Turkey: Corporate Governance 2016 - Turkey

Last Updated: 13 October 2016
Article by Arzu Aksaç and Yaprak Derbentli

This article was originally published in the International Comperative Legal Guide to Corporate Governance 2016

Setting the Scene – Sources and Overview

1.1 What are the main corporate entities to be discussed?

The corporate entity under Turkish Law that may offer tradeable shares to the public is the joint stock company ("JSC"). Our replies below are structured so as to capture corporate governance issues both from the perspective of closely and publicly held JSCs. In addressing the issues pertaining to publicly held JSCs, we have made a distinction between listed and non-listed JSCs, where necessary.

1.2 What are the main legislative, regulatory and other corporate governance sources?

The main legislative and regulatory sources in relation to corporate governance in Turkey are:

  • Turkish Commercial Code no 6102 ("TCC") and the underlying legislation;
  • Capital Markets Law no 6362 ("CML");
  • Communiqué on Corporate Governance ("CGC");
  • Communiqué on public disclosure of material events (II-15.1) ("Communiqué no II-15.1");
  • Communiqué on public disclosure of material events concerning corporations whose shares are not traded on the stock exchange (II-15.2) ("Communiqué no II-15.2").

The Ministry of Customs and Trade ("Ministry") acting through its provincial Trade Registry directorates is responsible for the due implementation and enforcement of the corporate governance principles embodied in the TCC and the underlying secondary legislation.

In the field of capital markets, it is the Capital Markets Board ("CMB"), an independent regulatory and supervisory authority that is in charge of the application and enforcement of the CML in general and, in particular, the corporate governance-related secondary legislation. The CMB is also empowered by law to regulate the capital markets by way of issuing secondary legislation which usually takes the form of regulations, Communiqués and principle resolutions, all of which are of a binding nature. The main duty of the CMB is to ensure the fair and orderly functioning of the capital markets, while protecting investor rights. In order to achieve this goal, it determines the terms and conditions for the due operation of capital markets and capital market institutions. It is also responsible for cooperating with other financial regulatory bodies in order to ensure financial stability. From among the CMB Communiqués enlisted above, all of them are mandatory, except for the Communiqué on Corporate Governance, which is compulsory only for certain publicly held JSCs.

Borsa Istanbul A.Ş. ("Borsa Istanbul"), formerly named the Istanbul Stock Exchange, was founded at the end of 1985 and was demutualised in 2013 following the enactment of the CML. For the time being, it is the only exchange in Turkey where securities, derivatives and commodities are being traded. It has some self-regulatory authority on its members, but decisions on major important issues are subject to the approval of the CMB. The principles regarding: listing, de-listing, trading and suspension of trading; transmitting and matching of orders; performing in due time obligations related to executed trades; granting of authorizations to trade at the Borsa Istanbul; operation, audit and surveillance systems of the Borsa Istanbul; and establishing, operating and managing markets, etc. are set forth under the Regulation on Exchange Business Activities of Borsa Istanbul A.Ş. which was published in the Official Gazette no 29150 dated October 19, 2014.

Apart from the foregoing, the Turkish Capital Markets Association ("TCMA"), a self-regulatory organization, sets forth professional rules of conduct and monitors the members to provide a fair and disciplined capital market. It issues and implements regulations on the subjects determined by law or by the CMB. All investment firms, banks that are authorized for capital market operations, portfolio management companies and investment trusts are required to become members of the TCMA.

As far as the constitutional documents of the corporate entities are concerned, Articles of Association ("AoA") encompass, among others, the main corporate governance rules. According to common practice, AoA mirror the mandatory provisions of the TCC regarding corporate governance. In addition to these, companies which voluntarily choose to adopt those principles of law which are of a non-binding nature may insert in their AoA appropriate provisions to this end. The AoA, and therefore any corporate governance rule contained therein, is binding on the shareholders, Directors and the JSC and third parties.

