2o15. turkey. Board Index

Transcription

1 2o15 turkey Board Index

2 Contents Introduction 1 Board trends 2 Board composition 5 Committees 11 Director compensation 11 About Spencer Stuart 12

3 Introduction In this second edition of the Spencer Stuart Turkey Board Index, we review board composition, structure and governance practice in the BIST 30 index, the group of the thirty largest companies by market capitalisation and daily average trade value listed on the Borsa Istanbul. In addition to analyzing data about these boards, we also draw some interesting comparisons with governance practices in the largest listed companies across Europe and in the US. These international comparisons are based on analysis published annually by Spencer Stuart in its national Board Index programme. Our research was based on information in the public domain, principally annual reports, and covered board size, composition, tenure, committees, meetings and, where data were available, director compensation. The period covered by our research is the 2015 financial year. SPENCER STUART PAGE 1

4 In the spotlight Board trends The following topics are of growing interest to Turkish boards: Digital Boards in Turkey are realizing that they need to develop a better understanding of the digital transformation issues affecting their businesses. More boards are seeking digital expertise around the boardroom table. Digital is a very broad topic, of course, but it is extremely valuable to have someone who can demystify the topic for fellow directors and help management and the board clarify and navigate the specific digital forces impacting the business. Digital transformation is a complex undertaking, requiring a dynamic, collective effort at the board and executive level. Those who have been through this change caution strongly against overestimating the impact that a single director with this expertise can have on the transformation of the business sometimes a second director is needed to add weight to the discussion. However, it is important that such directors are able to contribute beyond their specific area of expertise. Some executives who can bring digital expertise lack the broad-based business acumen and commercial experience that boards need, so the hiring of digital directors needs to be handled carefully. Culture Boards are becoming increasingly aware of the role that corporate culture plays in business success. As the steward of corporate behaviour, the board has an obligation to ensure that its own culture is beyond reproach. The board s size, the profile of the directors and the degree of formality in its dealings all have a part to play in building corporate reputation. The chairman plays a significant role in shaping the nature of the board in terms of how relationships are conducted, the quality of teamwork, transparency, communication and freedom of expression among directors. Although board behaviours have less influence on culture than those of the CEO and management team, PAGE 2 SPENCER STUART

5 boards do set a tone at the top which, in turn, has an impact on the company s culture. Boards should be aware of what the tone is and how they contribute to it by their own actions. Internationalisation of boards Turkish businesses are increasingly looking for growth opportunities overseas. The rate of outward direct investment is rising and companies are looking for ways to diversify into new markets, whether in Europe, Africa or Asia Pacific. Boards are beginning to consider whether they need to become more internationally focused. Since major investment decisions are driven by the board, there is a strong argument that any company looking to expand its international operation should be strengthening its expertise in the form of directors who understand the target markets. Whether a business is considering potential acquisitions or seeking to build a presence in new markets, the board must question whether it has the right composition to help the business navigate the many complexities and cultural challenges involved. Women on boards the need for balanced slates The boards of Turkish listed companies have relatively few female directors compared with the major markets in Europe the proportion in BIST 30 companies is a mere 9.5%. Last year, we reported that over half of female directors in top companies were family members. Many boards recognize the need to increase their gender diversity on the basis that people with different backgrounds and experiences bring fresh perspectives into the boardroom. However, one of the problems today is that boards are focusing on the desired outcome (more female directors) but not giving enough thought to the process (more diverse slates). In our experience, it is not enough for longlists or shortlists to have just one or possibly two women research has shown that women who are a small minority in a sea of candidates are unlikely to be appointed. Instead, boards should insist that their advisors put forward a properly balanced and diverse slate at each stage of the nomination process. SPENCER STUART PAGE 3

6 board trends In the spotlight Board effectiveness Over the past decade, boards around the world have started to submit themselves to annual board evaluations, sometimes referred to as board performance reviews or board assessments. In the UK and Europe it has become common for boards to have an annual self-evaluation, but with an external facilitator conducting a more in-depth evaluation every three years (in some countries this is mandated). There is no evidence that Turkish boards have any kind of regular performance review, but we believe this is something that will inevitably arrive as a corporate governance best practice. Public expectation of board performance is increasing and boards must be ready to demonstrate that they are both fit for purpose and self-aware. Just as directors are required to be more professional in the performance of their duties, so the monitoring and evaluation of that performance sets a good example to the organisation as a whole, reinforcing a culture of self-reflection and being open to constructive criticism. An annual board assessment can play a critical role in ensuring that any problems in the board s functioning are brought to light and addressed in a discreet and timely manner. Board assessments frequently result in improved processes, more accountability and transparent communication among directors, as well as enhanced trust and better decision-making. PAGE 4 SPENCER STUART

