial instincts. This is equally valid for countries too: form an empire, and maintaining that authority becomes a priority; there is less enthusiasm to test innovations as changes to the existing order could cause losses. This lies behind the increasing tendency towards conservatism as people and companies grow richer and older. Please don’t misunderstand, though; I wasn’t suggesting great companies or families couldn’t raise entrepreneurs – I merely referred to proportions. 

 

BE

Indeed. Indeed. The greater the value that you have to preserve, the greater the tendency to conservatism. It’s quite natural. 

 

YA

That’s why we need certain systems to stimulate entrepreneurship. 

One of which is, the more variety you face, the more innovative ideas you’ll have. Consequently, the more opportunities for encountering different subjects – be they in geographic location, position or even rotation within the firm – the higher the potential to create entrepreneurial and innovative ideas. This is important both in terms of the diversity of the people you come into contact with and your own experiences. 

Secondly, social attitude towards mistakes is very important, how mistakes are viewed. I tend to believe that the greatest problem concerning entrepreneurship and innovativeness in our country stems from the attitude towards mistakes. Someone who’s gone bankrupt is regarded as useless, good for nothing. Yet in Silicon Valley, one of the most innovative places in the world, someone who sank three businesses gets more than someone who’s never failed. Especially if he can explain why the business failed and what he learnt from the experience. Which explains why our people are reluctant to disclose their own mistakes or errors, trying to sweep it all under the carpet instead. And this weakens corporate learning. But every mistake is a golden opportunity for learning. This is something we have to elicit in both corporate and social culture. If you’ve made an error, and know why, you won’t repeat it, probably not the same mistake anyway. That is why we need to systematise and promote the process of learning from mistakes.

Let’s not forget that it took Edison five thousand goes to invent the lightbulb. I mean faith in something, persistence and resources to support constant attempts are of critical importance. So I would suggest that it is necessary to allocate funds to internal innovation and entrepreneurship, learn something from the mistakes there and share the lessons throughout the company. 

 

BE

Yes. Özlem? 

 

ÖYÖ

Yes. Entrepreneurship is now taught at undergraduate and graduate levels; it actually happens to be one of the mandatory subjects with us. We live in an age when information grows old very quickly. We try to give our students a certain viewpoint. How to sniff something out, for example, how to follow innovations, where to gather data, and how to work with it… We attempt to create an academic formation to this effect. In addition, many universities have entrepreneurship centres. Where they offer support not just in finance and infrastructure, but also guidance. Training, for example, in creating personal awareness, career planning with role models, and motivation and support programmes. There are twinning programmes to help students with their social network. The target audience isn’t just university students; there are activities aimed at secondary schools too. 

I absolutely agree with what you said about internal entrepreneurship. An entrepreneurial attitude is as important for individual businesspersons as corporate employees. But you need the right base, and the company culture must allow it too. The organisational structure shouldn’t hinder creative thinking: relaxing controls on the staff, emergence of a freer and more flexible working environment, reducing red tape, creating multi-dimensional communications, replacing hierarchical controls with a corporate culture, and team-based projects bringing together people of different characteristics will all help creativity and internal communications. Research reveals that employees are willing to allocate time to activities that require creativity even in the absence of financial rewards.

 

BE

Shall we move on to another important concept, to ‘corporate culture’? At Eczacıbaşı, we’ve gone through some stages, learnt some lessons, and tried to achieve certain things. Some successfully, others less so. 

 What we need are firms that add meaning to people’s lives – other than as machines for making money. Those with visions and objectives beyond mere profit, those that sustain certain values fill this gap. In other words, for a company to offer other values beyond being a source of income, it has to be an entity with its own ‘soul’, with defined objectives, vision, targets and policies. All this also lies at the base of corporate culture. 

Our company has paid a good deal of attention to defining the soul of our brand. The most intense period followed immediately after the demise of our founder. We were all obviously aware that we had a powerful corporate culture. But its basics hadn’t been defined in so many words. We said, ‘We’d better define them without much delay,’ as the entire body of senior management had all worked with Nejat Eczacıbaşı. What sort of a man was our founder, and what values did he give us? Which of them will remain valid, and which ones have to change? What’s our aim in your eyes? These were the types of questions we deliberated in a variety of meetings with executives and employees. Some of which were led by Prof Oğuz Babüroğlu, a good friend and an expert in identifying shared wisdom. At the end we defined our aim, vision and values. We’ve also made sure our subsidiaries carried out similar studies and combined them with their long-term strategic plans.