1.3 What are the current topical issues, developments, trends and challenges in corporate governance?

The TCC, which came into force in 2012, does not include a catalogue of corporate governance principles; however, it introduces certain mandatory provisions with respect to corporate governance. On the other hand, CML came into force in 2012 within the context of modernisation of the rules that govern capital markets in Turkey. In contrast with the TCC, the secondary legislation issued under the CML contains corporate governance principles, some of which are optional and some of which are compulsory.

The replacement of outdated legislation, which could no longer respond to the needs of the developing Turkish economy, is later followed by the enactment of certain supplementary legislation such as the CGC, which became applicable in 2014.

In terms of corporate governance, TCC has wider application, in the sense that its provisions are applicable both to closely held and publicly held JSCs, whereas the CML exclusively applies to publicly held JSCs.

The CMB is conferred with the authority under TCC and CGC to determine the corporate governance principles that will be applicable to public companies, as well as which of those principles shall qualify as mandatory in nature and which ones shall be optional.

The current challenges to corporate governance in Turkey, as further explained below, can be listed as i) lack of legal provisions regulating indemnity of Directors, ii) the immature practice of obtaining Directors' liability insurance, iii) Directors' personal liability for any outstanding public receivables owed by the JSC, and iv) auditing not being compulsory for the companies which are not subject to compulsory independent auditing.

Apart from the above, the State has strong influence in Turkish economy and expropriation is quite common. The number of public companies in the market is quite low and most companies are owned by families.


2.1 What rights and powers do shareholders have in the operation and management of the corporate entity/entities?

Rights and powers with respect to the operation and management of the corporate entity are vested in the Board of Directors ("BoD") as explained at section 3 below.

Save for the minority's rights as described below, shareholders do not hold any unmediated operational or managerial powers individually, with the exclusion of a few indirect management rights explained below. However, certain powers are granted by law to the General Assembly of Shareholders ("GAS") and have direct effect on the operation and management of a JSC. These non-transferable powers are:

  • Amendment of the AoA of the JSC.
  • Appointment, discharge and release from liability of Directors, determination of their term of office, attendance fee and premiums.
  • Election and discharge of auditors of the JSC, as required by law.
  • Distribution of dividends.
  • Dissolution of the JSC.
  • Wholesale of a substantial part of the JSC's assets.

Apart from the foregoing, shareholders who own a minimum of 10% of the share capital in a closely held JSC and a minimum of 5% of the share capital in a publicly held JSC are specified as "minority shareholders" under the TCC, and as such qualify for exercising a set of special rights related to corporate governance. These rights are:

  • Right to request the convocation of the GAS from the BoD; failing which, from the competent commercial court.
  • Right to request the insertion of a subject in the agenda of the GAS.
  • Right to postpone the deliberations on the balance sheets and financial accounts.
  • Right to request the replacement of the auditor of the JSC by way of a lawsuit subject to certain conditions.
  • Right to veto the discharge of Directors, founders and auditors of the JSC from liability concerning foundation of the JSC and any capital increase.
  • Right to request the dissolution of the JSC on the basis of justified reasons.
  • Right to request the attendance of a Ministry representative to the GAS meetings.
  • Right to be represented at the BoD if it is regulated under the AoA of the JSC.
  • Right to request the appointment of a special auditor by the commercial court, in cases where a previous request on the same issue that was directed at the GAS was dismissed.

Finally, the following rights of shareholders which relate to the management of the JSC can be exercised by a shareholder, individually:

  • Right to request cancellation of GAS resolutions, subject to certain conditions.
  • Right to request information from the BoD on the operations of the JSC, and the method of auditing used by auditors and its results at GAS meetings.
  • Right to examine commercial books and related correspondences of the JSC subject to the consent of the BoD.
  • Right to apply to the court in cases where any of the JSC's compulsory organs cease to exist due to e.g. vacation of seats in the case of the BoD and consequent incapability to satisfy meeting quorum.

2.2 What responsibilities, if any, do shareholders have as regards the corporate governance of their corporate entity/entities?

Participation, representation and voting at the GAS are essential rights and responsibilities vested in shareholders. As explained below, GAS is the primary decision-making organ of a JSC.

