Do Corporate Governance Index Companies Outperform Others? : Evidence From Turkey

A recent academic work conducted by Evren Dilek Sengur from Istanbul University showed that companies that are part of Corporate Governance Index have no difference than their peers listed in ISE-50 index in terms of performance calculated in ROA & TobinQ.

Analysis conducted with the 31 companies listed in Corporate Governance Index (corporate governance index companies) and 36 companies listed in ISE-50 which are not listed in Corporate Governance Index (non-corporate governance index companies).

However in 2011, corporate governance index have outperformed ISE-100 index by 5% so far.

Never Ending Story

QVT Fund ("QVT"), an approximately 7.15% shareholder of Galatasaray Sportif Sinai ve Ticari Yatirimlar A.S. ("Sportif"), disclosed that it had sought to include in Sportif's May3, 2010 General Assembly Meeting agenda measures intended to provide for an open and transparent disclosure of the improper loans and other actions of Sportif's Board of Directors, including violations of Sportif's Articles of Association, directives from the Capital Market's Board and Turkish Law.

More details are stated in QVT's letters to Members of the Board of Directors of Galatasary Sportif.

Third International Corporate Governance Summit

Corporate Governance Association of Turkey is one of the key players promoting corporate governance in Turkey. Beyond all structural problems apparent in Turkish corporate environment, Capital Markets Board of Turkey advocates good governance for listed companies.

Third International Corporate Governance Summit will take place on January 14th 2010, with particular emphasis on "corporate governance for competitiveness".

The question is that are the publicly traded companies in Turkey do really understand importance of corporate governance. Answer is easy to observe, please check how many sponsors do corporate governance summit have?

Capital Markets Board of Turkey to sue executives of publicly traded company

Turkish media baron Aydin Dogan and three Dogan executives caused losses to Dogan-owned media companies Hurriyet Gazetecilik (HURGZ.IS) and Dogan Gazetecilik are to be sued by the Capital Markets Board said in a bulletin on its website dated September 25th, 2009.

The Capital Markets Board (SPK) accused four executives of Hurriyet Gazetecilik and Dogan Gazetecilik for intentionally causing losses by purchasing paper and publishing supplies from offshore companies. This action just followed the Finance Ministry's punishing fine of TL 3.76 billion ($2.53 billion) on Doğan Yayın Holding for evading tax regarding its accounts for a time period covering 2005, 2006 and 2007.

Beyond all ongoing discussions, from good governance point of view this situation seriously damaged and will damage investors who owns stock shares of Dogan Group companies. It is for sure that there are serious lessons to be taken from this unfortunate development.

Turkey should align its laws with that of its European counterpar

Turkey should align its laws with that of its European counterparts, and particularly the European Directives on Takeover Bids

A recent study prepared by Gide Loyrette Nouel, an international law firm, and published by EBRD in May 2009 discusses that capital markets regulations as well as justice system in the context of mandatory tender offer are still not sufficient to deliver rights and justice.

Capital Markets Board has the regulatory responsibility to protect shareholders of publicly traded companies in Turkey. Indirect acquisitions are not expressly regulated under the CMB regulations. However the CMB has adopted a practice in indirect acquisitions of calculating the offer price based on the weighted average exchange trading price of the shares of the listed subsidiary for the three-month period before the date of the acquisition triggering the tender offer.”

Here is a significant example from the study published by EBRD to show how regulations are lacking to guide market participants.

Finansbank in April 2006 officially announced that National Bank of Greece signed agreement to purchase a 46% stake in Turkey's Finansbank from Fiba Holding and Fiba Group companies for US$2.8 billion (€2.3 billion).

With its decision dated December 6, 2006, the CMB approved the mandatory tender offer price proposed by the acquirer which had been calculated based on a weighted average of the subsidiary’s stock price during the three months preceding the change of control over the target. However this calculated mandatory tender offer price was lower than the actual trading price on the date of the CMB’s approval.

“In relation to the acquisition of Finansbank by the National Bank of Greece one of the shareholders of the listed company of Finansbank, Finansal Kiralama A.S., namely East Capital Asset Management challenged the decision of the CMB claiming that the offer price should not be less than the trading price of the shares.

The Administrative Court reviewing the matter ruled for the claimant shareholders, cancelling the CMB decision approving the tender offer with immediate effect at May 16, 2008. The CMB initially appealed the ruling of the Administrative Court thereafter adopted a second decision requiring the purchaser, National Bank of Greece, to apply to the CMB for a second tender offer and provide with this application the calculation on the shares of the listed subsidiary. The purchaser, the National Bank of Greece, provided the valuation for the shares, but challenged the CMB decision requiring a second tender offer to be launched by filing an administrative lawsuit on the grounds, among others, that the tender offer was already completed. So to say litigation path is a long and burdensome one for the minority shareholders with no guaranteed time frame and outcome.

Market participants are still waiting draft CMB communiqué prepared in April 2009 to be valid for further clarification.

As study concludes it is time for Turkey to revisit and improve the protection of minority shareholders’ rights in the context of mandatory tender offer rules. In so doing, Turkey should also align its laws with that of its European counterparts, and particularly the European Directives on Takeover Bids, in line with its commitment to adopt the European Union’s acquis communautaire.

IIRA and TCR in Turkish market deal(5/3/2009)

Islamic International Rating Agency (IIRA) has entered into a cooperative agreement with Turk Credit Rating Agency (TCR). Under this agreement, TCR will introduce IIRA’s products and services to the Turkish market, according to a press release on the IIRA’s website. Based in Manama Bahrain, IIRA is a regional rating agency which started its operations in 2005. IIRA claims it is completely independent and transparent, and follows a “consistent methodical and rigorous analytical process consistent with international best practice.”

