Abstract
As the equity capital emerges, as an essential corporate finance mechanism in emerging markets and Europe, the regulation of companies that provides adequate protection for the minority shareholders' and investors' interests enables companies to access the equity capital in the global market. Turkey, a prominent emerging market and formal candidate for the European Union (EU) membership, has to establish the governance structure ensuring the minority shareholder protection to encourage shareholders and investors to participate in capital markets. This will facilitate Turkish companies to access the equity capital. In April 2005, the International Institute of Finance (IIF), which is a private international organisation for promoting the shareholders' and investors' interests, issued its corporate governance report on Turkey, focusing on the problem of the lack of equity culture. The IIF in its report examines the reasons for the paucity of a developed equity culture in Turkey and recommends the ways in which the obstacles to the creation of a well-developed equity culture would be overcome. The purpose of this paper is to contribute to the efforts at creating the corporate governance structure protecting the minority shareholders' and investors' interests, which is a prime requirement for a developed equity culture in Turkey. To this end, the paper, while examining the IIF's report on Turkey (the report), identifies the weaknesses in Turkey's legal framework for minority protection and suggests the ways in which such weaknesses in law would be eliminated. As the implementation of provisions of EU company and capital market law by Turkish law assists in establishing the legal framework for the protection of the minority interest, the paper also considers whether the draft Turkish Commercial Code (TCC) implements relevant EU law provisions appropriately. This will illustrate whether the IIF's recommendations have been taken into consideration by the draft TCC as most of the IIF's recommendations overlap the relevant EU law requirements. The paper therefore examines the report and enhances its proposed recommendations by explaining adequate legal and regulatory framework for the minority shareholder and investor protection in Turkish corporate governance.
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References and Notes
The terms ‘company’ and ‘corporation’ are used interchangeable in this paper.
See Agreement on a Negotiating Framework for Turkey 2005, available at http://ec.europa.eu/enlargement/pdf/turkey/st20002_05_TR_framedoc_en.pdf.
Depending on Council Decision of 8th March, 2001 [on the principles, priorities, intermediate objectives and conditions contained in the Accession Partnership with the Republic of Turkey, 2001 O.J. L 85 (13-23)], Turkey has prepared its first national programme for the adoption of the aquis. The Turkish National Programme for the adoption of the Aquis-2001 underlines the fact Turkey will implement EU law relevant to financial services and company law, available at http://ec.europa.eu/enlargement/pdf/turkey/npaa_full_en.pdf. Depending on Council Decision of 19 May 2003 [on the principles, priorities, intermediate objectives and conditions contained in the Accession Partnership with Turkey, 2003 O.J. L 145 (40-56)], Turkey has prepared its second national programme for the adoption of the aquis. The Turkish National Programme for the adoption of the Aquis-2003 highlights the fact that Turkey will implement EU law concerning financial control and external audit, available at http://www.ec.europa.eu/enlargement/archives/turkey/npaa_2003_en.htm.
See Sermaye Piyasasi Kurulu, ‘Kurumsal Yonetim Ilkeleri 2005’ (Capital Market Board, ‘Principles of Corporate Governance 2005’) (in English and in Turkish), at p. 4, available at http://www.spk.gov.tr/ofd/KurumsalYonetim/kurumsal_yonetim_ilkeleri.pdf.
Organisation for the Economic Co-operation and Development (OECD) ‘ Principles of Corporate Governance 2004’, available at http://www.oecd.org/dataoecd/32/18/31557724.pdf.
See OECD ‘Principles of Corporate Governance 2004’ ref. 5 above, pp. 12–13 (stating that Principles focus on the governance problem stemming from the separation of ownership and control, which is the central issue of the Anglo-American corporate governance system); Institute of International Finance (IIF), ‘Policies for Corporate Governance and Transparency in Emerging Markets 2002’, at p. 9 (‘Corporate governance issues arise whenever the interests of company managers differ from those of the shareholders and shareholders are enable to fully monitor the actions of managers.’) available at http://www.iif.com/data/public/NEWEAG_Report.pdf; see also Cheffins, B. R. (2000) ‘Corporate Governance Reform: Britain as an Exporter’, in ‘ Corporate Governance and the Reform of Company Law’, Hume Papers on Public Policy, Edinburgh University Press, Edinburgh, Vol. 8, No. 1, at pp. 10–17.
