Authors: Capital Markets Law Department, Prof. Dr. Ali Paslı, Atty. Mustafa Şahin
Introduction
In publicly held joint stock companies, the corporate governance structure does not merely consist of the determination of internal managerial principles; it also plays a central role in ensuring the reliability of capital markets and the protection of investors. In Türkiye, the normative framework of the corporate governance regime is primarily determined by the Corporate Governance Communiqué (II-17.1) (“Communiqué”) issued by the Capital Markets Board (“CMB”) and the Corporate Governance Principles annexed thereto.
The Communiqué constitutes a comprehensive regulatory framework governing the management structure of publicly held companies, their relations with shareholders, their public disclosure obligations, and the organization of their boards of directors. The primary objective of the Communiqué is to ensure the establishment of transparency, accountability, and effective oversight mechanisms within the governance structures of corporations.
The regulations introduced under the Corporate Governance Communiqué affect not only the internal organization of companies but also impose binding rules across a wide range of areas, including relations with shareholders, related party transactions, and approval mechanisms for material transactions. In this respect, the Communiqué represents one of the most comprehensive regulatory frameworks concerning corporate management within Turkish capital markets law.
I. The Normative Structure of the Corporate Governance Principles
The Corporate Governance Communiqué establishes the corporate governance regime through two principal mechanisms. The first consists of mandatory principles, while the second is the “comply or explain” mechanism.
Under the Communiqué, certain corporate governance principles are binding for publicly held companies, and companies are required to establish governance structures in compliance with these principles. In contrast, other principles set forth in the annex to the Communiqué provide companies with a degree of flexibility. However, where companies fail to comply with such principles, they are required to publicly disclose the reasons for such non-compliance.
In practice, this disclosure obligation is fulfilled through the Corporate Governance Compliance Report.
Pursuant to Article 8 of the Communiqué, publicly held companies are required to include detailed explanations regarding their level of compliance with corporate governance principles in their annual activity reports. Companies must disclose which principles they comply with, which principles they fail to comply with, and the reasons for such non-compliance.
These reports are also published on the Public Disclosure Platform (\"PDP\"), thereby enabling investors to obtain information regarding the governance structures of companies.
This mechanism reflects a hybrid regulatory model that combines legal obligations with market discipline.
The Corporate Governance Communiqué does not subject publicly held companies to a uniform regulatory regime. Instead, companies are classified into three different groups based on their market capitalization and the market value of their free-floating shares.
Accordingly, companies are categorized as first group, second group, or third group companies, and the corporate governance obligations applicable to each group may vary.
This distinction is particularly relevant with respect to the number of independent board members, the establishment of board committees, and the application of certain corporate governance principles.
The classification determined by the CMB is updated annually and announced in the Board’s bulletin. In this way, different levels of corporate governance obligations are imposed by taking into account the size of companies and their systemic importance within the capital markets.
II. Corporate Governance Mechanisms for the Protection of Shareholders’ Rights
Within the framework of corporate governance principles, the protection of shareholders’ rights constitutes a primary objective. In this regard, mechanisms such as the right to obtain information, the right to attend general assembly meetings, the voting right, and the expansion of minority rights come to the forefront.
The right of shareholders to obtain information and conduct examinations lies at the core of the corporate governance system. This right is not limited solely to general assembly meetings; it also encompasses access to information regarding the financial condition, activities, and management decisions of the company.
In order to fulfill this obligation, publicly held companies are required to establish a comprehensive disclosure infrastructure on their corporate websites.
Accordingly, the following information and documents must be continuously accessible on the company’s website:
These regulations are of critical importance for reducing information asymmetry in the capital markets and enabling investors to make informed decisions.
Investor Relations Department
In accordance with the corporate governance principles, publicly held companies are required to establish an Investor Relations Department in order to ensure the effective exercise of shareholders’ rights.
This department ensures that communication between shareholders and company management is conducted within an institutional framework.
The primary duties of the Investor Relations Department include responding to information requests from shareholders, organizing general assembly processes, contributing to the preparation of the corporate governance compliance report, and maintaining communication with investors.
The department also plays an important role in ensuring the fulfillment of the company’s public disclosure obligations.
III. General Assembly Processes and Corporate Governance Standards
Corporate governance principles aim to ensure that the general assembly mechanism operates in an effective and participatory manner.
In this context, the announcement of general assembly meetings must be made in a way that enables the widest possible participation of shareholders.
The announcement of the general assembly meeting must be made at least three weeks prior to the meeting date, and such announcements must be communicated to shareholders through the broadest possible communication channels, including electronic communication tools.
In addition, the corporate governance principles require that the general assembly agenda be prepared in a detailed and explanatory manner. Informative documents relating to each agenda item must be made available to shareholders. The corporate governance regime also introduces mechanisms limiting the voting rights of related parties in order to protect shareholders in certain transactions. In particular, where related party transactions are submitted to the approval of the general assembly, the shareholders who are parties to such transactions are not permitted to vote. This regulation aims to reduce the risk of abuse by controlling shareholders.
IV. Material Transactions and the Role of Independent Board Members
One of the most critical elements of the corporate governance system is the mechanism for the supervision of material transactions.