IIRA is recognised by Central Bank of Bahrain as an External Credit Assessment Institution and is also on the list of approved rating agencies by the Islamic Development Bank in Saudi Arabia. Since its inception, IIRA said it has been expanding its client base and organisational capability to carry out rating assignments and currently has clients in many countries including Bahrain, the UAE, Kuwait, Turkey, Jordan, Pakistan and Indonesia. Turkish Credit Rating Agency (full name TCR Kurumsal Yonetim ve Kredi Derecelendirme Hizmetleri), is based in Istanbul and is incorporated under the regulatory framework of the Capital Markets Board in Turkey. The company was established in mid-2007, and received its credit rating and corporate governance rating licenses in mid-2007 and mid-2008, respectively. IIRA recently completed its sovereign rating of Turkey, subsequent to which it assigned a credit rating to one of the leading participation banks in Turkey. The management of IIRA and TCR believe that the efforts of both the parties under this cooperative agreement and technical cooperation will bring more awareness about ratings and will contribute to development of a healthy rating culture in the Turkish market

New Step For Advanced Transparency in Turkey

In what is a first for Turkey, in an attempt to establish transparency in capital markets and to inform investors about the fiscal situation and financial performance of companies whose shares are publicly traded, the Capital Markets Board of Turkey, or SPK, will keep an eye on salaries of chief executives.

Turkish Capital Market Board (SPK) will examine salaries of chief executive officers which were kept secret so far. The board will fine the company that would not give information about financial earnings of key executives.

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DUYURU 2.
Sermaye Piyasasında Finansal Raporlamaya İlişkin Esaslar Tebliği’ne göre (Seri:XI, No: 29) finansal tablo hazırlamakla yükümlü şirketler tarafından kilit yönetici personele sağlanan menfaatlerin finansal tablo dipnotlarında açıklanıp açıklanmadığına ilişkin yapılan inceleme sonucunda; Kurulumuzun Seri:XI, No:29 sayılı Tebliği’ne göre finansal tablo düzenleyen şirketlerin, finansal tablolarının dipnotlarında kilit yönetici personele sağlanan menfaatler ile ilgili yeterli bilgi verilmesi konusunda gerekli dikkat ve özenin gösterilmesi ve bundan sonra konu ile ilgili gerekli açıklamaları yapmayan şirketler hakkında ilgili mevzuata aykırılık kapsamında işlem yapılacağı hususlarında Kurulumuz Haftalık Bülteni vasıtasıyla uyarılmalarına karar verilmiştir.

Scrapping Founder Shares

Garanti Bank is going to repurchase founder share certificates (with having right to receive 10 % of payable dividend and without having voting rights). Bank decided to eliminate the founder share certificates to eliminate the negative impact they have over the market value of the Bank's shares. Founder shares of the Bank are entitled to a significant cash flow out of Bank's earnings, redemption will enable Garanti Bank to unburden cash outflows, higher retained earnings will help finance high growth of the Bank, which will create value of Garanti Bank shareholders. Ordinary shareholders will be able to receive dividends from a larger pool of distributable profit. Currently cash outflows to Founder shareholders exerted a downward pressure on Garanti Bank share price as the Founder dividends penalized ordinary shareholders.

Same kind of procedure had been undertaken by Akbank in 2005.

A wide range of dual-class structures exist in Turkish corporate environment. Dual share structures are unfair and give economic power to superior shareholders while facing the same financial risk with minority ones.

Move to Improve Corporate Governance in Turkey

After a long period of time, Capital Markets Board of Turkey made a move to improve corporate governance environment. Capital Markets Board of Turkey published several new rules that will help publicly traded companies to give more emphasis on corporate governance principles. Capital Markets Board of Turkey (CMB) issued “Corporate Governance Principles” in July 2003 and revised in February 2005. Although previously it was left to companies to be compliant with corporate governance principles, new rules are obligatory for all publicly traded companies.

The importance of the new coming rules and guidelines were introduced in a CMB statement. According to the new rules publicly traded companies are required to disclose related party transactions exceeding 10 % of company’s sales or assets, have investor relations department and to employ licensed investor relations manager.

Updated Corporate Governance Score - VESTEL

ISS assigned a corporate governance rating score of 8.5 (82.57%) to Vestel, up from last year's 7.5 (75.91%) level. ISS, the world's leading provider of corporate governance and proxy voting solutions, assigned a corporate governance rating score of 8.5 (82.57%) to Vestel, up from last year’s 7.5 (75.91%) level. ISS Corporate Services stated in its report that the rating reflected the very good overall performance of the company regarding its current corporate governance structures as measured against the Principles of the Turkish Capital Markets Board (CMB). Vestel scored particularly well in its Stakeholders standards, slightly lower on its Board of Directors practices.

Click here for the report.

ISS assigned a corporate governance score to Sekerbank

ISS Corporate Services, the corporate governance research house, has awarded Sekerbank 7.1 out of 10.0 rating for its corporate governance. This is the first rating ISS has awarded a Turkish finance institution. The rating is based on the corporate governance regulations issued by Turkey's Capital Markets Board (SPK) in July 2003. Companies that get a rating of 7.0 or above out of 10 from ISS Corporate Services can be included in the Corporate Governance Index of Istanbul Stock Exchange (IMKB).
So far seven listed companies have been rated in accordance with CMB corporate governance rules. These are; Dogan Yayin Holding (DYHOL.TI), Hurriyet Gazetecilik (HURGZ.TI), Tofas (TOASO.TI), Turk Traktor (TTRAK.TI), Tupras (TUPRS.TI), Vestel (VESTL.TI), Y&Y GYO (YYGYO.TI).

Tracking Progress: A Look at Turkish Governance Developments

In a recent bulletin published by Risk Metrics Group, governance develeopments over the past year in Turkey is reviewed through an interview with good governance advocate Melsa Ararat.
In the interview, Ararat has underlined the fact that Turkish companies are reluctant to disclose ownership structure and relationships between the companies and the subsidaries. Another important issue is that of shareholder agreements between controlling shareholders in M&A transactions. Interview provides important insights into current of Turkish Corporate Governance.