‘Is all this necessary, or just mumbo-jumbo?’ comes up frequently. I mean, does all this effort have a practical purpose? I would say yes, provided it’s done right, but the potential for error is… 

 

YA 

High.

 

BE

Extremely high. What is right or wrong – let me summarise my own view if I may; let’s see if you agree. Definitions are key, first and foremost; we have to know what we’re talking about. Everyone must understand the same thing when we say vision, primary purpose or mission statement. Even a concept like strategy, something we assume is familiar to everyone, can mean so many different things. It doesn’t actually have an unequivocal definition. It’s a concept that changes from user to user, from company to company – individuals, writers and ‘gurus’ too. Let’s pick one that comes closest to our perception, and we can all use it. Members of a company should all speak the same language. That’s why the company ought to define what its employees’ perception of these terms is. That was our starting point, and we expanded this project into creating an Eczacıbaşı Glossary that covers strategic planning, financial- and human resources management, information technology and other branches of management. 

The second thing is, it’s impossible to force upon employees answers to crucial questions like ‘What is the vision or primary purpose of this company?’ No one has to accept or embrace someone else’s vision. That’s why these definitions have to be made with the widest possible participation – under the guidance of senior management, of course. No one should be taken aback if you’ve embraced a primary purpose along the lines of, ‘Eczacıbaşı is a pioneer of modern, high quality and healthy living.’ At the very least the majority of the employees and the stakeholders ought to be able say, ‘Well, yes; this definition fits in with my views on this brand.’ 

And thirdly, such fundamental concepts are only effective if they’re promoted. They’re useless if they stay as so many words on paper. The worst is displaying fancy inscriptions and plaques bearing vision texts penned as little more than lip service. That’s when you see texts written just because everyone else is doing it, texts that say nothing about the company’s distinguishing characteristics, texts that could have been written by anyone, ludicrous texts that cause more harm than good. 

The values that brace the culture of a company are probably more important than everything else, because that’s the hardest change of all. We could easily claim that the personality and soul of a company are determined by those values. Let’s face it, everything about a company can change in time: its employees, production facilities, fields of activity, strategies, policies… and even shareholders and name. So long as the values remain the same, however, the company upholds its identity. Change its values and it becomes a different company.  

Defining and promoting the values, in turn, hinge on the points I’ve just remarked on. There’s no point in announcing them in written form. Values only guide so long as they’re credible, so long as people live by and promote them. Provided this atmosphere is created, the corporate culture based on those values naturally exclude anyone unable to conform.

These concepts that add value to a company as a ‘brand’ can only be defined if backed and guided by senior management; only then can they undertake an effective role. Which in turn is an approach that necessitates a long-term perspective. That is why family firms can be said to have certain advantages in creating an effective vision and maintaining it over a long period of time. 

These are the lessons we learnt from our work on corporate culture. 

 

YA

First and foremost, I think definitions are critical, as it’s in words that the intellectual dimension of any topic is expressed. If you and I mean different things by the same word, it won’t be possible for us to extract the same meaning from our conversation, come to a consensus, or take a decision and implement it. That is why I’m convinced a common language is critical. I also happen to believe that the first thing to do, the first step for any organisation to take – even in non-governmental organisations – is to define the mission statement and vision satisfactorily. The mission is your raison d’être. It’s not dependent upon you, but rather, on what society needs. The more accurately you define the need, the more successfully you’ll meet that need. It’s not easy to define the seed and the DNA of the fruit of a tree. But once you’ve done it well, it becomes a great guide. Vision answers the question, ‘Where are we going to be?’ at a given stage of your progress towards this mission. You can have a five-year vision, or ten, or even fifty. Because everything first starts with a dream, then it goes on paper and finally it’s implemented. Take a composer, for instance; he’ll hear the music in his own mind first, then he writes down the notes and finally a big orchestra performs it. An architect first imagines it, then she draws it; that idea is constructed and people live in the building. Likewise a company’s vision; I mean, the more accurately we define where we’re going to be in five years from now, the higher our chance of actually getting there. 

As you know, I’m a strategy consultant. That was my doctorate. Sadly, I see the concept of strategy is largely misused or misunderstood in Turkey. The essence of strategy is making a choice. It’s not your aims. If something lacks options, it can’t be a strategy. I’m sorry to see so many strategy plans have none. That’s because we want all our options to remain open, as we live in a particularly uncertain country and society. But leaving all options open means making no choice; and if you can’t make a choice, then you have no strategy. And that means you can’t improve your competence or develop your company; all you can do is be an opportunist. In any case, Turkish businesspeople tend to grasp opportunities rather than think strategically, develop competence and make an impact in the world in a specific field. We have a high capacity for adaptation, but we rarely find solutions to a global problem. That’s due to our limited capacity for strategic thinking. That’s not to say that it’s beyond the capacity of Turkish minds. The exceedingly high real interest periods we’ve all lived through, in particular, restrict the perspective of countless businesspeople who were raised in this environment. So Turkish businesspeople have a tendency to think, ‘We’ll all die in the long run. Which opportunities can I grab in the short term?’

