Responsible Management Principles (Stewardship Principles)
Introduction
Responsible Management Principles (Stewardship Principles, SP) have been regulated by the Capital Markets Board (CMB) regarding the securities investment funds (Funds) founded by Portfolio Management Companies (PMC). The SP contains certain principles regarding the companies invested in by the Funds and the assets in the portfolio, and how the rights arising from these investments will be exercised. With these principles, the Funds are encouraged to play a more active role in the companies they invest in, to use their classical shareholding rights more actively, as well as to take an active stance in constantly monitoring the activities and performance of the company. In addition, environmental, social, and governance (ESG) factors are also included in the SP.
In this study, first of all, the development and justifications of SP are briefly mentioned, and then the regulations in the Capital Markets Legislation are explained.
SP in general
The development of SP coincides with the aftermath of the 2008 financial crisis and is based on the idea that shareholders' active role in company management contributes positively to the company's corporate governance.1 In this respect, the idea behind the SP is also linked with the concept of activist shareholders.2 According to this idea, more active use of governing rights by institutional investors as shareholders contributes to the awareness of certain risks in advance, the healthier management of the company, and, in this context, the company's ability to produce value in the long term.
First stewardship code was first published in UK in 2010 with the rational that in shareholding structures where there is no dominant shareholder, also institutional investors being passive is not beneficial for the corporate governance of companies.3 SP, which has found application in various jurisdictions of the world after UK, embraced by taking into account the shareholding structures of the companies subject to said jurisdictions.4 Recently, ESG factors have also been taken into consideration within SP.
With these aspects, SP could be seen as complementary to corporate governance principles. This is because the SP directs institutional investors to actively exercise and monitor the rights stipulated in the corporate governance principles. In other words, it directs them not to be a passive shareholder, but to be an active shareholder where they actively exercise all their rights, and to monitor the controlling shareholder and/or the company management in this way, as the case may be. In this way, it leads to surveillance of the Funds over the company.
Capital Market Legislation
With the CMB's decision dated 16.02.2024 and numbered 11/255, SPs added to Guide on Investment Funds (Guide) as the 13th article. Compliance with the SPs is based on the “comply or explain” principle. Accordingly, the Funds must disclose their responsible management policy (Policy) by 31.12.2024 at the latest. Even if the Funds decide not to determine a Policy, they must explain the reason for this by this date.
SP consists of 5 main principles. These are "monitoring activities for investee companies", "interaction activities with investee companies", " cooperation activities with all relevant stakeholders", "use of voting rights of assets in managed portfolios" and "inclusion of environmental, social, and governance factors in the responsible management policy".
In this context, SP aims to increase the surveillance of institutional investors over the company by encouraging Funds to actively exercise their shareholder rights. On the other hand, not only the classical shareholder rights, such as actively participating in the general assembly and voting, but also activities such as monitoring the company strategy and transactions and evaluating the financial and sustainability performance of the company are encouraged. For example, implementation suggestions in the Guide include suggestions directly related to the management of the company, such as following the general assembly meetings, using the right to speak, adding items to the agenda, evaluating the effectiveness of the board of directors and committees, as well as preparing an annual report on the risks in the invested sector (not limited to the invested company), other investors. Some suggestions go beyond the use of classical shareholder rights, such as increasing interaction with stakeholders.
In addition, ESG-related issues have also been included in the SP. In this context, PMCs promote the long-term performance and sustainable value creation of investee companies and include in the Policy the strategy regarding key ESG factors, including climate change.
SP includes implementation suggestions as well as exemplary principles. The implementation of the Principles is to be determined by the PMCs according to the institutional capacity, the business strategy, the investment strategies of managed funds, and similar factors specific to portfolio management companies. At this point, the PMCs need to consider their institutional capacities and investment strategies when determining the Policy.
How the Policy is implemented will be disclosed to the public within 60 days following each accounting period, through annual reports standards of which will be determined by the CMB. The first report concerning the 2025 practices of the Fund will be announced to the public by 02.03.2026 at the latest.
Conclusion
After the 2008 financial crisis, SP was first adopted in the UK and later became widespread in the world and took its place in the regulations of other jurisdictions. SP is based on the idea that institutional investors, as shareholders, should be professional investors and monitor the companies with their knowledge and experience, contributing to the corporate governance of companies, thus making companies more sustainable. Based on this idea, the above-mentioned SP was adopted in our country and added to the Guide with the "comply or explain" principle.
- Hill , Jennifer G. , Good Activist / Bad Activist : The Rise of International Stewardship Codes ( September 1, 2017). SeattleUniversity law Review , 2017, Forthcoming , European Corporate Governance Institute (ECGI ) - law working Paper No. 368/2017, Sydney Law School Research Paper 17/80, Available at SSRN: https://ssrn.com/abstract=3036357
- Activist shareholding produces positive or negative results, especially for companies with dispersed shareholding structures . However, after the 2008 financial crisis, the idea that the activeness of institutional investors will have a positive effect has gained importance. See Hill , Jennifer G.
- Kang , Sang Yop oath Chun , Kyung-Hoon , Korea's Stewardship code oath the Rise of Shareholder Activism ( January 24, 2022). Global Shareholder Stewardship (Cambridge Univ . Press , 2022 Forthcoming ), Peking University School of Transnational Law Research Paper , Available at SSRN: https://ssrn.com/abstract=4016349
- Kang oath Chun
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