Turkish Corporate Governance Principles
The CMB of Turkey has issued the Corporate Governance Principles of Turkey in 2004 and revised them in 2011 to restructure the capital markets and capital inflow process. Certain regulations of other countries have therefore been examined to promote such principles in accordance with the conditions in Turkey regarding the “OECD Corporate Governance
Principles” of 1999.[1]
The Principles involve publicly held joint stock companies and institutions capable of implementation of the public and private sector. The main understanding of the Principles is the ‘comply or explain’ rule, which means the implementation of the Principles are not mandatory. However, the institutions or companies are obliged to explain the reasons causing a non- implementation of the Principles in their detailed reports.
The Principles also have provisions under the title of recommendations stated as (R) indicating that these provisions are only advisory, thus they are not necessarily subject to a disclosure by the companies.
1. The Main Features Consisting Corporate Governance Principles
Corporate governance principles represent the companies’ structure of purposes and objectives and thereby mitigating tools in order to achieve those purposes. However, it is evident that there is no possibility to have only one applicable corporate governance model for each country. Because of that corporate governance principles comprise of main features accepted by all states and institutions implementing the Principles.
The main features of the corporate governance principles are:
✓ Fairness
✓ Accountability
✓ Responsibility
✓ Transparency
1.1. Fairness
The principle of fairness states the task of equal treatment of all shareholders by the board of directors. The purpose of this understanding is to protect the shareholders’ rights and make the abuse of their rights more difficult.
The principle of fairness does not separate the shareholders, i.e. minority shareholders and privileged shareholders are seen as equal. The legal framework should be shaped around the protection of minority and privileged shareholders’ rights against misconducts of managers and the board of directors.
The principle of accountability states that the framework of corporate governance rules should consider the strategic guidance of the company, monitoring of the managers by the board of directors and the board of directors should be accountable to the company and the shareholders.
Further, accountability includes the independent monitoring of activities of the company and to get the shareholders informed with regular reports.
The principle of responsibility underlines the understanding of recognition of the rights of the shareholders as it is stated in the agreements and to ensure co-operation among the shareholders and the company effectively. On the other hand, the company and its owners bear responsibility for the society.
In that context, the Principles stress that employees should be part of the management process of the company too and tools should be amended in order to encourage this understanding. Thus, communication between managers and the shareholders should be ensured by certain rules.
1.4. Transparency
The principle of transparency states that the financial, performance and management status of the company should be explicated detailed under any conditions and circumstances.
The given information should be in accordance with international auditing standards for instance the International Financial Report Standards (IFRS) and include activity processes of before, during and after the examination.
The Corporate Governance Principles of Turkey comprise of four parts consisting of shareholders, public disclosure and transparency, stakeholders and board of directors as listed below:
1. Facilitating the Exercise of the Shareholders’ Statutory Rights
2. Shareholders’ Right to Obtain and Evaluate Information
3. The Right to Participate in the General Shareholder Meeting
4. Voting Rights
5. Minority Rights
6. Dividend Rights
7. Transfer of Shares
8. Equal Treatment of Shareholders
1. Principles and Means for Public Disclosure
2. Public Disclosure of Relations between the Company and Its Shareholders, The Board of Directors and Executives
3. Periodical Financial Statement and Reports in Public Disclosure
4. Functions of External Audits
5. The Concept of Trade Secret and Insider Trading
6. Significant Events and Developments That Must Be Disclosed to the Public
Part III - Stakeholders
1. Company Policy Regarding Stakeholders
2. Stakeholders’ Participation in the Company Management
3. Protection of Company Assets
4. Company Policy on Human Resources
5. Relations with Customers and Suppliers
6. Ethical Rules
7. Social Responsibility
1. Fundamental Functions of the Board of Directors
2. Principles of Activity and Duties and Responsibilities of the Board of Directors
3. Formation and Election of the Board of Directors
4. Remuneration of the Board of Directors
5. Number, Structure and Independence of the Committees Established by the Board of
Directors
6. Executives
The first part of the principles deals with the shareholders’ rights in order to put them in an effective position within the company while ensuring communication between each other.
The right to obtain information, right to participate in meetings and regulations about voting procure the shareholders a more substantial position within the company. For instance;
Nilsson states that both, the OECD and the CMB in Turkey asserts that shareholders’ meetings are a significant tool in order to determine the financial and business related concerns of the company whilst minority shareholders have the right to be informed about transactions.[2]
Since technological developments affect the capital market, the OECD has made certain interpolations in that context, such as the voting without being present in the meetings. In equal measure, regarding the changes made by the new Turkish Commercial Code it is possible to vote without being actually present at the meetings, thus shareholders in Turkey can vote via electronic environments / devices. The new Code puts an electronic voting system into effect, standardizing a safe electronic signature. After this process the signature will be secured with the real signature of the shareholder.
Furthermore, there are other changes made in accordance with the corporate governance principles. For instance, a democratic understanding has been adopted within the parties in order to strengthen their legal position. Further, shareholders have certain types of cause of action concerning structural changes such as mergers and acquisitions. Also, shareholders have extended rights to demand information.