More is available at http://www.riskmetrics.com/pdf/kosmas_cgb_sept_2007.pdf

The Approach of Turkish Workforce Ethics Survey 2007

Ethical Values Foundation of Turkey has released the results of "The Approach of Turkish Workforce to Ethics" survey. The objective of the survey is to find out the approach of Turkish workforce to ethics and corruption in general and to business ethics in general. One of the striking result of the survey is that 49.4 % of the respondents find business environment in Turkey unethical.

Do Corporate Governance, Independent Boards & Auditors Affect Market And Financial Performance:An Application To Istanbul Stock Exchange

In a recent study, level of implementation of the corporate governance principles by Turkish listed companies and the intermediary institutions are analyzed in detail.

"The Evaluation of the Questionnaire Results"
• Out of the total 513 traded companies and member firms of the ISE, 358 of them have responded to the questionnaire. 52% of the respondents have replied that they were aware of corporate governance principles and standards.
• The majority of the board members are also appointed at several other companies belonging to the same group.

• A kinship exists between the board members and major shareholders. Such relationship is at a higher level in the ISE member firms, in particular.
• The financial rights of board members are not performance-based, to a great extent, in Turkey.
• The major shareholders decide on the appointment of the board members and key executives.
• The disclosure requirements for companies traded on the ISE are well developed.
• Programs for promoting employee share ownership have not yet become widespread.
• Members of the board of directors do not utilize, to a great extent, their authority to restrict pre-emptive rights of the existing shareholders in capital actions.
• Voting rights are classified into different groups in only 17% of the ISE trading companies and member firms.
• Setting up employees’ foundations and funds are not widespread among the traded companies.
• The roles of the chairman and the executive at the top level who is responsible of operations, i.e., the chief executive officer, have not been separated. Examples of such a distinction are limited.
• It is not common to nominate independent members in the board of directors
• The effectiveness of the legal auditors appointed pursuant to the Turkish Commercial Code should be increased.
• It is more common for the ISE traded companies to issue preferred stocks compared with the ISE member firms.
• An inspection department exists approximately within 20% of all the companies operating in both the manufacturing and financial sectors.
• The classification of voting rights into different groups and issuance of preferred stocks in the financial sector is three times higher than in the manufacturing industry.
• The financial and market performance of those companies that have implemented corporate governance principles is higher than those which have implemented corporate governance to a lesser degree."

Moreover researchers have come to the conlusion that a linear relationship exists between the companies’ performances that increase in the positive direction and the implementation of corporate governance principles.

First Turkish media firm rated for corporate governance

ISS Corporate Services, the corporate governance research house, has awarded Hürriyet an 8.0 out of 10.0 rating for its corporate governance. ISS is a subsidiary of the London-based RiskMetrics Group. This is the first rating ISS has awarded a Turkish print media institution. Justin Reynolds, director at ISS, told the Turkish Daily News that ISS makes the research on the basis of thorough evaluation of four areas of corporate governance. “We assess the rights and duties of shareholders, the firm's commitment to shareholder value, transparency and corporate governance disclosure as well as accountability, i.e. board structure and the way it functions,” he said.The rating is based on the corporate governance regulations issued by Turkey's Capital Markets Board (SPK) in July 2003. Companies that get a rating of 7.0 or above out of 10 from ISS Corporate Services can be included in the Corporate Governance Index of Istanbul Stock Exchange (IMKB).“

Report is available at official website of Hurriyet

Dogan Yayın Holding’s national corporate governance rating score has been increased

Dogan Yayın Holding’s national corporate governance rating score has been increased to 8,5 from 8,0 over 10 by “ISS Corporate Services, Inc. (ISS)”, the leading global corporate governance rating organization.
In Turkey, corporate governance rating activities are performed in compliance with the “Corporate Governance Principles” issued in July 2003 and revised in February 2005 by the Capital Markets Board of Turkey (CMB). CMB Corporate Governance Principles are in compliance with ‘OECD Corporate Governance Principles,’ issued by OECD in 2004; furthermore, the document includes the country-specific principles and practices in accordance with OECD recommendations.
As from the issue of CMB Corporate Governance Principles in 2003, Dogan Yayın Holding has performed significant action with the aim of accommodating the company and its publicly listed companies with the corporate governance principles and pursue its organizational structure and activities to this effect.
ISS has highly rated the ‘public disclosure and transparency’ sub-category activities of Doğan Yayın Holding by assigning 9,5 over 10.
Mr. Mehmet Ali Yalçındağ, the CEO of Doğan Yayın Holding emphasizing the importance of corporate governance practices, stated that: “best practice approaches will help companies to increase their reputation and is key to sustainability and consistency; while there is an increasing interest in Turkish companies and as we are in The EU accession period, companies that achieve both financial performance and good governance will draw attention and be upfront”. In his interview he also mentioned that, the work done has started to create permanent results and the following has been stated: “as being a company, with its corporate governance practices, presented as a case study this year in the ICCA’s 2nd International Conference on the Globalization and the Good Corporation, Doğan Yayın Holding is to be included in the Corporate Governance Index to be issued by ISE; perpetuating the leading position in this field and changing into a global unique example for the media organizations worldwide .

Corporate Governance in Emerging Markets

On behalf of the Organizing Commitee, Melsa Ararat and Burcin Yurtoglu have announced the forthcoming international Conference on Corporate Governance in Emerging Markets which will take place in Istanbul, Turkey from 15-17 November 2007. The conference is organized by the Global Corporate Governance Forum (GCGF) and Asian Institute of Corporate Governance (AICG).

This conference which will take place at the campus of Sabanci University in Istanbul from 15-17 November 2007 will debate some key issues regarding corporate governance in emerging markets, including political power and corporate control, the relationship between financial sector development and corporate governance, the role of corporate boards in emerging markets and issues related to enforcement mechanisms.

