Yukarı

Corporate Governance Compliance Report

CORPORATE GOVERNANCE COMPLIANCE REPORT

1. Declaration for the Compliance with the Principles of Corporate Governance

Acting upon the belief that good corporate governance is fundamental to the sustainability of companies, at a time before corporate governance principles had been drawn up in Turkey, Koç Holding A.Ş. (“Koç Holding”) took the steps needed, voluntarily and proactively, to reach the highest standards of corporate governance. Koç Holding has always made (i) transparency, (ii) fairness, (iii) responsibility and (iv) accountability its four inviolable principles.

Koç Holding’s management structure, processes and policies have been established in compliance with the prevailing regulations, ensuring clarity and transparency in the areas of decision making and responsibility. Koç Holding is one of the first Turkish companies to appoint independent members to its Board of Directors (“BoD”). Koç Holding is also one of the few companies in Turkey to link the remuneration of its senior management to sustainable financial and operational performance. Koç Holding, in accordance with laws and regulations, provides the requisite information to all investors and analysts simultaneously in a timely, reliable, consistent and orderly manner. In order to ensure continuous and effective communication, Koç Holding organizes investor meetings, conferences and panels and targets to reach a wider audience through media interviews and press bulletins.

Koç Holding has adopted the “Corporate Governance Principles” that the Capital Markets Board (CMB) enacted in July 2003 and the Holding has implemented most of these universal principles. While it has put into practice the mandatory principles stated in the CMB “Communiqué Pertaining to the Determination and Implementation of Corporate Governance Principles,” Serial: IV, No. 56, which was in effect in 2013, it has failed to fully comply with some of its provisions. One of these concerns the residency requirement imposed on independent member of the Board of Directors by the Income Tax Law. This law requires at least half of these members reside in Turkey. However, three of the five independent members of the Board of Directors, out of a total of 15 board members, are not permanent residents of Turkey. Therefore, approval was obtained from the Capital Markets Board for Dr. Kwok King Victor Fung to become an independent member for a period of only one year.

Koç Holding has also widely implemented most of the non-mandatory principles. Koç Holding has not yet achieved full compliance due to: the challenges encountered in the implementation of some principles, ongoing discussions in Turkey and internationally regarding compliance with certain principles, and the failure of the current market and corporate structure to comply with such principles in a proper fashion. We are working on the principles not yet implemented and we plan to apply them once the administrative, legal and technical infrastructure for the effective governance of our company has been completed. The following sections detail, for each principle, the comprehensive efforts being made in our company within the framework of corporate governance principles, the principles with which compliance has not yet been achieved and, if any, conflicts of interest that stem from them.

Koç Holding undertook its most important activities in the area of Corporate Governance in 2013 to comply with new regulations related to corporate governance principles introduced by the Capital Markets Law of the CMB and with the new Turkish Commercial Code. The Ordinary General Assembly held in 2013 modified our Articles of Association as these new regulations required. In addition, the procedures for designating independent candidates and making public disclosures were completed and candidates were elected according to regulations. The committees established under the BoD continued to function effectively. The remuneration policy for BoD members and senior management was established and announced at the General Assembly. The information that must accompany the disclosure document to be submitted to the General Assembly includes such standard documents as those indicating preferred shares, voting rights and organizational changes, as well as the CVs of BoD membership applicants, the remuneration policy for Board Members and other information that is required to be disclosed, all of which were provided to our investors three weeks prior to the General Assembly. In addition, the Company’s website and annual report were reviewed and revisions required to comply with the principles were made.

We will continue our endeavors to ensure full compliance with the Principles in light of the developments in legislation and general practice.

SECTION I - SHAREHOLDERS

2. Shareholder Relations

The Investor Relations Department (IR) is responsible for liaising in the relations between Koç Holding and the shareholders in coordination with other relevant departments:

IR is responsible for providing information, excluding trade secrets, to existing and potential shareholders on the Company’s operations, its financial position and strategy and managing the bilateral communication between the shareholders and the Company management. The information is provided in an orderly manner that will not give way to inequality of information, by consulting the relevant departments and coordinating with the Group companies when required.

Within this scope, the responsibilities of IR are as follows:

  • To coordinate with the Corporate Communications Department vis-à-vis the management of the Company’s financial communication strategy,
  • To promote the Company vis-à-vis individual and institutional investors in Turkey and abroad,
  • To promote the Company to existing and potential shareholders and brokerage houses; to reply to analyst requests for information on Koç Holding,
  • To issue press releases following the announcement of financial results and arrange teleconferences, web-casts and press meetings when required,
  • To answer investor inquiries and requests,
  • To inform existing and potential investors proactively and regularly on micro and macro developments by participating in conferences, road shows and investor meetings,
  • To maintain an accurate and updated customer database,
  • To determine the communication strategy by analyzing Koç Holding’s share price performance, peer group comparison, perception studies etc.
  • To follow and analyze the developments that might have a potential impact on the Company’s capital market instruments and propose alternative strategies considering the interests of all stakeholders,
  • To facilitate bilateral communication between the shareholders and the executive management and the BoD,
  • To provide reporting to the relevant departments and Executive Management on the capital market developments and share price performance,
  • To update communication tools such as the website, annual report, investor presentations, investor bulletins, corporate films, etc. in order to provide shareholders accurate and complete information on Koç Group.

