Independent directors to ensure that the company is on the right
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.
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
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
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,
Public Banks only, are subject to the communiqué as at the end of
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
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.