The IIF code of corporate governance states that Anglo-American countries where there are liquid, deep and efficient markets protect minority shareholders better than European countries in which concentration of ownership is a dominant factor in corporate governance, see IIF policies for Corporate Governance and Transparency in Emerging Markets, ref. 6 above at pp. 9–10. For this view, see also Coffee, J. C. (1999) ‘The Future as History: The Prospects for Global Convergence in Corporate Governance and its Implications’, Northwestern University Law Review, Vol. 93, pp. 2–5; La Porta, R., Lopez-De-Silanes, F., Shleifer, A. and Vishny, R., (1997) ‘Legal Determinants of External Finance’, The Journal of Finance, Vol. 52, No. 3, pp. 1132, 1139; La Porta, R., Lopez-De-Silanes, F. and Shleifer, A., (1999) ‘Corporate Ownership Around the World’, The Journal of Finance, Vol. 54, No. 2, atpp. 505–508.
See, for example, OECD ‘ Principles of Corporate Governance 2004’, ref. 5 above; IIF Policies for Corporate Governance and Transparency in Emerging Markets, ref. 6 above.
The IIF, in its code of corporate governance, points out that the guidelines in the code differ from the OECD principles of corporate governance in the sense that the IIF code is more detailed and broader than the OECD principles and that the IIF seeks implementation of its code of corporate governance. However, as annotations to the OECD principles, which explain how the principles would be implemented, constitute part of the principles, the OECD principles can also be considered quite comprehensive and detailed. Further, it is true that the OECD principles are not legally binding due to the fact that they are directed to more countries than the IIF code is and that countries may have different corporate governance systems. Yet, the OECD principles are also aimed at being enforced through legal and self-regulatory provisions by providing countries with discretion to implement the principles in accordance with their needs.
See IIF Policies for Corporate Governance and Transparency in Emerging Markets, ref. 6 above at pp. 11–12.
IIF ‘ Corporate Governance in Turkey, an Investor Perspective, Task Force Report 2005’, (report) available at http://www.iif.com/data/public/IIFCorpGovTurkey_0405.pdf.
Ibid., at pp. 2–5.
Statute No. 2499 of 28 July of 1981.
Articles 1, 16, 16/A, 22.
Articles 17–22.
Ibid.
Statute No. 6762 of 29th June, 1956.
Article 12/2.
A company that wishes to make a public offering of its securities is required to disclose initial information about the company and the securities offered (CMC Articles 4, 5). A regulation issued by the CMB sets the conditions and requirements for admission of securities to listing and information to be published to obtain such admission. See Hisse Senetlerinin Kurul Kaydina Alinmasina ve Satisina Iliskin Esaslar Tebligi [Regulation Concerning Listing of Shares by the Capital Market Board and their Public Offer] Seri I, No. 26, T.C. Resmi Gazete [Turkish Republic Official Gazette] No. 23524 (1998).
Article 11(2).
CMC. Article 22.
Istanbul Menkul Kiymetler Borsasi Kotasyon Yonetmeligi [Regulation Governing Quotation on the Istanbul Stock Exchange] T. C. Resmi Gazete No. 22226 (1995) the last amendment made by Yonetmelik T. C Resmi Gazete No. 24616 (2001).
In the introduction to the CMB Principles of Corporate Governance it is stated that the CMB adopted its principles from OECD Principles of Corporate Governance, see ref. 4 above, at p. 4.
The report, ref. 11 above, at pp. 2–3.
Hacimahmutoglu, S. (2000) ‘The Systems of Corporate Governance: A Turkish Perspective’, International and Comparative Corporate Law Journal, Vol. 1, No. 3 (Corporate Governance) at pp. 309–310.
The report, ref. 11 above, at p. 6.
On the search of ownership structure in listed companies in Turkey, see, for example, Yurtoglu, B. (2003) ‘Corporate Governance and Implications for Minority Shareholders in Turkey’, Turkish Economic Association Discussion Paper, 2003/7, at pp. 7–14, 21–22, available at http://www.tek.org.tr.
Turkiye Kurumsal Yonetim Dernegi [The Association of Turkish Corporate Governance] and The Boston Consulting Group, ‘Turkiye Kurumsal Yonetim Haritasi Arastirma Raporu 2005’ [The Report on Turkish Corporate Governance Research Map], at pp. 18–20.
The report, ref. 11 above, at p. 7; For the family dominance in Turkish companies, see also Yurtoglu, ref. 27 above at pp. 7–8, 12–14; The World Bank Group ‘Reports on the Observance of Standards & Codes Turkey’ at p. 5; available at http://www.worldbank.org/ifa/rocs_cg_turkey.html.
The report, ref. 11 above, at p. 8.
See Hacimahmutoglu, (Corporate Governance) ref. 25 above at pp. 315–323.
Turkey's implementation of Directives [Directive 2001/34/EC of the European Parliament and of the Council of 28 May 2001 on the admission of securities to official stock exchange listing and on information to be published on those securities, O.J. 2001 L 184/1 and Directive 2003/71/EC of the European Parliament and of the Council of November 2003 on the prospectus to be published when securities are offered to the public or admitted to trading and amending Directive 2001/34/EC, O.J. 2003 L 345/64] has imposed on listed companies to disclose a great deal of information concerning the company and its securities reflecting the value of the company.
