Evaluating the ethos and challenges facing family business organizations: The case of Cengiz Holding

Company overview

Cengiz Holding is a family owned, leading multinational company with its headquarters in Istanbul, Turkey. Ever since its inception in 1980, the company has operated under the chairmanship of Mr. Mehmet Cengiz (Cengiz, 2012). Since its incorporation, the company has grown to become one of the leading investment companies in Turkey. Its main investments are in finance tourism, mining and energy sectors and are spread over twelve organizations. The company’s largest investment is in the construction industry. Most of its construction projects include airports, subways, motorways, dams, pipelines, bridges, railways, tunnels and telecommunication infrastructures alongside tourism abodes and amenities (Cengiz, 2012). In ddition to these, Cengiz Holding has recently diversified into insurance and aviation, yielding an effectual success within a very short time.

Abstract

The following paper seeks to evaluate the ethos and challenges facing family business organisations with Cengiz Holding as the company of study. The study critically analyses the scope and significance of family owned businesses highlighting both the advantages and disadvantages related to it. Further, the study presents the challenges faced by Cengiz Holdings in relation to family business organisations. In conclusion, recommendations are provided as to what Cengiz Holdings needs to do to help curb the escalating problems associated with family owned businesses.

The scope and significance of family business

In most companies, (Cengiz Holdings for example), family owned businesses are born out of the desire and autonomy for a family’s financial independence. For the last two decades, the aspect of family businesses has being subject of research and development with continued support from countries governments. The current developments can be attributed to an increased research and study on the subject, changes in policies and developments in cooperation networks (Kelin et al, 1997). The scope of family business has recently gained a lot of attention not only in the European Union but globally.

Family business account for over 70% of all business in the European Union Block creating an employment level of over 40% of the population leading to an increase on its benefits in the social economic development of countries economies. This has led the countries governments to form policies to foster the growth of family run business. An example of these policies includes the implementation of the 2008 European Council’s Small Business Act (kosgeb, 2012). This act was meant for European nations to help create viable environments for the development of family owned businesses (Quentin, 2010). The Competition and Innovation framework Programme (CIP) for 2007-2013 recognizes Cengiz Holding as a key example of successful family owned business despite its relenting woes and associated lawsuits.

Advantages of family businesses

Currently, it is estimate that family owned businesses contribute up to 70% of the every county’s Gross Domestic Product. These constitute a basis for significant advantage in terms of growth and development of the host country. These advantages include:

Common values among family members: Just like in most family run businesses, the Cengiz’s seem to possess similar ethos and beliefs on how the business should be conducted. This has helped in the solidification in the relationship among the family members creating strong business acumen amongst them.

Strong business commitment: The Cengiz’s Family members are known to commit a lot of time and resources for the development of the business than non-family members.

A sense of loyalty: It is evident that the Cengiz’s Family members are loyal to their own business. This loyalty has created a bond between them and the business fostering continued loyalty to the business and on to one another, creating a technique for endurance and determination for success at all costs. This can be proven at the 2009 Nokia and Motorola Lawsuits at which both family members boycotted the hearing process. This signified unity among family members.

Decreased operational costs: This is mainly realized through reduced labor requirements as Cengiz’s Family members constitute the largest number of employees of this business empire. The Cengiz’s Family members are also known to have made huge financial sacrifices towards the development of the company, reducing the cost of acquiring funds from elsewhere. i.e. loan costs and interests.

Creation of independence: being in a family business means that decisions are made by family members at their own interests. This limits external pressure in the business and all the profits realized are streamed to the business owners (Quentin, 2010).

Disadvantages of family businesses

There are certain disadvantages associated with family owned businesses. They include but are not limited to:

Lack of interest: Not all members of the family are born with a strong business sense. Sluggish family members might lead to the demise of the business.

Unfair rewarding system; Family members are likely to accept lower wages than non family members. This can limit financial incomes for the family members.

Lack of professionalism: Family owned businesses are unlikely to attract unprofessionalism from the family members as they are reluctant to employ professionals from the outside. This is the case in most of the major investments of Cengiz Holdings as the top management is mostly constituted of family members.

Financial constraints: Mostly, family businesses are faced with financial constraints in the case where family members are not in a position to raise the desired amount of cash for the development of the business.

Challenges faced by Cengiz Holding as a family business

Emotions from family members: Emotional outbursts from family members are known to affect non-family members who are employees of the institution. In return, this may lead to the formation of warring camps in the institution just like the case in the Cengiz holdings Business or family; which is which?: This is a major problem realized in Cengiz Holding just like any other family owned business entity. This can be affiliated to emotional attachment among family members in managerial positions. Business scholars and researchers have being engaged in debates to consider the involvement of women in the management of family owned business citing their leniency towards family than business which is likely to ruin their concentration in the affairs of the business (Kosgeb, 2012).

Succession planning: This is another key challenge realized in family businesses. As generations pass on, different family members have different opinions as to who should the management of the business be left to.

Unprofessionalism amongst family members: Family run businesses are usually faced by the dilemma in retaining unprofessional members of the family in the business. The Cengiz holdings family business has been faced with a range of law suits most of which are attributed to various members of the family. The company has faced cases of fraud, libel and even racketeering both termed to have been steered by members of the family. Also, the chairman, Mr. Mehmet Cengiz has being blamed for using his strong business empire to bolster his political activities (Hurriyet Daily News, 2012).

Organization structure: The lack of a well defined organizational culture has depleted the Human Resources department in the institution of most of its functions i.e. Despite various misdeeds, lawsuits and criticisms on the company’s chairman, he still retains the top seat. The 2009 Nokia and Motorola lawsuit against the company cost the company an enormous amount of money raising issues of management competence (Quentin, 2010).

Huge compensation plans for family members: Family members affiliated to the company are known to receive larger wages and salaries compared with other management professionals in the company. The company also suffers from financial constraints brought about by the misdeeds from its chairman and family members. During the 2009 Nokia and Motorola lawsuit, family members were issued with an arrest warrant should they set their foot in US soil. The chairman uses allowances from the company to cover his political asylums like the 2008 France asylum.

Conclusions and recommendations

The case of Cengiz Holding is one among many cases relating to family owned business. Having a business being operated by family member can either break or make the business. Cengiz Holding has been faced with various criticisms from the public and government citing misconducts among family members. According to the above findings, it is true to state that the unrelenting woes at Cengiz Holding can only come to an end if only the company could be left to operate without the participation of family members in its activities (Kosgeb, 2012). However, it is important to consider the fact that the business is highly advantaged in having a hand in knowledge on what is best for the company, a feature that is mostly missing in partnership and corporation businesses. Another dimension of a demeaning factor affecting the business is in social issues.

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