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
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.