Programme of the conference can be reached at http://www.emcgn2007.com/default.aspx

Fitch Report: Corporate Governance - The Turkish Perspective

Fitch Ratings says in a special report that significant emphasis is placed on corporate governance when assigning ratings to Turkish corporates. Weak corporate governance is perceived as a negative rating factor and may restrict a company's rating, regardless of how strong its financial profile may seem.

Following the wave of macroeconomic restructuring in Turkey in the wake of the 2001 financial crisis, and the privatisation trend of the last decade, many major Turkish corporates have materially improved their corporate governance practices, driven primarily by their expansion and integration within the international capital markets. Visible progress has been achieved in transparency, particularly with regard to financial information disclosure and ownership structures. However, challenges remain with regard to board quality and related-party transactions due to the predominance of family ownership, combined with wealth concentration and sometimes complex ownership structures.

Turkey is currently implementing structural reforms and striving to improve its corporate governance as part of its long-term strategy to prepare for European Union membership. Fitch expects that the long-awaited Turkish Commercial Code will increase investor focus on corporate governance and improve transparency of ownership structures as well as intra-group transactions, key areas in Fitch's corporate analytical work.

Fitch believes that companies with poor corporate governance tend to have lower ratings. While it is important to emphasise that no single factor, but rather a combination of factors, determines a rating, weak governance tends to be pervasive and have a negative impact on business operations, and consequently on financial performance - which is then reflected in the rating.

Fitch's full report 'Corporate Governance - The Turkish Perspective' is available on the agency's public website at 'http://www.fitchratings.com/'.

TOFAS Declared Corporate Governance Rating

SAHA Kurumsal Yönetim ve Kredi Derecelendirme Hizmetleri A.Ş. has declared the corporate governance rating of TOFAŞ Türk Otomobil Fabrikası A.Ş. as 75.72 (7.57 over 10). This has proven that the Company showed a good performance within the scope of the existing Corporate Governance applications in accordance with the Corporate Governance Principles of CMB.

As a result of the Corporate Governance Rating Report consisting of 4 main titles in accordance with the Corporate Governance Principles of the Capital Market Board, namely; Shareholders, Public Information and Transparency, Stakeholders and Board of Directors, Tofaş is rated with 7.57 over 10 as a general average.

The evaluation is based on the Corporate Governance Principles of CMB issued on the basis of OECD regulations.

This has proven that Tofaş showed the value and importance attached to the public and its shareholders by implementing the Corporate Governance applications.

The issuance of report has finalized one of the prerequisites on implementation of Corporate Governance Index that will become an important reference with regards to compliance of Companies listed in Istanbul Stock Exchange with the Corporate Governance Principles.

Corporate Governance: Turkish Transparency And Disclosure Survey 2007

Standard & Poor's Governance Services and the Corporate Governance Forum of Turkey (CGFT) at Sabanci University in Istanbul monitored and assessed corporate response to regulation and market circumstances by conducting the survey over three successive years with the objective of providing a comparative insight into the disclosure practices of Turkish companies.

According to the results of the survey transparency and disclosure practices at leading Turkish companies have improved only marginally since 2006.

Report underlines some important issues for International Investors:

- Companies' articles of association, which were not usually disclosed in the past, are now increasingly becoming available on companies' Web sites as recommended by the Capital Markets Board of Turkey. This is particularly important as the shareholders' rights are primarily governed by the articles of association.

- Some companies have multiple classes of shares, with shareholders' agreements between the
holders of different classes. We observed no disclosure of such agreements.

- Given the typical family ownership structure of Turkish companies, the assignment of the right to nominate board members is particularly important for noncontrolling shareholders. Board nomination is a shareholder right according to Turkish company law. Any voting agreements between major shareholders must therefore be clearly disclosed and/or articulated in the articles of association. Only one company disclosed board nomination processes.

- It is fairly common for representatives (often executives) of holding companies to sit on the boards of subsidiary companies with an explicit mandate to deliver/impose the policies of the holding company. We observed no disclosure of such policies or practices, which raises concerns about the role and effectiveness of subsidiary boards within holding structures.

Lis of Top Performers

2007	2006	2005
Akbank T.A.S.	Akbank T.A.S.	Akbank T.A.S.
Anadolu Efes Biracilik ve Malt Sanayi A.S.	Anadolu Efes Biracilik ve Malt Sanayi A.S.	Anadolu Efes Biracilik ve Malt Sanayi A.S.
Enka Insaat ve Sanayi A.S.	Koc Holding A.S.	Dogan Yayin Holding A.S.
Koc Holding A.S.	Petrokimya Holding A.S.	Koc Holding A.S.
Turkcell Iletisim Hizmetleri A.S.	Turkcell Iletisim Hizmetleri A.S.	Turkcell Iletisim Hizmetleri A.S.

Report is available at www.ratingdirects.com and can be requested from cgft@sabanciuniv.edu

Share call is announced as the condition of GALATASARAY merger

Capital Markets Board of Turkey demanded that before they could accept the merger application for evaluation, Galatasaray Sportif has to make a share call. CMB stated that the share call price should not be lower than the last three month average of weighted average prices, which would be calculated as for the term prior to their initial merger announcement on 4 August 2006. Calculated price for the share call is TRY 108.5, which is 33% higher than 26/04/2007 closing of TRY 81.5.

Dispute on Shareholder Rights at Galatasaray

Merger application of Galatasaray Sportif AS (GSRAY.TI) with its parent company Futbol AS triggered serious dispute on shareholder rights. From 2006 to 2007, the market cap of Galatasaray Sportif AS plummetted from 230 Million USD to 121 Million USD with harming the shareholders.

