Turkey: Overview of 2015 corporate governance agenda


Turkey: Overview of 2015 corporate governance agenda Ethical BoardroomBy Basak Mustu – Trainings & Project Manager – CG Association of Turkey



If there is one thing to emphasise for stronger capital markets, easier access to capital, higher risk appetite for investment and the overall sustainability of financial markets, it is building trust.

Anti-corruption conferences under the G20 Presidency, Japan’s recent corporate governance initiative and US Presidential candidate Hillary Clinton’s tax proposal earlier this year all indicate that regulators and leaders are striving to change the capital market principles in favour of having a long-term strategy. What this means for businesses is that they need to regain the trust of their shareholders as well as other stakeholders. To get up to speed with market players, they need to adopt a long-term value-creation strategy and not dwell on short-term maximisation of profits at whatever cost.

Edelman’s 2015 Annual Global Study[1] reveals that the global public trust in the corporate sector has declined by two per cent from 2014. Seemingly, this ratio is consistent with pre-financial crisis levels.[2] The research shows that the public no longer considers ‘profit-making’ as a company’s most important raison d’être and demands that it works together with the community where it operates. It is, apparently, smart business to quit short-termism and aim for more inclusive long-term business strategies while maintaining efficient communication channels with investors, shareholders and stakeholders.

Hillary Clinton, too, expressed her support for encouraging long-term investments in July 2015. Her capital gains tax plan proposes lower tax rates for long-term investments in an effort to increase corporate investments, innovation and GDP growth.[3]

We are witnessing concrete steps towards more inclusive market regulations providing economic incentives for long-term investment. Concordantly, corporate governance has always promoted efficient and sophisticated decision-making mechanisms at the company level. Companies should have the necessary organisational structures that will allow them to make long-term strategic decisions in light of these market changes.


“The Corporate Governance Index has been calculated yearly since 2007. Almost every Index company shows a steady increase in their corporate governance score”


Long-term thinking was also the highlight of the G20/OECD Corporate Governance Forum held on 10 April 2015. Both OECD Secretary-General Angel Gurria and Capital Markets Board of Turkey (CMB) chairman Vahdettin Ertas stated their commitment to rebuilding trust for the well-functioning of stock markets. More recently, Turkish Deputy Prime Minister Cevdet Yilmaz has stressed the importance of transparency and accountability for easier access to finance through capital markets during the B20 meetings in Ankara. Mr Yılmaz and Mr Gurria, in a joint press conference on 5 September 2015, announced the new G20/OECD Corporate Governance Principles and emphasised the principles’ importance for promoting capital-market based financing to drive long-term economic growth.[4] The revision shows OECD’s willingness to closely cooperate with the B20, the business voice of the G20 meeting, its zealousness to remain relevant and modern for the fast-changing business world and its eagerness to learn from past mistakes that led to the global financial crisis.[5] The new and revised principles will no doubt have a guiding effect on many capital markets and businesses, including Turkey.

Publicly-traded companies

As stated in our earlier article for Ethical Boardroom,[6] Capital Markets Board of Turkey (CMB) has categorised public companies into three categories with different mandatory requirements. This is considered an efficient way to regulate the capital markets, taking into consideration companies’ differing circumstances and increasing compliance, while not deterring companies from going public.

Mr Ertas has himself stated that the capital market authority anticipates that corporate governance is practised voluntarily without the fear of a penalty. The overall aim of the corporate governance legislation seems to be to create a culture rather than drawing strict lines on how companies should operate. Consistent with this view, some principles are mandatory for public companies while others are advised. The ‘comply or explain’ approach of the Code allows companies to disclose why they have not applied the non-mandatory principles and how they plan to address that.

It is clear that abiding by mandatory rules is not reflective of a company’s overall governance culture. However, Borsa Istanbul Corporate Governance and Sustainability Indexes give investors and other stakeholders a more meaningful overview, showing the trajectory of sustainability and corporate governance practices for these indexed companies. The 2014 Measuring Sustainability Disclosure: Ranking the World’s Exchanges report published by Corporate Knights, revealed that Borsa Istanbul (BIST) is the most improved exchange globally, climbing 21 spots to 11th position[7]. This success, among other variants, hints at the efficiency of market regulations.

The Corporate Governance Index has been calculated yearly since 2007. Almost every Indexed company shows a steady increase in their corporate governance score for their overall compliance to CMB Corporate Governance Principles. These companies’ steady improvement, in spite of many regulatory changes by the CMB during the 2011 to 2014 period, shows their ambition and commitment. Index companies paint a hopeful picture for the Turkish capital markets; however, there needs to be more improvement in terms of exhibiting best practice examples that go beyond what the law requires.

