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Corporate Governance in Turkey Improves, Challenges Remain
Oct 17, 2006
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Corporate governance is improving in Turkey but some key issues, including the potential for unfair treatment of minority shareholders, will need to be tackled if Turkish firms are to take full advantage of opportunities to grow, according to a report today from the Steering Group on Corporate Governance of the Organisation for Economic Co-operation and Development. OECD is an international organization of developed free-market democracies, serving as an informational forum on common problems and to share best practices.

The report, Corporate Governance in Turkey: A Pilot Study evaluates Turkish corporate governance standards and practices in light of recommendations in the OECD Principles of Corporate Governance, issued in 1999 and revised in 2004. It is the first study of its kind in an OECD member country.

OECD says good corporate governance is essential for any company or country that wants to compete effectively in the global marketplace and attract long-term capital to grow businesses. The report said Turkey has a strong regulatory framework for corporate governance. Disclosure to the market by listed companies is improving and international standards for accounting and auditing are being introduced.

The report urges Turkey quickly adopt amendments to its company law to centralize the process for setting accounting standards under the Turkish Accounting Standards Board.

Challenges remaining, according to the report. There is potential for abuse in the system. Family controlled groups of companies are common, often with much cross-ownership between companies, the report notes, and controlling shareholders lead management and strategic direction of company groups, many of them listed on the Istanbul Stock Exchange. While not a problem itself, this opens up the potential for abuse, OECD reports.

OECD also points out that market discipline, defined as the power of financial markets to persuade companies to meet corporate governance standards or risk public criticism, lawsuits or a sell-off in their shares, remains relatively weak.

OECD recommends these be the focus of Turkish lawmakers, along with other improvements to provide more disclosure by Turkish companies and involvement by institutional investors.

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