OECD Principles of Corporate Governance
Having considered these developments in the world, OECD (The Organization for Economic Co-operation and Development) has adopted Corporate Governance Principles in 1999 and revised them in 2004. These Principles are:[1]
I. Ensuring the Basis for an Effective Corporate Governance Framework:
The corporate governance framework should promote transparent and efficient markets, be consistent with the rule of law and clearly articulate the division of responsibilities among different supervisory, regulatory and enforcement authorities.
II. The Rights of Shareholders and Key Ownership Functions:
The corporate governance framework should protect and facilitate the exercise of shareholders’ rights.
III. The Equitable Treatment of Shareholders:
The corporate governance framework should ensure the equitable treatment of all shareholders, including minority and foreign shareholders. All shareholders should have the opportunity to obtain effective redress for violation of their rights.
IV. The Role of Stakeholders in Corporate Governance:
The corporate governance framework should recognize the rights of stakeholders established by law or through mutual agreements and encourage active co-operation between corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises.
V. Disclosure and Transparency:
The corporate governance framework should ensure that timely and accurate disclosure is made on all material matters regarding the corporation, including the financial situation, performance, ownership, and governance of the company.
VI. The Responsibilities of the Board:[2]
The corporate governance framework should ensure the strategic guidance of the company, the effective monitoring of management by the board, and the board’s accountability to the company and the shareholders.
The OECD Principles of Corporate Governance constitutes a framework for the corporations throughout the world. Today, corporate governance constitutes the basis of good governance in the working environment. This understanding enhances the responsibilities of the managers of corporations compared to former standards.
Through globalization, the function of corporations has varied with the newly recommended policies. According to Kahler and Lake, corporate governance represents not only domestic relations; it also constitutes agreements, object of disputes, policy recommendations, harmonization process and worldwide regulations.[3] Furthermore, it has become a concept of global governance regarding the most efficient model for the sustainability of corporations.
Purposes of Corporate Governance
After having looked at the theoretical background and the history of corporate governance, the main purposes of this concept can be specified as such:
ü To protect companies from the personal interests of the managers and shareholders.
ü To provide control mechanisms by the corporate governance actors.
ü To ensure sustainability in order to increase the profit of the companies in the long term.
ü To treat the shareholders equal and fair.
ü To determine the responsibility of the board of directors for the legal entity, i.e. the company.
ü To manage the company in accordance with expectations of the shareholders and stakeholders via the board of directors.
ü To procure conflict of interest within family-owned enterprises.
ü To assist effective control mechanisms inside the company.
ü To guarantee the rights of the investors.
ü To help providing potent risk management mechanisms.
ü To observe legal benefits of the shareholders thereby prevent arbitrary implementations.
ü To offer some policy recommendations for increasing the profit of the shareholders.
Worldwide Influence of Corporate Governance
The corporate governance understanding has started to become a widespread notion with the OECD Corporate Governance Principles, which has been adopted as a starting point for the corporate governance codes around the world.
According to Mallin, the interaction between the countries in order to develop corporate governance codes has so many factors such as legal, political, business forms and ownership models understandings, hence differ from country to country.[4] This situation is best illustrated if one compares the degree of the implementation of corporate governance standards inter- nationally. A globally and unilaterally good governance approach can barely be compiled. Thus differing implementations attempting to adopt a framework is more applicable.
In Anglo-Saxon countries the shareholders are the significant interest groups; bankers and workers in Germany; government and family groups in Latin American countries; local bank workers and other financial institutions in Japan. Those variations affect the formation process of corporate governance codes.
The main focus of this study, which is Turkey, has different objectives in that context. The linkage between the legal and financial system during the globalization era was faced as a new approach to the corporations in Turkey. Ararat and Ugur suggest that; corporate governance has created a new understanding focused on the sustainability of the corporation that can be considered as a pull effect; on the other hand, corporate governance has deconstructed the banking policies, which is a push effect.[5] Therefore, international developments have created a corporate governance understanding in accordance with the expectations of the global market.
As a developing country, Turkey needs to modify its corporate governance legal and institutional framework in accordance with the enlarging trade markets around the world. According to Aytekin, Miles and Esen; the linkage between the OECD Principles and the principles adopted by Turkey have the potential to have significant effects for Turkey itself as well as for the developed countries.[6] Turkey showed significant efforts by adopting Corporate Governance Principles in its Turkish Capital Market Board in 2003 and with that to become one of the actors on the global financial market.
In the light of these explanations, corporate governance has been more prominent than ever in order to create governance based upon fairness, transparency, accountability and responsibility. The concept of corporate governance is closely related to law, economics and policy regarding academics and practitioners. All of these elements have created an understanding, which is subject to various types of implementations.
Taking the examined into account, it appears that the concept of corporate governance has a very distinct and important place for both law and economy, thus especially in connection of both.
[1] http://www.oecd.org/daf/ca/corporategovernanceprinciples/31557724.pdf, Accessed: 10 January 2022
[2] Iskander, M., Chamlou,N., (2000), Corporate Governance: A Framework for Implementation, World Bank Group Washington, D.C., p.2
[3] Kahler, M., Lake, D., (2003), Governance in a Global Economy, Princeton University Press Princeton and Oxford, p.305
[4] Mallin, C., Corporate Governance, Oxford University Press, p. 26
[5] Ararat, M., Ugur, M., (2003), Corporate Governance in Turkey: an overview and some policy recommendations, The international journal of business in society, Vol. 3 Iss 1, p.58
[6] Aytekin I., Miles, M., Esen, S., (2013), Corporate Governance: A Comparative Study of Practices in Turkey and Canada, The IUP Journal of Corporate Governance, Vol XII No 2, p. 21