Save for those particular rights which are exclusively vested, by law, in the GAS and shareholders as explained at question 2.1 above, shareholders do not, in principle, hold any responsibilities in terms of corporate governance. Nevertheless, in cases where the AoA expressly specifies any particular issues or transactions which require shareholders' approval, the JSC can only engage in the transaction concerned or take any action as regards to the issue at hand subject to the said GAS approval. At present, there are no particular statutory provisions, Communiqués,decrees, nor any settledpractices of the regulatory bodies (in the case of publicly held companies) which set forth any codes of conduct which the shareholders should sign up to in engaging with the companies they invest in or which encourage them to take more interest in and/or exercise more control over corporate governance issues. However, as explained above, there is no legal impediment to regulate this issue in detail in the AoA, and grant wider rights than usual to the GAS in terms of corporate governance. It should also be noted that those powers of the BoD which are specified by law as non-transferable cannot be conferred upon the GAS.

2.3 What shareholder meetings are commonly held and what rights do shareholders have as regards them?

GAS meetings are commonly held in two types: (i) ordinary GAS meeting; and (i) extraordinary GAS meeting. It is mandatory for companies to hold an ordinary GAS meeting within three months of the end of each fiscal year. In accordance with the TCC, the following issues should be discussed and resolved at an ordinary GAS meeting:

  • Election of the BoD, and if applicable, the auditors of the JSC.
  • Discussion and approval of financial statements and annual activity report of the BoD.
  • Determination of profit and its distribution.
  • Release of members of the BoD.
  • Decisions on other necessary issues related to the relevant fiscal year of the JSC.

On the other hand, extraordinary GAS meetings can be held as and when needed.

2.4 Can shareholders be liable for acts or omissions of the corporate entity/entities?

Shareholders who are not BoD members, nor specifically designated agents of the JSC, do not, in principle, have any liability for acts or omissions of the JSC.

Although Turkish statutory law does not adhere to the doctrine of lifting the corporate veil in the practice of the Turkish Court of Cassation, there are just a few precedents whereby shareholders were personally held liable for the acts of the JSC in accordance with the general principle of objective good faith embodied in Article 2 of Turkish Civil Code no 4721, and a set criteria applied by court.

2.5 Can shareholders be disenfranchised?

The squeeze-out of the shareholders from the JSC can occur in the following circumstances:

  • In cases where a holding JSC holds, directly or indirectly, 90% of the shares and/or voting rights in its subsidiary, and the minority shareholder hinders effective operation of the subsidiary, behaves against the principles of good faith, creates significant distress and/or acts in an imprudent fashion, the holding JSC can buy the minority's shares out at its market price, if any, or at the price defined in the TCC. This rule does not apply to publicly held JSCs.
  • In cases where the subscription obligation was not fulfilled in whole or in part by the shareholder concerned despite the request of the BoD, the BoD has the right to deprive the defaulting shareholder of its right to make the required subscription payment.
  • In cases where the minority shareholders file a lawsuit on justified grounds for the termination of the JSC, the court may decide on the buy-out of the minority shareholders' shares at their real market value, instead of deciding on the termination of the JSC.
  • With regard to public companies, in cases where the voting rights attached to publicly held shares, which were acquired by way of tender or any other means, reached or exceeded the thresholds determined by the CMB, the acquiring shareholders have the right to squeeze out the minority shareholders.

Apart from the foregoing, where any dealings or transactions bear any particular link between the shareholder, his spouse, his lineal kinship or their proprietorships or the companies owned or controlled by any of these on one side, and the JSC on the other side, a shareholder is deprived of its voting rights. Directors and authorized signatories holding executive positions cannot use their voting rights at GAS in respect of any shares they may hold with respect to the decisions which concern their acquittal.

2.6 Can shareholders seek enforcement action against members of the management body?

Shareholders have the right to take legal action against Directors and demand compensation for JSC and themselves in cases where the Directors concerned wrongfully breached any of their duties and responsibilities under the law or AoA. The Directors' liability is a fault liability.

