Why Is Corporate Institutionalization Difficult for Firms in Türkiye?

A substantial share of firms in Türkiye are founded and grow thanks to a strong entrepreneurial spirit, family capital, personal relationships, the ability to decide quickly, and the skill of adapting to changing conditions. Yet the very traits that carry a company through its founding and growth phases can, beyond a certain scale, turn into barriers to institutionalization. Because starting a company and building a lasting institution are not the same thing. Starting a company requires capital, courage, and a good business idea; building an institution requires delegation of authority, professional management, transparency, accountability, written processes, and a system that operates independently of individuals.

One of the most important obstacles to institutionalization in Türkiye is the insufficient separation between the company and its owner. In family businesses especially, the founding entrepreneur has for years borne all the risk of the enterprise, provided the capital, found the customers, and made the critical decisions. It is therefore natural to develop a strong sense of ownership and control over the company. As the business grows, however, a structure in which the owner is simultaneously general manager, finance director, purchasing manager, and final decision-maker ceases to be sustainable. Even if professional managers are hired, if authority is not genuinely delegated, managers become people who implement the owner’s decisions rather than people who make decisions.

The second major barrier to institutionalization is a management culture built on individuals. In an institutionalized company, the fundamental question should not be “Who knows how to do this?” but “Which system and which rule governs how this work is done?” By contrast, in some businesses a large part of processes depends on people’s memory, experience, and relationships. Phrases such as “Mehmet Bey knows this job”, “Let’s ask the boss”, or “We’ve always done it this way” are in fact signs of a lack of institutionalization. Unless job descriptions, authority limits, reporting systems, budgets, performance measures, and internal control mechanisms are clearly established, the company will continue to depend on individuals.

The third important issue is the choice between merit and loyalty. In family firms, trust is naturally highly valued. Yet being trustworthy and having the knowledge and competence to perform a given role successfully are not the same thing. As a company grows, specialization becomes unavoidable in areas such as finance, human resources, production, marketing, information technology, and risk management. Family members may of course take on management roles; but the allocation of responsibilities should rest on competence, accountability, and measurable performance—not on kinship ties.

Türkiye’s economic structure also makes the institutionalization process harder. Inflation, exchange-rate volatility, high financing costs, swings in demand, and economic uncertainty can push managers to focus on solving daily problems rather than on long-term planning. When most of management’s time is spent balancing cash flow, finding credit, controlling costs, or resolving pricing issues, investments in human capital development, strategic planning, digital transformation, and corporate governance may be postponed.

Another important problem is insufficient financial transparency and management information systems. Institutionalization is not merely drawing an organization chart or forming a board of directors. Sound budgeting, management reporting, internal control, risk management, and performance measurement are core parts of institutionalization. If a company cannot accurately measure how much it earns from which customer, product, or line of business, its capacity for professional management will also remain limited. For sound decisions to be made, managers need to rely not on intuition but on reliable financial and operational information produced in a timely manner.

Perhaps the most critical stage of institutionalization is the transition to the second and third generations. The first generation may grow the company through entrepreneurial ability; but as the number of shareholders rises in later generations, ownership, management, and family relationships become more complex. If matters such as who will manage the business, family members’ compensation, dividend policy, share transfers, the rights of family members who do not work in the company, and succession are not arranged in advance, intra-family conflicts can threaten the company’s future. For this reason, a family constitution, clear regulation of relations among shareholders, a professional board structure, and succession planning are becoming increasingly important.

In Türkiye, the fundamental problem of institutionalization is less about legislation than about a change in management mindset. Institutionalization does not mean removing the owner from the company; it means building a structure in which the owner does not have to intervene in every decision, responsibilities are clearly distributed, and systems operate independently of individuals.