The problems of minority protection and their solutions within the legal framework in Turkish corporate governance

Abstract

As the equity capital emerges, as an essential corporate finance mechanism in emerging markets and Europe, the regulation of companies that provides adequate protection for the minority shareholders' and investors' interests enables companies to access the equity capital in the global market. Turkey, a prominent emerging market and formal candidate for the European Union (EU) membership, has to establish the governance structure ensuring the minority shareholder protection to encourage shareholders and investors to participate in capital markets. This will facilitate Turkish companies to access the equity capital. In April 2005, the International Institute of Finance (IIF), which is a private international organisation for promoting the shareholders' and investors' interests, issued its corporate governance report on Turkey, focusing on the problem of the lack of equity culture. The IIF in its report examines the reasons for the paucity of a developed equity culture in Turkey and recommends the ways in which the obstacles to the creation of a well-developed equity culture would be overcome. The purpose of this paper is to contribute to the efforts at creating the corporate governance structure protecting the minority shareholders' and investors' interests, which is a prime requirement for a developed equity culture in Turkey. To this end, the paper, while examining the IIF's report on Turkey (the report), identifies the weaknesses in Turkey's legal framework for minority protection and suggests the ways in which such weaknesses in law would be eliminated. As the implementation of provisions of EU company and capital market law by Turkish law assists in establishing the legal framework for the protection of the minority interest, the paper also considers whether the draft Turkish Commercial Code (TCC) implements relevant EU law provisions appropriately. This will illustrate whether the IIF's recommendations have been taken into consideration by the draft TCC as most of the IIF's recommendations overlap the relevant EU law requirements. The paper therefore examines the report and enhances its proposed recommendations by explaining adequate legal and regulatory framework for the minority shareholder and investor protection in Turkish corporate governance.