2.7 Are there any limitations on, and disclosures required, in relation to interests in securities held by shareholders in the corporate entity/entities?

As a rule, there are no restrictions in relation to interest in securities held by shareholders.

However, with regard to publicly held JSCs, the shares of which are not traded at the stock exchange, there are certain disclosure requirements in respect of the quantity and acquisition price of the shares acquired by any shareholder, as well as any other information that may affect decisions of the investors.

With regard to public companies, it is obligatory to make a public disclosure, in the case that the total voting rights held by any real person or legal entity shareholder, or others acting in concert together with the said shareholder, reaches 5%, 25%, 50%, 67% or 95% of the share capital or drops below any of these percentages, or in cases where a direct or indirect change in management control occurs by way of a contract or other means.

Under the Foreign Direct Investment Law, companies with foreign capital are obliged to notify the General Directorate of Incentive Practices and Foreign Capital of any share transfers made by, and between, the existing local and foreign shareholders.

Finally, share transfers may trigger approval requirements under the applicable anti-trust laws, and depending on whether they involve any particular regulated sector, they may be subject to the prior approval of the regulatory body concerned, and, in the case of publicly held JSCs, of the CMB.

3 Management Body and Management

3.1 Who manages the corporate entity/entities and how?

The management body of a JSC is the BoD. The BoD is vested with the authorities to manage and represent the JSC. Both of these powers are, in principle, transferable subject to certain limitations prescribed by law. Turkish Law adheres to the single-board system. Hence, there is no separate supervisory body and supervision powers lie with the GAS.

The management power of the BoD can be delegated, wholly or partially, to one or multiple Directors or third party individuals, provided that the AoA of the JSC expressly allows such delegation and the BoD issues and registers with the Trade Registry an internal directive specifying the persons to whom and to what extent the management powers are delegated. Subject to the limitations described below, the BoD may appoint a Director as CEO or a non-Director CEO from outside the BoD. In this case, the BoD remains vested with those management rights which are specified by law as non-transferable. These non-transferable rights are (i) high-level management of the JSC, (ii) to form the managerial structure of the JSC, (iii) to supervise those who are responsible for the day-to-day management of the JSC including the CEO and operation directors, (iv) to ensure compliance with law, AoA, internal directives and written instructions of the BoD, (v) to keep the book of shares of the JSC, minutes of BoD and GAS meetings, and (vi) to conduct the preparations for GAS meetings and to execute GAS resolutions.

Unless specified otherwise under the AoA and unless the BoD is a single Director BoD, the power to represent the JSC is exercised with the joint signatures of two Directors. In cases where the representation authority is delegated to a single non-Director, one BoD member must also retain the power to represent the JSC. Upon the delegation of the representation authority, Directors who no longer have the power to represent the JSC become non-executive Directors, whereas those conferred with the power to represent the JSC become executive Directors.

The BoD can set up committees or commissions for the purposes of monitoring the operations of the JSC, preparing reports on specified issues, ensuring the due application of its resolutions and providing an internal control mechanism.

In companies, the shares of which are traded at the stock exchange, the BoD must establish a committee for early detection of risks so as to determine any development which may potentially pose a threat to the existence, growth or continuation of the JSC and to take measures, as appropriate.

Additionally, the CGC contains mandatory provisions regarding the establishment of certain committees, including the nomination committee and the remuneration committee.

3.2 How are members of the management body appointed and removed?

BoD members are initially appointed by the AoA at the stage of incorporation. Subsequent members are appointed by the GAS. The maximum tenure for BoD membership is prescribed as three years under the TCC, and Directors can be re-elected. The BoD can consist of one or multiple members and the TCC does not set out an upper threshold for the number of Directors. Nevertheless, the CGC regulates that JSCs whose shares are traded on the stock exchange shall have at least five Directors, the majority of which must be non-executive. Among these non-executive Directors must exist what the CGC refers to as independent Directors, the selection criteria for whom are also listed thereunder. At least one-third of the BoD must be comprised of independent Directors.

