THE ROLE OF CORPORATE GOVERNANCE IN FOREIGN INVESTMENT FLOW TO TURKEY Federico Ghizzoni Executive Board Member and COO Cor...
AGENDA <ul><li>Foreign Direct Investment in Turkey – Overview </li></ul><ul><li>Turkish Corporate Government System </li><...
TURKEY: EMERGING GLOBAL MARKET PLACE GDP GDP PER CAPITA
<ul><li>Mexico   11.233 </li></ul><ul><li>Korea   10.340 </li></ul><ul><li>Chile   9.221 </li></ul><ul><li>Poland   7.500 ...
<ul><li>“ Turkey is  offering a wide spectrum of investment incentives,  but  has been unsuccessful in attracting investor...
AGENDA <ul><li>Foreign Direct Investment in Turkey – Overview </li></ul><ul><li>Turkish Corporate Government System </li><...
Trying to adapt Global practices <ul><li>Eastern Europe </li></ul><ul><li>The  B alkan Countries </li></ul><ul><li>Asian C...
<ul><li>Disclosure and Transparency </li></ul><ul><li>Access to relevant information for Shareholders and Stakeholders </l...
SUMMARY OF KEY PROBLEMS IN TURKEY <ul><li>No Independent Directors </li></ul><ul><li>No Corporate Governance Code  Y et </...
<ul><li>F amily  F irms form the basic building block for businesses  but can represent  </li></ul><ul><li>an obstacle in ...
<ul><li>To manage the  company  effectively for growth,   </li></ul><ul><li>the  F amily should :  </li></ul><ul><li>e ntr...
DEVELOPMENTS & REGULATIONS TO RESOLVE PROBLEMS IN TURKEY <ul><li>Financial Sector Restructuring </li></ul><ul><li>Banking ...
AGENDA <ul><li>Foreign Direct Investment in Turkey – Overview </li></ul><ul><li>Turkish Corporate Government System </li><...
LACK OF INVESTMENT IN BANKING SECTOR <ul><li>..... Despite; </li></ul><ul><li>A long history of liberalization policies an...
<ul><li>Banks; </li></ul><ul><li>Liquidity problems </li></ul><ul><li>State Banks with overnight liabilities of $14 Billio...
AGENDA <ul><li>Foreign Direct Investment in Turkey – Overview </li></ul><ul><li>Turkish Corporate Government System </li><...
UCI ACQUIRED A 50% STAKE IN AN INTEGRATED AND WELL CAPITALIZED FINANCIAL SERVICE  <ul><li>WHY UCI INVESTED IN KFS... </li>...
Transparency Accountability Responsibility Fairness  R elevant financial and operational information  as well as  internal...
<ul><li>Shareholders do not interfere directly in the company. </li></ul><ul><li>Shareholders  p rovide capital to the com...
Board of Directors Management Provide  C apital and elect  D irectors Is accountable to the Board Is accountable to the  S...
<ul><li>Independent Audit Committee:   </li></ul><ul><ul><li>KFS independent audit committee is set as an essential part o...
AGENDA <ul><li>Foreign Direct Investment in Turkey – Overview </li></ul><ul><li>Turkish Corporate Government System </li><...
CONCULISION  : TURKISH CORPORATE PRACTICES  CAN  CHANGE WITH THE RIGHT APPROACH <ul><li>Governance Practices  can be  appl...
Upcoming SlideShare
Loading in...5
×

THE ROLE OF CORPORATE GOVERNANCE IN FOREIGN INVESTMENT FLOW ...

1,189

Published on

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
1,189
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
38
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide
  • Federico, I checked with our economist; the graph is right. Just 0s deleted differ. In US GDP is around 10 trillion USD where in TR it is 140-150 Billion USD. On GDP per PPP side we are at 6-7 thousand USD range...
  • In the Countries who could not implement Global Corporate Practices, as a result of economic crises and losses in value, international companies are taking over local firms.