A recent note on the dispute is coming from www.footballeconomy.com; several investors in the merchandising arm of leading Turkish club Galatasaray are locked in a dispute with the club's owner over minority shareholding rights. These investors, including several London-based fund managers, object to a proposal by the club's unlisted parent company to merge the merchandising division, known as Galatasary Sportif, with its footballing side. They claim that such a move, among other things, contradicts statements in the prospectus issued when they invested in the division that ring fenced its revenues from those of the rest of the club. QVT Financial, a $5.5bn investment management firm, that owns about $20m of Galatasary Sportif stock, has complained to the Turkish market watchdog, the Capital Markets Board. The firm, and other shareholders, want the watchdog either to block the merger or to order the parent company to buy them out at the price the stock traded at before the merger was proposed last summer, which is at least 50 per cent higher than its current share price. QVT says the CMB's approach to the merger proposal is a crucial test to verify the Turkish market's reliability in the eyes of international investors, but the watchdog seems to be more inclined to view it as a dispute between shareholders which may not break any laws.

Possible consequences of the merger is also discussed in recent information note prepared by Raymond James Securities-Turkey at April 2nd,2007. (free subscription is required)

Sportif AS was established in 1997 to manage all marketing activites of Galatasaray Sports Club. The company generates majority of its revenues from the sale of media rights of hte Sports Club.

Several share classes exist and the main difference between the share types is the nomination to the board and auditors. B type shares have no privileges, while A and D type shares nominate 6 and 1 members, respectively.

37.0 % of shares are publicly traded, all are B type, and 18.2 % of free float is owned by QVT, a UK based fund.

Corporate Governance Reforms in Continental Europe

According to the recent research conducted by Luca Enriques and Paolo Volpin "corporate governance in continental Europe traditionally differs from that in the United States in two important ways: first, most European companies have controlling shareholders, while most American corporations are widely held; second, the regulations on self-dealing have traditionally been stricter in the United States.

In the last 15 years, France, Germany, and Italy have enacted significant corporate law reforms to strengthen the mechanisms of internal governance, empower shareholders, enhance disclosure requirements, and toughen public enforcement. Special emphasis was placed on empowering minority shareholders and on disclosure, which are the most effective tools for countering abuses by dominant shareholders."

The writers put particular emphasis on the reforms made to resolve the problem of related-party transactions and preventing self-dealing by controlling shareholders.

In Turkey, concept of minority shareholder is defined very recently with Capital Markets Board's Corporate Governance Principles. But in the past non-controlling shareholders experienced unjust treatment.

Vestel became the third ISE listed company that received a corporate governance rating score.

ISS, the world's leading provider of corporate governance and proxy voting solutions, assigned a corporate governance rating score of 7.5 (75.91%) to Vestel Elektronik. ISS Corporate Services stated in its report that the rating reflected the good overall performance of the company regarding its current corporate governance structures as measured against the Principles of the Turkish Capital Markets Board (CMB). Accordingly, Vestel became the third ISE listed company that received a corporate governance rating score.

Vestel performed satisfactorily in all of the four main components (Shareholders, Public Disclosure & Transparency, Stakeholders, Board of Directors) of the rating, though showing particular strength in its Shareholders area.

In the pursuit of Beneficial Owner

According to the presentation prepared by Capital Markets Board of Turkey, the main characteristic of Turkish corporate sector is concentrated ownership. In another words Turkish ownership pattern may be classified as block share ownership pattern (that is, listed companies whose shareholder base consists of one or a small number of shareholders who each own a relatively large block of shares). This feature is deemed to be one of the reasons of weak corporate governance practices in Turkey.

In order to overcome this shortcoming several steps are taken by CMB. The most important step is the introduction of the concept of beneficial ownership with CMB's Corporate Governance guidelines. In addition, companies are recommended to disclose the beneficial ownership in their annual reports. Moreover pursuant to CMB's "communiqué on principles regarding public disclosure of material events"; changes in capital structure and control of the corporation are required to be disclosed to public.

Required changes are classified as follows according to this Communiqué;
* change in the control of management, either directly or indirectly due to changes in the capital structure, voting rights of shares,
* cases of changes either wthin the direct or indirect ownership of 5%, 10%, 15%, 20%, 25%, 1/3, 50%, 2/3 or 75% or moreof the total voting rights or capital of the corporation by real or legal person,
* direct or indirect ownership of 5%, 10%, 15%, 20%, 25%, 1/3, 50%, 2/3 or 75% or more of the total voting rights or capital by the mutual funds founded by the same legal person,
* purchase or sale of the stocks of the corporation by such persons as chairman or members of the board of directors, general directors or assistant general directors, shareholders who directly or indirectly own 5% or more of the capital or voting rights,

Notes to Readers of Corporate Governance in Turkey

Technical Committee of IOSCO (INTERNATIONAL ORGANIZATION OF SECURITIES COMMISSIONS) in consultation with the Organisation for Economic Co-operation and Development (OECD) prepared a detailed report to gather information and identify dominant trends with respect to corporate governance standards, more particularly with respect to the independence of boards, not to pass judgement on actual corporate governance standards or practices in individual jurisdictions or, even less, to determine “best practice” with respect to standard-setting or company practices.

The report is composed of two main parts. These are "the corporate governance environment" and "standards related to board independence".