7 Board composition Board size The average size of BIST 30 boards is 9.8 directors. The most common number of directors is nine. The two largest boards are Tüpraş and Koç Holding, each with 15 directors. By contrast, the smallest board, Enka, has just five directors. table 2 Board size including employee representatives excluding employee representatives 8 and under 44% 80% 9 to % 19.2% 12 to % 0.8% 15 and more 0.8% the broader view: Board size BEL CHE FRA DEU ITA NLD DNK FIN NOR SWE RUS ZAF ESP TUR UK USA The Broader View compares key statistics averaged across in 16 countries worldwide. All data is sourced from the most recent Spencer Stuart Board Index covering that country. SPENCER STUART PAGE 5

8 board composition Independent directors The Turkish Commercial Code of 2012 requires boards to have at least one-third independent directors and as a group the BIST 30 companies pass this test: 33% of all board directors are independent (in 2014 it was 34%). The average number of independent directors per board is 3.2. All boards have at least two independent directors and one company, Koç Holding, has six. the broader view: Independent directors BEL CHE FRA DEU ITA NLD DNK FIN NOR SWE RUS ZAF ESP TUR UK USA 43.3% 88.3% 58% 60% 49.2% 66.8% 76% 84% 80% 62% 35% 58.1% 39% 33% 60.9% 84% New directors A total of 43 new non-executive directors were appointed during Three new non-executives (7%) were women and eight (18%) were foreign. New directors accounted for 18.5% of the total number of non-executives and 16.3% of all directors in BIST 30 companies. In the UK during the same period, 14.4% of all directors were new appointments. Fourteen (32%) newly appointed non-executives were first-time directors and 12 (28%) were portfolio directors, i.e. sitting on more than one board and without any executive role. 13 new non-executives (30%) were current/active executives. Five new executive directors were appointed to boards during Of these, none were women and one was foreign. Chairmen It is increasingly common around the world for listed companies to separate the roles of the CEO and board chair and Turkey is no exception only 2 companies (6.5%) combined the roles of chairman and CEO. This avoids an over-concentration of power in the hands of a single individual who can pull all the levers of executive power. In the UK, only 1.3% of companies combined the roles, whereas the numbers were far higher in the US (52%), Spain (57%) and France (62.5%). PAGE 6 SPENCER STUART

9 Twenty-seven chairmen (90%) were male, of whom 16 (53%) were members of the principal shareholding family. All three women chairing boards were family members. Two chairmen and one CEO in total were foreign nationals. Both the chairman and CEO of Türk Telekom are foreign nationals. 29 of the BIST 30 companies have a vice chairman. An equivalent role exists in both the UK and the US, known as the senior independent director and lead director respectively. Age The average age of directors in BIST companies is 57.6 years, similar to that in most European companies. The oldest directors are found in the US, where independent directors average 63.1 years. Two companies have boards with an average age over 65: Koç Holding and Tekfen Holding. The average age of CEOs is 54.7 years and the average age of chairmen is 57.6 years. The two oldest chairmen lead the boards of Arçelik and Kardemir Karabük Demir Çelik (they are 85 and 87 years old respectively). the broader view: Average age (all directors) BEL CHE FRA DEU ITA NLD DNK FIN NOR SWE RUS ZAF ESP TUR UK % SPENCER STUART PAGE 7

10 board composition Diversity Women directors Gender diversity on the boards of Turkish companies is the lowest of all the countries in Europe that Spencer Stuart tracks. Out of 294 directors in the BIST 30 companies, 28 are women (9.5%). There are three female chairmen (10%). In one company, Doğan Holding, five out of nine (55%) directors are women, although this is a special circumstance reflecting the gender of the shareholders. 17 boards (57%) have at least one woman on the board. In France, Germany, Italy, UK and US over 90% of boards have at least one woman. the broader view: Women on boards BEL CHE FRA DEU ITA NLD DNK FIN NOR SWE RUS ZAF ESP TUR UK USA 24.2% 19% 34.3% 24.9% 22.4% 21.6% 23% 30% 42% 35% 7.6% 20.9% 14% 9.5% 23% 19.8% In most of the larger European economies, governments have recognized that the representation of women on boards is a political, social and commercial issue. They have either put in place legal quotas or have issued targets in recognition of the potential benefits that accrue to companies that embrace diversity of knowledge, experience, thought and behaviour on their boards. The pressure on the business community to address this issue has grown significantly in the past five years. The greatest (and often the fastest) impact has been seen in those countries where quotas have been introduced (e.g. France and Norway), although there are a number of arguments against this approach: for example, that quotas result in the appointment of under-qualified candidates, that a small number of in-demand women end up occupying multiple directorships, or that quotas encourage women who are needed in senior executive roles to leave their careers and go plural as non-executive directors. There is evidence for all three circumstances, but no one can argue that quotas are not effective at bringing more women into the boardroom. By contrast, several countries prefer to approach the issue through the creation of targets, backed by the comply or explain principal. The UK is an example of a country where targets rather than quotas have resulted in change. Representation of women on FTSE 100 boards doubled to 26.1% in the five years covered by the Davies Review up to October PAGE 8 SPENCER STUART

