The Corporate Governance Compliance Rating is a system that audits whether or not the firm’s management structures and management styles, the arrangements for shareholders and stakeholders and the process of informing in transparency and accuracy are performed in accordance with the modern corporate governance principles and assigns a grade corresponding to the current situation.
Organization for Economic Co-operation and Development (OECD) established a working group in 1998 in order to assess member countries’ opinions on corporate governance and to prepare some non – binding principles.
The fact that principles are open to change in time was also accepted at this work. Although at first these principles were focused on the companies whose shares were quoted in stock exchange, it was emphasized by OECD that it would be also useful to implement these principles in public enterprises and private companies whose shares were not quoted in stock exchange.
OECD Corporate Governance Principles were approved at the OECD Meeting of Ministers in 1999 and published, becoming an international source of reference for decision – makers, investors, shareholders, companies and other stakeholders throughout the world.
Since their approval, these principles kept the concept of corporate governance on the agenda and became guidelines for laws and regulations in OECD members, as well as other countries.
There are four basic principles of corporate governance in OECD Corporate Governance Principles. These are: fairness, responsibility, transparency and accountability.
Fairness principle means that management treats all stakeholders equally.
Responsibility principle means that the enterprise operates in compliance with laws and regulations that reflect social values. Corporate governance principles emphasize that laws represent the minimum standards in terms of responsibility, while really responsible behavior can be undertaken by going beyond legal requirements.
Transparency principle points out the need to disclose information to public in a true, transparent and comparable fashion and at the right time. Transparency principle encourages development of mechanisms that ensure feedback not only after the action but also during the preparation and implementation of it.
Accountability refers to the strategic guidance of the enterprise, efficient supervision of management by the Board of Directors and Board’s accountability vis a vis the company and shareholders.
Turkey has been closely monitoring these developments. A working group, established within TUSIAD in 2001, prepared the guide, titled, “Corporate governance: The best implementation code”. Then Capital Market Board (CMB) issued “Capital Market Board Corporate Governance Principles” in 2003 and updated it in 2005, 2010, 2012, 2013 and 2014, according to international developments in this field.
Obligation to comply with CMB’s Corporate Governance Principles, based on the principle of “implement or disclose”, and to declare it became part of companies’ lives in 2004. Putting the Declaration of Compliance with Corporate Governance in the annual reports became obligatory the following year.
The principles are grouped under four main headings of Shareholders, Public Disclosure and Transparency, Stakeholders and Board of Directors.
It has been seen that corporate governance principles, developed for listed companies, were also needed by unlisted companies in Turkey. With the new Turkish Commerce Law, many elements of corporate governance have been made obligatory for companies that are not listed in stock exchange.
The aim of the new Turkish Commerce Law, which brought many radical changes in commercial life, is to establish the infra structure that would ensure best management for all capital companies in Turkey.
The Corporate Governance Compliance Rating Methodology, has been prepared by Kobirate A.Ş. for banks listed in BIST, taking into account;
CMB’s Corporate Governance Communiqué, no II-17.1, published on the Official Gazette dated January 3rd 2014; as well as CMB’s board decisions taken at Board meeting on 01.02.2013, no 4 / 105; “Regulations on Banks’ Corporate Governance Principles, published by the Official Gazette dated 01.11.2006, No 26333 and Communiqué Determining Banks’ Corporate Governance Principles, published by the Official Gazette dated 09.06.2011, No 27959, both issued by BRSA.
Criteria for banks listed in BIST have been arranged separately as first group, second group and third group, by taking the group distinctions made by 2nd item of Article 5 at Communiqué dated 03.01.2014, No II-17,1 into account.
Kobirate A.Ş. determines its criteria for Corporate Governance Compliance Rating by taking CMB’s each Corporate Governance Principle into account and in accordance with CMB’s corporate governance principles and communiqués; as well as regulation of the Ministry of Customs and Trade about “Determining Companies’ Annual Reports’ Minimum Content”, published by Official Gazette dated 28.08.2012, No 28395 and articles about corporate governance principles in the new Turkish Commercial Law No 6102.
In this system the banks are analyzed under four main headings of Shareholders, Public Disclosure and Transparency, Stakeholders and Board of Directors, in accordance with Capital Market Board Corporate Governance Principles (CMBCGP).
In rating publicly listed banks’ corporate governance compliance, Kobirate A.Ş. uses a method, which takes regulation on Corporate Governance Principles by CMBCGP and Board decision about the subject, dated 01.02.2013, No 4/105.
In a rating process, care is given to ensure that work flow and method of analysis are fully in compliance with Ethical Principles of Kobirate A.Ş.
In order to rate compliance of banks with corporate governance principles, 470 criteria are used in rating process for BIST first group banks and 463 criteria are used for second and third group banks.
These criteria have been separately translated into “Corporate Governance Rating Question Sets” through Kobirate A.Ş.’s unique software.
The question sets that Kobirate A.Ş. will be using for banks listed in BIST are:
- BİST First Group Banks Corporate Governance Compliance Rating Question Set 2014/2 REVISION
- BİST Second Group Banks Corporate Governance Compliance Rating Question Set 2014/2 REVISION
- BİST Third Group Banks Corporate Governance Compliance Rating Question Set 2014/2 REVISION.
Question set allocation is done by Kobirate A.Ş officials by taking banks’ groups and features into consideration. Bank officials answer the allocated question sets in electronic environment. After the completion of answering process, the answers of the bank are assessed through PERFECTRATE software and the logs of answers are kept in company’s servers.
The weighting scheme for the four main sections in the new Corporate Governance Compliance Rating, determined by CMB’s memorandum dated 12.04.2013, No 36231672-410.99 (KBRT)-267/3854 and CMB’s memorandum dated 19.07.2013, No 36231672-410.99(KBRT)452-7773 are applied completely by Kobirate A.Ş. The weightings are as below:
Shareholders %25
Public Disclosure and Transparency %25
Stakeholders %15
Board of Directors %35
CMB has sent our company its memorandum dated 19.07.2013, No 36231672-410.99 (KBRT) 452, on CMB decision dated 01.02.2013 and numbered 4/105 to our company, which required adding new questions into the methodology in order to ensure that good corporate governance principles, which go beyond meeting the minimum requirements of CMB issued good corporate governance principles – bringing 85 % of full points at most – would be included in the rating grade.
The 2014/2 revised corporate governance compliance rating methodology, created by our company, is restricted if the minimum conditions of corporate governance principles – declared in CMB Communiqué of Corporate Governance published on 03.01.2014 – are met and all criteria is evaluated within same category. In this case all criteria are restricted to 85 % of the full points that the related criterion would get in that subsection. Remaining 15 % is reached by using good practices - other than those determined by Corporate Governance Principles - that are internalized by the Company that are apart from the criteria determined.
With the memorandum dated 04.04.2013, No İMKB -5 GDD-010.06-141/ 3644 BİST has notified about Communiqué No 424, which determines the lower limit as 6.5 out of 10 for each main heading. The lower limit was put into effect as of 01.07.2013.