Directors do not have to be a citizen of the Republic of Turkey and foreign individuals and corporates can act as Directors in JSCs.

Legal entities can be designated as Directors; in which case, a real person representative must be appointed to serve on the BoD on behalf of them.

Certain share groups, group of shareholders or minority shareholders can be granted the right to be represented at the BoD, if the AoA so provides.

In cases where a Director's seat becomes vacant due to his death, resignation or dismissal within his tenure, the BoD can temporarily appoint a new Director until the immediately following GAS. The temporary member will then be voted in or out by the GAS at this meeting.

The BoD membership of a Director shall cease automatically, if such BoD member is declared bankrupt, loses his/her legal capacity or can no longer meet any special requirements stipulated in the AoA or the applicable legislation. Additionally, BoD members can always be dismissed by way of a GAS resolution, even if such dismissal was not on the meeting agenda.

3.3 What are the main legislative, regulatory and other sources impacting on contracts and remuneration of members of the management body?

The TCC and CML both contain provisions regarding the remuneration of Directors, according to which salary, bonus, premium and/or meeting attendance fees can be paid to Directors. Directors can be allotted a certain share from the annual profit of the JSC, provided that the amount of these payments are determined under the AoA or by way of a GAS resolution and legal reserves and dividends are duly allocated.

Pursuant to the CML, Directors cannot receive a share from the annual profit in publicly held companies, unless the legal reserves and dividends are duly allocated.

3.4 What are the limitations on, and what disclosure is required in relation to, interests in securities held by members of the management body in the corporate entity/entities?

Under the TCC, there are no limitations in terms of the value or percentage of shares which a Director can hold in a JSC. With that being said, a Director who holds a stake exceeding the thresholds specified by law becomes subject to the disclosure requirements explained under question 2.7, above.

3.5 What is the process for meetings of members of the management body?

There is no prescribed form of convocation for BoD meetings. It is permissible for all or some Directors to attend and vote in BoD meetings in an electronic environment, provided that certain requirements listed under the TCC, e.g. that the JSC must have a website allocated for this purpose, are duly satisfied. The frequency of BoD meetings can be determined in the AoA. In any case, the BoD can convene at any time it deems necessary. Unless a higher quorum is specified under AoA, the BoD shall convene with the simple majority of its members and pass resolutions with the affirmative votes of the majority of those who attend, regardless of whether the meeting is held physically or electronically. If none of the Directors calls for a physical meeting, BoD resolutions can be passed by way of one Director drafting a resolution template containing his proposals, sending it to all Directors in the JSC and obtaining the written approval of the majority of the BoD.

The chairman does not have a privileged vote, and in the case of equal votes, a second meeting must be held. If there is still a tie in votes in the second meeting, the proposal is deemed to have been refused.

The CGC sets forth certain principles regarding BoD meetings, which are not compulsory in nature and only advisory.

3.6 What are the principal general legal duties and liabilities of members of the management body?

The main fiduciary duties of Directors can be listed as the duty of acting diligently and prudently, the duty of loyalty and non-compete and the duty of care. The TCC stipulates that Directors who breach their duties, as defined by the law and AoA, by way of fault, shall be liable for any losses and damages caused against the JSC, shareholders and JSC creditors. Unless a distinction was made between executive and non-executive Directors or the duties of the BoD were transferred to a CEO, all Directors should hold appropriate professional skills and experience reasonably required in the corporate field of activity of the JSC. In addition, the Directors should, in all their acts and dealings, observe and respect the rights and interests of the JSC and the shareholders within the framework of the applicable laws and the AoA. The liability of Directors in publicly held JSCs is more extensive. In the case of public offerings, any loss, which may be sustained by investors due to any inaccurate, misleading and incomplete information included in the prospectus can be demanded from the Directors who are proved to be at fault, subject to certain conditions. Furthermore, Directors shall be liable for damages arising from the interim financial statements failing to reflect the actual status of the JSC or not being prepared in accordance with the legislation and the accounting principles and rules adopted by the JSC.

