22/01/2010
History of Management Thought |Term PaperContents
Tables
Abstract:
Design/Methodology/Approach:
Comparison
Findings:
Purpose:
Research Limitations/implications:
Key words:
Contribution
Introduction
History of Turkish Economic Environment
Management and Governance Thought
Corporate Governance Development in Turkey
Some Corporate Governance Indicators
Foundation of Companies
Types of Company structure
Foreign Direct Investment
Conclusion
References
Appendix
Numbers of establishing and closing companies and cooperatives in Turkey in accordance to Company Type
Number of Companies Listed the İMKB Stock Exchange Market
Turkey 500 Biggest Companies in 2008
Tables
Table 1.1 Family Controlled Company Share is Countries...... 15
Table 1.2 The Number of Establishing Firms in accordance to its sector...... 17
Table 1.3 Summary of Turkey 500 Biggest Companies in 2008...... 18
Table 1.4: International Direct Investment (Inflows)...... 19
Abstract:
The end of the Bretton Woods System caused the liberalization of markets since 1970. This effect has been showed its power in Turkey middle of 1980’s. Deregulation and liberalization of market led to born new opportunities and risks. Reduction of telecommunication and transportation costs has increased countries convergence. In addition more complex and variety products have entered the market. Investors have exposure more risk in new environment Thus, management of risk and governance themes have been very important for good cooperation. The history of Corporate Governanceformed with respect to the deregulation and liberalization movements. This study stresses the importance of corporate governance and its history without historians in Turkey. History of Turkish Economic Environment will have been explained, management thought development also mentioned in accordance to corporate governance framework.
Recent years have witnessed a growing interest in differences in the corporate governance structures of countries. One important strand of this literature has been concerned with the impact of the identity and degree of concentration of ownership and the institutional mechanisms through which insiders andoutsiders of companies interact[1]. This framework provides economic policies and corporate governance. It is easy to combine corporate governance and the economic conditions of an economy.
Design/Methodology/Approach:
In particular, this studying assess the corporate governance
(a) The extent of economic instability with its politics
(b) Improvement of management and governance in Turkey
(c) Corporate Governance Indicators
Economic instability and import substitution policy effects investigate on History of Turkey Economic Environment, besides management and governance improvement stress on Management Thought Development in Turkey. Finally, the lack of economic conditions and their policy makers clearly indicate the lack of corporate governance in Turkey.
Comparison
We also find that the economic conditions in Turkey with regards to various time period. Development of corporate governance ties these conditions.
Findings:
Corporate Governance in Turkey has not been developed accurately. Till early 1980s, private entrepreneur capital insufficiency prevented to establish companies, Import substitution policies to save private entrepreneur also prevented to improve competition, public economic enterprises could limited access to development of financial markets. All these effects lead to insufficient corporate governance.
Purpose:
This paper extends this literature by investigating the effects of economic instability and political decision makings on the power of corporate governance.
Research Limitations/implications:
Although, the extent of economic instability, import substitution policy would be investigated with their historical studies, these studies do not rely on the empirical tests, no hypothesis establishes to support also. In addition, empiricalanalyses of corporate governance in Turkey are going to evaluate long term, hence it will be planned another studying which is taking much time. Finally, we can say that, the background of this studying is significant; it can be more reliable with a hypothesis testing model.
Key words:
Corporate Governance, Economic Instability, Foreign Direct Investment,
Contribution
Economic policies affect the business environment directly. Entrepreneur makes decision under the condition of economic environment. Internal and external market conjuncture and the behaviour of rational man/women trend occur with respect to the government policy. This study is important for the purpose of Economy and Business literature integration to evaluate corporate governance.
Introduction
The corporate governance landscape in Turkey is characterised by concentrated ownership, often in the form of 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. An organised equity market is a relatively recent phenomenon, with the Istanbul Stock Exchange (ISE) being established only in 1985. From the mid-1980s until 3-4 years ago, economic conditions were difficult for companies. Thin markets, relatively few active institutional investors and an unpredictable macro-economic environment limited incentives for companies to adopt good corporate governance practices. More recently, however, the return of foreign investors, greater opportunities for Turkish companies to do business abroad and increasing competition for foreign capital appear to be encouraging more companies to make good corporate governance practices a competitive advantage[2].
In addition to this, last 25 years information has been more than the before 5.000 years also it tends to increase continuously.[3] Related to information provides more easy, complexity of transactions increase.
Another perspective stresses the corporate governance in Turkey in accordance to micro economic conditions rather than OECD macro economic conditions.
Together with the large-scale privatisation and deregulation that took place over the last two decades in these economies, the Asian crisis in mid 1997 added a new dimension to the importance of these issues. Academic research (Singh, 2003) and some influential economic analysis, including that of the IMF (1998) and leading US officials (Summers, 1998), suggest that the fundamental causes of the Asian crisis lay not so much in the macroeconomic imbalances, but rather in the normal microeconomic behaviour of microeconomic decision-makers in these economies. This type of (structuralist) analysis of the Asian crisis emphasises the lack of competition and the lack of sufficiently strong corporate governance structures as the major reasons of the crisis[4].
