'Comply or Explain' Without Consequences; The Case of Turkey

19 Pages Posted: 6 May 2010

See all articles by Melsa Ararat

Melsa Ararat

Sabanci University - Sabancı Business School, Corporate Governance Forum

Date Written: May 3, 2010

Abstract

In many developing economies with emerging markets, liberalisation efforts overlap with corporate governance reforms to attract international capital to domestic firms. In general, reformers tend to adopt a soft law approach which is characterised by a voluntary corporate governance code and mandatory disclosure of compliance. One apparent aspect of such reforms is the similarity of corporate governance codes adopted by the regulators worldwide. Bebchuk and Hamdani (2009), argue that this similarity is a result of a misguided effort to have global corporate governance standards supported by both international development agencies and the information brokers alike. They posit that neither the academics (Djankov et al, 2008, LLSV, 1998) nor the practitioners (e.g. ISS) pay enough attention to differences in ownership structures and its implications for what “good” governance means. They explain, what is probably known by academics and practitioners familiar with developing economies, that the existence of a controlling shareholder in a firm underpins fundamental differences with respect to the allocation of power, channels for opportunistic behaviour, mechanisms for contesting the power, meaning of independence and the role of the board when compared to firms with dispersed ownership. Based on this argument, the inconclusive outcome of empirical research on the relationship between generally accepted indicators of “good” corporate governance and firm performance can be attributed to the differences in manifestations of the agency problem in dispersed and controlled firms.

In this paper, I attempt to provide an overview of the corporate governance reforms in Turkey, the outcome of the‘comply and explain’ approach based on a voluntary corporate governance code and some of its shortcomings underpinned by the prevailing ownership structures. I will also try to shed some light on one aspect of corporate governance: the role of boards in Turkey and unveil issues related to owner dominated boards of controlled firms. I will then try to explain why compliance with “global” principles would not mitigate the agency problem between the minority shareholders and the board.

Keywords: Corporate Governance, Codes, Controlled Firms, Turkey

JEL Classification: G30, G38, K22

Suggested Citation

Ararat, Melsa, 'Comply or Explain' Without Consequences; The Case of Turkey (May 3, 2010). Available at SSRN: https://ssrn.com/abstract=1599831 or http://dx.doi.org/10.2139/ssrn.1599831

Melsa Ararat (Contact Author)

Sabanci University - Sabancı Business School, Corporate Governance Forum ( email )

Orhanli Tuzla
Istanbul, Orhanli, Tuzla 34956
Turkey
+90-2164839710 (Phone)
+90-2164839715 (Fax)

HOME PAGE: http://www.sabanciuniv.edu

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