In the wake of the February 6, 2023 earthquake that severely affected southern and central provinces of Turkey and the northwest of Syria, Glass Lewis is temporarily adjusting the application of its Policy Guidelines for Turkish companies to be more flexible towards charitable donations.
This change for the 2023 proxy season follows the announcement of the Capital Markets Board of Turkey’s decision no. 8/174 on February 9, 2023. The decision allows companies to exceed charitable donation limits set at their annual general meetings, or otherwise set limits, at board discretion, for the purpose of donating to earthquake relief efforts. Companies will however be required to disclose any earthquake relief donations in excess of regular limits and to submit board decisions regarding these donations for shareholder approval at the next general meeting.
Corporate Donations in Turkey
Most Turkish companies provide donations to various activities such as sports, science, education, culture and/or religion in line with their charitable donations policy. Political donations, while possible but uncommon, are limited through Article 66 of the Law on Political Parties and legal precedent.
In order to make charitable donations, Turkish companies are obliged to maintain a donations policy in their articles of association, with shareholder approval required to amend this policy. Furthermore, Turkish companies are required to publicly disclose the amount and recipients of donations made within the past year and must seek shareholder approval to determine a limit for the current year. While Glass Lewis generally believes that charitable giving may have a wide variety of long- and short-term economic and risk mitigation benefits for companies, we also believe that shareholders can reasonably expect to be provided with some information on the type or intended recipients of intended donations, or at the very least to be provided with the donation limit – either as a fixed amount or percentage of earnings – in advance of the general meeting.
Glass Lewis Approach
Since many companies do not disclose their proposed charitable donations limit until the date of the annual general meeting, it is common for Glass Lewis to advise shareholders voting by proxy to vote against the proposal. In 2022, we recommended that shareholders vote against approximately 73% of the proposals on charitable donations limits due to insufficient forward-looking disclosure. All such proposals received sufficient shareholder support in the past year, with against votes ranging from 0% to 36%, with a mean of 5% dissent.
Given that the total cost of the natural disaster is still unaccounted for, we are mindful that companies may be currently unable to predict the appropriate limits for charitable donations to be made in the 2023 financial year. Glass Lewis will therefore afford some leniency on this matter during the upcoming proxy season and will generally recommend that shareholders approve Turkish companies’ charitable donation limits, even in the absence of explicit disclosure of the proposed limit in advance of the general meeting.
As we are mindful of the potentially unfettered discretion this may yield to companies on this matter, we will carefully review each company’s obligatory disclosure of the previous year’s donations prior to their 2024 annual general meetings. If clear evidence exists that this authority has been abused to the detriment of shareholders, we may recommend that shareholders hold the chair of the audit committee accountable.
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