Those high inflation – high real interest rate periods have, in my view, hindered the strategic thinking capacity of Turkish business. It is really difficult to do business on the global stage until we develop this aspect, and sadly many companies seem to fall short when it comes to strategic thinking. That is why I regard your method of defining concepts first, then laying out the mission, vision, values and finally the strategies, as fundamental to creating the future you dream of. I also agree 100 per cent that it is essential to embrace these concepts. They remain little more than so many words on the walls of countless companies. Especially when it comes to values; I could give you a 60-strong list of values, and you’d approve of fifty-five. Everyone wants everything. A company with fifty-five values has none. Because a value is the one thing you won’t give up even with a gun to your head. 

If you can’t give it up, even when you face great difficulties, then it is a corporate value, and it’s important. Let me give another example, again, concerning an international businessman. A ruthless businessman: any executive who fails to meet performance objectives is gone within a couple of years. He might occasionally give someone a second chance, but even the highest performing manager is sent packing at the slightest sign of a conflict with corporate values. Take ‘teamwork’ amongst the values of that period, for example. The manager in question performed very well in detailed monitoring and individual decisions, but not in teamwork. Would you still let this person go? That year, not after three years. Can you part ways with someone who doesn’t conform to the values -no matter how successful he or she is? Unless they conform to the values of your company – so long as you keep that person in that position, those are not your ‘values’. 

 

BE

Of course. 

 

YA

I also think that the values managed by a company need to be highly selective. The values you prioritise may also vary from time to time. I mean, it’s possible to say, ‘This year we’re focusing on these particular five, and next year, we’ll keep three, and add two new ones.’ Except, I do believe that it’s essential to implement the concept you’ve defined as a value, and implement it quite strictly within that period in order to install that value in that company. Presenting an inappropriate value would also invite ridicule. A couple of these values have to be what we aspire to, and most have to be already inherent in order to create credibility. They have to be grounded so that employees can readily embrace them as their own. Here’s a suggestion: always associate major management decisions with your mission when you explain them to the public at large as well as executives and staff. That association of decisions with mission and vision is very helpful in the inculcation and adoption of those concepts. And you get to test the suitability of those decisions, and/or your mission and vision in relation to the actual operation of your company. 

 

ÖYÖ

I’m of the view that mission and vision ought to be identified and adopted once a consensus is reached amongst representatives of a variety of levels and units within the company on the definition of the concepts. 

Senior management generally assumes its vision is shared by the entire personnel. But vision is a term that means nothing to staff on the spot. Studies have revealed that senior management and other members of staff give different answers to questions on definitions of mission and vision. Which shows that those definitions are not shared across different levels. 

Strategy might be more relevant to senior management, but mission, that is, the company’s raison d’être and philosophy, concerns its entirety. Leaders need to talk not only of numbers but also values. The vision identified by the founder must be shared with the staff and developed together, in a healthy and participatory environment of communication. That’s when vision inspires more dedication. At the end of the day, people want to be part of something important, something that will give their lives meaning. 

 

BE

A key subject is human resources. Shall we explore it a little? Today there is intense competition amongst businesses to attract talent; it’s a tough battle. Success probably requires a very good understanding of the expectations and preferences of the young generation. You’re quite close to them; you know them well. I’ve made some observations myself too.

Very few young talents today set out expecting to spend their entire career in one firm. On the whole, they tend to start work after picking a company in order to gain experience and learn a few things prior to evaluating new options at some later stage. They don’t necessarily see working at one single company for a long time as something to be proud of.

As senior executives in this environment, it is up to us to identify the most talented young people, attract them to our businesses, motivate them, make them happy working for us, develop them and prepare them for service in higher levels of management. This occupies our thoughts day and night. 

We do know that merely earning money isn’t going to be enough. They want to do something that will give meaning to their lives. That’s why an interest in social problems – socially responsible businesses can attract the young. But it’s crucial for this to be a brand value. It’s not enough just to say, ‘We spend so much on social responsibility,’ ‘We’re environmentalists,’ or ‘We’ve built schools.’ That’s why I think it’s critical for a corporate culture to adopt these values. 