The Accounting Department ensures that investor records are kept in an orderly, secure and updated manner, based on the records of the Central Registry System. Legal Department ensures that General Assembly Meetings are held in compliance with the legislation, Company’s Articles of Association and other internal corporate principles. In coordination with the support of the Finance Group and Legal Department, IR prepares the documents to be used by the shareholders in General Assembly Meetings. These documents are published on the Company website three weeks before the meeting date. The Legal Department ensures that voting results are recorded in the General Assembly Meeting Minutes. IR ensures that the minutes containing the voting results are published on the website for the convenience of the shareholders. The Finance Group is responsible for financial reporting and disclosing material information to the public. The IR and Corporate Communications departments perform the other functions related to informing the public within the scope of the Company’s Disclosure Policy.

IR prepares an activity report, at least annually, to the Corporate Governance Committee, CEO and CFO. This report may also be submitted to the BoD. In addition, at the beginning of every year, an investment relations strategic plan is submitted to the CFO.

Investor Relations Contacts

CFO-Finance and Strategic Planning Group President: Ahmet F. Ashaboğlu
Tel: +90 216 531 0401
Fax: +90 216 531 0099
E-mail: ahmeta@koc.com.tr

Investor Relations Coordinator: Funda Güngör Akpınar
Tel: +90 216 531 0535
Fax: +90 216 531 0099
E-mail: fundag@koc.com.tr

Investor Relations Manager: Gizem Bodur
Tel: +90 216 531 0533
Fax: +90 216 531 0099
E-mail: gizemb@koc.com.tr

Investor Relations Manager: Neslihan Aycıl
Tel: +90 216 531 0516
Fax: +90 216 531 0099
E-mail: neslihana@koc.com.tr

In 2013, IR attended 23 roadshows and conferences in Turkey and abroad and held more than 600 meetings with existing and potential investors. To keep shareholders better informed of current trends and developments, the roadshow presentations were posted on the website. One-on-one interviews were held with analysts at around 30 meetings. In addition, the days when financial results were announced, which was four times for the quarterly results, IR held a webcast to discuss the financial results with the investment community. The voice records and transcripts of the webcasts, as well as the relevant investor presentations were published on the Company website for the convenience of those investors who were unable to participate in the broadcast on the date and hour indicated for further replay or downloading. The Company website, investor presentations and investor bulletins were updated regularly and at most on a quarterly basis, with the aim of informing the public and shareholders. Material disclosures were posted on the Company website in Turkish and English at the same time as their announcement on the Public Disclosure Platform. Koç Holding acted in complete prudence in carrying out these activities to ensure full compliance with the regulations. There were no complaints filed with our Company regarding the exercise of shareholders’ rights in the last year. To the best of our knowledge, there were also no administrative or legal proceedings regarding this subject. No written application or inquiry regarding this subject reached the department during this period.

3. Use of Shareholders Rights to Obtain and Evaluate Information

Koç Holding does not discriminate among shareholders vis-à-vis their right to obtain and evaluate information, and all information, except trade secrets, is shared with the shareholders. Enquiries directed to IR, with the exception of information considered confidential or a trade secret, are answered in writing or by phone by the person authorized to respond on that particular issue. As explained in section 9 of this report, all information and announcements that may have an impact on the exercise of shareholder rights are posted on the website.

Though our Articles of Association does not govern the right of individual shareholders to demand a special auditor, under the Turkish Commercial Code Article 438, one can be requested from the General Assembly in order for certain events to be clarified even if the issue is not on the agenda. This request can be made provided a special auditor is necessary for every shareholder to be able to exercise his/ her shareholder rights, and the right to receive and evaluate information concerning the events in question has previously been exercised. To date, no shareholder has submitted such a request. The Company’s activities are audited by an Independent Auditor and Legal Auditors elected at the General Assembly.

4. General Assembly Meetings

General Assembly Meetings are held in accordance with the procedure drawn up for the general rules for Koç Group companies, taking into account the Turkish Commercial Code (TCC), Capital Market Legislation and the Corporate Governance Principles, and are organized to provide adequate information to and wide participation by the shareholders.

One Ordinary General Assembly Meeting of Koç Holding was held in 2013. It was held on 10 April 2013 with 88.48% attendance. No agenda proposal for the meeting was made by the shareholders.

