The Role of Corporate Governance in fdi decisions: Evidence from Taiwan

Corporate Governance Development in Turkey

As we mentioned History of Turkish Economic Environment, Turkey has volatile economic conditions which prevent good corporate governance. This is the reason why Turkey applied Corporate Governance Principles lately.

Turkey is a latecomer with respect to corporate governance implementation. In December 2002, the Turkish Industrialists’ and Businessmen’s Association (TUSIAD) introduced Turkey’s first code of best practice. In July 2003, the Capital Markets Board of Turkey (CMB) issued comprehensive corporate governance principles which became the source of (non-binding) corporate governance standards for publicly held companies. In 2003, The Corporate Governance Association of Turkey was founded. In 2005, CMB amended the principles taking into account revisions made to the Organisation for Economic Co-Operation and Development (OECD) Principles in 2004. Finally in August 2007, the Istanbul Stock Exchange (ISE) launched the Corporate Governance Index, an index of companies that comply with the corporate governance principles of CMB¹¹.

In 2004 Turkey became the pilot company of OECD for their study encouraging Member States to apply corporate governance principles. This pilot study also ‘‘has helped the OECD to develop a new method for evaluation that will give policy makers a better understanding of the steps they should take’’ (Gurria, 2006). OECD published the report concerning corporate governance applications in Turkey in 2006. Turkey received high marks from the OECD for CMB and its regulatory reforms. According to the report (OECD, 2006) Turkey has a strong regulatory framework for corporate governance. International accounting and auditing standards have begun to be applied and the disclosure requirements are improving. The Report recommends Turkey to revise Turkish Company Law in order to require more disclosure on deals between companies belonging to a group. It was also recommended that the duty of setting Turkish Accounting Standards would be centralized under the Turkish Accounting Standards Board¹².

The corporate governance rating is also a new issue for Turkey, and presently there are three companies one local and two multinational, offering this service. Additionally, ISE is trying to devise a corporate governance index that can start to operate with five listed companies that have a corporate governance rating score of six out of 10. In June 2006 there were only three Turkish listed companies that had been assigned a rating score. The index became operational in August 2007; presently there are seven companies listed in the ISE Corporate Governance Index. In Turkey, the reform process has been more difficult and slower than expected not all firms have been enthusiastic about adopting the corporate governance principles issued by CMB.

When Turkey Economic Environment and late corporate governance are thought together, we can say that, application of corporate governance principle for good corporate governance has begun late in Turkey.

Reasons of this as follows:

We mentioned so far, Turkey economic environment affected corporate governance situation.

Supranational organizations such as the OECD, IMF and World Bank seek to institutionalize codes of best practice in corporate governance and are supported by institutional investors and investors’ associations. These organizations also encourage and/or oblige national governments to adopt these codes and to establish the necessary institutions to monitor compliance at the firm level. On the other hand, there are also organizational actors who benefit from, are committed to and/or take-for-granted the current governance structures. This second set of actors is expected to mobilize effort and act strategically to maintain the current institutional arrangements¹³.
OECD’s most significant institutional work has been its publication of the ‘‘Principles of Corporate Governance’’ (1999) which defines what good corporate governance means. OECD’s (2004) Principles have become an international benchmark for policy makers, investors, corporations and other stakeholders. The principles regarding the rights of shareholders, the role of stakeholders and responsibilities of the board not only created a model to be imitated but also introduced an alternative to the institutionalized corporate governance structures and practices prevailing around the world¹⁴.
Secondly, supranational organizations corporate governance awareness is closed today. Due to closed company bottlenecks – mostly important was Enron – which was related to good governance issues, these organizations dealed with corporate governance late. Due to supranational organization awareness on corporate governance late, it has been applied in Turkey lately.
Although, this two perspective solve the bad corporate governance situation in Turkey, we should look another structural problems related with Turkey.
Most important issue related to corporate governance occur in Small and Medium Enterprises. (hereafter SME). Mostly, the source of problems in SME are depended financial indicators rather than organizational breakdowns. This is a managememt fault, because most of the deficiencies are arised lack of managership and directorship problems¹⁵.

The measure of good corporate governance is not the number of familiy controlled firms. Productivity and efficiency of family controlled firms are the milestones of good corporate governance. Most of the firms succesfull stories are won with the family controlled firms. Distribution of familiy controlled firms in some countries are¹⁶:

Country	The Share in Family(%)
Italy	99
Germanny	80
U.S.	90
Turkey	92