The Organization for Economic Cooperation and Development (OECD) issued its first report on corporate governance in Turkey, praising progress made and itemizing a long list of necessary improvements.

"Although the overall corporate governance outlook is positive, the assessment reveals some key areas for improvement by companies and the authorities," the OECD concluded in a 150-page report issued last month.

The report notes that corporate ownership in Turkey tends to be concentrated in family-controlled, financial-industrial company groups. Free floats are often low, pyramidal structures are common, and there is a high degree of cross-ownership within some company groups. Controlling shareholders often play a leading role in the daily management and strategic direction of publicly held companies.

These challenges notwithstanding, the country's securities regulator, the Capital Markets Board (CMB), receives high marks from the OECD for "playing a leading role in setting corporate governance standards for publicly held companies, enforcing the applicable standards, and fostering market integrity." In recent years, Turkey has adopted a corporate governance code (CMB Principles) and implemented a wide range of fundamental regulatory reforms.

The report calls for further improvements in the disclosure of related-party transactions and self-dealing, the protection of minority shareholders, and the role of the board in overseeing not only management but also controlling shareholders.

"Some of the existing shortcomings can be addressed only by the private sector, including controlling shareholders, board members, senior management, company advisers, auditors, and investors," the report notes. "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."

Proposed amendments to the company law provisions in the Turkish Commercial Code (TCC) would call for more disclosure about company groups and would require controlling companies to compensate controlled companies for losses incurred as a result of their exercise of control. This should strengthen the protection of minority rights, according to the OECD report.

The revised code proposal has been submitted to the Grand National Assembly and is now under consideration in the appropriate subcommittees.

The proposed amendment designating Turkish Accounting Standards (TAS) as the sole source of general financial reporting standards for all companies (including financial firms), represents a major step forward, as does the proposal requiring all companies to make investor-related information available on company Web sites, according to the report.

The OECD report also recommends that the CMB place more emphasis on comprehensive risk-based approaches to standard-setting, supervision, and enforcement, and that the agency include corporate governance factors in its risk assessment criteria. The report also encourages formalizing and enhancing the transparency of the CMB's consultation practices, including the publication of regulatory impact analyses.

"Turkey has gone a long way to achieving many of the outcomes advocated by the OECD principles," the report concludes. 'In several key areas, however, more needs to be done to ensure satisfactory outcomes."