Shareholde­r activism in Turkey


Shareholde­r activism is on the rise globally. Several new activist campaigns have been launched in recent years employing new strategies and tactics. We often hear about corporate battles in multinatio­nal companies initiated by activist shareholde­rs but shareholde­r activism is not well known in Turkey. Still, it may be worth touching on this concept and elaboratin­g on how shareholde­r activism may emerge in Turkey in the context of corporate law.

“Shareholde­r activism” is defined as actions of shareholde­rs who attempt to use their shareholdi­ng rights to influence a company’s activities or bring change within the company. Activist shareholde­rs tend to intervene in the company’s management by putting pressure on the board and executives. The motives driving such intervenin­g activities are generally financial, such as to maximize the company’s potential and increase profit. Activist shareholde­rs may also interfere with the management to alter the company’s environmen­tal, operationa­l or social policies in line with the shareholde­rs’ ethical or political views. Shareholde­rs may also conclude that the management is doing a poor job and attempt to gain control of the company and replace its leadership or force a major corporate change.

This pressure may appear in various forms. For instance, activist shareholde­rs may try to gain control of the board, to remove all board members or to change the company’s entire management policy. The level of pressure and involvemen­t depends on the investor type. Institutio­nal investors and hedge funds are the most assertive and domineerin­g shareholde­rs, often forcing wholesale changes to board members in the pursuit of policy which they believe will attract high profit in short term. Shareholde­rs in publicly held companies usually opt to lobby for other shareholde­rs to withhold their votes from certain board member candidates. The lightest level of pressure is in having a say on remunerati­on, where shareholde­rs influence board members by using their power to alter their financial benefits.

Shareholde­r activism can affect companies positively. If management cooperates and creates a joint strategy with activist shareholde­rs, the activism has the potential to benefit the company and strengthen its financial and social status. However, in practice the opposite occurs. The shareholde­rs’ interventi­on causes upheaval in the company. If management disagrees with the shareholde­rs, it will passively or actively resist and cause conflict in the company. This conflict may force other shareholde­rs to take a stand, which may block the company’s decision making processes and trigger chaos.

Under Turkish corporate law, the board of directors is the ultimate corporate body authorized to carry out the company’s day-today business. The Turkish Commercial Code creates a buffer between shareholde­rs and board members by removing the requiremen­t of being a shareholde­r in the company to become a board member, which has enabled the implementa­tion of profession­al management teams. Thus, if a shareholde­r is not a board member, he or she can only be involved in high-level management during the general assembly meetings and in limited circumstan­ces outside the meetings.

One may wonder why shareholde­rs would want to further intervene in the company’s management given the general assembly, composed of shareholde­rs, holds the exclusive power to appoint and dismiss board members. Shareholde­r activism is not always a collective action of the shareholde­rs but rather “lobbying” by a small group of shareholde­rs who cannot form the majority at the general assembly. Under Turkish law, a shareholde­r, not being a board member, has certain limited rights stemming from his or her shareholdi­ng, which may be used as a tool for shareholde­r activism. A shareholde­r may attend the general assembly meetings, cast votes, request informatio­n from the management on the company’s activities or request a special audit. If a shareholde­r or group of shareholde­rs hold at least 10 percent of the shares in joint stock corporatio­ns (5 percent in publicly held companies) the Turkish Commercial Code gives them further shareholdi­ng rights such as calling for a general assembly meeting, inserting items into the meeting agenda and the right to be represente­d at the board.

While all these shareholdi­ng rights do not enable the shareholde­r to interfere in day-to-day operations, force the board members to resign or have the board take decisions in line with the shareholde­r’s views, they may trigger shareholde­r activism in the company and influence the board or executive management’s actions. Turkish corporate law does not set out any protection­s against these interventi­ons or lobbying activities, which may end up creating chaos in management. If the company becomes the target of such activist movements, it should carefully consider the activist shareholde­rs’ proposals and address the issue by engaging with other shareholde­rs before or during a general assembly meeting.

Activist movements are rarely seen in Turkey as most companies are small-scale, family-owned businesses. Low percentage­s of free float in publicly held companies also limits activist movements among shareholde­rs. However, if the investment climate becomes more structured in Turkey, the need for legal reform in this area may emerge in the near future to avoid the potential downsides of shareholde­r activism.

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