3.7 What are the main specific corporate governance responsibilities/functions of members of the management body and what are perceived to be the key, current challenges for the management body?

Generally speaking, to the extent that the AoA provide for the setting-up of special committees for internal control systems, early risk detection and risk assessment or management processes and systems and the like, the BoD shall be responsible for forming these committees from among the company personnel with the appropriate level of expertise and qualifications, and where necessary, outsource any associated ancillary services. Each of these committees will operate under the supervision of, and report to, the BoD. Thus, ultimate liability for ensuring that the subject committees fulfill their duties in compliance with the law and the objectives drawn up in the AoA is vested in the BoD. Moreover, unless the members of any committee are called in to brief the shareholders on any specific issue, the liability for reporting and informing the GAS about the committees' performances is vested in the BoD. In regard to the key current challenges faced by the management body, it would not be incorrect to state, particularly from the perspective of closely held JSCs, that corporate governance still remains a not well-settled area. This is mainly because, except for big conglomerates and companies operating in regulated sectors, many closely held JSCs are family-run businesses.

Even though statutory law keeps up quite well with the fast-changing world and its trends, locally owned corporates generally remain slow in implementing the corporate governance rules in their practices.

In contrast with the foregoing, companies operating in regulated sectors, such as banking, insurance and electrical energy, as well as publicly held JSCs, observe and comply with the corporate governance rules quite successfully.

As for the current challenges for the BoD, one of the biggest risks Directors presently face is such that they are not insulated against personal liability for any public debts of the JSC, which remain outstanding. Pursuant to Law on the Collection Procedure of Public Receivables no 6183 ("Law no 6183"), where public receivables cannot be collected from the JSC's assets, Directors shall be personally liable for such receivables.

Another big challenge for the BoD derives from the non-compulsory nature of the Directors' liability insurance, the market for which is quite immature in Turkish insurance industry. It is currently not common practice for companies to pay for the said insurance product since Turkish insurers have to reinsure their liability under Directors' liability insurance policies in order to be able to face any potential claim, which indirectly increases the premium amounts companies have to pay.

Finally, there is no specific legislation under Turkish Law stipulating that companies must indemnify their Directors against personal liability caused by reasons beyond their control and despite their lack of fault. Although it is not a prohibited practice, the lack of any mandatory legal provision concerning the matter causes companies to not include any provisions in their AoA to this effect. As a result, combined with the problems regarding Directors' liability insurance, Directors are exposed to a wider range of risks under Turkish Law, and have to seek protection on the basis of general provisions of law.

3.8 What public disclosures concerning management body practices are required?

The CGC includes compulsory disclosure requirements concerning independent Directors and members of the committees, if any.

Communiqué no II-15.1, which applies to public companies whose shares are traded on the stock exchange, requires any information regarding Directors who may potentially affect investors' decisions or the value of capital markets instruments to be disclosed.

Similarly, Communiqué no II-15.2 contains disclosure requirements concerning Directors or their activities such as any resolution passed concerning a planned merger, the change of the JSC's field of activity and any criminal proceedings initiated against Directors.

3.9 Are indemnities, or insurance, permitted in relation to members of the management body and others?

Please refer to our explanations set out at question 3.7 above.

4 Transparency and Reporting

4.1 Who is responsible for disclosure and transparency?

Under the TCC and relevant law, BoD can be explained as the key corporate body in relation to corporate governance related disclosure. Article 375 of the TCC provides that along with its other non-transferable duties and authorities, the BoD is responsible for preparing the annual activity report. It is further responsible for preparing the financial statements of JSCs in accordance with the Turkish Accounting Standards ("TAS"). The BoD is also responsible for preparing a corporate governance compliance report ("Compliance Report") and submitting it to the GAS as one of its inalienable duties. In addition to the above, in the case of JSCs that are subject to independent audit, BoD shall establish a corporate website and ensure that the website contains the relevant information stipulated under the law. BoD members are accountable for breach of their duties concerning corporate website and its required content. For a detailed explanation regarding corporate websites, please refer to our answer to question 4.4.

