In 2001, PricewaterhouseCoopers ranked Turkey as the fourth least transparent country in the world. They estimated the impact of opacity in terms of lost foreing direct investment (FDI) at $1.8bn (€1.4bn) per year. The following year, McKinsey announced similar findings on research carried out on 188 companies from Turkey, South Korea, Malaysia, Taiwan, India, and Mexico, placing Turkey at the bottom of the ranking with respect to board oversight and transparency, and second from bottom ahead of only Mexico with respect to shareholder rights.

According to a recent survey published by Standard & Poor's, Turkish companies have a moderate level of disclosure, with companies scoring on average five out of 10. The survey was able to distinguish the following top-five Turkish companies in terms of transparency and disclosure: Akbank of the Sabanci Holding Group, Anadolu Efes, Dogan Yayin Holding, Koc Holding and Turkcell. These form a small elite of very large companies.

The Turkish Capital Markets Board (CMB) issued Corporate Governance Principles in July 2003 and although the CMB principles comprise four main sections: shareholders, public disclosure and transparency, stakeholders and board structure and responsibilities; the focus is mostly on the disclosure of financial information with less emphasis on the ownership structure and the board of directors. Current levels of disclosure in Turkey vary substantially between companies.

Dogan is the first ISE listed company to receive a corporate governance rating score from the Institutional Shareholder Services (ISS), the world's leading global corporate governance rating institution. Alpay Guler, investor relations coordinator at Dogan, boasts that the company is the first media organisation globally to announce its national rating. Receiving an eight out of 10, "Dogan are pioneers in corporate governance in Turkey" he claims. Despite such progress, Yurdal Yalman, assistant GM at OYAK Securities, believes that since compliance is voluntary, many public companies and their management remain indifferent to the recommendations. He also argues that for many companies the reasons for this are high compliance costs and unclear economic benefits.

Turkcell, the only Turkish company to be listed on the NYSE, has consolidated its financial statements in accordance to US GAAP for the purposes of reporting to the SEC, proving that transparency can be indispensable. Nevertheless, Turkcell's poor corporate governance reputation has been factored into its share price. This could be seen as a strong point for the future since the basic principles are in place, benchmark results are positive and there is strong awareness from the management team to rectify these shortcomings. Yet, Turkcell has not developed a smooth communication process to proactively adopt changes. In fact, Turkcell's CEO Muzaffer Akpinar resigned in late June 2006 due to unclear circumstances. Many have linked his departure with tensions between him and the Cukurova family, which owns a large share of the company. The result proves that transparency is vital for healthy growth but also reopens the Turkish family holding structure debate.

Given the typical family ownership structure of Turkish companies, the right to nominate board members is particularly important for non-controlling shareholders. Any nomination procedure must therefore be binding for the shareholders and clearly observed and articulated in the companies' articles of association. According to experts, no disclosure of the board nomination process has been observed. It is also fairly common for representatives (often executives) of holding companies to sit on the boards of subsidiary companies with an explicit mandate to impose the policies of the holding company.

According to Standard & Poor's, "the disclosure practices of holding companies and their subsidiaries diverge in most cases, which raises serious concerns as to the transparency of groups and the importance of consolidated reporting." Koc Holding and Sabanci Holding, Turkey's leading conglomerates, though still not officially rated, have been instrumental in the application of corporate governance principles.

Koc, the only Turkish company in the Fortune 500 with combined revenues equalling 9% of Turkey's GDP, has taken a proactive approach to establishing good governance practices and fulfilling the four pillars of corporate governance, namely: transparency, fairness, responsibility and accountability.

Being one of the few companies in Turkey which links executive compensation to share performance, Koc has made shareholder value an absolute priority. Additionally, the board of directors is comprised of independent non-executive members with only the CEO being the exception. Eight are non-family members and four are foreigners out of 14.

With investors seeking larger float rates and holdings not giving up any control, a stalemate has appeared in the transparency debate.

As strategies are rewritten, however, and business groups decide to sell off non-core assets, they are slowly yielding a piece of the pie to the investor community. This scenario opens a number of interesting opportunities for direct investment, portfolio investment as well as private equity investment.

As a result of this hopeful scenario, the investment climate in Turkey has improved, as demonstrated by the significant increase in fixed capital investment inflows into Turkey in the course of the last two years. International investor interest in Turkish companies has risen and with it, improvements can be witnessed in a number of areas of corporate governance; including greater transparency of ownership structures, adoption of international financial reporting standards, inflation accounting, consolidated reporting, establishment of audit committees with non-executive members and strengthening of audit standards.

History shows that voluntary guidelines are insufficient to drive forward any practice in Turkey, including corporate governance. So in order to lower the cost of capital and attract more foreign and domestic investment and because transparency is a prerequisite of good governance, there remains a clear need for stricter independent auditing and financial reporting requirements. Once transparency is improved in companies, it will raise the level awareness about the strategic benefits of corporate governance.

Overall, companies do not generally disclose more than is legally required. Naturally, this reduces the explanatory power of the disclosure data. The situation is expected to keep improving due to a number of factors such as changes to the legal and regulatory environment requiring mandatory compliance with reporting standards, increased investor interest and increased growth potential.