The second thing is that the young generation look for opportunities for self-development. Because they know that in today’s world, information grows rapidly and technologies change at an extraordinary rate; tomorrow, today’s popular disciplines will be forgotten and the expertise in demand could easily be handed over to robots. ‘Ongoing training’ could be seen as a solution, however training programmes only represent a section of the solution, and a very small one at that… The real answer lies in senior management’s concept of leadership. Young people want to learn something from their colleagues. So it’s important for staff to prioritise training. Otherwise, nothing works, regardless of your fancy training programmes, presentations at universities, or claims of ‘We have such and such training programmes.’ Unless the business has adopted that culture and employs such people, it doesn’t just happen. ‘Such people’ aren’t numerous, given how essential the focus on training people is. In other words, mentoring must be regarded as one of the top indicators of success. And corporate culture must reflect it. 

That may well be the crux of the matter. Businesses need leaders striving to work with more talented colleagues, leaders prepared to learn from their direct reports at every level. Managers who coach must be supported and rewarded by senior management. People should never have to worry about losing their job to someone they’d coached. 

Managers who are capable of such thinking aren’t afraid to give authority and responsibility to their young recruits. And that is the most effective method of training managers. Taking responsibility, learning on the job and drawing lessons from one’s mistakes…

 

YA

That sounded quite poetic!

 

BE

Happy to hear your views in a minute, to see whether you agree or not! But first, here’s a story I really like. You know David Ogilvy, the famous founder of Ogilvy & Mather? He was quite a philosopher, beyond being an amazing businessman. There are countless anecdotes about him – one I particularly like. He had a habit of sending all new employees in the Ogilvy & Mather chain a Russian doll; you know those Matryoshka dolls? 

 

ÖYÖ

Nesting dolls…

 

BE

Yes; open one and another emerges, and then another. He’d include a note with the gift: If each of us hires people who are smaller than we are, we shall become a company of dwarfs. But if each of us hires people who are bigger than we are, we shall become a company of giants.

That was his welcome gift. I think it’s a great idea, very meaningful. So yes, how does your company become one that places such importance on mentoring and inspiring young people to say, ‘I can see myself growing in this company, reaching new horizons’?

What else are they looking for?

 

ÖYÖ

My impression, based on conversations with students, is first and foremost someplace not too keen on red tape. They don’t want to deal with it; they prefer firms where they’re not as strictly monitored, where they can work in a more relaxed environment, one where they have decision areas. They want to develop themselves; this could be achieved through the company’s training programmes, but as you say, corporate culture should enable that to happen on the job. They value flexible hours: quality of life is as important as its standard; they don’t want a monotonous 9-to-5 work life. 

I’d like to repeat something I heard along the same lines as the Matryoshka you’ve just mentioned. A ‘grade A’ manager hires a ‘grade B’ employee. A ‘grade B’ manager hires a ‘grade C’ employee, preferring someone compliant, one who won’t question the manager’s decisions. That’s why a solid candidate is seen as a threat. This is sadly true of the private sector as well as the public; an applicant with a fantastic CV could be regarded as a threat. This naturally harms the company in both the short and long term; attract good candidates and more will follow. Keep that door shut, though, and you enter a vicious circle. 

 

BE

Yes. You mentioned they don’t like too much red tape. This reminds me of a great quote. It was General Patton who said, ‘Don’t tell people how to do things, tell them what to do and let them surprise you with the results.’

 

ÖYÖ

Yes.

 

BE

Sounds like a great principle to me. 

 

YA

Absolutely spot on. 

 

BE

‘Motivation’ is a magical word; I wish there were a good Turkish equivalent. 

What I mean is, this magical concept has to be at the top of our minds as managers. How to nourish the enthusiasm for work and achievement as well as loyalty to their jobs and companies – that is a vital issue. That is the single most crucial question for managers and leaders. What motivates people; this is such a tough concept, with such a complicated, elusive answer that varies from person to person. We might spend a whole lifetime looking for it. 

 

ÖYÖ

You’re right; since the source of motivation differs from person to person, there isn’t a single answer. Superiors must observe well the needs of their subordinates to figure out how to motivate them. Financial rewards may not prove equally motivating to every member of staff. Some people are motivated by titles, whereas others prefer decision areas or the pursuit of challenging goals. It’s important to create an environment where personnel can easily express themselves and their needs in order to understand what motivates them. 