  • In Turkey, F amily F irms form the basic building block for businesses. Also most public companies started as a family compan y . This is representing an obstacle in applying clear and transparent Corporate Governance rules. A number of major problems can be identified : E volution from an organization based on family relationships to one based on business relationships - complicated by emotions. Transfer of power from the founder to the board of directors and establishment of clear lines of communication and responsibility. T he family adopt ing the role of a shareholder and leaving the interface with management to the board of directors. P lanning and m a nag ing changes in shareholders due to family succession, marriages, divorces, deaths, taxes, opposite ???,etc. As the family circle expands, the links between the members become weaker and the company’s profit distributions often are called into question. B ringing in “outsiders.”
  • Banking Law – Establishment of a Banking Supervisory Board with full empowerment to take over weak banks, give permission to open and close banks Central Bank law - full operational independence -Public Tender law - more competitive and effective tender system, complying with international standards, increased transparency -Public Borrowing Law - bring the management of public debt under a single legal text which will define limits with clarity and transparency
  • THE ROLE OF CORPORATE GOVERNANCE IN FOREIGN INVESTMENT FLOW ...

    1. 1. THE ROLE OF CORPORATE GOVERNANCE IN FOREIGN INVESTMENT FLOW TO TURKEY Federico Ghizzoni Executive Board Member and COO Corporate Governance Conference – Koç University , November 7 th 2003
    2. 2. AGENDA <ul><li>Foreign Direct Investment in Turkey – Overview </li></ul><ul><li>Turkish Corporate Government System </li></ul><ul><li>Foreign Investment to Banking Sector in Turkey </li></ul><ul><li>Corporate Governance in Koç Financial Services </li></ul><ul><li>Conclusion </li></ul><ul><li> </li></ul>
    3. 3. TURKEY: EMERGING GLOBAL MARKET PLACE GDP GDP PER CAPITA
    4. 4. <ul><li>Mexico 11.233 </li></ul><ul><li>Korea 10.340 </li></ul><ul><li>Chile 9.221 </li></ul><ul><li>Poland 7.500 </li></ul><ul><li>Thailand 6.078 </li></ul><ul><li>Czech Republic 5.108 </li></ul><ul><li>Malaysia 3.532 </li></ul><ul><li>Venezuela 2.607 </li></ul><ul><li>India 2.168 </li></ul><ul><li>Peru 2.068 </li></ul><ul><li>Hungary 1.944 </li></ul>Vietnam 1.609 Kazakhstan 1.587 Egypt 1.500 Croatia 1.382 Dominican Rep 1.353 Romania 961 Malta 811 Morocco 847 Bulgaria 770 Turkey 783 FOREIGN DIRECT INVESTMENT TO TURKEY IS RELATIVELY LOW COMPARED TO OTHER EMERGING MARKETS According to the latest UNCTAD * Report , Turkey is ranking 121 st among 136 countries in attracting FDI . * United Nations Conference on Trade and Development COUNTRY FDI 2000 ( $ Mln.) COUNTRY FDI 2000 ( $ Mln.)
    5. 5. <ul><li>“ Turkey is offering a wide spectrum of investment incentives, but has been unsuccessful in attracting investors, mainly due to political and economical instability ” </li></ul><ul><li>“ With globalisation of financial markets, efficiency and transparency have become imperative ” </li></ul><ul><li>“ O ne of the major problems faced by decision-makers is the lack of sufficient information ” </li></ul><ul><li>” Economic factors and stabilization efforts, together with the IMF Programme are positive developments in Turkey ” </li></ul>Lack of Good Governance Continuous Economic & Political Instability TURKEY: PERCEPTION OF FOREIGN INVESTORS
    6. 6. AGENDA <ul><li>Foreign Direct Investment in Turkey – Overview </li></ul><ul><li>Turkish Corporate Government System </li></ul><ul><li>Foreign Investment to Banking Sector in Turkey </li></ul><ul><li>Corporate Governance in Koç Financial Services </li></ul><ul><li>Conclusion </li></ul><ul><li> </li></ul>
