Turkey: Taking Care Of Business In The Family: Resolution Ahead Of Time

Last Updated: 29 September 2015
Article by Ali Sami Er

Is a family constitution the cure? Should a family constitution be the guide that includes all of the solutions to those problems which might occur, or rather, should it propose approaches to resolve problems before they arise. In other words, should the family constitution stress fundamental values, or include rules, in detail, and to what extent?

Before deciding upon the character of the family constitution, rather than pondering such general questions, it may be useful to focus on various specific questions, the responses of which may serve to satisfy the concrete needs.

For example, should employment in the company, or winning a promotion, depend on kinship, or on merit? How should the income be shared? Will you be able to live on the dividends or salary? When the company needs economic support, do the seniors of the family become its guarantors? Should the cousin who dedicated his life to the company be entitled to overtime payment or bonuses? Should the family member who has never been happy working at the company, and who has chosen to compete with the company through the creation of his own organization, be excommunicated from the family/company, or is s/he free to establish her/his own company? Does the saying, "the younger drinks the water first, but it is the elders who speak first," mean that the younger generation have no right to be heard? If you are of the younger generation holding one share, will you be entitled to speak in the general assembly of the company? What if you do not have any shares, will you still be allowed to comment in the family council? If a member of the new generation who became a shareholder after a marriage ends in divorce, can the bride or groom acquire the shares of the company? Can these shares be sold to your competitor? When the grandfather passes away, who should be the new leader - the uncle or the aunt? You are the leader - who should be the next? When you need access to funds as a shareholder, should you be able to withdraw cash from the company or resolve on advance dividends? You fell away from your beloved family because the business has now overtaken the family: Can you request the dissolution of the company to solve the problem? Are you entitled to request a company vehicle even though you do not hold any position in the company? You do not hold any position in the company, but you would like to visit the company from time to time – are you allowed to enter the company grounds? Can you offer your shares to the public? Your nephew, whom you appointed as financial manager after his graduation, acted disrespectfully to you. Can you fire him or squeeze him out of the company? You are a shareholder who is unhappy with the general situation of the company, can you dismiss your uncle who is the chairman of the board? Can you request that the company be audited? You have not been receiving any dividends since the general assembly meeting has not convened for quite some time, and you find that your earnings from the company are less than satisfactory, can you invite the shareholders to convene a general assembly meeting? The value of the factory has increased substantially, or has not increased enough as per another's view - who decides on the sale price? You think that the center of the company must be moved to Istanbul, but some members object to this: Can you establish a new company in Istanbul on your own? The family company is managed by a few family members, and the others would like to create their own businesses. How should the salary and dividend policy be established? The members who pursue their own businesses are very busy, and they cannot come to the company headquarters. Can you convene the general assembly meeting online? You are the bride who will become a new member of the family, and when your love is at its peak, you are urged to sign a marriage contract: Do you have to sign it? What if this were a divorce contract? You have suffered a lot because of your family business, and you cannot decide on the distribution of the estate, is a court case inevitable? Have you considered the costs of such a case, and compared it with that of a settlement agreement? Regarding philanthropic activities, would you prefer the family to have a common voice, or should such activities be pursued individually? What should the family members' level of education be, regardless of whether or not they work in the company? To whom does the company belong - to the grandfather or to the family? Should the company belong to you forever, or should a part of your family maintain the business? What if you remain sole shareholder, would you like to continue the business? Or, would you like to establish an airline company, for example, with the monies from the sale of the company? If you work in the family company, should you be with your family all hours of the day and night, aside from sleeping hours? Your father was your boss, so will your elder brother be your boss, as well? When you start thinking critically of the way the business is done in the company, is this accepted by your family? Are you treated as a child or a member of the company? You desire to make a new investment, but other family members do not cooperate, and they do not want you to act individually. Are there any rules that may prevent you? Are you disturbed by the fact that the company employs too many family members? Which positions may be delegated to family members, and which may be held by outside professionals? Can you share a common dream with your siblings or cousins with whom you have played as children, or went to the cinema together, but have not shared one single desire concerning your future? How can you improve your partnership culture?

Let us suppose that you crafted specific rules for each situation, or you adopted general principles regarding approaches to be taken to solve any future conflicts regarding your family business or property. Your consultant named such set of rules or principles as the "Family Constitution." However, when these are not violated, the elders of the family council are unable to resolve the issue in accordance with the Constitution. In this case, is it possible that the conflict may be resolved by a court pursuant to your Family Constitution? Is it possible that such rules can be invalidated as they are contrary to the obligatory provisions of law? Or, if the traditions that started the rulings and constitution were not followed, will you insist on the application of the constitution? Do you have the persistence to regulate sanctions and apply them in the event of breaches? Will you offer to the family members who are in breach another opportunity, or will you be determined to apply the weightiest of sanctions from the outset? Are these sanctions legally applicable? You have a constitution which was written 25 years ago. The grandfather has since passed away, the company has survived through very hard times and crises, and has expanded even further. Your family has grown larger by tenfold - will you be bound by the same principles, or are you ready to renew them?

To solve a problem that you are not a part of is the easier position to be in. There may definitely be issues that you cannot predict. Nevertheless, you are always able to consult with someone who has already experienced these problems, or you may request professional assistance. When the problem is actually occurring, conflicts of interest may detract you from the solution. You may opt to avoid any debate, and this may exacerbate the problem. Therefore, the best thing to do is to seek a solution, even by becoming the devil's advocate before any problem occurs when all of the communication channels are still open.

Indeed, family companies are based on a culture of partnership. The company survives by gaining assets. However, family is an institution where you do not expect any consideration in return for your love. Therefore, the different chemistry of a company and family may interfere. Although it is impossible to prevent any conflicts, by anticipating certain situations, the outcome of such conflicts can be foreseeable, thus, it is very useful to gather and evaluate solutions for such problems from similar experiences for the purpose of improving the partnership culture before any problems appear and expectations differ, and different rightful grounds are seized upon. So, when should the family constitution workshops start? In my opinion, the right time may be at the moment of economic crisis when members of the family are most concerned for the future of the company, and the most mature time for emphatic approaches. Another reason for this is the possibility that the scale of the company can no longer require a constitution to be drafted after the crisis if the necessary precautions are not timely taken.

Above all, a family constitution is an inspiring instrument for the entire family that not only frames the basic principles for the solution of problems that may arise, those of which you are not yet a party to, but it also serves as a lighthouse to help in making the company flourish.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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