There is a psychological contract between the company and its personnel. An unwritten, dynamic contract. Consisting of their mutual expectations and responsibilities in their relationship as perceived by the employee. The company also has responsibilities towards the employee on several counts: like company policies, the content of the job, social atmosphere, rewards and career development. In order to maintain a high degree of motivation in its personnel, the company has to deliver on its commitments to them. Otherwise, the personnel’s energy levels suffer.  

 

YA

I agree, mentoring is crucial. I also believe it works both ways, between young people and their managers. Another thing is that people tend to accept the incentive mechanisms they’re offered. 

Unless your managers prioritise mentoring, you can’t attract good people. All right, how do you reward your managers for mentoring? Because that takes time. When someone rises to be CEO five or ten years down the line, do you congratulate his or her mentor of two years? Do you offer thanks at least? Because, humankind is easily guided through incentive mechanisms, but many of the mechanisms we use are not appropriate for the world we want. And that’s what causes the greatest problem. If we are able to use the correct incentives and choose the correct options, then the behaviour we want is projected much more easily on the entirety of our company. For instance, do we promote our managers on the basis of commercial accomplishment, or their capacity for mentoring? We have to aim for the right balance between the two. Naturally people who fail at their job can’t be promoted purely on the basis of their great mentoring skills, but does your company place sufficient weight on mentoring in that balance? If you do, that particular type flourishes and attracts more in turn. But if you insist, ‘I’ll assess them on the basis of their work, and expect mentoring on top of that,’ that’s never going to work. It becomes difficult to allocate resources to mentoring when there is a squeeze, and that includes time. 

So yes, what you say, your principles, and the examples you give are truly inspirational, they illustrate critical elements in training people, children and young people, but I tend to think that our corporate systems fail on this count, that they’re not yet compatible with the world we want. That’s because the feedback cycles of our incentive mechanisms are far too short; one or two years. Yet the feedback cycles of the behaviour we aim for could be ten or fifteen years. So how are we going to incentivise people to do the right thing during these ten or fifteen-year feedback cycles, how are we going to assess and reward them?  

 

BE

Thank you. Shall we move on to another challenging subject? Business ethics. Özlem, has it always been on the curriculum of management training?

 

ÖYÖ

Not necessarily always, but for the past decade or so, it’s been on the curriculum of many management courses. 

 

BE

That’s very important. Do you mean on the global scale?

 

ÖYÖ

Goes much further back in America. 

 

BE

How far back?

 

ÖYÖ

The UCLA School of Management taught commercial ethics in the late 1890s. But the 1980s was the period when business ethics rose to prominence. 

 

YA

Much more in recent years though. I think it was after 1980 that it came to the agenda. And became much more appreciated, much more widely implemented after 2000. 

 

BE

Isn’t that interesting?

 

YA

Good business leaders have historically always placed a great deal of attention on ethics. But its inclusion in university curriculums as a specific subject in its own right – and in particular in management sciences programmes – is much more recent. It would be inappropriate to suggest that ethical values were missing in the design of teaching programmes . These matters were on the agenda even in the 1700s. But this subject’s only recently come to the fore, and the importance of long-term integrated thinking received such emphasis. 

 

ÖYÖ

It appears in subjects covering various functions of the organisation. Finance textbooks, for instance, have a unit on ‘Finance and Ethics’. Similarly marketing textbooks, with one unit on marketing and ethics. But it’s only in the last ten years that it’s been taught as a specific subject in its own right in Turkey. 

 

BE

I see. My view, being outside of academia, is as follows. We might be confusing business ethics with being ethical. But my observation suggests that business ethics courses focus on how to balance the interests of various stakeholders in view of ethical standards. What we’re talking of here is a discipline that attempts to resolve situations that frequently arise in business management. In other words, we’re not teaching people to be ethical. Business management confronts situations that have very different impacts on the interests of our suppliers, customers, shareholders, society, and personnel. What these courses attempt to teach is how to balance them all in the best and most ethical way. It seems to me that there is a confusion of concepts here. Of course, when it comes to business ethics, anyone critical of our businesspeople generally tends to think, ‘Here they go again, on and on about business ethics; but when it comes to their own interests…’

 

YA

Their pockets come first. 

 

BE

‘… business ethics go out the window, what matters is their own interests,’ for example. There was a cartoon I’ll never forget: the directors are lined up around the boardroom table, and the chairman at the head says, ‘Compliance with business ethics is crucial, provided it’s within reason.’ Which signifies the impression that businesspeople will pay lip service until a certain point where it becomes unreasonable – and they go back to their old ways. If you ask me, the best thing to do if we want to foster business ethics is to disprove the idea that ‘You can’t achieve anything if you’re ethical.’ To prove that you can be both ethical and successful in business.

