We thank individually to directors and executives who participated to the survey and allowed
us to realize this project. Furthermore, we appreciate the contributions of 15 highly regarded
businessmen, executives, lawyers and academicians who have joined to face-face interviews
and provided us with useful insights. We also thank to the members of the project team, Mr.
Guray Karacar, Dr. Burak Kocer, for their valuable efforts; to the interns Mr. Murat Senturk,
Mr. Ahmet Gundogan, Ms. Gokce Kanmaz, and Ms. Sena Atay, who assisted us with great
effort. Last but not least, we would like to thank to the board of the Corporate Governance
Association of Turkey and Chairman Mr. Aclan Acar who made this project possible.
The Boston Consulting Group Project Team
Due to the current efforts of Turkey trying to become a member of EU, the recent global
scandals of large corporates in the most developed markets of the world, the competition of
emerging markets to attract global FDI and the decreasing returns of the global stock
markets, corporate governance is the “hot” topic both in global and Turkish business
communities and one of the new differentiation factors for many companies. Yet the concept
and implementation of corporate governance is relatively new in Turkey. Therefore, the
diagnostics, an accurate description of the current situation, is needed before proceeding
further. To that end, Corporate Governance Association of Turkey (COGAT) and the Boston
Consulting Group (BCG) cooperated for a joint pro-bono effort on mapping the corporate
governance landscape in Turkey.
Corporate Governance Map of Turkey research project has been conducted between
September 2004 and February 2005, and incorporates these 4 modules: business mapping,
survey development, data collection and data analysis.
The survey underlying the basis of the study has been sent out to top 1000 companies of
Turkey. 123 surveys have been responded and ~15 face-to-face interviews have been
conducted with key business executives, auditors, rating agencies, academicians and
lawyers to verify the results. The critical scale has been met upon double extension of the
survey input deadline.
The survey included two main sections - conformance and performance. The conformance
section seeks to test companies’ conformance levels with the corporate governance
principles and the performance section assesses the value add of corporate governance
principles to the company and board performance.
TURKISH MARKET AND THE NEED FOR CORPORATE GOVERNANCE
Turkey is an attractive spot for sourcing/production and serving as a market due to its unique
advantages. However Turkey has not been successful in attracting FDI (~1/6th of the world
average FDI per capita using a 10-yr average) mainly due to its main weaknesses in
administrative and bureaucratic barriers as well as its economic stability. Similar problems
also bother the local capital, which is the main source of investments in Turkey. On a 12-yr
average local portion of the gross fixed capital formation amounts to ~$39 BN where FDI
amounts to only ~$1 BN. Additionally, good governance is significantly important for private
sector companies as better governed companies enjoy market premiums and create higher
value for the shareholders. Improving and executing the corporate governance scheme will
help companies in creating more value for the shareholders as well as correcting the
problems that bother the capital holders and create a healthy investment climate.
Looking at 1.720 Million companies in Turkey, Marmara, Aegean and Central Anatolia
regions combined host around 65% of all businesses associated in Turkey. Top region is
Marmara with 32% of the entities in Turkey. Istanbul alone hosts approximately 20% of total
companies and 28% of total employment.
Looking at the number of total companies, the most important sectors appear to be trade and
industrial production with 47% and 15% of the total registered companies, respectively.
However, deciding on key sectors based on number of registered companies is not reliable.
Key sectors need to be defined by looking at sectoral value add rather than assessing pure
registry numbers. Upon such analysis resulting key sectors are industrial production,
financial services, retail trade and energy.
There are 7 types of business forms in Turkey defined in commercial and civil codes, sole
proprietorship being the most popular with approximately 80% of all entities. Approximately
35,000 joint stock companies, on the other hand, comprise only 2% of the entities formed in
Business Form General Specialties
The analysis of the conformance section is based on the answers of 90 respondents.
Findings reveal that basic shareholder rights are believed to be protected but there is still
room for improvement in terms of minority shareholder rights.
Country Corporate Governance Framework
A large part of respondents (71%) have heard of the Capital Markets Board (CMB) Corporate
Governance (CG) Code and find it useful for developing market transparency and efficiency.
The fact that majority of respondents (93%) support such parts of the code as transparency
and disclosure should be legally enforced also confirms the positive attitude towards the
code. Majority of participants (93%) believe that for other parts of the code “comply or
disclose” principle, rather than legal enforcement, should be employed by listed companies.
CG Code is found useful in terms of the development of Turkish business environment;
however, some difficulties are stressed out mainly due to market structure. Only 26% of
the participants support the statement that “The legal and business environment in
Turkey is not well suited for implementation of the corporate governance principles in
general”. Furthermore, 72% consider “Supervisory, regulatory and enforcement
authorities as not being objective, powerful and not having enough enforcement
Despite some problems related to legal and administrative infrastructure of the country,
most of the participants (95%) agree that “Increased market competition and integration
to EU will lead to increased implementation of governance principles”.
