CMB to require independent directors
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Independent directors to ensure that the company is on the right path

As of 30th of December 2012, Capital Markets Board of Turkey (The CMB) issued a new set of Corporate Governance Principles requiring at least two "independent directors" at the board level. The new principles aim to regulate the corporate governance practices for ISE Listed Public Companies. Also as of last week, corporate governance principles of CMB have been revised and attached in the Serial IV, No: 57. According to the CMB Communiqués No: 56 and No. 57 on Corporate Governance Principles, one these directors will head "Audit Committee" the other will head "Corporate Governance Committee" and both having veto rights for important decisions (sale/purchase/lease/rent of assets large contracts, contracts wit related parties). As per the Communiqué, ISE Listed Companies are required to adapt their articles of association in the first ordinary general assembly meeting to be convened not later than June 30, 2012, which means that companies have a period of approximately three and a half months to nominate the candidates.

Going Independent
By "independent directors", the regulator means;

  • resident and tax payer ( by Income Tax Law 193)
  • not (employed by /invested in /traded with/ provided services to ) the company & related parties (IAS 24), neither his 3rd degree relatives can have, for the last 5 years.
  • not (employed by/invested in) the audit companies, rating agencies, advisors of the company for the last 5 years.
  • not acted as the member of the board for more than 6 years in the last 10 years.
  • these directors will be elected for 3 years.

If your company currently does not have qualifying "independent director" or does not plan to go private soon, she should consider the last day for calling General Assembly, as the end of May 2012 leaving 3-4 months to identify a search company, review candidates, make interviews, and make an offer, etc.

Decisions related to functioning of the committees, board procedures will also require some time and dedication.

Classification of ISE Companies
The new set of principles divides the companies into three main classes:
I- ISE Companies with market value exceeding TL 3,000,000,000 and free float value exceeding TL 750,000,000;

II: ISE Companies with market value exceeding TL 1,000,000,000 and free float value exceeding TL 250,000,000, and,

III: All other ISE Companies which do not fall under the classes above.

Companies stated in I are required to comply with all mandatory CGPs whereas companies in II and III benefit from certain exemptions. As per the Communiqué, ISE Listed Companies (I and II) are required to adapt their articles of association in the first ordinary general assembly meeting by latest June 30, 2012. The candidates will then be sent to the CMB by latest May 15, 2012. The list of candidates will be approved by CMB by May 31, 2012. The specified dates above are valid for the first and second group of companies above.

The adaptation period for the third group is slightly different as for the dates of candidate nomination and announcement by latest June 6, 2012 and the last general assembly meeting date June 30, 2012.

Public Banks only, are subject to the communiqué as at the end of this year.

Selection procedure and the search process
In recruiting directors from outside the company (and outside the family) companies will find value in a variety of areas such as independent perspective as well as outside skills and experience.

The new set of Corporate Governance Principles precisely define the roles, qualifications, functions, duties, responsibilities of an independent director. Accordingly, an independent director must keep in mind the interest of all stakeholders. For truly independent directors, they have to be nominated by independent organizations. Corporate board work has become an increasingly significant area of MKG&Partners' search practice. The following represents an outline of our approach to board searches.

I. We conduct an in-depth discussion with our client concerning their board philosophy, their immediate director needs, and what will be required in three to four years. Included would be the size and composition of the board, desired industry representation, functional expertise, age, minorities, education and geographic backgrounds. A written specification is then prepared to summarize this discussion and to serve as a blueprint for the search.

II. Through our research departments, contacts with our established sources and other means, we develop names of qualified prospects, along with their backgrounds and experience. Any suggested names by the client would be incorporated for further research. A list of key prospects is then presented to the client.

III. This list is reviewed with the client and the nominating committee in order to determine and prioritize three or four primary candidates. We then conduct further checks to obtain as much updated information as possible.

IV. At this time, we determine the best way the candidates are to be approached, i.e., by the client, by a member of the nominating committee or by MKG & Partners. The initial conversation with the candidate should include discussion of what is expected of a director, board meeting dates, committees, compensation model, etc.

V. Once the preferred candidate has been selected, the client and the nominating committee should meet with him or her to extend an invitation to join the board.

The purpose of an independent board is to make sure members are not influenced by interests in the company. They are there specifically to help a company run honestly and efficiently.

 

 


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