For example companies cannot prevent their quoted shares from being transferred. It is, however, possible for companies, by inserting the relevant provision in their corporate constitution, to preclude their shares that are not quoted on the Exchange from being transferred which is a barrier to the market for corporate control. See Istanbul Menkul Kiymetler Borsasi Kotasyon Yonetmeligi, ref. 22 above Article 9/A I (2)h.
See the report, ref. 11 above, at pp. 11–18.
See IIF Policies for Corporate Governance and Transparency in Emerging Markets, ref. 6 above.
See Hirschman, A. O. (1970) ‘Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States’, Harvard University Press, Cambridge, at pp. 15–20.
Halka Acik Anonim Ortakliklar Genel Kurullarinda Vekaleten Oy Kullanilmasina ve Cagri Yoluyla Vekalet veya Hisse Senedi Toplanmasina Iliskin Esaslar Tebligi [Regulation Concerning Proxy Voting and Takeover Bid in Listed Companies] Seri IV No. 8, T.C. Resmi Gazete No. 21872 (1994), the last amendment made by Teblig Seri IV, No. 30, T.C. Resmi Gazete No. 25130 (2003).
Oydan Yoksun Hisse Senetlerine Iliskin Esaslar Tebligi [Regulation Concerning Shares with Non-Voting Rights] Seri I, No. 30, T.C. Resmi Gazete, No. 25054 (2003).
See Tekil, F. (1998) ‘Anonim Sirketler Hukuku’, [Law on Public Limited Company] at pp. 375–379.
TCC. Articles 300, 401; see also Ceker, M. (2000) ‘Anonim Ortaklikta Oy Hakki ve Kullanilmasi’, [Voting Rights and their Exercise in Public Limited Company] at p. 62.
See the report, ref. 11 above, at p. 8. For the use of multiple voting rights by family-controlled companies to maintain control of the company in Turkey, see also Yurtoglu, ref. 27 above, at p. 11.
See the report, ref. 11above, at p. 11.
In accordance with the Istanbul Stock Exchange Data, the number of companies whose shares are traded on the Exchange is 266. This number, however, does not include both the number of companies whose shares are temporarily de-listed and that of companies that are on the watch list, available at http://www.ise.org/data.htm.
If the shareholders cannot make the decision because the quorum requirement is not fulfilled, at the following general meeting a simple majority of votes with a quorum of one-third of subscribed share capital is sufficient.
See the report, ref. 11 above, at p. 11.
See Rock, E. Kanda, H. and Kraakman, R. (2004) ‘Significant Corporate Actions in Kraakman, R., et al. (eds.), ‘ The Autonomy of Corporate Law A Comparative and Functional Approach’, at pp. 139–141.
Third Council Directive (EEC) 78/855 of 9th October, 1978 based on Article 54(3)(g) of the Treaty concerning mergers of public limited liability companies [1978] O.J. L 295/36.
Sixth Council Directive (EEC) 82/891 of 17th December, 1982 based on Art 54(3)(g) of the Treaty, concerning the division of public limited liability companies [1982] O.J. L 378/47.
Halka Acik Anonim Ortakliklar Genel Kurullarinda Vekaleten Oy Kullanilmasina ve Cagri Yoluyla Vekalet veya Hisse Senedi Toplanmasina Iliskin Esaslar Tebligi, see ref. 37 above.
Directive 2004/25/EC of the European Parliament and of the Council of 21st April, 2004 on takeover bids, [2004] O.J. L 142/12.
See Hacimahmutoglu, (Corporate Governance) ref. 25 above at pp. 316–318.
See Arslan, I. (1994) ‘Anonim Sirketlerde Yonetim Yetkisinin Sinirlandirilmasi’, [Restraining Management Power in Public Limited Companies], at p. 85.
See the report, ref. 11 above, at pp. 13–14.
This does not mean that corporate constituencies other than shareholders do not have roles in corporate governance, but their rights and responsibilities are considered outside the company.
For example Article 530 of the draft TCC regulates that absence of one of the organs of the company which are mandatory under Turkish law results in dissolution of the company even though the term ‘organs’ cannot be consistent with the contractual view of the company.
Hacimahmutoglu, S. (2000) ‘Duties of Corporate Directors Under Turkish Law: A Comparative Analysis’, International and Comparative Corporate Law Journal, Vol. 2, No. 1, at pp. 22–27.
First Council Directive (EEC) 68/151 of 9th March, 1968 on coordination of safeguards which, for the protection of the interests of members and others, are required by Member States of companies within the meaning of the second paragraph of Article 58 of Treaty, with a view to making such safeguards equivalent throughout the Community [1968] O.J. L 65.
