One of the key features of the Turkish economy is the prevalence of family businesses — a fact reflected by their heavy presence across the country’s BIST 30 Index, where only 33% of board members are independent.
Although this (just) adheres to the Turkey’s Corporate Governance Principles which require at least one third of directors to be independent, the proportion of independent directors on Turkish boards remains the lowest across all European countries
we have surveyed.
Ensuring that the boards of these businesses are able to provide effective oversight is therefore a key priority — but are they being held back by not having a more dispersed ownership structure?
Spotlighting the family structure
There is certainly no shortage of highly successful family businesses both in Turkey and around the world.
Not only are about 35% of Fortune 500 companies family-controlled, but this year’s EY and University of St.Gallen Family Business Index has revealed that the world’s largest 500 family enterprises generated US$8.02 trillion in revenue in 2022 — up 10% from 2021. If they formed a national economy, theirs would be behind only the US and China.
Take Koc Holding, for example. Turkey’s largest industrial conglomerate is still controlled by the Koç family and its structure has not prevented it from accumulating total sales that correspond to around 9% of the country’s GDP.
Family businesses can benefit from their ability to focus on long-term gains — by embracing patient capital they ignore the temptation of short-term results in order to better position the business for sustainable growth. Family members may also have more of an inside track than independent directors thanks to broader access and deeper knowledge of the company.
And yet there are also some disadvantages which can also come with a family business structure.
There is a risk that family-dominated boards can lead to groupthink and inhibit a company’s ability to keep up with rapidly changing global markets as they may not possess the necessary experience to expand their business across different industries and regions. This is a particularly acute challenge in Turkey, where shareholders have often historically erred against setting up international operations, preferring instead to stay within their country’s borders.
Cross-directors in demand
Family members often serve as board members across multiple companies. Among BIST 30 directors, engagement on more than one board is often influenced by family connections but can also reflect the fact there are cultural similarities across different family businesses.
We have found that four chairs — all of them family members — sit on one other listed company board. And board members, especially those in family-owned businesses, often participate on the boards of companies owned by their family. For example, the chairs of Ford Otosan and Yapı Kredi Bankası are actively involved on the boards of an additional six companies.
But juggling different board memberships across multiple companies and sectors is no small feat. There is also the possibility that having access to sensitive information from different companies could potently trigger conflicts of interest.
The value of diversity
So how can a board safeguard the values and purpose of their family business while at the same time ensuring they avoid the potential pitfalls of insularity and uniformity?
Although many of Turkey’s myriad family businesses have enjoyed huge success over the years, this is no time for complacency. Our data clearly suggests there is scope for greater independent involvement across the country’s boards, including those who make up the BIST 30 Index.
The good news is that 40% of new directors this year are independent — a sharp increase from last year’s 25%. This is evidence that companies understand the value of diversity and are striving to turn good intentions into corporate reality.
At Spencer Stuart, we have written extensively about boardroom best practice, highlighting the value of diversity and the need for outside perspectives from related sectors. Their presence strengthens board governance and helps provide the forward-looking expertise which is needed to overcome future challenges.
Successfully navigating the twists and turns of the market will always be a challenge. It’s not about removing family members from boards, but augmenting their knowledge and experience with those of their independent counterparts. That’s because a wide variety of perspectives, skills and experience at the top table can hold the key to sustainable growth for any business — family or otherwise.