Under the corporate governance principles, the following transactions are considered material transactions:
For such transactions, a majority approval of independent members of the board of directors is required in order for the board of directors to adopt a valid resolution. If the majority of independent members do not approve the transaction but the board of directors still wishes to proceed, the transaction must be submitted to the approval of the general assembly. In such cases, the dissenting opinions of independent board members must be publicly disclosed and announced on the PDP. Corporate governance principles also stipulate that related parties may not vote in such general assembly meetings.This mechanism effectively provides independent board members with a protective veto function in practice.
V. Structure of the Board of Directors and the Independent Membership Regime
The Corporate Governance Communiqué includes detailed provisions regarding the structure of the board of directors of publicly held companies.
Accordingly, the board of directors must consist of at least five members. The board must include both executive and non-executive members.
Among the non-executive members, the presence of independent board members is mandatory.
The number of independent board members must constitute at least one-third of the total number of board members, and in any event may not be fewer than two members.
The process for the appointment of independent board members is also subject to strict supervision. Candidates for independent membership are first evaluated by the Nomination Committee, which assesses whether they meet the independence criteria.
Subsequently, the list of candidates must be submitted to the Capital Markets Board at least 60 days prior to the general assembly meeting. If the Board issues a negative opinion regarding a candidate, such candidate may not be submitted to the general assembly.
The criteria used in determining independence include the absence of economic or personal ties with the company, the absence of significant commercial relationships in recent years, and the possession of professional reputation sufficient to make impartial decisions regarding company management.
VI. Board Committees
In order to ensure the effective functioning of the board of directors, the corporate governance principles require the establishment of certain committees.
Accordingly, publicly held companies must establish the following committees:
If the structure of the company is relatively small, the duties of certain committees may be performed by the Corporate Governance Committee.
However, the Audit Committee must always be established.
The chairman of the executive management or the chief executive officer may not serve on these committees. Furthermore, independent board members are required to participate actively in these committees.
VII. Related Party Transactions and Approval of Independent Members
Within the corporate governance regime, transactions carried out by companies with related parties are subject to stricter scrutiny than ordinary commercial transactions. The primary reason for this is the increased risk that corporate assets may be transferred to controlling shareholders, group companies, board members, or other persons who exercise influence over the company in a manner inconsistent with market conditions, in other words, through concealed profit transfer.
For this reason, the Communiqué subjects related party transactions not only to public disclosure obligations but also to a special approval mechanism that intervenes in the decision-making process itself.
In determining the concept of a related party, the Communiqué refers to the relevant accounting standards, particularly Turkish Accounting Standard 24 (TAS 24). Accordingly, when assessing whether a transaction constitutes a related party transaction, the actual economic and managerial relationships between the parties are considered rather than merely their formal legal relationship.
Within this framework, controlling shareholders, board members, senior executives, their close relatives, and other companies under the same control structure may be considered related parties.
Pursuant to the Communiqué, board resolutions regarding transactions conducted with related parties, as well as guarantees, pledges, and mortgages granted in favor of third parties, require the approval of the majority of independent board members in order to be valid.
This regulation creates a supervisory mechanism aimed particularly at preventing controlling shareholders or executives from using corporate resources for their own benefit.
If independent board members do not approve the transaction, the transaction cannot be implemented through a board resolution. In such cases, the full details of the transaction must be disclosed on the Public Disclosure Platform (KAP) within the framework of public disclosure regulations, and the transaction must be submitted to the approval of the general assembly.
In the general assembly vote, related parties who are involved in the transaction may not exercise their voting rights.
In practice, related party transactions constitute one of the most frequently scrutinized areas under capital markets regulations. For this reason, it is of great importance that publicly held companies structure their related party transactions in compliance with corporate governance principles in their decision-making processes and transparently disclose the rationale and economic terms of such transactions to the public.
VIII. Supervisory and Intervention Powers of the Capital Markets Board
The implementation of corporate governance principles is not left solely to the discretion of companies but is also supported by the active supervisory and intervention powers of the Capital Markets Board.
Under the Communiqué, the Board may grant a specific period to companies that fail to comply with corporate governance principles and, where necessary, may initiate legal action or request interim measures.
Furthermore, in the event that the compliance obligation is not fulfilled, the CMB may appoint independent board members ex officio.
This authority demonstrates that the application of corporate governance principles is not merely recommendatory in nature but is actively supervised by the regulatory authority.
Conclusion
The Communiqué and the Corporate Governance Principles annexed thereto constitute the primary regulatory framework shaping the governance structure of publicly held companies in Türkiye.
The Communiqué introduces detailed rules aimed at protecting shareholders’ rights, ensuring public disclosure, safeguarding the interests of stakeholders, and enabling boards of directors to function effectively.
In particular, the powers granted to independent board members, the approval mechanisms applicable to related party transactions, and the corporate governance compliance reporting system stand out as significant instruments designed to ensure transparency and accountability in the capital markets.
The effective implementation of corporate governance principles does not merely represent compliance with regulatory obligations; it also contributes to the development of a corporate governance culture that enhances investor confidence and facilitates companies’ access to capital markets.
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