Shareholder Rights and Treatment
Respondents state that shareholder rights are known and are protected; however, certain
weaknesses are present, especially for minority shareholders. Regulations related to general
shareholder meetings are found to be the most positive practices in terms of the protection of
shareholder rights. Timely access to information on important issues and election and
monitoring of board members are perceived as the second and third most widely
implemented practices. On the other hand, practices that aim at protection of minority
shareholders are perceived as the least widely implemented principles.
The facts that most of the companies represented by the participants do not have an
investor relations department and/or direct phoneline also confirm the perceptions about
insufficient protection for minority shareholders. Also, 31% of listed companies do not
have an investor relations department.
In line with the perceptions about minority rights and above mentioned facts, 51% of the
respondents agree with the statement “Either be a controlling shareholder or don’t be a
shareholder in Turkey.” All these confirm that minority rights are one of the most critical
issues in terms of employing best practices in Turkey.
Respondents believe that stakeholders should have certain rights and they are claimed to be
freely voicing their concerns. Majority of the respondents (97%) agree with the thesis that
“Stakeholder happiness brings a better company performance in the long-run”. On the other
hand, 65% of the respondents state that their companies have written policies regarding their
stakeholders and 60% state that they have formal ethics code.
Disclosure and Transparency
CMB regulations regarding disclosure and transparency are expected to be useful both for
enhancement of the investment climate and for the increase in tax income of the country. On
the other hand, majority of the participants (91%) agree with the statement that “ There are
fundamental problems regarding transparency in the country and corporate governance
practices in Turkey cannot be developed unless these are overcome”.
42% of the respondents believe that CMB regulations ensure a satisfactory level of
disclosure. On the other hand, 71% agree with the statement that “Tax structure and high
tax burdens affect transparency, negatively”.
90% of the respondents state that their companies publish annual report; however, only
44% make it accessible on their official websites. Financial data and company strategies
are the most widely published information on annual reports. On the other hand, only
37% and 34% state that their company’s annual report includes information about
remuneration of directors and key executives and nomination process, respectively.
Board Structure and Responsibilities
80% of the respondents claim that their company has a structured process for nomination
and selection of board members and 66% state that board decisions are not dominated by
Survey results reveal that the average number of board member is seven and there is
one independent director on average. Only 41% of respondents believe that their board
has sufficient number of independent directors.
60% and 32% of the participants state that their board has audit committee and
remuneration committee, respectively. On the other hand, only 5% of the respondents’
companies have nomination committee at work in their boards.
The analysis of performance section is based on the responses of 33 chairmen and board
members. It is observed that in general respondents consider their boards adding significant
value to their companies; however, this process is not planned structurally.
Board Role Clarity
79% of the respondents consider the board’s role to be clearly understood by directors,
executives, shareholders and other stakeholders. On the other hand, 61% state that their
company has written job description for board members, which is shared with top
89% of the respondents state that their boards assume active role in developing new
strategies rather than providing guidance. Furthermore, this active board role in strategy
is assumed to be necessary due to environmental instability.
Majority of the respondents (93%) consider designing and implementing mechanisms for
board selection as a critical success factor. However, only 44% state that they have formal
selection procedures in written format.
81% of the respondents state that their boards are comprised of people who have
adequate capabilities for the position and 85% state that board members possess
However, only 50% of the respondents state that selection of the board members is
conducted through procedures that take written job description for directors into account.
On the other hand, 54% agree that job specification for their board members is more
comprehensive than the standards established by law.
Board Meeting Procedures
In general, respondents agree that their board procedures and structures function well and
add significant value to the company. They state that all members are prepared in-advance
for the meetings (71%), they can freely suggest new subjects for the agenda (86%), all
subjects are discussed at sufficient level (93%), and there is an efficient information flow
between board and the company (79%).
Respondents consider their boards’ primary functions as supporting new strategic decisions
and evaluating new investment decisions, although the boards have a high level of
operational involvement. On the other hand, 86% of the respondents believe that board
functions should be dynamic and dependent on the nature of the job and conjuncture.
Independent directorship is an emerging concept for the Turkish business world. Number of
independent directors is very limited and only 65% of the respondents state that they are
satisfied with their performance.
Respondents state that independent directors focus on important subject matters
during the board meetings (90%), and are aware of critical success factors that are
specific to the business (86%). However, only 57% of the participants agree that they
bring important issues to board agenda, 67% agree that they successfully evaluate
appointment of the executives and 50% believe that they give a clear direction to the
Waste majority of the respondents (96%) agree that there is a constructive relationship
between the board and top management. This constructive relationship is considered to be
extremely important for the company success.
However, only 46% state that their company has a formal protocol that arranges the
relationship between the board and top management and 60% state that they have
written protocol about board meetings in use.
To sum up the landscape, the Corporate Governance scheme has recently started its
development in the Turkish businesses world. There is significant room for improvement
especially on the transparency side. With the implementation of the principles, also the
boards practices, which are currently assessed positively, but are burdened with the
operational activities, could also be further improved.