Barış ERKAYA / EXCHANGE ANALYSIS
The purpose of the capital markets is actually clear. Capital markets, as they are called: Markets where companies seek capital at much cheaper costs by putting their shares as collateral as an alternative to the credit market and finding new partners. A funding method in which it seeks capital by putting at least a portion of its shares up for sale and making a promise to new partners, as an alternative to the high interest cost of putting up capital as a loan.
What does the main shareholder, the boss of the company whose shares are sold, say?
“Come join my company. Get a share in the company with the money you put in. Let’s grow the company with the capital you put in. As the company grows, so does the value of the company. Evaluate the price of your shares. And let’s give you a share (dividend) from the profit we will get in the future. Then, if you believe that the shares have increased to your satisfaction, you can sell them on Borsa Istanbul. I can also buy back in the future with share buyback programs. The dividends you receive each year also become your extra income. Or you don’t sell, you buy even more shares. Your dividend share and your total savings will also increase. You leave it to your children. In the meantime, a very important step will be taken in my company’s journey of institutionalization and expansion.”
Apple and Steve Jobs example
If the scenario goes as promised in the first prospectus when it is offered to the public, everything can be very smooth. The company is growing, and if everything goes well, the investor can earn more than if he put his money in interest, foreign currency or another investment vehicle.
However, even with this discourse, sometimes the road can be full of disappointments. What if the boss doesn’t keep his promises? After all, we are talking about a promise, not an obligation. What if the boss doesn’t run the company well and the company doesn’t grow as planned in proportion to the capital it raises? What if he makes a profit but refuses to distribute that profit?
Especially in the world’s largest companies that are listed on western stock exchanges, many individual investors may have a say in the weaknesses or mistakes of the management in return for the shares they buy. For example, let’s say a startup finds an angel investor today and then goes on other series investment rounds, issuing and selling A, B, C, and other stocks. For example, when the end of this business comes to the D or E round, assuming that the first entrepreneur did not participate in any of these rounds, it can reach a situation where he is alone with a 10 percent share. When these companies finally apply to be listed on the stock exchanges, it can be seen that the share of the first entrepreneur is reduced to a minimum. He even said to the first entrepreneur, “Thank you for establishing this company and bringing it to this day. But we want to entrust it to a professional who we think will manage the company better. Because of your shares, your seat remains here. But you are no longer the only decision maker.” He can also show the door. We all know that Steve Jobs experienced this in Apple, which he founded. So what was the result? After 4-5 years, Jobs returned to Apple as CEO as a savior, and today he is the name that provided the rise of legends such as iPhone, iPad, Macintosh until his death. The intervening years are considered to be lost and even the years when a legend like Apple almost came close to throwing in the towel.
In other words, this issue seems to be debatable for a long time, since the accountability of the bosses may be a requirement of institutionalism and transparency in a publicly traded company. Because it is inevitable that the focus of shareholders and bosses will be different. The fact that the boss’s focus is to accumulate capital and grow may not match the expectations of the small investor.
What is the situation in Turkey?
So what is the situation in Turkey? How are the privileged shares in the companies traded in Borsa Istanbul? Theoretically, are they likely to experience what Jobs did? So, can the minority shareholders of the company “theoretically” take over the company and control all the decisions? Or which companies have this risk?
The reason for the expression “theoretically” is that it is very, very difficult for some of the companies traded in Borsa Istanbul to be acquired by minority shareholders even through organization, even if they do not hold preferred shares due to their very high capital structure and market value. But in some other companies, this is not impossible at all.
We also examined the articles of association of 428 companies traded on Borsa Istanbul one by one and determined which of these companies had privileged shares in the hands of the bosses and which did not have any privileged shares.
Companies where bosses ensure management
Accordingly, 58 percent of 428 publicly traded companies hold more or less privileged shares in the hands of the main shareholders. On the other hand, 42 percent have none of the privileges. Some of these shares have the privilege of electing members to the board of directors, some of them have the privilege to vote more than the other shares in the general assembly, to veto critical decisions for some, and to do all of these in some. For example, in some companies, even if you acquire all the publicly traded shares of the company and attend the general assembly, there is no right to nominate even a member of the board of directors as per the articles of association. In some companies, there is no possibility of accepting the contrary proposals, because of the voting power up to 100 times the voting power of each share held by the minority shareholders thanks to the preferred shares.
We have summarized the concession status of 40 companies with the highest trading volume traded on Borsa Istanbul in our table. Of course, preferred shares can have privileges other than those listed here. However, we focused on determining the distribution of privileged shares in the board of directors and voting power in general assemblies. The table of all 251 companies in which the bosses have preferred shares and 177 companies in which there are no preferred shares is the world. You can reach our related news on com.
Why don’t some companies have concessions?
So, if there is this risk, why don’t the bosses guarantee their management by changing their articles of association and creating preferred shares in all companies?
The critical point here is that domestic or foreign individual investors are not the only investor type to go when capital is needed. Companies sometimes sell minority shares to foreign institutional investors for strategic reasons. In this, sometimes it makes more sense to enter a market with that strategic partner, sometimes the presence of foreign institutional investors among the shareholders is important for international credibility, sometimes the necessity of giving shares in the main companies that consolidate the company for foreign partnerships in other companies, and dozens of reasons, each of which may vary according to the situation. possible. In addition, for example, a pension fund investor in the USA investing in company shares that he will hold for maybe 30-40 years can be counted as another reason. In such a case, most of the foreign institutional investors may want to warn the management through their representatives, which they will send to the general assembly of the company whose shares they hold, when necessary. This is possible only if the shares representing the capital are not privileged. It is noteworthy that many of the companies that do not already own preferred shares are companies that frequently enter and exit their foreign portfolios.
How bosses secure management
● In some companies, it has the right to nominate the majority of the board of directors (one more than half of the total number of members) with privileged shares (mostly, it has to be chosen by the nominated general assembly).
● Although there are no privileges in the election of the board of directors in some other companies, for example, in the general assembly, preferred shareholders’ candidates are inevitably elected in the election of the board of directors, as the privileged shares have 3, 5, 10 or even 100 times the voting right of the minority shares.
● The most assured bosses, on the other hand, have the privilege of electing almost all of the board of directors, while at the same time they can have voting privileges that no one can object to in the general assembly.
● By creating more than one privileged share, companies with foreign partners may sometimes grant some of these privileged shares the right to elect a board of directors and the other to have extra voting rights at the general assembly.
● Although some of the bosses have the privilege to take only 2 of 5 seats in the board of directors, they can veto these 2 seats in critical decisions.
● Similarly, some bosses, who do not have any privilege in electing members of the board of directors, can control the critical decisions of the company by giving their shares 5-10 times the voting right or veto right at the general assembly.