    7. 7. Trying to adapt Global practices <ul><li>Eastern Europe </li></ul><ul><li>The B alkan Countries </li></ul><ul><li>Asian Countries </li></ul>Did not start to work on Corporate Governance yet <ul><li>Middle East Countries (Arabic Countries) </li></ul><ul><li>A frica and Middle Asian Countries </li></ul>Could not succeed in implementation <ul><li>A rgentina </li></ul><ul><li>M exico </li></ul><ul><li>Chile </li></ul><ul><li>Latin America </li></ul>WHERE IS TURKEY IN CORPORATE GOVERNANCE? TURKEY CORPORATE GOVERNANCE IN TURKEY
    8. 8. <ul><li>Disclosure and Transparency </li></ul><ul><li>Access to relevant information for Shareholders and Stakeholders </li></ul><ul><li>Major share ownership and voting rights </li></ul><ul><li>Roles and responsibilities of Board M embers, key executives and their remuneration </li></ul><ul><li>Disclosure of risk factors </li></ul><ul><li>Material issues regarding employees & other stakeholders </li></ul><ul><li>Governance structures and policies </li></ul><ul><li>A udit function and disclosure in accordance with international standards in financial reporting. </li></ul>MAJOR DISCREPANCIES BETWEEN O ECD PRINCIPLES AND TURKISH CORPORATE GOVERNANCE SYSTEM NOT AVAILABLE YES INCOMPLETE INCOMPLETE INCOMPLETE NOT AVAILABLE INCOMPLETE D I S C R E P A N C I E S
    9. 9. SUMMARY OF KEY PROBLEMS IN TURKEY <ul><li>No Independent Directors </li></ul><ul><li>No Corporate Governance Code Y et </li></ul><ul><li>No S ufficient Protection Of Shareholder s Rights </li></ul><ul><li>No Independent Audit Committee </li></ul><ul><li>Most Companies Are Owned By Families </li></ul>P R O B L E M S
    10. 10. <ul><li>F amily F irms form the basic building block for businesses but can represent </li></ul><ul><li>an obstacle in applying clear and transparent Corporate Governance rules. </li></ul><ul><li>A number of major problems can be identified : </li></ul><ul><li>E volution from family relationships to business relationships - complicated by emotions. </li></ul><ul><li>Transfer of power from the founder to the board of directors . </li></ul><ul><li>E stablishment of clear lines of communication and responsibility. </li></ul><ul><li>T he family adopt ing the role of a shareholder and leaving the interface with management to the board of directors. </li></ul><ul><li>P lanning and m a nag ing changes in shareholders due to family succession, marriages, divorces, deaths, opposite interests,etc. </li></ul><ul><li>As the family circle expands, the links between the members become weaker and the company’s profit distributions often are called into question. </li></ul><ul><li>B ringing in “outsiders.” </li></ul>CORPORATE GOVERNANCE IN TURKEY: MOST COMPANIES ARE OWNED BY FAMILIES
    11. 11. <ul><li>To manage the company effectively for growth, </li></ul><ul><li>the F amily should : </li></ul><ul><li>e ntrust its investment in the company to a </li></ul><ul><li>professional board of I ndependent D irectors </li></ul><ul><li>who operate under appropriate </li></ul><ul><li>Corporate G overnance guidelines. </li></ul>RECOMMENDED SOLUTION
    12. 12. DEVELOPMENTS & REGULATIONS TO RESOLVE PROBLEMS IN TURKEY <ul><li>Financial Sector Restructuring </li></ul><ul><li>Banking Law : Banking Regulation & Supervision Agency (BRSA) </li></ul><ul><li>Central Bank Law </li></ul><ul><li>Public Tender Law </li></ul><ul><li>Public Borrowing Law </li></ul><ul><li>Arbitration Law </li></ul><ul><li>Expropriation Law </li></ul><ul><li>Efforts of Private and International Institutions (TUSIAD, Quality Association, Istanbul Chamber of Commerce, OECD, World Bank, IMF etc...) </li></ul>R E G U L A T I O N S
    13. 13. AGENDA <ul><li>Foreign Direct Investment in Turkey – Overview </li></ul><ul><li>Turkish Corporate Government System </li></ul><ul><li>Foreign Investment to Banking Sector in Turkey </li></ul><ul><li>Corporate Governance in Koç Financial Services </li></ul><ul><li>Conclusion </li></ul><ul><li> </li></ul>