There are business ethics societies and foundations – and I find them less than helpful. All they do is to confuse the picture; they’re not fit for purpose. I’ve no doubt at all that many were founded with the best of intentions. Founded to promote business ethics in business. And what do you see? Executives of companies mired in scandal trying to whitewash themselves through the prestige of these organisations. A blatant attempt. A much more striking instance concerns another unforgettable memory. It took place in Turkey. A foreign expert had been invited by one of these organisations. And I went to listen to him. I recall the title of the speech very clearly: Why Business Ethics, Why Now? 

After delivering a well put together, consistent, fluent and professional presentation, he answered his own title question at the end: ‘Because business ethics are highly effective in raising your corporate image in the eyes of the public.’ What can you say to that? If that’s the rationale behind  presenting business ethics to the Turkish business world, what can we expect of these organisations? What are they trying to achieve? 

 

YA 

Good governance and business ethics overlap in my view. 

 

BE

Very good. Yes, I agree. 

 

YA

Good governance and corporate governance entered the agenda in particular in the wake of financial scandals and crises, and much of the regulation followed afterwards. Regulations were tightened by the OECD, the Capital Markets Board here in Turkey and the Securities and Exchange Commission in the US. So, corporate governance was perceived as the protection of smaller shareholders from the bigger ones, or an approach necessary to access more resources. In my books, I try to make a special point of emphasising that this is actually a much broader concept. Which is why I use the concept of ‘corporate trust’. Corporate governance is a tool not only to access financial resources, but also to gain the trust of all stakeholders in order to access all types of resources. 

This includes employees, customers, suppliers, dealers and society, and should be assessed in this context. Because unreliable firms face higher costs. Let me give you an example. Take a company which is frequently late in paying its bills. It’s not a one-time game. You’re in it all the time. Soon all the suppliers notice, and because they do, they add the overdue payment interest onto your price. Consequently, your costs will be higher than the firm whose payments are regular. Or differences arise between one company who treats its personnel well, and another who doesn’t. Good personnel move elsewhere and the company starts to lose its competence level. We’re already heading for extremely tight margins due to competition. So, lack of trust restricts access to resources and raises costs. Which in turn makes the economy of scale and the economy of learning inaccessible. Business ethics and good governance are necessary to the company for its own long-term interest, and it concerns all its stakeholders. At any rate, ethics also contains this concept of fairness. 

Let’s take a look at why good governance and boards of directors matter. We empower a CEO. Authority demands 24-hour dedication; he has to devote all his time to work in order to create value. In any case, the first responsibility of anyone with responsibility is to safeguard the existing assets, and the second is to create value with those assets. Safeguarding comes first. That’s why managers are responsible for protecting people and workplace safety. Empower managers by all means. But whoever they are, checks are essential to major decisions. Every decision has a multitude of dimensions: short-term effects, long-term effects, risks, benefits, and different effects on stakeholders for example. It’s very difficult for one person to always balance it all correctly. That’s why reviewing especially key decisions on strategy and investment reduces the potential for error and reduces risk. This review is the duty of the board, which should comprise directors with diverse points of view. The board of directors has three principal duties. The first is ‘duty of care’, that is, competence to evaluate that decision. The second is loyalty. That means prioritising the interests of that company so long as they sit around that table; however, it doesn’t mean forgetting about the stakeholders. Directors also have to keep their interests in mind, and do so fairly. And the last one is complete and comprehensive explanations. Company decisions have an impact on shareholders and other stakeholders too. Trust is only achievable through transparency and accountability are evident in complete and comprehensive explanations. 

As you can see, they’re all based on raising the level of trust in the institution. The board functions by approving or rejecting management proposals. If it tried to guide management instead, it could no longer function as a checking mechanism. So what we’re talking about it a structure that allows the correct balance mentioned above, by approving or sending back proposals. In any case, business ethics improve under a functioning board of directors, a good culture and smooth systems.

 

ÖYÖ

As far as I can see, students sadly underrate business ethics. Since ethical behaviour is hardly encouraged by social norms in Turkey, I’m not sure just how much of what the subject covers is actually absorbed, but I still think it’s useful if only to raise awareness. It is important for students to recognise that something that is legal may still not be ethical. 