As can be noticed from the new Code, there are certain changes made in accordance with the OECD Principles to catch-up the corporate governance agenda for an appropriate harmonization process.
Fraud, Ethics and Social Responsibility, p. 8. (Available at:
http://icongfesr2011.tolgaerdogan.net/documents/internatonal_presantations/KIN07.pdf, p. 215 The main aim of the Principles concerning the shareholders is depicted with the table below:
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The Main Aim of the First Part of the Principles – Shareholders |
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I. The scope of the shareholders’ right to obtain accurate information is extended by a recommendation on inserting a special provision in the articles of association, which would allow this right to be exercised more effectively. |
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II. Companies should have in-house regulations consisting of provisions that would enable important decisions to be adopted at the general shareholder meeting only. |
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III. The effectiveness of voting rights should be increased and principles limiting voting privileges of shares should be included. |
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IV. Principles should be adopted in order to remove any impediment to the free circulation of shares. |
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V. Sound record keeping practices and the update of these records has strongly been advised. |
Public disclosure and transparency is an issue related to interactive information disclosure about the financial conditions in the market, explaining certain relationships through the company. The importance of this subject matter is how to ensure regular access to this information within the company.
The Public Disclosure and Transparency Principles state that; accurate, complete, comprehensible, interpretable and easily accessible disclosed information should be established in the company.
In order to disclose regularly updated information to the attention of the public about the values of the company, financial status and developments; the company’s website is a useful tool. Accordingly, the new Turkish Commercial Code has introduced a new article for the companies about having a website.
According to Tekinalp, the right to access information about a company is a functional expansion regarding transparency and materializing the corporate governance principles in Turkish law.[3] Thus, the actors of the capital market and investors will be able to reach the information they need such as financial tables, auditing reports and the like without any obstacle. Furthermore, if there is any violation of the right to access information on the website, the stakeholders’ entitled right to sue the company is protected. In Turkish law, stakeholders and shareholders have been given equal rights to ensure the sustainability of the company.
Furthermore, non- disclosure of a company may can result in sanctions by the
Communiqué Series VII ‘Communiqué on Principles Regarding Public Disclosure of Material
Events’. The Communiqué states that public disclosure shall be made within the “changes in the capital structure, purchase, sale, lease, changes in the corporation, and investments of the corporation.”[4] Otherwise, the company faces to be delisted from the market. Through this provision, the main aim of public disclosure and transparency will be provide in a certain way.
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The Main Aim of the Second Part of the Principles – Public Disclosure and Transparency |
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I. The aim of the Principle is to provide shareholders and investors accurate, complete, comprehensible and easy to analyze information. |
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II. To establish regular access to the shareholders and investors of the company about the financial and legal position of the company. |
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III. The company should use basic concepts and terminology rather than using vague expressions. |
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IV. The information should be unbiased regarding all parties. |
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V. The company should not refuse to disclose any information unless it is in the nature of a trade secret or result in any harm to company. |
2.3. Section III: Stakeholders
Stakeholders consist of the individuals or parties who are in close relationship with the company, such as directors, employees, creditors, suppliers and communities. Significantly, the Corporate Governance Principles mentions the stakeholders in Section III briefly in seven topics versus the extended scope of the shareholders in Section I.
According to the Principles, a company should protect the stakeholders’ rights, while procuring their attendance to the meetings and be in close relationship with the stakeholders in order to verify if they are satisfied with their goods and/or services the company offers.
The new Turkish Commercial Code also mentions the stakeholders with a pluralistic approach. In order to protect the wealth of the company the stakeholders are an essential element. Providing the actors of the capital market, employees, consumers, suppliers and distributors with information will result in fulfillment of the company’s aims.
The findings in the CMB survey explain the narrow scope of the stakeholders in the Corporate Governance Principles:
“According to the 2004 CMB Survey, 56 per cent of listed companies have stated that they are applying mechanisms to allow employees to participate in company management. However, since no details were provided about these mechanisms, the extent to which employees can make an impact on company management is not known. Furthermore, 76 per cent of the companies stated that they have written procedures on recruitment and 82 per cent have training plans and programmes in place for the development of their employees. Seventy-four per cent of the companies stated that job descriptions, performance and promotion criteria have been established and announced to their employees.”[5]
According to the survey findings, companies have detailed procedure for recruitment, performance and promotion. However, they also need to focus on the attendance of the employees in the management process, such as establishing mechanisms and encouraging stakeholders as it is stated in the Principles.
Furthermore, there is an issue with the Principles concerning the stakeholders in Turkey in contrast to the member states of the European Union. According to Kort, putting both the shareholders and stakeholders in the same position will cause problems in the management process, such as bringing certain interests up against the shareholders’ benefits in the company.[6] Furthermore, this issue might be outside of the agenda nowadays, because of the novelties in the field of the stakeholder-oriented system throughout the world aiming to move barriers within societies as well as countries.