    14. 14. LACK OF INVESTMENT IN BANKING SECTOR <ul><li>..... Despite; </li></ul><ul><li>A long history of liberalization policies and practice </li></ul><ul><li>Advance technological facilities </li></ul><ul><li>Qualified human capital in banking sector </li></ul><ul><li>..... Foreign bank presence has been limited due to; </li></ul><ul><li>Persistent macroeconomic instability (high and volatile inflation) </li></ul><ul><li>Low volume of foreign direct investment </li></ul><ul><li>Delays in taking necessary steps for financial sector reforms </li></ul>Market Share – Foreign Owned Banks (Assets), 2002 TURKEY Bulgaria Croatia Czech Rep. Estonia Hungary Latvia Lithuania Poland Romania Slovakia % <ul><li>Foreign ownership has been basis for restructuring and transformation of the competitive environment. Still some market restructuring expected as privatization ends given further consolidation. </li></ul><ul><li>In Turkey, HSBC and UCI entered the market in 2002, being among the first large FDIs in the local banking sector. </li></ul>
    15. 15. <ul><li>Banks; </li></ul><ul><li>Liquidity problems </li></ul><ul><li>State Banks with overnight liabilities of $14 Billion </li></ul><ul><li>Large open positions of the Private Banks </li></ul><ul><li>Significant share of holdings of Government debt </li></ul><ul><li>Low asset quality </li></ul><ul><li>Inadequate risk assessment and management systems </li></ul><ul><li>Lack of good Corporate Governance </li></ul><ul><li>Operating Environments; </li></ul><ul><li>Major macroeconomic instability </li></ul><ul><li>High public sector deficit </li></ul><ul><li>Systemic distortions created by State and SDIF Banks </li></ul>NUMBER OF OUTSTANDING PROBLEMS CAUSE LACK OF INVESTMENT IN BANKING SECTOR Outstanding problems make it hard for Foreign Investors to invest in a Bank in Turkey and be involved in privatization and acquisitions due to the lack of transparency. Foreign Investors need to clearly understand the relationship between Shareholder and Management
    16. 16. AGENDA <ul><li>Foreign Direct Investment in Turkey – Overview </li></ul><ul><li>Turkish Corporate Government System </li></ul><ul><li>Foreign Investment to Banking Sector in Turkey </li></ul><ul><li>Corporate Governance in Koç Financial Services </li></ul><ul><li>Conclusion </li></ul><ul><li> </li></ul>
    17. 17. UCI ACQUIRED A 50% STAKE IN AN INTEGRATED AND WELL CAPITALIZED FINANCIAL SERVICE <ul><li>WHY UCI INVESTED IN KFS... </li></ul><ul><li>We found the right partner to accept international standards (ex:Group Exposure: Both parties accepted to be treated as regular customers) </li></ul><ul><li>Our partner was ready to give up control and discuss in detail Corporate Governance issues. </li></ul><ul><li>SHA signed by both Shareholders and Corporate Governance approved by BoD. </li></ul>KFS Ko çbank Ko ç Yat ı r ı m (Brokerage) Ko ç Asset Mgmt. Ko ç Lease Ko ç Factoring Ko ç NV (Dutch Subsidiary) Ko ç Azerbaijan <ul><ul><li>99.97% </li></ul></ul><ul><ul><li>99.07% </li></ul></ul><ul><ul><li>99.92% </li></ul></ul><ul><ul><li>99% </li></ul></ul><ul><ul><li>100% </li></ul></ul><ul><ul><li>99.94% </li></ul></ul><ul><ul><li>80% </li></ul></ul><ul><ul><li>The restructuring has lead to the creation of a group involved in corporate and retail </li></ul></ul><ul><ul><li>banking, as well as in brokerage, asset management, leasing and factoring </li></ul></ul><ul><ul><li>T otal UCI Investment USD 259.5 Million </li></ul></ul>UCI %50 KOÇ GROUP %50