Here is a summary of Turkey's corporate governance environment with respect to information given in this IOSCO's report. In Turkey;

Overview of Listed Companies
* 316 companies are listed in Istanbul Stock Exchange with a total market capitalization of 162,392 Million USD as of December 2006.
Ownership Patterns
* Ownership pattern may be classified as block share ownership pattern (that is, listed companies whose shareholder base consists of one or a small number of shareholders who each own a relatively large block of shares).
Board Oversight Structures
* The traditional single-tier oversight structure used but the current situation is continuing to evolve through the creation of specialist sub-committees, such as audit, nomination and remuneration (or compensation) committees. Where such sub-committees are required, all these jurisdictions either require or recommend that the sub-committee include board members who meet specified criteria for independence.
Corporate Governance Guidelines
* Securities regulator (Capital Markets Board of Turkey) is directly responsible for the development of corporate governance guidelines.
* Companies are required to not only disclose in their annual report the extent to which they have implemented the corporate governance principles and the reasons for any non-compliance, but to also indicate whether the company plans to change its corporate governance practices in the future.
Rules on personal liability
* There are specific rules discharging board members from liability for board decisions taken without their participation or with their opposition.
* Shareholders holding more than 5% of the capital can force the company to initiate legal action, even if the general meeting voted against, although they are required to deposit their shares as a guarantee.
Disclosure of personal and professional information
* There are requirements for public disclosure (not only towards shareholders) of biographical and professional information about all board members, including those who are not candidates for re-election.
Availability and dedication
* Companies are recommended to adopt rules restricting the number of outside board memberships or other external commitments that board members can assume.
Induction courses and training
* Companies are encouraged to offer their newly appointed board members orientation courses about the business of the company.
* Companies are encouraged to offer continuous trainingfor board members.
Access to advice and information
* There are two general standards focusing on board members’ access to information. The first is access to external legal, accounting or other specialist advice, at the company’s expense.
* The second standard is access to the company’s records, management and staff. Board members may request this information during board meetings.
Evaluation
* A periodic evaluation of each board member is recommended.
Standards relating to compensation levels
* The recommendation is to calculate compensation on the basis of the time actually devoted to the company and the hourly compensation of the company’s CEO.
Persons or committees determining compensation
* The remuneration of independent board members must be approved by the shareholders’ general assembly.
Classifications of Board Members
* Board members are classified as executive and independent.
Negative criteria
* Relationship to significant shareholders is seen as one of the negative criterion relating to the board member’s status.
* Negative criteria apply to relationships that the board member may have with companies related to the company and not just the company itself. The relevant relationship for the criteria of not being a member of the management of the company or an employee or a business associates is "between the company, its subsidiaries, affiliates or any other group company.
* Not to have material business relations with the company or its group, within a look-back periods ranging from 1 to 3 years.
* Not to be an employee of the company or a company in the group.
* Not to receive compensation from the company or its group other than directorship fees.
* Not to have been an employee of the external auditor of the company or of a company in the group within 2 years period.
* Not to exceed some maximum tenure as a board member. This tenure is 7 years, the board member may remain on the board but cannot be considered as independent.
* Not to be or represent a significant shareholder. Being, representing, or having links with a significant or substantial shareholder deemed as a negative criterion for independence. The definition of “significant shareholder” is defined as 1%.
Determination and disclosure of independence of individual board members
* Independent directors must submit to the company an annual statement declaring their compliance with the independence criteria and this has to be filed with the Stock Exchange by the company.
* The minimum recommended proportion of independent board members to total board members is one third.
Audit Committee
* The existence of an audit committee is mandatory for listed companies.
* It is recommended that independent board members should constitute at least one half of the committee members.
* It is recommended that an independent board member chair this committee.
Other Committees
* There standards recommending or requiring the establishment of other standing committees such as: risk management committees, board evaluation committees.

Turkcell receives Europe's Most Preferred "Investor Relations" Web Site Award

Turkcell was awarded “the most preferred website in Europe by the direct vote of investors and analysts” in the “IR Global Rankings”, the world’s most important website ranking system in the field of investor relations.

Turkcell (NYSE:TKC,ISE:TCELL) Turkey’s leading GSM operator Turkcell was awarded “the most preferred investor relations website in Europe” by the direct vote of investors and analysts, outranking scores of international companies in the “IR Global Rankings”, one of the world’s most comprehensive and important website ranking systems in the field of investor relations, corporate governance, and financial result disclosure procedures.

The best IR websites by technical criteria in Europe were: BASF (NYSE: BF), also best in global industry; Adidas (OTC: ADDDY), also best in global industry; Bayer (NYSE: BAY), also best in global industry; TNT (NYSE: TP) and Telekom Austria (NYSE: TKA), also best in global industry. The best IR website by technical criteria in Switzerland was: UBS (NYSE: UBS). Partner Communications (NYSE: PTNR) was awarded the best in the Small/Mid Cap category. The best website by direct vote (investors and analysts) was Turkcell (NYSE: TKC), and Bayer (NYSE: BAY) had the best online annual report in the European region. BASF (NYSE: BF), adidas (OTC: ADDDY), Banco BPI (Lisbon: BPI.LS), Bayer (NYSE: BAY) and Esprinet (Milan: PRT.MI) had the best online annual report in their global industries.

Companies with the best corporate governance practices by technical criteria were: Royal Philips Electronics, also best in global industry; Danske Bank (OTC: DNSKF), also best in global industry; Buongiorno; Deutsche Post World Net; and Banco BPI (Lisbon: BPI.LS). The best corporate governance practices in Switzerland was that of ABB Asea Brown Boveri (NYSE: ABB).

Finally, the best financial disclosure procedures by technical criteria were: Telekom Austria (NYSE: TKA), also best in global industry; Norsk Hydro (NYSE: NHY); BRE Bank; UBS (NYSE: UBS), also best in global industry; and Danske Bank (OTC: DNSKF). Deutsche Lufthansa was also awarded the best in its global industry. The best financial disclosure procedures in Germany was that of BASF (NYSE: BF), and in Switzerland was UBS (NYSE: UBS). Partner Communications (NYSE: PTNR) was awarded the best in the Small/Mid Cap category.

Complying with one share-one vote principal is awarded by Turkish Sharehoders Association

Eliminating the discriminatory treatment of company shareholders by introducing the principle of "one-share, one-vote" is one of the most important pillars of Corporate Governance. A wide range of dual-class structures exist. In some cases, the superior class benefits from dividends more than others. Essentially, the term covers any structure that confers a disproportionate amount of control on one group of shareholders in relation to their equity participation in the company.

Dual-class structures are unfair and give economic power to superior shareholders while facing the same financial risk.