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The Main Aim of the Third Part of the Principles – Stakeholders |
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I. The Principles aim to take into consideration stakeholders’ suggestions and opinions in order to get information about the status of the company from their point of view. |
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II. To respect the stakeholders will provide long term advantages for the company, thus to secure the stakeholders by law and arrangements. |
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III. To focus on the stakeholders’ interests and rights while examining these concepts in a separate section. |
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IV. To strengthen the relations between the stakeholders and the company and shareholders. |
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V. To consider social responsibility, which is one of the most significant purposes, so that the company shows a mitigating sensitive approach to the environment and the needs of the social members. |
2.4. Section IV: Board Of Directors
The board of directors is the strategic body of the company, which represents the company in accordance with its purposes, policies and understandings. Boards have the duty to monitor the management process, performing in a fair, transparent, accountable and reliable manner.
According to Kanbur, the difference of the board of directors’ position in the company compared with other parts of a company is, the board of directors has an impact on the structural power upon organizational values in the company.[7] Furthermore, the organizational culture and developmental values affect the values of the company. In order to achieve the aims of the company, the activities of the board of directors and managers represent a key factor for the improvement on an operational, tactical and strategically level of the company.
In the new Turkish Commercial Code, the board of directors is accepted as a professional branch, stating a certain differentiation between the shareholders and board of directors in accordance with the corporate governance understanding. Another important notion in the Code is that the board of directors is not considered as an agent of the shareholders and is thereby considering the interests of stakeholders, too. Furthermore, there are new regulations concerning an early identification of a crisis.
The general overview of the Principles dealing with the Board of Directors illustrates that it consists of key elements regarding functions, remuneration and independence of the board in a very detailed structure.
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The Main Aim of the Fourth Part of the Principles – Board of Directors |
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I. To raise the company’s market value and effectively revise the goals and standards of the company. |
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II. To stress the strategic body of the company in the management process. |
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III. To provide balance between the shareholders and the stakeholders of the company. |
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IV. To have an independent body in the decision-making, representation and management process. |
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V. To specify the responsibilities of the board of directors in order to prevent misconducts in the company. |
After reviewing the content and aim of the Corporate Governance Principles in Turkey, the following chapter the OECD Report for these Principles will be examined with its pros and cons and developments in accordance with this report including changes in Turkish Commercial Code will be depicted.
Deniz Yahşi, LL.M.
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. 215
Avaliable at: http://www.cmb.gov.tr/apps/teblig/displayteblig.aspx?id=237&ct=f&action=displayfile
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. 224
Full text available at:
http://www.spk.gov.tr/displayfile.aspx?action=displayfile&pageid=55&fn=55.pdf CMB Principles Preamble, p.7
Kanbur, A., (2011), The Role of the Board of Directors in the Values of Corporate
Governance Culture: Empirical Evidence from Turkey, 3rd International Conference on Corporate Governance, Fraud, Ethics and Social Responsibility, p. 8. (Available at:
http://icongfesr2011.tolgaerdogan.net/documents/internatonal_presantations/KIN07.pdf
Kort, M., (2007), Standardization of Company Law in Germany, other EU Member States and Turkey by Corporate Governance Rules, European Company and Financial Law Review, p. 393, 396
Tekinalp, U., (2008), Ugur Alacakaptan’a Armagan – Turk Ticaret Kanunu Tasarisinin Kurumsal Yonetim Felsefesine Yaklasimi, Istanbul Bilgi Universitesi Yayinlari, p. 644
[1] Full text available at:
http://www.spk.gov.tr/displayfile.aspx?action=displayfile&pageid=55&fn=55.pdf, CMB Principles Preamble, p.7
[2] Kanbur, A., (2011), The Role of the Board of Directors in the Values of Corporate Governance
Culture: Empirical Evidence from Turkey, 3rd International Conference on Corporate Governance,
[3] Tekinalp, U., (2008), Ugur Alacakaptan’a Armagan – Turk Ticaret Kanunu Tasarisinin Kurumsal Yonetim Felsefesine Yaklasimi, Istanbul Bilgi Universitesi Yayinlari, p. 644
[4] Avaliable at:
http://www.cmb.gov.tr/apps/teblig/displayteblig.aspx?id=237&ct=f&action=displayfile
[5] Kanbur, A., (2011), The Role of the Board of Directors in the Values of Corporate Governance Culture: Empirical Evidence from Turkey, 3rd International Conference on Corporate Governance, Fraud, Ethics and Social Responsibility, p. 8. (Available at:
http://icongfesr2011.tolgaerdogan.net/documents/internatonal_presantations/KIN07.pdf, p. 224
[6] Kort, M., (2007), Standardization of Company Law in Germany, other EU Member States and
Turkey by Corporate Governance Rules, European Company and Financial Law Review, p. 393, 396
[7] Kanbur, A., (2011), The Role of the Board of Directors in the Values of Corporate Governance Culture: Empirical Evidence from Turkey, 3rd International Conference on Corporate Governance, Fraud, Ethics and Social Responsibility, p. 8. (Available at:
http://icongfesr2011.tolgaerdogan.net/documents/internatonal_presantations/KIN07.pdf)