The Index score reports of every company conducted by the CMB accredited rating agencies are available online for public scrutiny on The Public Disclosure Platform (PDP). It is worth noting that for many Index companies the board of directors category, which has a 35 per cent weight in overall score, proves to be the one most open to development among other categories: shareholders, transparency and stakeholders.

It is mandatory for public companies to publish a corporate governance compliance report each year within their annual reports. These reports are useful for transparency purposes, to inform shareholders and stakeholders; however, they are not indicative of the real relationships at play, such as the effectiveness of independent board members, board committees and board meetings. Moreover, the corporate governance reports and assessments still do not adequately address the issue of risk. Considering that one of the important causes of the global financial crisis was the lack of appropriate risk-management mechanisms and dialogue with the stakeholders, initiatives such as integrated reporting[8], which aims to bring about a multi-capital approach to reporting, becomes all the more important in doing business today.

In November 2014, The Sustainability Index was launched as a tool to inform the investors about the companies’ sustainability policies, allowing them to make better informed investment decisions. Corporate governance is also one of the categories for the scoring process. The new index is one more step closer to raising capital for the Turkish market by allowing investors to make more well-informed decisions while ensuring a more sustainable growth for Turkish companies.

Non-public companies

SMEs have an enhanced profile since attracting investment and integrating them to the global value chain[9] became one of the priorities of Turkey’s G20 Presidency. On December 2014, Deputy Prime Minister Ali Babacan launched the Global SME Forum in partnership with International Chamber of Commerce (ICC).[10] The majority of the Turkish economy comprises of family businesses and while they are not legally required to adopt corporate governance principles, creating effective managerial relationship networks is equally important for their sustainability and the well-being of the overall community in which they operate.

It is important for countries where the economy relies on SMEs and family businesses to underline the importance of the role of stock markets in guiding non-public companies. Although OECD Corporate Governance Principles often solely address and cater for the needs of public companies, it is designed to be a guiding document for countries with high numbers of SMEs and which therefore have a very different financial and social environment.

The good news is that non-public companies in Turkey already understand and adopt good governance practices laid out by the Capital Markets Board of Turkey. In many interviews that the Corporate Governance Association of Turkey (TKYD) has conducted as part of a country-wide Corporate Governance Perception Research,[11] many family business managers expressed their belief in the corporate governance principles and sound decision-making processes for the future of their companies. And in a recent survey by Deloitte Turkey,[12] 90 per cent of participants stated that they see corporate governance as a priority for their business. They understand the need for effective governance mechanisms, bearing in mind that only a handful of Turkish family businesses live to see the third generation on the board. However, both surveys reveal awareness does not always lead to practice – only half of the companies interviewed in the Deloitte survey have a well-documented internal audit mechanism, risk map, risk officer and a strategic road map.

The main reason for the lack of appropriate implementation can be attributed to the unwillingness of the management to delegate power and responsibility. SMEs and family businesses in Turkey are still considered as ‘patron firms’ where the chairman or the manager, depending on the governance structure, is the only decision-making authority – and one whose ideas often go undebated because of familial relationships of respect. However, by definition, a delegation of power and a platform for discussion are necessary for corporate governance practices to efficiently frame the relationships among the company’s managing bodies. Only 57.7 per cent of companies surveyed confirmed the inurement of a family constitution/protocol and half disclosed that they do not have any independent board members. [13] This clearly shows that the manager is still reluctant to acknowledge the need for more diverse voices in the boardroom although he/she understands the advantages of corporate governance mechanisms.

The independent board member position, which has been mandatory for public companies since January 2014, has been the subject of many heated debates in Turkey. It has often been stressed that creating an environment of independence within the board is not easy. There should be a good match between an independent director and the board where the independent director feels independent enough to openly share his/her own expertise, yet is also invested in the ultimate well-being of the firm. Every company should take the time to find the perfect addition to its board. However, there is a great risk for family businesses to prolong the time to create their own family constitutions and succession planning schemes. When the problems within the family arise, it is often too late to act.


“2015 is a very busy year for Turkish businesses with the revision of OECD Corporate Governance Principles and the G20 Presidency”


More often than not, only when there is an investment opportunity, does the company undertake to apply corporate governance because the investors want to see that their interests will be protected through effective and transparent decision-making processes, accountable management and adequate internal auditing. This is, of course, true for very innovative businesses whereas other SMEs do not attract investment in the first place because they do not have the appropriate governance and transparency mechanisms.