Apart from the foregoing, in accordance with Article 15 of the CML and the Communiqué no II-15.1, listed companies shall disclose to the public the information, events and developments which may affect the value and price of capital market instruments or the investment decision of investors. Information, events and developments which qualify as "material events" shall be disclosed by the company officer designated and authorized to use a secure electronic signature through the Public Disclosure Platform ("PDP"). Any listed corporations, the capital market instruments of which are not traded at the exchange or are traded exclusively in certain specified markets of the stock exchange are exempt from the obligation to disclose information at the PDP as provided under the Communiqué on Public Disclosure Platform (VII-128.6).

4.2 What corporate governance related disclosures are required?

As explained in our answer to question 4.1 above, annual activity report of the BoD is one of the primary documents utilized in disclosing the financial status of the JSC. The Regulation on the Minimum Contents of the Annual Activity Reports of Companies provides that certain matters shall be addressed in the annual activity report. This includes i) general information on the relevant financial year, structure of the JSC; in particular, its share capital, shareholders and organization, ii) business activities and significant developments, e.g. information on the investments made, internal control systems and auditing activities, etc., iii) financial status of the JSC, i.e. assessment of risks and of the management's performance, the level of accomplishment in undertaking the planned business activities, situation of the JSC in view of the designated strategic targets, etc., and iv) information on the risk management policy of the JSC and a forecast on potential risks concerning sales, efficiency, revenue generation capacity, profitability, debt/equity ratio and similar matters. Apart from them, disclosure should also be made on any financial benefits extended to Directors and executive officers.

In regard to publicly held JSCs, Corporate Governance Principles ("Principles") annexed to CGC contain rules similar to those explained for closely held JSCs in the preceding paragraph. Article 8 of the CGC regulates that annual activity reports should specify whether the applicable disclosure requirements are duly satisfied by the JSC. As per the decision of the CMB dated 27.02.2014 and numbered 2/35, a similar disclosure should also be made in the Compliance Report. Apart from the disclosure of material events, listed companies are required to disclose various information at the PDP in relation to the structure and practice of the GAS and BoD under the CCG and the Principles.

The last primary source of corporate governance related disclosure and transparency is the corporate website. Please refer to our answer to question 4.4 for detailed information on the requirement to establish corporate website and the relevant content to be published.

4.3 What is the role of audit and auditors in such disclosures?

Independent audit of JSCs is regulated in Articles 397 to 406 of TCC. In accordance with Article 397/4, JSCs which are subject to independent audit are determined by the Resolution of the Council of Ministers numbered 2012/4213. The criteria for designating such companies under the Resolution is reset each year. On the other hand, concerning the auditing of companies which are exempt from independent audit TCC provides that the rules and principles for auditing of such companies will be determined under a Regulation to be prepared by the Ministry and published by the Council of Ministers. It should be emphasized that such regulation has not been issued yet.

The main purpose of independent audit is defined by law so as to form an objective opinion on the financial standing of a JSC in view of the applicable laws and internal early risk detection and management systems adopted by the JSC and by means of an in-depth review of the financial tables, annual activity report of BoD and any other financial information pertaining to the JSC which may be procured by auditors in the course of their audit. JSCs which are subject to independent audit requirement shall specify at the outset of their financial tables and BoD's annual activity report that these have been duly audited and also, explain the opinion of their auditors. In the absence of a duly conducted audit, financial tables and annual activity report shall be considered as null and void.

With regard to independence of auditors, Article 400/1 enlists, on a non-exhaustive basis, persons who shall not qualify as auditors. These include shareholders, managers, or employees of the JSC to be audited, persons who are legal representatives, BoD members, managers or legal owners of a corporation associated with the JSC to be audited, who work at a company that has dealings with the JSC to be audited or has more than 20% share in such a JSC, who have undertaken works for or have contributed to the bookkeeping or preparation of the financial statements of the JSC to be audited other than the auditing itself. Furthermore, Article 400/2 of the TCC regulates that if the same person or entity was appointed as an auditor for a JSC for a total period of seven years in the last 10 years, the said auditor cannot be re-appointed for at least three years. An auditor is also prohibited from providing advisory services to a JSC he audits except for in cases concerning tax advisory and tax audit, and to conduct this through any subsidiary JSC under Article 400/3 of the TCC.