I hope that in the future they will scrutinise their management decisions just a little more deeply, and spend a little more time deliberating before taking decisions that will harm others. These subjects shouldn’t be dropped at all, if anything, they ought to be supplemented. As you’ve just pointed out, unethical behaviour is sure to damage businesses in the long term. Perhaps this is the message that ought to be made very clear, alongside ethical philosophy: whether you embrace it or not, unless you behave ethically, you’ll be the one to suffer and your business will fail.

 

BE

I agree, ethical behaviour and long-term success are directly related. Companies are under unrelenting pressure to grow profits in the short term; those that give in and stray outside ethical boundaries may hide somewhere, ‘may get away with it’ and find some way of carrying on without being embroiled in scandal. But they can’t win in the long run. Otherwise, we’d have to accept that all successful businesspeople are crooks. 

I would like to touch on management training, perhaps as a final heading here. Let me explain my personal perspective here. I didn’t study management, or rather, not at undergraduate or postgraduate level. I studied chemistry first and then chemical engineering. I did want to do a master’s in management, but was told to go and work for a while; that was how things were done. So I got stuck in, couldn’t get away, and was forced to make up for quite a lot the hard way. I tried to learn what I needed by attending short management courses, studying on my own or taking a variety of courses in specific areas – it was all done the hard way and took much longer. My recommendation to young people who see their future in management is to avoid this path. I recommend they all do a postgraduate degree in management. They might well have other interests like I did. There’s no problem with qualifying in those branches. But if young people are determined to go into business, to become managers, spend their lives in the corporate world, then I advise them to spend time and effort on training for it without delay.  

Another thing I’ve observed is this: what’s taught in management schools is so important in view of conditions and necessities of our time that it’s almost strange they’re taught at MBA level. Today people can finish university without having covered the most basic principles of economy, yet ignorance of them makes it very difficult to appreciate what’s going on in the world. Not to mention make heads or tails of political promises. It’s difficult to get any return from even the most modest savings without an appreciation of those fundamentals. It’s virtually impossible to make sense of the stock market, assess the companies you invest in, or conduct a rational evaluation of investment alternatives. All this needs to be taught at secondary school in my view. Yet we teach them at MBA level. That’s what I happen to think; I wonder if you agree. But what I’m really curious about is the new trends. What are the new developments in management training? What topics are becoming more important? Innovation and sustainability take up so much of our agenda; do they figure in training? Appear in training programmes? Would you enlighten us please?

 

ÖYÖ

I tend to disagree somewhat. My first degree is in management. But I tend to think management can be taught at postgraduate level. I’ve always wished I’d done my first degree in a basic branch like sociology or psychology, and then did an MBA. A two-year MBA would have been sufficient to learn the basics of management. So a first degree in a basic subject, followed by an MBA would be fine. 

 

BE

In that case, we’re in agreement; that’s what I was trying to say. So long as young people train in the subject of their choice or whatever they see as important to their future career…

 

ÖYÖ

Yes. 

 

BE

They should then complete their basic education with an MBA if they’re planning on a career in management in the private sector. 

 

ÖYÖ

Yes, absolutely. Technical knowledge becomes less relevant the higher you rise in management as you know; administrative skills take over. The Times Higher Education Supplement conducts an annual survey of universities across the globe. Last year we studied university structures as part of a project. One thing we did notice was that top American universities don’t teach management at undergraduate level. Only at postgraduate. Quite surprising really. The other thing was that American universities no longer maintained the old boundaries and seemed to abandon the traditional department approach. Replaced, apparently, by more versatile programmes of subjects selected from amongst a variety of departments according to the student’s interests. Top European universities, in the meanwhile, offer first degrees in management, but unlike the American-style universities in our country, they introduce specialisation subjects from the first years. The reason lies in the difference between our education systems. 

Secondary school is quite tough in Europe. Take Italy, for instance, where they have two types of lycées: science and classics. Even ancient Greek is taught in classics lycées. In Europe, students graduate at around 20. Since lycée education is so difficult, they’re better equipped when they start university, which enables the introduction of specialist subjects from the first year onwards. Here, the leaders in management training, universities such as the Bosphorus, METU, Koç, Sabancı and many other foundation universities on the same model, have adopted the American model. As American high school education is relatively easier than the European, they take basic subjects like maths and history in the first couple of years. Specialist subjects are generally introduced in the third year.  

You’ve mentioned training in sustainability and innovation. Sustainability appears under a diverse range of headings; sustainability in tourism, for instance, is amongst the subjects covered in tourism management with us. Climate change is a highly disciplined area under environmental sciences. There is no specific area covering ‘development studies ‘ as you get in Europe, but sustainability can and does appear in a diverse range of departments or as a research area. 