Many Turkish SMEs today see transparency as a competitive disadvantage; however, corporate governance practices in fact offer easier access to financing for SMEs. Through an SME’s corporate governance practices, financial institutions are also able to assess the risks and opportunities in a healthy way; hence they are able to offer advantageous financing options.

2015 is a very busy year for Turkish businesses with the revision of OECD Corporate Governance Principles and the G20 Presidency. As part of its Presidency priorities, Turkey has stated many times its intention to increase growth and unlock private sector investment for SMEs. And OECD, which has always been the guide for Turkey’s corporate governance developments, is revising its Corporate Governance Principles in light of new developments, such as a growing number of intermediaries and addressing the rise of emerging markets.

This loaded agenda has the potential to be truly promising for Turkish companies. Although there are still some steps to be taken, many Corporate Governance Index companies have proved their willingness to go beyond the requirements of law in line with the improvements of the capital market regulations. Family businesses, on the other hand, while they are not required to comply with the CMB regulations, do understand the need for good governance, for sustainability in the long-term and growth through cheaper financing. Turkish companies are eager to follow the international best-practice examples and the market trend is consistent with the international movement towards building trust between the private sector and stakeholders.

The Turkish business sector is having its best year to increase awareness, strengthen legal infrastructure, measure progress and take action for corporate governance. The G20 meeting and the launch of the new OECD principles will no doubt lead the way for more access to international governance trends and broader adoption of best practices.


About The Author:

Başak Muştu is the Trainings and Project Manager, Corporate Governance Association of Turkey (TKYD)

After graduating from Koç University, Başak completed her master’s degree at the School of Oriental and African Studies (Soas), University of London on International Law. In cooperation with Human Rights Clinic at SOAS and the Institute of Human Rights and Business, she was instrumental in publishing the report More than a resource: Water, Business and Human Rights in 2011.

After gaining extensive experience working for the Amnesty International Turkey, Başak has been working at the Corporate Governance Association of Turkey since May 2013 as the Trainings and Project Manager. Her expertise areas are human rights, sustainability, CSR, corporate governance, European Union and international human rights law. In addition to her native language, she speaks English and French.


FOOTNOTES:1Edelman, 2015 Edelman Trust Barometer: Executive Summary. Accessed on 6 May 2015. P.4. 2Murray, Sarah. 21 April 2015. Corporate responsibility held back by short-term thinking. Financial Times. Accessed on 6 May 2015. 3Allen, Jonathan. July 20, 2015. Clinton’s capital gains tax plan aims at long-term investment. Reuters. Accessed on 4 September 2015. 4Anadolu Agency (AA). 5 September 2015. Turkish Dep. PM: Better corporate Governance drives growth. Accessed on 7 September 2015. http://www.aa.com.tr/en/news/587647–turkish-dep-pm-better-corporate-governance-drives-growth. 5Kirkpatrick, Grant. The Corporate Governance Lessons from the Financial Crisis. 2009. OECD. Financial Market Trends, Vol.2009/1. 6Karacar, Güray. Mustu, Basak. Corporate Governance in Turkey. 29 September 2014. Ethical Boardroom. Accessed on 6 May 2015. http://ethicalboardroom.com/global-news/corporate-governance-turkey/ 7Corporate Knights Capital. Measuring Sustainability Disclosure: Ranking the World’s Stock Exchanges. October 2014. Accessed on 13 May 2015. http://www.corporateknights.com/wp-content/reports/2014_World_Stock_Exchange.pdf 8<IR> is helping businesses to think holistically about their strategy and plans, make informed decisions and manage key risks to build investor and stakeholder confidence and improve future performance. For more information, please see http://integratedreporting.org/ 9Turkish G20 Presidency Priorities for 2015. 10ICC, ICC helps launch 2015 B20 Turkey process in Istanbul, 15 December 2014, accessed on 6 May 2015. http://www.iccwbo.org/News/Articles/2014/ICC-helps-launch-2015-B20-Turkey-process-in-Istanbul/ 11TKYD, StratejiCo. Kurumsal Yönetim Algı Arastırması. Ocak 2015. 12Deloitte. Türkiye’de Borsaya Kote Olmayan Sirketlerde Kurumsal Yönetim Uygulamaları. Ocak 2015. 13Ibid, p.7.