11 Foreign directors The percentage of foreign directors on BIST 30 boards has remained static at 14%. Most of these directors are the representatives of foreign investors and have been assigned to oversee the management team and exert pressure when necessary. Foreign directors often bring with them valuable best practices from the boardrooms of other countries. the broader view: Foreign directors as a percentage of the full board BEL CHE FRA ITA NLD DNK FIN NOR SWE RUS ZAF ESP TUR UK 32.6% 62% 33% 7.7% 42.7% 42% 35% 29.6% 24% 22.2% 21.3% 12.5% 15% 32.1% The average number of nationalities represented on BIST 30 boards is 1.9. Eighteen boards (60%) have only Turkish directors, whereas four boards have directors with four or more nationalities: Koç Holding (6), Migros Ticaret (5), Yap ve Kredi Bankası (4) and Ford Otosan (4). Length of service The average tenure of non-executives on BIST 30 boards, excluding chairmen, is 4.9 years. This is more than the UK (4 years) and less than the US (8.5 years). Two boards have an average tenure over 10 years: Koç Holding (11 years) and Ford Otosan (11.3 years). The average tenure of chairmen is 8.3 years. Three chairmen have served in their post for 15 years or more: Ülker Bisküvi (15 years), Türkiye Şişe ve Cam Fabrikaları (17 years) and Enka (21 years). In the UK the average tenure for chairmen is 4.6 years. In the US, independent chairmen have been in the role for an average of 4.2 years, however 86% of independent chairmen previously served as directors on the board, serving 8.1 years on average before becoming chairman. The average tenure of BIST 30 CEOs is 5.3 years. Five CEOs have served for 10 years or more; the longest serving CEO is at TAV Havalimanları Holding (18 years). SPENCER STUART PAGE 9

12 board composition Board meetings The average number of scheduled board meetings in BIST 30 companies was 20 during This is more than twice the average number of meetings in most European markets. In the UK, for example the average number of board meetings is 7.6, in the US the average is 8.1 meetings, with 9 in France and 6.5 in Germany. There is a conspicuously wide range in the frequency of meetings among the top Turkish listed companies. The boards of three companies met just four times, whereas five boards met more than 30 times. The board of Emlak Konut GYO met 79 times during the year. It is important to state that not all board meetings are live. Board meetings are more loosely defined than in some other countries and can be described as any unique instance of decision making that requires the consent of the board. External commitments BIST 30 non-executive directors sit on an average of 1.9 listed company boards. The directors of Koç Holding sit on 4.8 boards on average and the chairman sits on six boards. Of the 21 CEOs who sit on the boards of their own companies, only five have an outside listed company directorship. Seventeen companies (57%) have at least one non-executive director who has a full-time executive role in another company. In two cases, Ereğli Demir Çelik Fabrikaları and Kardemir Karabük Demir Çelik, seven directors are serving executives at other companies. PAGE 10 SPENCER STUART

13 Committees BIST 30 boards have on average 3.8 committees. Excluding Türkiye Garanti Bankası, which is an outlier with 16 committees, the average is 3.2. We should also note that information on committee meetings is not available for all companies. The vast majority of boards have three standard committees audit, risk and corporate governance. In a trend, we also find in other markets, financial services audit committees meet more often than their counterparts in other sectors. In 2015, the audit committees of Türkiye Halk Bankası and Türkiye Garanti Bankası met 12 and 15 times respectively. Similarly, the credit committees of Türkiye Halk Bankası and Yapı ve Kredi Bankası met 48 and 47 times respectively. Director compensation As we reported in our 2014 edition, there is no uniformity or consistency in the compensation for independent board members in Turkey. We have only been able to collect compensation information on 12 of the BIST 30 companies as there is no requirement for these companies to publish their compensation data. There are several different models in place, including a combination of the following: monthly fees, annual fees and per-meeting fees. The lowest published retainer for non-executives is TL net and the highest is TL net per annum. SPENCER STUART PAGE 11

14 About Spencer Stuart At Spencer Stuart, we know how much leadership matters. We are trusted by organizations around the world to help them make the senior-level leadership decisions that have a lasting impact on their enterprises. Through our executive search, board and leadership advisory services, we help build and enhance high-performing teams for select clients ranging from major multinationals to emerging companies to nonprofit institutions. Privately held since 1956, we focus on delivering knowledge, insight and results though the collaborative efforts of a team of experts now spanning 56 offices, 30 countries and more than 50 practice specialties. Boards and leaders consistently turn to Spencer Stuart to help address their evolving leadership needs in areas such as senior-level executive search, board recruitment, board effectiveness, succession planning, in-depth senior management assessment and many other facets of organizational effectiveness. For more information on Spencer Stuart, please visit PAGE 12 SPENCER STUART

15 Social Spencer Stuart Stay up to date on the trends and topics that are relevant to your business and Stuart 2016 Spencer Stuart. All rights reserved. For information about copying, distributing and displaying this work, contact: permissions@spencerstuart.com. Turkey2015_d2

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