For investors holding Turkish stocks, having an internet connection can now easily mean being an active shareholder who can participate and vote at annual shareholder meetings literally from anywhere via an electronic platform. While non-listed companies can voluntarily opt for virtual shareholder meetings, companies listed on Borsa Istanbul (formerly known as the Istanbul Stock Exchange) are left without any room for cold feet.
Turkey stands out as the world-wide pioneer requiring listed companies to host annual shareholder meetings by electronic means of communication in addition to simultaneously holding physical meetings, as a hybrid solution, and as of October 2012, brings these meetings to the top of shareholders' fingertips via an award-winning e-meeting platform.
Legal transformation for e-voting framework
It has become evident that high on the government's agenda is to create a giant financial hub out of Istanbul. As an emerging market, creation of sound capital markets with the potential to attract local and foreign investors in return for lower capital costs is Turkey's main motive for transformation. The very recent overhaul of the long-standing Turkish corporate and capital markets legislation is strongly indicative of this motive.
The entering into force of the new Turkish Commercial Code in July 2012, and the new Capital Markets Law in December 2012 were the initial major steps followed by the secondary legislation (i.e.; communiqués) issued by the Capital Markets Board of Turkey which govern almost all aspects of companies listed on Borsa Istanbul. While the legal framework for virtual shareholder meetings were initially introduced by the new Turkish Commercial Code, the actual process was detailed in the Regulation on Electronic General Assembly Meetings of Joint Stock Corporations (Anonim Şirketlerde Elektronik Ortamda Yapılacak Genel Kurullara İlişkin Yönetmelik), and the Communiqué on the Electronic General Assembly Meetings of Joint Stock Corporations (Anonim Şirketlerin Genel Kurullarında Uygulanacak Elektronik Genel Kurul Sistemi Hakkında Tebliğ). Both published in the Turkish Official Gazette in August 2012 and became effective as of October 2012.
In order to overcome the inherent problem of not having effective shareholder participation, the above-mentioned legislation now openly recognizes and supports the main principles of transparency and fairness with extensive disclosure measures and participation safeguards, such as like having virtual meetings. While the extent of compulsory virtual meetings is still being discussed by corporate actors in the E.U. and even in the U.S., the Turkish law-makers did not hesitate to resort to hi-tech options to remove barriers in cross-border voting and to embrace investors globally.
Virtual general assembly meetings not only have the exact legal consequences of a physical meeting, including voting, shareholder communication and proposal submission, but also save attendees the burden of costly and time-consuming travels.
Speaking in numbers
Turkey's reformative approach in rendering e-meetings mandatory is rather impressive. So are the numbers: during the period between October 2012 and January 2014, 13,556 investors electronically participated in annual shareholder e-meetings while the number of shareholders attending in person remained at 6,088. This optimistic picture was maintained during the first quarter of 2014 where 8,902 shareholders electronically attended 143 annual e-meetings, quadrupling the 2,216 physical participants.
The new system seems to encourage and facilitate participation by foreign investors and domestic investors alike. The online participation in the same period covered 11 cities within Turkey and 47 different countries around the world welcoming this new remote corporate e-governance solution.
Required technical infrastructure
The electronic shareholder meeting platform "e-GKS" (elektronik Genel Kurul Sistemi) is provided and administered by the central share depository and registry agency, MKK (Merkezi Kayit Kuruluşu). It is required that real-time streaming from the physical meeting venue is available for online participants. Therefore, technical specifications available at the meeting venue are highly important for the effective functioning of the whole system. An uninterrupted electricity and internet capacity must be available for the use of cameras and other live streaming equipment supported by a strong light source to provide an HD image for attending through a computer or mobile device. In practice, companies tend to host their annual meetings at modern convention centers equipped with the required infrastructure and they run a streaming test prior to the meeting to ensure proper operation. MKK also monitors virtual meetings in order to intervene and provide support services in case of technical problems.
It is also required that companies assign certain personnel to log in, use and monitor the e-GKS platform during meetings. Such personnel must hold the e-GKS license which is granted following the completion of the online study modules provided by MKK.
Disclosure requirements attached to e-meetings
As an extension of the transparency and informed voting principles promoted by the new legislation, it is essential that the meeting and the agenda be announced to shareholders three weeks in advance for listed companies via the e-GKS platform, the company website and the Public Disclosure Platform (KAP) (a web-based platform that allows listed companies to electronically post disclosures in a timely, complete and accurate manner). Listed companies are also required to disclose their financial statements, activity reports and dividend distribution schemes for shareholders' review well in advance of annual meetings.
The e-GKS platform refrains from imposing stringent time restrictions on shareholders' indecisiveness about their preferences for whether to attend a "physical vs. virtual" meeting. Online participants must log into their e-GKS account using their electronic signatures to indicate their preference for electronic participation by 21:00 on the last day prior to the meeting (e.g., by 21:00 on 21 March 2014 for a general assembly to be held on 22 March 2014). Otherwise, only physical attendance will be available.
On the day of the meeting, online participants may attend the meeting until only five minutes before the meeting starts, and they are granted a two-minute period in which to vote on each agenda item. Meeting information and voting reports will be instantly communicated to all online participants via e-GKS. MKK will electronically archive all meeting documents, audio-visual records and voting results.
Award-winning electronic platform
Of noteworthy praise is the fact that the e-GKS platform developed entirely by MKK has been awarded the "Best Use of Online Services" at the 13th annual Financial Sector Technology Awards, organized by Financial Sector Technologies, a leading magazine of the information systems and technology sector. The e-GKS application also received a research and development support award from the Scientific and Technological Research Council of Turkey (TÜBİTAK).
The e-GKS system also brought the previously adopted "share blockage system" to an end. In the "pre-electronic" era, shares were blocked prior to the general assembly meeting in order to keep an accurate but also a "frozen" list of attendees. The electronic list of attendees provided by the new system eliminates this restriction by allowing shareholders freedom to dispose of their shares until midnight on the night before the meeting.
Companies will also be willing to benefit from the perks offered by today's technology. Though not compulsory, non-listed companies may also opt for virtual-only or hybrid (simultaneously physical and virtual) meetings provided that their articles of association have the relevant reference incorporated. For example, KPMG, a non-listed company, was quick to amend its articles of association right after the adoption of the e-meeting system in October 2012 to hold the first virtual shareholder meeting in Turkey which set a good example of effective shareholder participation and corporate governance for its listed and non-listed counterparts. Additionally, the Financial Times refers to the electronic shareholder meeting system "as a coup empowering investors to embrace an activist approach". This premise seems to be supported by the high numbers of online participants that have participated and companies that have benefitted so far from the use of shareholder e-meetings.
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