Evaluating corporate governance in Turkey

Originally appeared on Bosphorus Consulting on 04 July 2014 and was featured on FTSE Global Markets on 09 July 2014

With international perceptions of Turkey still susceptible to change, and given the general downturn in investments into emerging markets, analysts and investors are in ever greater need of clear indicators of the strength of Turkish businesses. In this climate, how can international investors and analysts assess the quality of businesses in Turkey, and how can Turkish businesses better promote themselves? Investors can be put off by the image of monolithic, murky businesses and so one of the key indicators is the quality of corporate governance. The issue is then how to communicate and demonstrate the level and quality of corporate governance in Turkey in a way that is meaningful to international observers, such as analysts and investors.

One way for analysts and investors to gain insight is through objective rankings, such as Fortune Turkey’s May 2014 list of Turkey’s most admired companies, which includes quality of management (yönetim kalitesi, similar to corporate governance), in its sub-categories. As Nihal Köz, Managing Editor at Fortune Turkey, explained to us, the list is comprised of the opinions of 790 executives from different industries. As such, Köz told us, the list is highly objective, something which is of particular importance for its usefulness as a tool for picking stocks. Moreover, Köz added, the categories are all factors that investors and analysts are interested in.

Third on the list for the sub-category, quality of management, is Coca-Cola İçecek. The Head of Investor Relations at Coca-Cola İçecek, Deniz Yücel, told us that he believes that investor relations is a “key competitive differentiator that can result in higher valuation,” adding that Coca-Cola İçecek has been a great success story in this respect. Investor relations is key to communicating the quality of a company’s corporate governance, and it is notable that Coca-Cola İçecek, a company that places such importance on its communications work, ranks number four in Fortune Turkey’s overall list.

Ömer Ömerbaş, analyst at Ak Yatırım, told us he feels that generally “corporate governance in Turkey is improving but there is still room for improvement,” adding that it is much better than it was even five years ago. With respect to the Fortune article, Ömerbaş is hesitant about the breadth of its usefulness internationally, commenting that clients are “already generally knowledgeable about companies,” and what would be more helpful would be greater in-depth analysis. Indeed, the list lacks an international comparative perspective, as it features only Turkish companies. Moreover, the list is only in Turkish, further limiting its international relevance.

The Fortune Turkey list is exactly the sort of thing we are looking for, a list that objectively ranks Turkish companies according to a number of highly relevant categories, but because of its Turkish-only nature, it is limited in its appeal to an international audience. As Ömerbaş points out, while corporate governance in Turkey is doing well, it still has room for improvement; the same could be said about the range of analytical tools available on Turkish companies. According to our clients, what is needed to combat this persistent lack of attention to international audiences is more English-language, in-depth analysis, more regularly communicated about Turkish companies.

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