Akbank is awarded with a prize by Turkish Shareholders Association after repurchasing of founder's shares in order to comply with “one share-one vote pricipal”. This attempt is accepted as revolutionary by the Association because Akbank is the first company eliminating dual class shares.

At the Extraordinary General Meeting of Shareholders and the Meeting of Founders and Usufructuary Shareholders on June 23, 2005, a decision was taken to buy-back 2,538 founder and usufruct shares using the Bank’s extraordinary reserves, after which these shares were to be cancelled and disposed of. This procedure had to be undertaken because the existence of these securities, corresponding to a 10% profit share out of the Bank’s distributable profit and having no voting rights, was not compatible with the principles of contemporary corporate governance and that unnecessary pressure was being exerted on the value of Akbank shares

Accordingly, this repurchasing transaction resulted in:

• An increase in profit distributed to shareholders with ordinary shares,
• A reduction in surplus equity capital,
• An increase in return on equity and therefore a rise in Akbank’s market value,
• An improvement in the quality of corporate governance,
• An enhancement of transparency in possible strategic cooperation and acquisitions in the future.

Here is a table for publicly traded Banks and their position with respect to one share-one vote principle;

Large-Cap Banks	Voting Rights	Dividend Rights
AKBANK	No privileges	No privileges
GARANTI	No privileges	% 10 of payable dividend will be paid to founder shares
ISBANK	No privileges	No privileges
YKB	No privileges	No privileges
Mid -Cap Banks	Voting Rights	Dividend Rights
BANKASYA	Board of Directors and Statutory Auditors are elected from those nominated by the minimum 51% of the total votes of the Group (A) shareholders present at that meeting.	No privileges
DENIZBANK	No privileges	No privileges
FINANSBANK	No privileges	% 10 of payable dividend will be paid to founder shares
FORTIS	No privileges	No privileges
TEB	No privileges	No privileges
TSKB	No privileges	% 10 of payable dividend will be paid to founder shares

Turkey welcomes first licensed Turkish Corporate Governance Rating company

Turkey welcomes first licensed Turkish corporate governance rating company, namely Saha Rating.

Saha Rating provides rating services especially to the companies aim to be included in Istanbul Stock Exchange Corporate Governance Index and to Institutional Investors, such as pension funds.

In order to be included in the Corporate Governance Index companies should be rated minimum 6 out of 10. The related rates designated by Saha Rating are as follows;

Rate	Deficiency
9 - 10	Company is in full compliance with the Corporate Governance principles set by Capital Markets Board of Turkey. Management and internal control mechanisms are well defined and working. all kings of risks pertaining to Corporate Governance issues are defined and managed effectively.
7 - 8	Company mostly in compliance with the Corporate Governance principles set by Capital Markets Board of Turkey. The management anf internal control mechanisma are defined and working, although minor amendments are needed.
6	Company is moderately in compliance with the Corporate Governance principles set by Capital Markets Board of Turkey and also exercising some of the policies designated. Improvements to management and internal control mechanisms are needed.

Capital Markets Board of Turkey rejected the attempts against Corporate Governance

Denizbank is very well known in Turkish Banking sector with high quality of Corporate Governance practices.

Franco-Belgian Bank Dexia SA is also one of the leading banks in Europe and one of the main roles of their Board is to ensure compliance with good governance principles.
As of October 2006, Dexia Group acquired 75 % of Denizbank. After the merger of two banks, Board of Directors of Denizbank decided to change some of the articles of association related to Corporate Governance principles.

The application of Denizbank for changing some articles of association is rejected as Capital Markets Board of Turkey find the changes against the principles of Corporate Governance and underline their existence in the course of IPO.

Dexia attempted to amend articles below;

Article 14. The shareholders who hold minimum 1% of the Bank’s available shares may demand from the General Assembly to appoint a Special Auditor especially to follow and clarify a certain financial situation. If this demand is rejected, the minority shareholders can demand from the court to appoint a special auditor to examine and clarify the situation.

Article 17.In the Board of Directors there are minimum 2 (two) and maximum 5 (five) independent members, the explanation related with the independency of the members of board of directors is given in the corporate management statement and annual operation report of the board of directors. Bank’s General Directorate and Board of Directors Presidency functions cannot be executed by the same person.The Chairman or Deputy Chairman of Board of Directors must be an independent member.

Article 20.In addition to these, the minority shareholders and beneficiaries can demand in writing from the Chairman of Board of Directors to take a certain subject into the agenda of the board of directors. Upon such a request the Chairman of Board of Directors may have the subject added to the agenda of the following Board of Directors meeting.

Article 23.The Corporate Management and Appointment Committee is responsible from following the compliance of the Bank to the corporate management principles.

Disclosure practices should be improved in Turkey for better governance environment

Capital Markets Board of Turkey retreated from the previous decision about Turk Tuborg Bira ve Malt Sanayii A.Ş.

If you follow our blog you will be heard of the decision of Capital Markets Board of Turkey accusing Turk Tuborg with paying unfair amount to Carlsberg, the parent company, as license fee. While the payment was awaited, because the last decision was given to extent the due date of payment, now it is understood that the decision was in the process of reexaminaion.

As far as I know, this will be the first time CMB retreating from their decision. It is not so common for a public body in Turkey to accept such kind of advocacy from a someone under their rule. Mostly they prefer to change their mind after the issue is brought to a lawsuit.

What is problematic for us is that, Turk Tuborg is not disclosing any information about this issue. 95 % of the company is owned by Carlsberg, 18 % of Turk Tuborg is publicly traded and the estimated number of shareholders is 2200, but the company is not having a professional Investors Relations Department. As we take Corporate Governance is not only for shareholders, we believe every company should have a sound Corporate Governance practices.

