The Turkish economy, which aims to access funds from international markets has recognized the need for "good governance" after challenges faced in the past financial crises and corporate scandals. The concept of "corporate governance" has become an important subject for companies, especially for publicly held entities. In particular, shareholders, who know their rights and duties via the Corporate Governance Principles Guide ("Guide") published by the Capital Markets Board ("CMB"), have begun to question how to adhere to the guidelines listed in the Guide. According to the CMB legislation, publicly held companies must state in their annual reports whether or not they have complied with the Guide and the reasons in case of non-compliance. Hence, the Guide, has become more important for ordinary corporate transactions.
Under Turkish law, the general assembly is the main body through which shareholders can use their rights and fulfill their obligations in order to contribute to the company’s business. According to the Turkish Commercial Code ("TCC"), the general assembly is not a superior body, but a decision-making body within capital companies, where the shareholders or their representatives are convened upon a due invitation in order to discuss and resolve upon matters listed in the fixed agenda. Although general information regarding this body, such as its meeting place, meeting schedule and decision-making requirements are known in general terms by at least financial and legal counsel for companies, whether such practice is followed in light of the TCC is an open question. General assembly meetings are sometimes held without the participation of shareholders and the legal requirements are not obeyed. The Guide aims to create the best corporate practices, particularly in terms of shareholders. It also sets forth other points related to the adequacy of the relevant legislation concerning the best governance for Turkish companies.
For the time being, the most reliable and concrete tool for improving the practice of corporate governance is the Guide. The Guide requires the establishment of a "Relations with Shareholders" department responsible for:
(i) compliance of the general assembly meeting with the legislation, the articles of association and other corporate documents;
(ii) preparing documents that shareholders will use during the meeting;
(iii) keeping records of voting results; and
(iv) sending result reports to shareholders.
In addition, for better use of the relevant rights, the Guide provides that if a shareholder does not have the exact and accurate corporate information, even if he/she votes affirmatively, he/she cannot be deemed as having approved the company’s financial statements and released the board of directors from duties relating to the previous financial period. The CMB also prepared a separate section in the Guide regarding the shareholders’ right to participate in the general assembly meeting, explaining in detail the participation of shareholders in general assembly meetings and how to exercise their rights in the general assembly. For instance, the Guide provides for the registration of the owners of registered shares in the company’s ledger before the general assembly meeting. This is to ensure shareholders’ participation and standards for invitations, in order to provide accurate information and to make proper preparations for the general assembly by shareholders.
An important concept for shareholders is the ability to discuss impartially and in detail the matters on the agenda, to ask questions and state opinions under equal conditions. This is also an issue taken up in the corporate governance principles of the OECD, being one of the first documents setting forth the concept of corporate governance. Such principles, amongst others, state that if there are separate share groups created in the articles of association, shareholders within the same groups should have the same voting rights and should be equally treated. The current Turkish legislation vaguely provides a mechanism for privileged shareholders. The TCC does not set forth the timeframe within which the privileged shareholders must convene the privileged shareholders general assembly for approval of the general assembly resolutions regarding amendments to the articles of association concerning privileged shares. Since this may effectively delay the implementation of decisions of shareholders having voted at the general assembly, it may be assessed as contrary to the principle of "equality" under corporate governance standards.
In line with the above, the related part of the Draft Commercial Code ("Draft"), which is expected to enter into force in 2007, is structured to resolve this problem in order to protect shareholders’ rights. Contrary to the provision of the TCC stating that "each share corresponds to at least one voting right" and providing more than one voting right to privileged shares, the restriction of "fifteen votes at the most for privileged shares" as contemplated under the Draft may be considered as better serving the purposes of equality.
The Draft, in light of the principles of corporate governance, sets forth new requirements for the general assembly meeting. Accordingly, (i) the invitation to the general assembly meeting may be made via the internet; (ii) the right to request information regarding a company’s business from the board of directors is established; and (iii) the possibility to convene the general assembly more rapidly is provided. All of these improvements are significant for compliance of the general assembly’s practice with the principles of corporate governance.
Improvements regarding the proper functioning of the general assembly is a good starting point for better application of corporate governance principles.
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