The continuity and change in business elites seem to be closely related to the alterations in the politico-economic environment.
This study is important, because business and economy sciences are joined for corporate governance. That is corporate governance issue evaluates under the macro and micro economic variables of Turkey. Turkey local investors cannot be successful with respect to the foreign institutions. The source of fundamental reason of this issue is macro and micro economic policies. Political instability, capital inadequacy, economic insufficiency so forth prevents to companies development. Companies’inefficiencyand less management ability cause undeveloped companies. We can say that, economic conditions led to bad corporate governance.
History of Turkish Economy ensures macroeconomic structure which affects the micro variables also. Corporate governance is subject to micro economy for a firm and it is subject to macro economy for whole firms’ corporation and institutional level.
History of Turkish Economic Environment
At the beginning of the Republic, the number of population was 14 million which 20 % of current population.Capital formation was low, industrial sector could not be corresponded human needs, economic conditions were relied upon agriculture, there was no developed financial sector and /or intermediaries to support economic activities, The number of companies were insufficient to realize economic activities so forth. All these conditions made difficult to open economic growth and development.
İzmir Economic Congress was made in 1923 to build up economic policy. Governmentanticipated that private oriented development solved the economic instability. This led to government supported to private entrepreneur. Some of them were:
Türkiye İş Bankası was founded due to fund private agencies in 1924. Sanayi ve Maadin Bankası also founded to improve industry. Moreover, customs deductions, government aids, marketing facilities, tax deductions, and land facilities to establish new companies were provided with Industry Support Law.
Due to private enterprise capital lack, post of Independence War and likely situations caused İzmir Economic Congress Policies were insufficient. Indeed, the world economic crisis in 1929 revealed private entrepreneur inconsistency.
Based on the private sector failure, Etaism started to work to satisfy economic growth and development. Etaism tried to improve economy.Government played major role property rights of production. This means government intervened economy, produce goods and services, recruitment employees etc[5].
Government activities started with the foundation of Sumerbank in 1933. It was very important because it had to make factory and production. Etibank established in 1935 to protect mining likewise Sumerbank.
The World War II caused the rigid etaism activities continued between the periods 1939 – 49 which was more solid than before. For instance, most of the sources were nationalizated, highly sensitive market control etc.
Due to World War II, 1 million young men were taken military obligation. This caused reduction of production.
Why the etaism economic activity did not success to economic stability?
Goverment agencies could not be implement economic develeopment plans due to World War II stated. Goverment also spent much sources for defensive expenses. This led to reduction of public investmets. Besides, World War II brought difficulties on foreign trades. New taxes imposed to compensate war expenses[6].
New prime minister started to work in 1950. New policies and strategies had been made. New flow mechanism was the opposite of the etaism. Government determined its policy with respect to the private enterprises power. It was planned that, less public economic enterprises and more private development carried to economy.
Production really increases because of mechanization. The number of employees working in agriculture sector had decreased due to increase in mechanism. Industrializationhad been made by private sector. Some families started to be rich, who got rich from agriculture, commers etc.
Some of the indicators between the period 1950 and 1960.[7]
The number of tractors increased from 16.858 to 42.136.
The number of private sector increased from 2.515 to 6639
Although, government fulfilled liberal economic policies, the number of Public Economic Enterprises started to increase in 1954. Because, capital formation of private sector was still insufficient to solve economic problems. Secondly the domestic demand increase but the private sector was insufficient afford the domestic demand. Some of the intermediary goods were necessary for private sector production.
It was difficult to stress institutionalism and corporate governance until early 1950s. The main problems are capital inadequacy and external political issues.
Planned Economic Development Program started early 1960’s. Firstly, Government Planned Agency was founded in 1963 and five years plans made to increase productivity and rapid growth. There has been 7 planned programs applied, these are:
1st Planned Development Program (1963 – 1967)
2nd Planned Development Program (1968 – 1972)
3rd Planned Development Program (1973 – 1977)
4th Planned Development Program (1979 – 1983)
5th Planned Development Program (1985 – 1989)
6th Planned Development Program (1990 – 1994)
7th Planned Development Program (1996 – 2000)
Import Substitution policy defended with 1st Planned Development Program. Government anticipated increasing domestic investment and expanding manufacturing sector. Production of imported goods in internal market led to increase in production. This dynamic reduce to abroad dependency also. Goods and services which were imported from abroad and used manufacturing sector were forbidden.
Economy reached the high growth rate with the Planned Economy especially periods between 1962 - 1977. Although, between the years 1962 to 1977 the growth rate of Gross Domestic Product was 6, 7 %, this was reduced after 1977. Foreign exchange bottleneck brought bad air conditions. In addition, after 1977 political issues occurred, economic environment affected by political anarchy. Military power started to decision owner and pursued economic and political agenda. This was continued until 1984 which new democracy movement started.
