After the global financial crisis of 2007-2008 had struck European economy, serious actions were taken for improvement of the business environment in Europe. European Union’s “Europe 2020” strategy report underlines the importance of creating an efficient corporate governance system for listed companies. In order to ensure that companies are well-governed and sustainable in the long-run, legislations in effect are subjected to amendments and new legislations are being introduced.
Thus, The European Commission published a proposal for the amendment of Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement and Directive 2013/34/EC as regards certain elements of the corporate governance statement on 9 April 2014. The envisaged revisions are mainly based on two objectives; enhancing transparency and engaging shareholders. The Commission has identified five issues which have been set forth as; (i) improving engagement of institutional investors and asset managers, (ii) strengthening the link between pay and performance of directors, (iii) improving shareholder oversight on related party transactions, (iv) enhancing transparency of proxy advisors and (v) facilitating the exercise of rights flowing from securities for investors. In that regard, the importance of improving the oversight of shareholders on related party transactions has been underlined by the Commission and several measures have been provided to ensure that shareholders’ are more engaged with such transactions. Although the legislation is expected to be adopted in the second half of 2015, due to Turkey’s obligation to align its legislation with the EU Acquis, a brief assessment will be made on “related party transactions” in particular.
Related Party Transactions under the Proposal
Related parties can be counted as, including but not limited to, group companies, joint ventures, other companies in which they have investments, directors and their close family members, other companies which they have partnerships and other related third parties. The transactions with such related parties might have abusive effect especially to the detriment of minority shareholders. Therefore, a new article 9c “Right to vote on related party transactions” has been introduced by the Commission. According to the proposed revision, companies are required to take following measures regarding the related party transactions;
- Transactions representing more than 1% of the companies’ assets shall be publicly announced and the announcement shall be accompanied by an assessment report obtained from an independent third party,
- Transactions representing more than 5% of the companies’ assets or transactions which could have a significant impact on profits or turnover, such transactions must be submitted to the vote of shareholders for approval in addition to the public disclosure and assessment report obtained from an independent third party. In case the related party transaction involves a shareholder, that related party shareholder will be excluded from the vote. Although the approval of shareholders is required for the conclusion of the transactions with related parties, agreements for such transactions can be entered into under the condition of shareholders’ approval.
Current Turkish legislation regarding the related party transactions
Corporate Governance Principles have been regulated by CMB with Corporate Governance Communiqué No: II-17.1 which took effect on 3 January 2014. CMB has emphasized revisions in a comprehensive manner with the aim of increasing transparency and engaging shareholders in listed companies. Article 9 “Related party transactions” and Article 10 “Common and Long-Term Transactions” are in line with the revisions envisaged by the Commission, however Commission’s proposal puts more liability on listed companies. As per Article 9 of the Communiqué;
- In case related party transaction costs are more than 5% of the companies’ assets, board of directors’ must grant a decision and an assessment report must be issued by an institution authorized by the CMB before committing to such transactions. However the CMB has also provided certain exceptions against conducting assessment report. If the subject of the transaction is public shares and such shares are traded on stock exchange, additional assessment report will not be required.
- In case related party transaction costs are envisaged to exceed 10%, in addition to the assessment report requirement, majority of the independent members must approve such transactions. However, board members who are deemed to be the related parties are excluded from the vote.
Finally, listed companies are obliged to comply with the provisions before conducting related party transactions. However, since well-governed companies has a crucial importance for the economic growth and stability, amendments shall be made constantly in the areas of company law and corporate governance. By virtue of Turkey’s Programme for Alignment with the Acquis (NPAA), Turkey has an obligation to harmonize its legislation with the EU Acquis. Therefore, some significant changes to the corporate governance principles will be made accordingly.
After the global financial crisis of 2007-2008 had struck European economy, serious actions were taken for improvement of the business environment in Europe. European Union’s “Europe 2020” strategy report underlines the importance of creating an efficient corporate governance system for listed companies. In order to ensure that companies are well-governed and sustainable in the long-run, legislations in effect are subjected to amendments and new legislations are being introduced.
Thus, The European Commission published a proposal for the amendment of Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement and Directive 2013/34/EC as regards certain elements of the corporate governance statement on 9 April 2014. The envisaged revisions are mainly based on two objectives; enhancing transparency and engaging shareholders. The Commission has identified five issues which have been set forth as; (i) improving engagement of institutional investors and asset managers, (ii) strengthening the link between pay and performance of directors, (iii) improving shareholder oversight on related party transactions, (iv) enhancing transparency of proxy advisors and (v) facilitating the exercise of rights flowing from securities for investors. In that regard, the importance of improving the oversight of shareholders on related party transactions has been underlined by the Commission and several measures have been provided to ensure that shareholders’ are more engaged with such transactions. Although the legislation is expected to be adopted in the second half of 2015, due to Turkey’s obligation to align its legislation with the EU Acquis, a brief assessment will be made on “related party transactions” in particular.
Related Party Transactions under the Proposal
Related parties can be counted as, including but not limited to, group companies, joint ventures, other companies in which they have investments, directors and their close family members, other companies which they have partnerships and other related third parties. The transactions with such related parties might have abusive effect especially to the detriment of minority shareholders. Therefore, a new article 9c “Right to vote on related party transactions” has been introduced by the Commission. According to the proposed revision, companies are required to take following measures regarding the related party transactions;
- Transactions representing more than 1% of the companies’ assets shall be publicly announced and the announcement shall be accompanied by an assessment report obtained from an independent third party,
- Transactions representing more than 5% of the companies’ assets or transactions which could have a significant impact on profits or turnover, such transactions must be submitted to the vote of shareholders for approval in addition to the public disclosure and assessment report obtained from an independent third party. In case the related party transaction involves a shareholder, that related party shareholder will be excluded from the vote. Although the approval of shareholders is required for the conclusion of the transactions with related parties, agreements for such transactions can be entered into under the condition of shareholders’ approval.
Current Turkish legislation regarding the related party transactions
Corporate Governance Principles have been regulated by CMB with Corporate Governance Communiqué No: II-17.1 which took effect on 3 January 2014. CMB has emphasized revisions in a comprehensive manner with the aim of increasing transparency and engaging shareholders in listed companies. Article 9 “Related party transactions” and Article 10 “Common and Long-Term Transactions” are in line with the revisions envisaged by the Commission, however Commission’s proposal puts more liability on listed companies. As per Article 9 of the Communiqué;
- In case related party transaction costs are more than 5% of the companies’ assets, board of directors’ must grant a decision and an assessment report must be issued by an institution authorized by the CMB before committing to such transactions. However the CMB has also provided certain exceptions against conducting assessment report. If the subject of the transaction is public shares and such shares are traded on stock exchange, additional assessment report will not be required.
- In case related party transaction costs are envisaged to exceed 10%, in addition to the assessment report requirement, majority of the independent members must approve such transactions. However, board members who are deemed to be the related parties are excluded from the vote.
Finally, listed companies are obliged to comply with the provisions before conducting related party transactions. However, since well-governed companies has a crucial importance for the economic growth and stability, amendments shall be made constantly in the areas of company law and corporate governance. By virtue of Turkey’s Programme for Alignment with the Acquis (NPAA), Turkey has an obligation to harmonize its legislation with the EU Acquis. Therefore, some significant changes to the corporate governance principles will be made accordingly.
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