    18. 18. Transparency Accountability Responsibility Fairness R elevant financial and operational information as well as internal processes of management . Effective and timely communication. <ul><ul><li>Roles and responsibilities are clearly defined. Related parties are fully accountable with their area of responsibility. </li></ul></ul><ul><ul><li>Related parties responsible for generating value in a sustainable way for shareholders, employees, customers and community. In line with laws and regulations. </li></ul></ul><ul><ul><li>Equal treatment to all S hareholders and other parties . </li></ul></ul><ul><ul><li>50-50 representation in all Governing Bodies. </li></ul></ul>KFS CORPORATE GOVERNANCE PRINCIPLES ARE DETERMINED IN LINE WITH INTERNATIONAL STANDARTS: COMPLIANCE WITH 4 KEY PRINCIPALS OF CORPORATE GOVERNANCE Rules has been codified in the Shareholders Agreement and Corporate Governance Document
    19. 19. <ul><li>Shareholders do not interfere directly in the company. </li></ul><ul><li>Shareholders p rovide capital to the company and e lect D irectors to represent their interests . </li></ul><ul><li>Directors Govern the Company </li></ul><ul><li>Management Manages the Company </li></ul><ul><li>BoD and Management are clearly separated. </li></ul>KFS CORPORATE GOVERNANCE: KEY HIGHLIGHTS
    20. 20. Board of Directors Management Provide C apital and elect D irectors Is accountable to the Board Is accountable to the S hareholders for performance results ( Value Creation ) Shareholders Selects the CEO and oversees M anagement The CEO takes his direction solely from the B oard. KFS CORPORATE GOVERNANCE : ROLES AND RESPONSIBILITIES OF HOLDING AND SUBSIDIARIES, CEO AND OTHER EXECUTIVES
    21. 21. <ul><li>Independent Audit Committee: </li></ul><ul><ul><li>KFS independent audit committee is set as an essential part of Corporate Reporting process. </li></ul></ul><ul><ul><li>Reports directly to the Board and oversees on behalf of the Board the integrity of the financial reporting controls and procedures implemented by Management to protect the interest of Shareholders. </li></ul></ul><ul><li>Roles and Responsibilities of CEO and Executives: </li></ul><ul><ul><li>Business functions report to the CEO. </li></ul></ul><ul><ul><li>Risk and monitoring functions report to COO . </li></ul></ul><ul><li>Seperation Between Business and Risk management </li></ul><ul><li>Internal transparency assured by monitoring functions: </li></ul><ul><ul><li>Financial Monitoring Cycle </li></ul></ul><ul><ul><li>Commercial Monitoring Cycle </li></ul></ul><ul><ul><li>Steering Committee </li></ul></ul><ul><li>Adoption of Common Values </li></ul><ul><li>Ethical Code </li></ul><ul><li>Internal Communication </li></ul>KFS INTERNAL GOVERNANCE: In addition to compliance to 4 key principles of Corporate Governance, KFS also have clear principals defined in other aspects of Corporate Governce
    22. 22. AGENDA <ul><li>Foreign Direct Investment in Turkey – Overview </li></ul><ul><li>Turkish Corporate Government System </li></ul><ul><li>Foreign Investment to Banking Sector in Turkey </li></ul><ul><li>Corporate Governance in Koç Financial Services </li></ul><ul><li>Conclusion </li></ul><ul><li> </li></ul>
    23. 23. CONCULISION : TURKISH CORPORATE PRACTICES CAN CHANGE WITH THE RIGHT APPROACH <ul><li>Governance Practices can be applied successfully in Turkey if the following are done … </li></ul><ul><li>New set of laws and regulations to be introduced </li></ul><ul><li>New B oard structure to ensure the protection of all S takeholder right s </li></ul><ul><li>Appointment of I ndependent D irectors </li></ul><ul><li>Clear seperation between Directors and Management </li></ul><ul><li>Very strict transparency and reporting rules </li></ul><ul><li>For Banks; </li></ul><ul><li>Regulations on Group Exposure </li></ul><ul><li>Separation of Risk Management and Business functions </li></ul><ul><li>Independent Audit function </li></ul><ul><li>Compliance with IAS and Basel II </li></ul>
    1. A particular slide catching your eye?

      Clipping is a handy way to collect important slides you want to go back to later.

    ×