Turkey: Corporate governance steadily improving

By Andrew Rosenbaum

ANKARA

 Corporate governance practice is steadily improving in Turkey, experts say, but family companies still lag behind in implementing best practice.

Fitch Ratings analyst Gulcan Ustay told The Anadolu Agency on Friday: "There has been steady progress through the implementation of the 2012 commercial code and other incentives and regulations introduced by the Capital Market Board, but privately owned companies are still behind.

"Most Turkish companies are privately owned family companies, and these may not have any formal corporate governance structures,” said Oguz Akal, a lawyer with ErsoyBilgehan - an independent law firm - in Istanbul.

 Privately owned Turkish corporates suffer from poor corporate governance, including the absence of an independent board, weak transparency and limited disclosure practices, Akal said.

“When foreign investors place funds in these family companies, they are often obliged to restructure their management to improve corporate governance,” he added.

This is the challenge for Turkey.

“At some point governance has to become a concept more appreciated in the private sector; if you have good governance, it is a very nice attraction for foreign direct investment,” Kayra Ucer, at the Istanbul law firm Herguner Bilgen Ozeke told AA. 

'Best practice'

Turkish law has made great strides in corporate governance, pointed out Kayra Ucer.

Companies which are listed on the stock exchange are obliged to follow the terms of the Turkish Capital Markets law of December 2012, as well as those in a Communique of January 2014 from the Capital Markets Board which updated key elements of it, and certain articles in the Turkish Commercial Code, Ucer explained.

"These are the main pieces of legislation which authorize the Turkish Capital Markets Association to impose corporate governance rules on listed companies and enable such an authority to adapt sanctions and protective measures in case of incompliance with the mandatory corporate governance principles," Ucer said.

Some of the corporate governance principles qualify as mandatory principles, whereas some of the rules are not binding for the companies but only offer a guidance to establish a better corporate governance structure, Ucer said. 

That would include human resources policy rules, or some provisions related to transparency, he added.

On the other hand, rules concerning general assembly meetings and shareholder meetings and the composition of the board of directors, including the independent member requirement, are mainly mandatory, he said.

Governance culture 'needs to broaden'

He continued: "It is clear that, in terms of legislation, it has been proved significantly there is not a big gap in Turkey with international best practice.

"The issue is in terms of who is under the scope of legislation; that is the question mark, as the number of listed entities is limited."

Ucer said: "But in Turkey, it is still possible to form a joint stock company with only one shareholder.

"So many private companies have ad hoc corporate governance structures. The culture of good corporate governance has to spread."

He added: "The problem is concentration: Too many companies have only one director, and no independent board. This may change as business in Turkey becomes more global."

Fitch gives the example of how good governance can help a company.

Ustay pointed said: "For example, in the Fitch-rated universe, Arcelik (BB+/Stable) are implementing developed risk-management policies and procedures, they are also transparent about their operations and have clear investment strategies and financial policies.

"These measures have enabled them to tap international capital markets at more favorable rates."

“As more companies in Turkey list on the stock exchange, and more receive foreign investment, they can quickly improve corporate governance,” Akal said.