1. SHAREHOLDERS (1.1) There is no Investor Relations Department set up, Legal Affairs Department and Financial Control Department are responsible from investor relations. (1.2) The request for appointing a special auditor as an individual right is not stipulated. (1.3) There is no addition to provision to the articles of association to authorize the General Assembly in matters concerning important decisions. (1.4)There is no privilege granted to controlling shareholders regarding one share-one vote principal, (1.5)The accumulated voting method is not applied for minority shareholders and there is no board member appointed to represent minority shareholders. (1.6)There is no policy set for dividend distribution. (1.7)There is no provision restricting the transfer of shares.	2. TRANSPERANCY and PUBLIC DISCLOSURE (2.1) There is no “disclosure policy” published by the company. - Investor announcements are made on time and published in their web site. - Internet web page of the company contains information but only in Turkish. (2.2) The ultimate controlling beneficial shareholder is disclosed. (2.3) Financial statements and annual reports are prepared and disclosed. (2.4) The company did not disclose any information about independent audit and consultancy services. (2.5) The list of those who have access to insider information is disclosed.
	4. BOARD STRUCTURE (4.1) There are no independent members at the Board of Directors. The resume of the Board Members are not disclosed. (4.2) There are no provisions included in the Article’s of Association concerning the qualifications of the Board Members. (4.3) The company’s mission and vision is published in the web site. (4.4) The risk management and internal control mechanisms of the company are not disclosed. (4.5) Duties and responsibilities of the company’s Board Members are included in the Articles of Association. (4.6) There is no operating principles of the Board of Directors designated. (4.7) Prohibiton of transactions with company and prohibition of competition are not granted. (4.8) The company has not published a code of ethics. (4.9) An Audit Committee have been formed but the members of the committee are not independent. (4.10) Although company disclosed that no compensation/salary is paid to board of members but on the otherhand company did not disclose the remuneration policy of the company regarding Board of Directors and executives.
3. STAKEHOLDERS (3.1) There is no program/policy disclosed by the company for informing stakeholders. (3.2) There is no system for stakeholders to attend the company’s management. (3.3) There is no policy disclosed by the company regarding protection of company assets. (3.4) There is no human resources policy dislosed, although the company stated that this policy is announced internally. (3.5) There is no policy disclosed regarding relations with customers and clients. (3.6) The company disclosed that the company is working in compliance with ISO-14001 (Environmental Management Standard)

Summarizing current condition of Corporate Governance

In Turkey,
- there are only two licensed rating companies: Core Ratings and Institutional Shareholder Services,
- there are only two rated companies IsBank and Dogan Yayin Holding,
- three more rated companies are missing in order to establish a Corporate Governance Index as five companies have to be rated and receive 6 out of 10.

Mergers and Implications on Minority Shareholders

One of the principal justifications for mergers is that they will produce greater efficiencies and streamline costs. But the rationale behind merger of two holdings will be far from this principal.

Alarko Holding A.Ş.(ticker:ALARK) disclosed Istanbul Stock Exchange that has decided to merge with its parent entity, Anmak Holding, which holds 69.4% of Alarko’s capital. Anmak Holding is not listed and equally ownd by Garih and Alaton families.

The impact of merger on the minority shareholders will depend on the financial condition of Anmak Holding. The equity researchers are concerned that Anmak Holding’s only asset is Alarko Holding and some small companies.

So far, there is no clear public announcement from Alarko Holding about the merger.

The table below is a short analysis of Alarko Holding’s Corporate Governance Compliance Report-2005 prepared by the company regarding Capital Markets Board of Turkey’s Corporate Governance Principles.

1. SHAREHOLDERS (1.1) There is an Investor Relations Department set up, but there has been no activity disclosed for meetings/presentations in the year of 2005. (1.2) The request for appointing a special auditor as an individual right is not stipulated. (1.3) There is no addition to provision to the articles of association to authorize the General Assembly in matters concerning important decisions. (1.4)There is no privilege granted to controlling shareholders regarding one share-one vote principal, (1.5)The accumulated voting method is not applied for minority shareholders and there is no board member appointed to represent minority shareholders. (1.6)There is no policy set for dividend distribution. (1.7)There is no provision restricting the transfer of shares.	2. TRANSPERANCY and PUBLIC DISCLOSURE (2.1) There is no “disclosure policy” published by the company. - Investor announcements are made on time and published in their web site. - Internet web page of the company contains comprehensive information but only in Turkish. (2.2) The ultimate controlling beneficial shareholder is not disclosed. (2.3) Financial statements and annual reports are prepared and disclosed. (2.4) The company did not disclose any information about independent audit and consultancy services. (2.5) The list of those who have access to insider information is disclosed.
	4. BOARD STRUCTURE (4.1) There are 3 independent members appointed at the Board of Directors. The resume of these independent members are not disclosed that it is not available to measure the independency. (4.2) There are no provisions included in the Article’s of Association concerning the qualifications of the Board Members. (4.3) The company’s mission and vision is published in the web site. (4.4) The risk management and internal control mechanisms of the company are not disclosed although the company stated that a Committee is founded. (4.5) Duties and responsibilities of the company’s Board Members are included in the Articles of Association. (4.6) There is no operating principles of the Board of Directors designated. (4.7) Prohibiton of transactions with company and prohibition of competition are not granted. (4.8) The company has published a code of ethics. (4.9) An Audit Committee have been formed but the members of the committee are not independent. (4.10) Although company disclosed that no compensation/salary is paid to board of members but on the otherhand company did not disclose the remuneration policy of the company regarding Board of Directors and executives.
3. STAKEHOLDERS (3.1) There is no program/policy disclosed by the company for informing stakeholders. But it is a routine of the company to have annual meetings with company’s personnel. (3.2) There is no system for stakeholders to attend the company’s management. (3.3) There is no policy disclosed by the company regarding protection of company assets. (3.4) There is no human resources policy dislosed, although the company stated that this policy is announced internally. (3.5) There is no policy disclosed regarding relations eith customers and clients. (3.6) The company has an education and culture foundation to contribute to the social and cultural activities.