Apart from the foregoing, listed companies are required to comply with Principle 4.5.9 with respect to the formation of audit committees which will report to BoD. Accordingly, in these JSCs, an audit committee shall be formed to supervise the corporation's accounting system, the making of required public disclosures, the appointment of independent auditors and overviewing the operation and efficiency of internal control and internal audit system. Election of independent auditors, initiation of the independent audit process by concluding required engagement contracts with independent auditors and overviewing the works of independent auditors at all stages are among the duties of the audit committee. The audit committee shall disclose its evaluations on the veridicality and accuracy of the annual and interim financial statements to the public and accounting principles observed by the corporation to the BoD in writing, together with the opinions of the responsible executives and independent auditors of the corporation. There shall be an explanation in the annual report with regard to the activities and meeting results of the audit committee.

4.4 What corporate governance information should be published on websites?

Article 1524 of the TCC provides that companies which are subject to independent audit requirement shall set up a website within three months as from the date of their incorporation. BoD members and managers of companies who fail to set up the JSC website and publish the required content on it shall be charged with a fine as regulated under Article 562/12 of the TCC.

According to Article 6 of the Regulation on the JSC Websites ("Regulation on Websites"), the following information shall be published on the JSC's website on a permanent basis;

  • The JSC's Central Registry Recording System ("MERSIS") number, commercial name, head office, subscribed capital, paid-in capital, and names and surnames of the president and members of the BoD.
  • In the case of legal entity Directors, the MERSIS number of this legal entity Director, commercial name, head office, and the name and surname of its registered representative.
  • The name and surname/title, residence/head office and registered offices, if any, of the selected auditor.

On the other hand, along with certain other content specified in the Regulation, the below information shall be posted at the website for a minimum period of six months:

  • Any merger agreements, merger report, financial tables and reports pertaining to last three years' and interim financial statements shall be placed on the JSC's website for a review by shareholders within 30 days before the scheduled date of the GAS meeting.
    • Calls for GAS meetings and GAS resolutions amending the AoA.
    • The GAS minutes of the JSC.
    • The decision of the BoD regarding the appointment of the signature powers. Internal directive of the GAS.

In addition to above, the Principles set forth certain rules regarding corporate websites which are compulsory for publicly held companies whose shares are traded on the Borsa Istanbul.

Apart from the foregoing, according to Article 24 of the Communiqué no II-15.1, within no later than one business day immediately after the date of disclosure of any material event to public must publicly held JSCs publish their subject disclosures at their corporate website. The disclosed information must be retained on the website for a period of five years.

5 Miscellaneous

5.1 What, if any, is the law, regulation and practice concerning corporate social responsibility?

Corporate Social Responsibility ("CSR") is not regulated under TCC. Nonetheless, there are a few pieces of legislation, such as the Protection of Consumers Law no 6502 and Renewable Energy Law no 5346, which include provisions aiming at minimizing any negative impact which may be caused by the acts or omissions of corporations on wider community.

Principles also include a section on CSR issues which are of a non-compulsory nature. The Principle 3.5 entitled "Ethical Rules and Social Responsibility" sets forth that the operations of the corporations shall be carried out in accordance with the ethical rules of conduct, with a special emphasis on the protection of the environment, consumers and public health.

With regards to disclosure requirements concerning CSR, Principle 2.2.2 states that information on social rights granted to, and professional trainings organized for the employees and any CSR activities arranged in connection with the corporate field of activity of the company, and which produce any positive effects on the society and environment shall be included in the corporation's annual reports.

5.2 What, if any, is the role of employees in corporate governance?

There is no specific rule under the legislation regarding the role or importance of employees in corporate governance, be it as whistle-blowers or otherwise. Similarly, there is no concept of works councils in Turkish Law presently in force.

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.

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