It was still difficult to stress corporate governance and institutionalism. Internal political issues and import substitution policies blocked institutionalization.
Although, most of the indicators showed bad score for Turkey economy, liberalization and internalization movements started early 1980s. Regulatory agencies started to work such as Capital Market Board (hereafter CMB) in 1981[8], İstanbul Stock Exchange (hereafter İSE) in 1986.
The main roles of the CMB were to save investors rights and ensure capital market trust and assurance.
The role of the 24 January Decisions were very important to improvement of market. Both, Loan interest and time deposit were used in the market freely.
Turkish Economy changed its main policy in 1989 with resolution 32. Turkey has opened global economy from the closed economy. Currency exchange was free, import and export activities were free also. This Decision perceived competitiveness thought. Due to government protectionism until late 1980s, Turkish Companies were not sufficient to compete external market. This led to economic crisis in 1994.
Turkish Economy negatively affected by the crisis 1994. Foreign currency Dollar appreciated in accordance to Turkish Lira. Inflation rate, interest rate, external and internal market debt increased. Besides unemployment rate,the number of closed firms etc increased while capacity usage rate decreased.
Neoliberal macroeconomic policies anticipated to reach stable economic conditions. Open economy, market power provides resources, reduction of government interventions were started with middle of 1990s.
Throughout the 1980s and 1990s, the Turkish economic policy was characterised by a symbiotic relationship between discretionary policies and rent-seeking behaviour. As a result, Turkey’s macroeconomic performance has deteriorated over time and the risks faced by corporate actors have increased[9].
The negative association between volatility and growth tends to be stronger in countries with weak institutional quality and pro-cyclical fiscal policies. This finding is very significant for Turkey – a country that was characterised by poor institutional quality and fiscal indiscipline throughout the 1990s.
Banking Regulation and Supervision Agency (hereafter BRSA) founded in 1999 and stated to work in 2000 in accordance to the Banking Law 4389[10]. BRSA has started to work to abolish instability of financial market and monitor and audit financial sector institutions.
Turkish Economy cannot take an advantage of global economic conditions. Economy faced a crisis at least each 4-5 years. Turkish Economy deterioration stated with 1997 Asian and 1998 Russian crisis after the year 1994. Moreover November 2000 and the February 2001 crises affected economic actors deeply. IMF has started to play a major role in Turkish Economy between the years 1998 and 2008.
After the year 1980s, we can summarize Turkish Economic environment such as:
1980 - 1983 : Liberal Economy and 12 September Management
1984 – 1988 : Promotion of new party and obstruction
1989 - 1993 : Convertibility and external market accord
1994 - 1998 : Problematic growth period
1998 - 2008 : Controlled by IMF
Import Substitution Policy should be critize before the good corporate governance practises. Import substitution Policies implemented until the open Custom Union in 1996. This means that, government protect the private sector entrepreneurs with respect to the foreign investors. Some of the fundamental role of import substitution policy was developing internal market investments, increasing production capacity of private entrepreneurs, increasing productivity and decreasing unemployment. Although, government anticipated sustainable economic growth and long run development target, these targets could not be realized.
Why import substitution policies could not ensured its task? Private enterprises capital formation could not be sufficient to pursue industrialization widely. Intervention of private sector handicapped to productive and efficient private companies. Local firms reluctant to improve their management policies and innovations, research and development ideas did not important for these period.
Turkish Companies started to play on international market but they cannot obtain more benefits at the beginning. Due to import substitution policies,they cannot compete abroad companies. Competitiveness brings corporate governance and import substitution policies prevented competitive market.
Finally we can say that, Turkish Economic environment was insufficient to support cooperation and industrialization. Economy made war external crises and capital inadequacy until the years 1960, and tired to solve internal political issues until the year 1985. Import substitution policies also prevent good corporate governance.
Management Thought and corporate governance studying are handled in Turkey.
Management and Governance Thought
Although management and governance terms are definitely different, we aware of the terms management and governance used together. Meaning of management is more local than governance. It is possible to seen all steps of an organization. Governance is related top management pursued policies. It protects the relations among the parties Board of Directors, stakeholders, uppermost management of an organization. Firstly, we mention management here and will be continued with governance.
Turkey economic instability and pursued economic policies prevented to development of both management and governance thought. Till early 2000. There have been independent variables causes the undeveloped management such as:
capital inadequacy,
closed economy
government intervention,
protectionism of private entrepreneur,
world economic and political environment
These are the indicators why management concept has not been put in mind. Family controlled firms intervene all steps of the production process. Goods and services finalize under the myopic view of families. Aggregation of management thought in each steps of the company led to governance thought.
Corporate Governance Development in Turkey
As we mentioned History of Turkish Economic Environment, Turkey has volatile economic conditions which prevent good corporate governance. This is the reason why Turkey applied Corporate Governance Principles lately.