Why is Corporate Governance Important for Family Companies?
As in many economies, Turkish family-owned companies undertake a very large portion of the country's economic activity. Although it is generally claimed that family companies carry out their activities through groups of companies comprising more than one company within their structures and that by cooperating within their group structures they are less affected by economic crises, their activity duration does not last very long as they tend to fail in establishing the necessary professionalism and experience problems in the transfer of the company's ownership from one generation to the next.
Most family companies disappear in the first generation, while the number of companies surviving in third generation is very low. In a study performed in the USA, it was revealed that the rate of family companies ceasing to exist in the first generation is 80%; the rate of those reaching the second generation is 16%; and the rate of companies reaching the third generation is only 4%.
Considering the large share family companies contribute to the country's economic activities, it becomes evident that the implementation of corporate governance in family companies is a very important process. In family companies, corporate governance is not just a process that can be realized by the head of the family and the founding members of the family company, but it is a collective process. Consequently, there is a process of learning and changing and, accordingly, transition and compliance costs do occur.
Family companies that have gone public and are traded at the stock exchange are able to implement corporate governance practices in a more effective and faster way. Many of the mentioned practices, however, can be said to be implemented in order to ensure compliance with the regulations of relevant regulatory and supervisory authorities. Apart from that, there are some family companies that are willing to meet all requirements of corporate governance and that have made significant progress in this matter.
Family companies may prefer going public primarily as an alternative low-cost financing instrument, but they may also regard it as a phase of transition to professionalism and corporate governance. However, the decision for a public offering will provide the opportunity for the family company to accomplish both objectives at the same time. Family companies going public and starting to be traded at the Istanbul Stock Exchange (IMKB) will enhance professionalism and good corporate governance practices in the companies, accelerate the sustainability of these companies, and ensure low-cost financial resources at the same time. Considering that 15 of the companies listed in the IMKB-30 Index, comprising the greatest companies traded at the IMKB, are family companies, it is clear that being a family company does not constitute a hindrance for being traded at the IMKB, but on the contrary many large family companies prefer this status.
