INSTITUTIONALIZATION

Institutionalisation represents the evolution of family owned enterprises towards becoming entities with proper decision making structures.

 

Institutionalisation is a strategic objective.

 

Murat Ulker, Chairman of the Board of Ulker group of companies acknowledged at  the board meeting where we were invited to inroduce our work concerning the installation of governance mechanisms at Ulker Biscuit  A.S., that  the acquisition of  GODIVA, the global  brandname in chocolate industry has made it  a  strategic imperative for their companies to adopt corporate governance practices as foreseen by the Turkish Capital Markets Board.  Ulker has now become the host company of a global brand, and hence should fulfill the  relevant obligations.

 

Those obligations included the review of the articles of association  of the company, and to design the procedures as well as the by-laws concerning the board of directors and the relevant committees in such a way that they can operate independently to fulfill the requirements of good governance.

This required the separation of ownership from control and management, and  the recognition of the respective responsibilities and obligations.  The purpose was to ensure sustainable growth of the company, on the basis of good governance principles.

 

Institutionalisation is a strategic objective for family owned enterprises if they wish to  transform themselves to  formally structured and managed companies.  In family owned enterprises.  Responsibility remains on the shoulders of  the provider  of capital; he/she is the last resort at times of need whether it is because of mis- management or is related to business circumstances.

 

It is often claimed that family owned enterprises  dissolve when the third generation takes over; however, it is also plausible to ask if this is not due to insufficient institutionalisation.  Institutionalisation defines the relations between shareholders as well as their relationship with the company.  Once those relationships including succession schemes  are properly defined, shareholders would have the required trust and confidence with respect to the earlier generations and the company management.

 

Institutionalisation also enables the company to go beyond the means of the “founders”, and to acces market sources of finance.  It equally enables the company to recruit able managers to contribute to  growth oriented management.  Proper reporting, audit and incentive mechanisms ensure that managers strive to contribute to the growth of the company.

 

Last but not the least, Institutionalisation  makes it possible to manage operational, managerial and financial risk, through proper definition of efficient reporting  and  accountability.

 

Our work since 2003 on, institutionalisation and governance in  a number of companies playing a significant role in the Turkish market has enabled us to observe their transformation during a period when Turkey was making headway into international markets.