Draft Revisions to the G20/OECD Principles of Corporate Governance are Introduced for Public Consultation

It appears that, through the Draft Revisions, it is aimed to achieve resilient and inclusive corporate governance principles (the “Principles”) considering that publicly traded companies ("Company(ies)") have an extensive sphere of influence within the society from the corporate perspective.

The Draft Revisions aim to expand and change the scope of the Principles in the light of technological developments, control mechanisms, public disclosure, and sustainability matters. Although the Draft Revisions are not yet final and may be changed according to sector-based comments, the material revisions contemplated therein are examined under the following headings.

Revisions to the "About the Principles" Section
By the revisions intended to be introduced to this section, an attempt is made to expand the scope of the "persons to whom the Principles address", and place the functions and purposes of the Principles on a clearer basis.

As a matter of fact, by the contemplated revisions to articles 1 and 10, stakeholders including employees, suppliers, customers, creditors, and affected third parties are listed among the addressees of the Principles.

It is stated that the Principles mainly serves three major functions:

• Facilitating companies' access to finance
• Protecting investors
• Achieving the sustainability of the economy by contributing to the sustainability of corporations

Draft Revisions to the "Ensuring the Basis for an Effective Corporate Governance Framework" Section
It is understood that the contemplated revisions to this section intend to render the corporate governance schema of the Companies more compatible with technological developments, and to establish more dynamic corporate oversight mechanisms regarding the problems caused by the actors of the Company.

In this context, under the contemplated revision to clause (I.E.) of the Draft Revisions, it is emphasized that supervisory, regulatory, and enforcement authorities should be autonomous and objective. It is further stated that operational independence could be achieved and conflicts of interest could be prevented by ensuring independence in decisions on budget and human resources.

Under the contemplated revisions to clause (I.C.), it is stated that corporate governance will be affected by human rights, environmental rights, digital security, and personal data protection, and for this reason, the legislative regulations on such concepts that have emerged due to global developments should be adapted to corporate governance.

Subsequently, the contemplated revisions to clause (I.F.) emphasizes that corporate governance practices should be integrated with digital technology in supervisory and enforcement processes. It is also observed that the approach towards technological integration is addressed repeatedly throughout the Draft Revisions.

As per the intended revisions to clause (I.H.), it is stated that the controlling relationship between group companies and their parent companies should be tied to concrete audit criteria such as eligibility to join financial consolidation to prevent the Companies from being used by the controlling companies within their group for disguised capital transfer.

Draft Revisions to the "The Rights and Equitable Treatment of Shareholders and Key Ownership Functions" Section
It is observed that, by the contemplated revisions to this section, various solutions are proposed for shareholders and for persons responsible for protecting their rights so that holders of shareholding rights can exercise their rights in the optimum way. Accordingly, by the contemplated revision to clause (II.A.), "the right to approve or elect the external auditor" is added as one of the basic shareholder rights. This addition aims to encourage more active participation of the shareholders in the Company's audit processes.

The contemplated revisions to clause (II.C.3.) aim to ensure that shareholders of subsidiaries within a group as well as cross-border shareholders can exercise their right to information more effectively. Accordingly, it is stated that, in the light of technological developments, the methods of convening general assembly meetings should be moved to virtual and/or hybrid platforms to integrate digitalization into the corporate governance structure. The Turkish legislation provides for such optional meeting procedures; however, if the Draft Revisions are put into effect as published in this version, incorporation of a number of revisions to the Corporate Governance Principles published by the Capital Market Boards of Turkey may become an agenda item.

As per the contemplated revisions to clause (II.D.), it is stated that cooperation and communication among institutional shareholders could manipulate the market or cause anti-competitive behaviors and therefore, the disclosure obligation should be fulfilled.

By the contemplated revisions to clause (II.G.), it is underlined that, in a scenario where the Companies are a group company, board members should prioritize the interests of the Company and its shareholders over the interests of the controlling company within the scope of their duty of loyalty to the Company.

