ECONOMY

OECD: Turkish business ethics can now face strains of growth

ISTANBUL (AFP) – Turkish business practices are robust enough after reforms to face likely strains from expected strong growth, the OECD said in a report yesterday. But some company directors and big shareholders, notably in family-controlled groups, had to show more respect for the spirit as well as the letter of regulatory standards, the Organization for Economic Cooperation and Development said. Turkey has staged a spectacular economic recovery since a financial crisis in in 2001, sparked by delays in reform of banking practices as required under an agreement with the International Monetary Fund. Since then Turkey has been applying a redrawn but rigorous reform program sponsored by multi-billion-dollar loans from the IMF. The country’s gross national product grew by 7.6 percent in 2005, 9.9 percent in 2004 and 5.9 percent in 2003. The government expects the economy to grow by about 6 percent this year. OECD Secretary-General Angel Gurria, visiting Istanbul to present the report, praised Turkey’s progress in reforms to boost investor confidence and said he was optimistic that remaining problems would be soon resolved. «As long as the authorities and the business community remain committed to pursuing best international practices, we can be confident that the remaining weaknesses of Turkish corporate governance will be overcome soon,» he told a news conference. The report found that Turkish businesses are well run and increasingly transparent, but that improvements were needed in some areas better to prepare companies for the challenges of rapid growth expected in the coming decade. «It is widely expected that there will be rapid growth in Turkey in the coming decade, fueling demand among companies for external finance to expand their businesses,» the report said. «Historically, in many other countries where companies grew rapidly, serious corporate governance problems surfaced, operating as a brake on development. In many respects, Turkey is better positioned to address this challenge,» it said. Corporate governance Turkey had already introduced high-quality corporate governance and audit standards and had «significantly» improved transparency, particularly in the area of financial reporting. The OECD praised the Capital Markets Board, which plays a leading role in setting corporate governance standards for publicly held companies, for adopting a «state-of-the-art» code and implementing a wide range of other regulatory reforms. But given Turkey’s corporate landscape, often in the form of family-controlled groups, «it is important to improve further in the areas of control and disclosure… the protection of minority shareholders and the role of the board in overseeing not only management but also controlling shareholders,» it said. The OECD said some of the existing shortcomings could be addressed only by the private sector. «In particular, board members and controlling shareholders need to show they are adhering to the spirit, and not just the letter, of the relevant standards,» it said. «Investors need to become better informed and to exert more effective market discipline.» The report also recommended amendments in the commercial code to improve disclosure on parent groups and require such groups to compensate subsidiaries for losses incurred as a result of the former’s exercise of control. Such measures, the OECD said, would strengthen the protection of minority rights. Gurria was scheduled to hold talks with Turkish officials in Ankara today.