 

YA

I lectured on sustainability in the Bosphorus University Executive MBA programme this year.

 

ÖYÖ

Yes, it’s covered in Executive MBA. Quite new there too, as a matter of fact. Subjects covering all three parts of sustainability – from environmental, social and economic angles – aren’t widespread in management degree programmes. There is a Responsible Management Education initiative under the UN Global Compact, which is a voluntary initiative aimed at engaging the corporate world with the issue of sustainability. The aim of this platform founded in 2007 is to change the training approaches in schools of management across the world in order to raise sustainability-conscious managers and leaders for the future. Many schools of management in the developed world have joined this platform and signed the compact. Turkey’s leading universities have not yet done so. 

As for innovation; subjects related to innovation management have been around for longer and innovation is taught at undergraduate and post-graduate levels. This isn’t about innovation in R&D, rather, it covers management strategies and techniques. Case studies are carried out by teams and students are encouraged to go into the field. The style is along the lines of, ‘Go and research this subject and tell us about the latest developments in the field.’ Such as how to pursue innovation, how to nose around the market and how to gather information. Some of the top universities also have innovation centres. Where inter-disciplinary research into a range of innovation-related topics is carried out and management training is given.  

 

YA

My views on education are as follows. It starts with the family, and the younger you start, and the more experiences you have, you progress far more rapidly especially in management. I mean, like the difference between learning to ride a bike at six versus at forty; there is a difference between learning to raise finance one way or the other at a young age, and those who’ve finished all the schooling there is and worked for five or six years before undertaking these responsibilities. This is something I see in many managers; it is especially interesting that managers I like have actually dabbled in commerce as children. I see quite a high correlation between such experiences and being good entrepreneurs and managers. 

When it comes to education, I believe there needs to be much more emphasis on basic subjects. Because advances in scientific thinking and sciences have accelerated so much that no one without a grounding in maths, philosophy or sociology stands a chance in succeeding in marketing or finance. They come so far, but fail to go any higher if they lack a solid foundation. The deeper your foundation, the higher your building. So I believe that undergraduate courses in particular should focus much more on basic subjects. And that would be my recommendation to most people. It’s much easier to get in, and you’ll be far more successful in the future; you’ll also have the opportunity to study more specific topics in post-graduate education.  

Given the difficulty of making a career decision for a 17-year-old, I favour an education programme that offers a solid foundation. You’re a little better equipped to know what you want when you’re 22. Pick the right post-graduate course to develop yourself in management or finance or another subject. My advice would be, ‘Establish a solid infrastructure.’ So the two principal matters I would like to cover on education are these: firstly, engage in real life as much as possible, even if they’re small responsibilities or tiny budgets, manage them, take responsibility for others. It’s important to make mistakes, do the right thing and gain experience, because those experiences stay with you. The second is to have a really solid foundation in basic subjects. I would also recommend people to become well rounded and allocate time to non-governmental organisations in particular. That will teach them about society and how to use the power of persuasion. This matters in order to manage the Y and Z generations too. Unquestioning obedience is no longer valid. Persuasion is. 

The greatest wealth is giving. This could be your knowledge, your time, or a degree of resources. I believe that giving a resource and learning how to get results will enrich people and develop their management skills. 

 

BE

Very good, very good; yes, I agree. I’d like to make a slightly different addition, if I might: I believe general knowledge to be crucial to people intending to take management training or pursue a career in management – especially in view of the present importance of innovation. I don’t believe innovation is possible in the absence of general knowledge. Unless they’re inspired by a variety of areas, can look out from different windows, or derive something from the accumulation of diverse disciplines, even the most esteemed, top experts will fail to deliver innovation. 

Which sadly seems to conflict with modern trends. I’m afraid there is too little attempt at expanding general knowledge.  

 

YA

I believe that young people benefit hugely from participating in artistic and athletic areas as they grow up. Team sports, for instance, develop certain skills much more quickly, such as discipline, swift decision-making, channelling teammates’ strengths and covering their weaknesses, studying how to win before the match, and skills in strategy, tactics and time management. Similarly, artistic pursuits increase sensitivity. Develop an appreciation of different viewpoints and the wealth of differences. So I believe people who’ve taken up arts and sports at school have certain advantages. In actual fact, in picking managers – all other things being equal – I prefer candidates who’ve played fast team sports like basketball or volleyball. All other things being equal. Because they will have thoroughly internalised these traits. 

 

BE

Yes. A very interesting point. 

Thank you very much. 

 

16 October 2017

Real knowledge is to know the extent of one’s ignoranceConfucius