“There are known knowns” is a phrase from a response United States Secretary of Defense Donald Rumsfeld gave to a question at a U.S. Department of Defense (DoD) news briefing on February 12, 2002.
“Reports that say that something hasn’t happened are always interesting to me, because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – the ones we don’t know we don’t know. And if one looks throughout the history of our country and other free countries, it is the latter category that tend to be the difficult ones”
Rumsfeld’s statement brought much fame and public attention to the concepts of known knowns, known unknowns, and unknown unknowns, but professionals have long used an analysis technique referred to as the “Johari Window“. The idea of unknown unknowns was created in 1955 by two American psychologists, Joseph Luft (1916–2014) and Harrington Ingham (1916–1995) in their development of the Johari window. They used it as a technique to help people better understand their relationship with themselves as well as others.
What if we apply Johari Window technique to assess the imlications of presisential referendum in Turkey on international companies and family businesses?
The outcome cought us on surprise. Our study in QUATRO Strategies revealed, in a nutshell, that regardless of the outcome on 16th of April, a whole new approach in doing business in Turkey should be adopted by international companies and family businesses. Here is why:
What would a yes-vote (change of the constitution) mean for private companies in Turkey?
We believe that, it is important for international companies, international investors and family businesses to foresee and understand the dynamics of the new period that Turkey is entering. If there happens to be a yes-vote as an outcome, both foreign and local business actors will have to deal with the conjunctural changes to adopt to the new set of rules in the game. If we have a no outcome, on the other hand, we will most probably witness these changes come to life in one way or another anyway to be implemented in a de-facto way.
To be more specific, in a yes-vote, companies will have to eye for amendments to business regulations which will be revised to become “adaptable” to new governing system. The total number of bills in this “secondary legislation amendment package” is little bit over 2000. The old-way of running business will change drastically since the president, together with his cabinet directly elected by him, will hold the executive authority instead of a cabinet composed of elected deputies. Companies will need strong “government relations” team to manage this process in order to harness the wind in their favour. This revision process will take around 6 to 8 months, followed by the general elections.
In a no-vote, we reckon the country will face an early election before the end of 2017. Unless there happens a drastic change in political scene in Ankara, like a leadership change in main opposition party or an emergence of a new moderate-conservative political formation, the ruling party can very well obtain a significant majority in the parliament, which might be enough to change the whole constitution without a referendum this time.
Consequently, in post-referendum era, companies will need to manage the unthinkable by increasing their resiliency capacity. Resiliency capacity of a company is a combination of its absorptive and adaptive capacity. A whole new approach will be needed in Turkey to go beyond traditional risk assessment that focuses on financial and compliance risks, and gut feelings in order to develop new strategies to increase absorptive and adaptive capacity of the company.
What would be the significant changes with regard to the legislative process and the functioning of the public administration?
In a yes-vote, there will, for sure, be significant changes to the legislative process. We can categorize those changes in 2 main groups.
In group A, per say, there will be some changes which will be in effect right after the referendum date. Among those are, the number of deputies going up from 550 to 600, election periods changing from 4 years to 5, electoral minimum age going down to 18, so on and so forth.
In group B, however, there are some changes that will go in to effect until 2019, or up until to the presidential election date that might very well be set to an earlier date. Among those are, annulment of prime-ministry position, election procedures of higher judiciary bodies, amendments to current terms of reference for the parliament which defines almost every procedure on how to run a national parliament, amendments to current bill regulating the establishment, functioning and financing political parties in Turkey, possible changes to current bill governing the election procedures, local and nation-wide, which might change the nature of politics in Turkey radically.
When it comes to the public administration, all three legs; Government (local and nation-wide), Private and Civil administrations will have to adapt themselves to the new set of rules. The point here is that no one is sure what will be the new set of rules in a top-to-bottom approach.
Are there changes which would specifically affect foreign companies in Turkey?
Almost all changes in this constitutional amendment proposal will affect foreign companies in Turkey. We are not suggesting that, if approved by the simple majority of the voters, these changes will be negative or positive for their current operations in Turkey. What we are putting forward is that foreign companies must increase their resiliency capacity in terms of their absorptive and adaptive capacity because the set of foreseen changes in the package will bring a wave of consequential changes to regulations, social contracts, public perception and consumer behavioral patterns in a ripple effect. That said, if managed well, these changes can also open doors to many attractive opportunities in every single sector.
The pace of change in Turkey has already triggered a re-visit of definition of political risk in Turkey. The common definition of political risk is the possibility of an unexpected politically-motivated event affecting the outcome of an investment. However, in Turkey we would define it as “Managing the Unthinkable” since it is very complicated for a foreign company to foresee what is expected and what is not.
For instance, a stronger presidency running executive branch of government can easily put foreign companies in cross-fire due to conflicts with trade partner countries, given the preferences on running foreign policy. These cross-fire problems may lead to home country sanctions or consumer boycotts against the firms.
The formation of cabinet will totally be changed in a yes vote, which will be another significant challenge for foreign companies as well. The ministers will directly get appointed by the president who will solely report to elected president as it is the case in United States. Since the pressure of getting re-elected by the voters will have been lifted on future ministers, it might erode their consciousness in government tenders, in such a way to put public interest first. The centre of gravity in decision making in business related matters might pivot to power instead of public, which constitutes another challenge for foreign companies especially interested in large infrastructure, energy, transportation, mining, health, pharma and defense tenders.
No more “Old Hands” or “Grand Tours” in government relations ?
In post-referendum era, we also advise foreign companies to revise their government relations procedures. The handling of advocacy and lobbying in Turkey in classical terms such as, utilizing “old hands” by asking self-declared experts for gut instinct and personal connections or conducting “grand tours” by sending executives for personal visits to access top decision makers will not likely to yield positive results.
As Klaus Schwab had put it nicely; “Across every sector of society, decision-makers are struggling to cope with heightened complexity and uncertainty resulting from the world’s highly interconnected nature and increasingly rapid speed of change. In the coming decade, our lives will be even more intensely shaped by transformative forces that are under way”.
Comprehending the pace, breadth and dynamics of change in Turkey, instead of ignoring, alienating or running uphill against it will help decision makers turn eventual risks into profitable opportunities.
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