Draft Revisions to the "Institutional Investors, Stock Markets, and Other Intermediaries" Section
The purpose behind the Draft Revisions to this section is to achieve the integration of disclosure and sustainability issues underlined throughout the Draft Revisions mainly through institutional investors and intermediaries. Accordingly, by the contemplated revisions to clause (III.A.), it is aimed to put institutional investors under the obligation to disclose their corporate governance and voting policies by emphasizing the importance of the principle known as "stewardship codes" in practice, which a principle which requires institutional investors to be transparent in their investment processes, establish relations with the Companies and exercise their right to vote.

Draft Revisions to the "Disclosure and Transparency" Section
In this section, disclosures are divided into two: (i) financial disclosures and (ii) non-financial disclosures. In this context, it is pointed out that non-financial disclosures should be in the same standards and as understandable as financial disclosures.

The contemplated revisions to clause (IV.A.7.) introduce various propositions stating that, in order not to diminish the transparency of a transaction in a group of companies with a complicated group structure, quantitative criteria can be set and notifications can be made on a regular basis. Similarly, by the contemplated revision to clause (IV.A.), it is stated that, considering that minority shareholders may have a significant influence on the Company, the monetary thresholds may be set lower for disclosures regarding shareholding and voting rights.

The contemplated revisions to clauses (IV.A.5.) and (IV.A.6.) expand the scope of obligation of transparency and disclosure regarding the board of directors and other executives. In this context, using sustainability indicators in the remuneration of executives will contribute to transparent assessment of investors.

Furthermore, it is emphasized that, for the sake of quality and equality besides transparency, disclosures should be made on gender equality, professional experience and expertise, age, and other demographic characteristics of the board of directors.

For the purposes of enhancing risk predictability of the shareholders and strengthening their ability to call for accountability, clauses (IV.A.10) and (IV.D) stipulate that it is essential to disclose to investors the material matters in debt contracts and the risks that may arise in case of any breach, and to maintain direct communication between shareholders and external auditors.

Draft Revisions to the "The Responsibilities of the Board" Section
The revisions to this section aim at achieving sustainable governance by identifying the limits of liability of board members, and a more functional management by establishing various committees to support the board of directors. In this context, by the contemplated revision to clause (V.A.1.), it is stated that a board member who makes a decision in good faith and with due diligence and care should be protected against the risk of litigation and liability, as this will provide the Company with long-term performance and success. It should be noted that such protection of board members is already accepted as a principle known as the "business judgment rule" in the doctrine and is addressed in the decisions of the Court of Cassation.

As per the revisions to clauses (V.D.2.) and (V.D.4.), it is stated that the following committees can be formed: (i) nomination committee to make recommendations to the board on the appointment of the key executives and the CEO, (ii) audit committee for disclosures, internal controls and audit-related matters, (iii) risk committee, (iv) sustainability committee (especially for the analysis of climate-related risks), (v) technology committee, etc. as needed. In this context, it is emphasized that the board of directors should evaluate risks that may directly or indirectly affect the Company, such as (i) sustainability issues, (ii) digital security risks and (iii) tax compliance risks, (iv) health crises, (v) supply chain disruptions and (vi) geopolitical tensions.

Draft Revisions to the "Sustainability and Resilience" Section
This section and its content mostly consist of new clauses, introducing regulations for purposes such as sustainability within the Company and sustainability on a climatic basis. Clause (VI.C.) aims to guide the board of directors in establishing corporate governance practices, strategies, and risk management policies by assessing significant sustainability risks, including climate-related ones. It is emphasized that the Company's sustainability-related disclosures, such as its "net-zero emission" targets, can strongly influence the investor's assessment of the value, timing, and certainty of the Company's future cash flows.

Conclusion
In summary, the Draft Revisions introduced for public consultation aim to adapt the Companies' corporate governance principles to digitalization in line with global developments; to establish safeguarding mechanisms for shareholding rights and transparency and also render the board of directors more functional by adopting a more moderate approach towards the accountability of the board of directors. In brief, an attempt is made to integrate the sustainability culture into the Company in every sense and through different branches.

You can reach the original version of the Draft Revisions here.

MORAL | KINIKOĞLU | PAMUKKALE | KÖKENEK
Reşat Moral, Managing Partner
Dilara Kaymaz, Senior Associate
Deniz Yontuk, Associate
Işılay Işık, Associate