The explanatory memorandum to Article 371 of the draft TCC notes that UK experiences set an example for Turkish law in abolishing ultra-vires principle to meet the First Company Law Directive.
As amended by Section 108 of the CA 1989.
See the report, ref. 11 above, at p. 15.
See the report, ref. 11 above, at p. 14.
The search carried out by Turkiye Kurumsal Yonetim Dernegi [The Association of Turkish Corporate Governance] and The Boston Consulting Group shows that in most Turkish companies the chairman of the board is the family member, and the chairman appoints his/her close friends to the highest position in the board, see ref. 28 above, at p. 26.
See Ozel Durumlarin Kamuya Aciklanmasina Iliskin Esaslar Tebligi [Regulation Concerning Major New Developments Affecting the Company's Assets, Liabilities or Financial Situation] Seri VIII, No: 39, T. C. Resmi Gazete No. 25174 (2003), the last amendment made by Teblig Seri VIII, No: 42 T. C. Resmi Gazete No. 25515 (2004).
See Accounting Standards Regulation [1606/2002 O.J. 2002 L 243/1].
Sermaye Piyasasinda Bagimsiz Denetim Standardlari Hakkinda Teblig [Regulation Concerning Independent Auditing Standards in the Capital Market] Seri X, No: 22, T. C. Resmi Gazete No. 26196 (2006), the last amendment made by Teblig Seri X, No: 23, T. C. Resmi Gazete 26241 (2006).
TUSIAD ‘ Kurumsal Yonetim En Iyi Uygulama Kodu: Yonetim Kurulunun Yapisi ve Isleyisi 2002’, [Corporate Governance Code of Best Practice: The Structure and Operation of the Board of Directors].
The Financial Reporting Council, ‘the Combined Code on Corporate Governance 2003’, available at http://www.fsa.gov.uk/pages/Doing/UKLA/pdf/lr_comcode2003.pdf.
The IIF code of corporate governance states that at least one-third of the board should consist of nonexecutive directors. Under the CMB principles of corporate governance a majority of the board of directors should be nonexecutive directors.
Most decisions of the Turkish High Court concern distribution of dividends to shareholders in public limited companies. For these cases, see Poroy, R. Tekinalp, U. and Camoglu, E. (2003) ‘Ortakliklar ve Kooperatif Hukuku’, [Law on Companies and Co-operatives] at pp. 513–519.
Fourth Council Directive 78/660/EEC of 25 July 1978 based on Article 54 (3)(g) of the Treaty on the annual accounts of certain types of companies [1978] O.J. L 222/11.
Seventh Council Directive 83/349/EEC of 13 June 1983 based on the Article 54 (3)(g) of the Treaty on consolidated accounts [1983] O.J. L 193/1.
See ref. 11 above, at p. 16.
Turkiye Muhasebe Standardlari Kurulu [Turkish Accounting Standard Board], available at http://www.tmsk.org.tr.
Accounting Standards Regulation [1606/2002 O.J. 2002 L 243/1] imposes on European companies to adopt the ISA of the International Accounting Standards Board.
See the report, ref. 11 above at p. 17.
Ozel Durumlarin Kamuya Aciklanmasina Iliskin Esaslar Tebligi, see ref. 63 above.
Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on insider dealing and market manipulation (market abuse), [2003] O.J. L 96.
See the report, ref. 11 above, at pp. 17–18.
CMC, Articles 17–22.
See the report, ref. 11 above at p. 18.
See the introduction to the CMB principles of corporate governance, ref. above at p. 4.
See for example Davies, P. L. (2003) ‘Gower and Davies’ Principles of Modern Company Law’, 7th edn, at p. 323; Lannoo, K. and Khachaturyan, A. (2004) ‘Reform of corporate governance in the EU’, European Business Organisation Law Review, Vol. 5, No. 1, at p. 40.
CMC. Karar [Decision] No. 48/1588, Tarih [Date] 10.12.2004, Kurumsal Yonetim Ilkeleri Uyum Raporu [Report on the Compliance with the CMB Principles of Corporate Governance], available at http://spk.gov.tr/ofd/kurumsalyonetim/kurumsal_yonetim_ilkeleri_uyum_raporu.pdf.
When a company is admitted to the Istanbul Stock Exchange, a contractual agreement is established between the exchange and the company.
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1 Sibel Hacimahmutoglu is a lecturer in law at the University of Istanbul Bilgi Law Faculty and an Attorney-at-law of the Ankara Bar Association in Turkey. She has a PhD on corporate governance from Leicester University.
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Hacimahmutoglu, S. The problems of minority protection and their solutions within the legal framework in Turkish corporate governance. J Bank Regul 8, 131–158 (2007). https://doi.org/10.1057/palgrave.jbr.2350046
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DOI: https://doi.org/10.1057/palgrave.jbr.2350046