Strength in Flexibility in Turkey: Updating Corporate Governance in a Changing World

Over the past four decades, Turkey has embarked on an ambitious privatization path, reducing the number of businesses in state hands and creating a legal framework to regulate those businesses that remain state-owned. From 1984 - when the first law on privatization was passed - until today, the number of state owned enterprises (SOEs) in Turkey has drastically declined and the regulatory framework around these SOEs has continued to improve through the implementation of a series of legal updates and ongoing collaboration between Turkey and the international community.

During this time, Turkey has reduced state involvement in a number of sectors through intense privatization – decreasing public expenditures for SOEs and allowing many of these enterprises to benefit from increased efficiency, improved transparency, and additional accountability provided by the corporate governance standards of the private sector. This transition has provided the country’s economy with a wide-range of benefits as it emerges as a global economic leader and has brought Turkey closer in line with international standards and practices on management of SOEs. Gross sales revenue from the privatization of SOEs in the country stand at around $60 billion for the period of 1985-2014.

In addition to increased revenues and decreased public expenditures resulting from the privatization of enterprises, an equally important component in this process has been the ongoing improvement in management and regulation for those enterprises that have remained under state ownership. In tandem with the laws and reforms that have guided the privatization process in the country over the last four decades, lawmakers in Turkey have also worked to introduce a regulatory framework to both govern and improve the performance of those enterprises still under government control.

Today, 27 companies remain in the hands of the state and the government of Turkey remains committed to ensuring that these companies continue to transform into more efficient and more profitable enterprises.  Policymakers are working with the World Bank Group, The Organization for Economic Co-operation and Development (OECD,) and other leading international organizations to continuously update and improve the regulatory framework that governs the management and supervision of State Owned Enterprises in the country. 

Since starting down this path more than forty years ago, officials in Turkey have collaborated with these organizations in a variety of ways to ensure that guidelines and frameworks are implemented that can increase the efficiency, effectiveness, and transparency of these SOEs through improved corporate governance in the country.

“Corporate governance principles are not static, solid principles written in stone,” said Ibrahim Canakci, Undersecretary of the Treasury in Turkey, during his remarks at the recent Conference on Corporate Governance on SOEs in Turkey, “principles can differ according to the economic circumstances of the country, development levels, and legal systems. When management changes and understandings change, such principles can be re-arranged in tandem with the changing conditions and needs.”

With funding provided by the Russian Ministry of Finance through the Europe and Central Asia (ECA) Public Finance Management Trust Fund (PFM TF), this conference, which brought together a number of international experts to share their experiences of corporate governance with Turkey, is just the latest example of cooperation between Turkey and its international partners as it strives toward improved corporate governance for all SOEs in the country. Representatives from Finland, Singapore, Pakistan and elsewhere presented on a wide-range of topics - including how to improve corporate governance, develop an appropriate framework for SOE management, enhance transparency, strengthen accountability - and shared lessons that could better inform policymakers in Turkey during the ongoing reform process in the sphere of corporate governance.

“Thanks to the restructuring, privatization and other reform efforts, SOE performance has been steadily improving over the years. However, there is growing pressure for further improvements especially as SOEs today face a more demanding environment, including increased competitiveness, budget reforms for fiscal discipline, and the need for access to finance,” said Martin Raiser, Turkey Country Director during his welcoming remarks of the Conference.

Recently, the government of Turkey, together with the World Bank Group, organized a training program on international financial reporting standards among the Turkish Court of Accounts, SOEs, and the Undersecretariat of the Treasury in order to lay the foundation for the implementation of independent audits of SOEs - a practice that will be initiated in 2015.

Underpinning much of this work are the Guidelines on Corporate Governance, implemented in coordination with the OECD in 2005. These guidelines are now being updated in order to align with the changing global economic realities and better address the realities being faced by countries like Turkey as they continue to adapt - showcasing Turkey’s willingness to continuously improve their management abilities of SOEs.

This ongoing commitment to improved corporate governance - defined by flexibility, adaptability, and cooperation - is benefitting Turkey threefold: increased revenue from privatization, reduced expenditures on SOEs, and improved efficiency and transparency for those SOEs that remain. Turkey’s ongoing cooperation with The World Bank Group and other international partners is further evidence that these benefits will only increase in the future - just as they have for the past forty years.