The Capital Markets Board of Turkey (the "CMB") has revised corporate governance principles with a view to strengthen governance practices of ISE listed companies by taking into account recent developments in local and international markets. As a result of this revision, the CMB left the "comply or explain" approach to a limited extent and required ISE 30 companies, excluding banks, to comply with certain corporate governance principles on a compulsory basis.
There is no doubt that the decision of the CMB for compulsory application of certain corporate governance principles is a new step in protection of minority shareholders in Turkish capital markets, but it is also a fact that the decision came fast without envisaging any transition period for ISE30 companies (excluding banks). In addition, certain principles require minority shareholder oversight particularly for intra-group restructuring processes of ISE30 companies and this should expected to be a point of hot debate in the upcoming period. It is likely that ISE30 companies will face operational problems in practice and may need to hear clarifications from the CMB in respect of minority shareholder oversight.
Furthermore, the new compulsory independent director mechanism is a very positive step and may serve as a balancing power in the management of ISE30 companies that are dominated by controlling shareholders. However, providing a shield to minority shareholders through the independent director mechanism requires further developments in Turkish market.
Below are the corporate governance principles which are announced to be compulsory for ISE 30 companies, excluding banks:
- At least one third of the Board of Directors (the "BoD") shall be composed of independent directors. In any case the number of independent directors shall not be less than two.
- Independent directors shall bear the following qualifications:
- The director and/or his relatives up to third degree shall not have a direct or indirect beneficial relationship with the company, related parties of the company or entities related to the persons controlling directly or indirectly more than 5% of the company's share capital,
- The director shall not have been appointed to the BoD as a representative of a specific share group,
- The director shall not work for companies undertaking whole or a certain portion of the company's business and also shall not have been appointed as an executive to those companies within the last five years,
- The director shall not have worked for a company providing audit services to the company and shall not participate in any audit process pertaining to the company,
- The director shall not have worked for or shall not, within the last five years, have been appointed as an executive to a company which is a significant supplier or service provider to the company,
- Up to third degree relatives of the director shall not be executives, controlling shareholders or shareholders holding more than 5% of the company's share capital,
- The director shall not earn any type of income from the company apart from attendance fee and shall not hold shares more than 1% of the company's share capital or any privileged shares.
The general assembly may appoint persons who do not bear one or several of the above qualifications as independent directors provided that there's a reasonable ground for such appointment and the CMB provides its consent. Such type of appointment may only be made for a temporary period which shall not exceed one year. A person who was a member of the BoD within the last six years shall not be appointed as an independent BoD member.
- Each independent director candidate shall provide an independency declaration to the company. Upon provision of such declaration, the BoD shall make an independency assessment and shall provide its opinion to the general assembly. Following the general assembly decision on the appointment of the independent director, such appointment together with its reasons, dissenting votes and independency assessment of the BoD shall all be posted on the website of the company.
In case, a candidate is appointed as independent director and shareholders holding at least 5% of the company's share capital vote against that candidate during the general assembly meeting, the CMB shall step in, conduct a separate assessment and make a decision regarding the independency of the appointed director.
- Announcements for the general assembly meetings shall be made at least 3 weeks prior to the meeting date through any communication means including Internet.
- Announcements for general assembly meetings shall include following information:
- total number of shares, with their voting rights, including number of privileged shares,
- if any, changes that were conducted or to be realized in the organizational structure of the company, including its significant subsidiaries, together with the grounds of those changes, and,
- in case there is any dismissal of and/or appointment to the BoD in the agenda of the general assembly, the reasons behind such dismissal and/or appointment together with the resumes of the persons to be nominated as candidates.
In addition, for the implementation of item (iii) above, shareholders nominating the candidates shall, within a period of one week following the general assembly meeting announcement, provide to the company with the names and resumes of the candidates, level and characteristics of the relationship between the candidates and the company, related parties and business partners of the company, information on whether the candidates bear the qualifications of independent directors and any similar issues which may affect the activities of the company. The company, upon receiving such information, shall make a public disclosure.
- In the event the general assembly has granted BoD members permission to compete and/or enter into transactions with the company, BoD members shall inform shareholders regarding such transactions and their competitive activities in the succeeding general assembly meeting.
- A remuneration policy for BoD members and executives shall be prepared in writing and announced on the company website, and shareholders shall be granted the opportunity to comment on the policy.
- In order to enable shareholders to participate in the discussions that will end up with a change in the capital, management and/or asset structure of the company (e.g. divestitures, mergers, share swaps, significant asset sales, providing securities, guarantees and liens on behalf of third parties etc.), the Articles of Association of the company shall be amended to envisage that such decisions shall be made in a general assembly meeting where parties to the restructuring and any other persons related to those parties do not participate to the voting process.
- In case there is a cross shareholding ending up with managerial control of a subsidiary over the company, the subsidiary shall refrain from voting in the general assembly of the company unless essential issues, such as securing the meeting quorum, come up.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.