Our General Assembly Meetings are open to the public. Stakeholders and the media are able to follow the meetings. The General Assembly Meeting is held under the supervision of a government observer from the Ministry of Customs and Trade.

Invitations to the General Assembly Meetings are issued by the BoD in compliance with the TCC, Capital Markets Code and Company’s Articles of Association. The public is informed immediately of the BoD’s decision to hold the General Assembly Meeting through the Public Disclosure Platform and Electronic General Meeting System (e-GEM). General Assembly announcements are made in a way that complies with legal regulations as well as made on our website at www.koc.com.tr no later than 21 days prior to the General Assembly in order to reach the highest number of shareholders possible.

Prior to the General Assembly Meeting, the agenda items and related documents are announced to the public in compliance with all legal processes and regulations. The agenda items of the Assembly Meeting - annual report, financial statements, corporate governance alignment report, profit distribution proposal, independent external and internal auditors’ reports and, proposed amendments, if any, to the Articles of Association with copies of the old and new versions of the texts, Disclosure Policy, Dividend Distribution Policy, the CVs of all BoD member candidates, including those of independent candidates, are posted on the Company website and at Company headquarters three weeks prior to the meeting so as to facilitate easy access to the shareholders. In addition, a detailed explanation for each agenda item in the agenda announcements is made and, together with other information regarding the principles of general assemblies, is provided to investors.

At the General Assembly Meeting, the agenda items are expressed in an unbiased and detailed manner and presented in a clear and concise method to provide shareholders with an opportunity to express their opinions under equal conditions and raise any questions. During our Ordinary General Assembly Meetings, the questions raised by our shareholders, guests and media representatives are answered by the Chairman of the BoD and our Executive Management. No shareholders submitted a written question to the Investor Relations Department on the basis of not having received an answer at the General Assembly.

General Assembly meetings are held at Company Headquarters and via the Electronic General Meeting System to facilitate attendance at meetings. Under conditions stipulated in the Articles of Association, meetings may be held in another place in the city upon the request of shareholders. The location of the General Assembly meeting is selected to enable easy access to all shareholders. Proxy forms were placed on our website and announced to shareholders in a newspaper for shareholders wishing to be represented through proxy at the meeting.

Minutes of the General Assembly meetings are available from the Public Disclosure Platform, e-GEM and our Company website, www.koc.com.tr. In addition, these minutes are made available to all shareholders for examination at the Company headquarters.

At the General Assembly meeting held in 2013, information concerning donations made and aid granted during 2012 was provided under a separate agenda heading; and donation limit was set as 5% of net income period based on official records of Koç Holding A.Ş. and no change was made to the policy for donations or grants.

5. Voting Rights and Minority Rights

Restrictions on the use of voting rights at our Company are avoided; the right to all shareholders to vote equitably, easily and appropriate is provided.

Koç Holding shares have been divided into two groups as Group A and B. Each registered Group A share is entitled to 2 voting rights at the General Assembly Meeting. If amendments are required to the Articles of Association, A Group preferred shareholders meet and approve the decisions taken at the General Assembly Meeting. However, in decisions requiring a change in the Articles of Association, all shareholders are entitled to 1 vote. As stated in Company’s Articles of Association, shareholders of preferred stock do not have the privilege to nominate candidates to the BoD. A Group shares represent 26.77% of the paid-in capital and 42.23% of the total voting rights. B Group shares, each of which is entitled to 1 vote represent 73.23% of the paid-in capital and 57.77% of the total voting rights.

Within the Holding, no cross ownerships exist that are associated with a controlling relationship.

There are no restrictions or obligations in the Articles of Association concerning the representation of minority within the management or any provision that defines minority as having possessing shares less than 1/20 of the total shares of the company.

6. Dividend Right

Koç Holding’s Dividend Policy is determined at the General Assembly Meeting within the framework of the provisions of the Capital Market Legislation and our Articles of Association. There are no privileges in dividend distribution between A and B type shareholders.

Pursuant to paragraph (c) of Article 19 of our Articles of Association, no more than 2% of the amount remaining from the pre-tax earnings after the allocation of the first series of legal reserve fund, financial obligations, and first level dividend to shareholders withheld as per the Capital Markets Legislation, is allocated to Koç Holding Pension and Assistance Foundation. Additionally, as per paragraph (d) of the same article without prejudice to the first level dividend established under the Capital Markets Legislation, 3% of the amount remaining after the deduction of first series of legal reserve fund, financial obligations and 5% of the paid-in capital from the pre-tax earnings, is allocated to holders of usufruct certificates. However, the amount that will be paid to holders of dividend-right certificates cannot exceed 1/10 of the amount remaining from the net profit after the deduction the first series of legal reserve fund and first level dividend to shareholders established under the Capital Markets Legislation.

The dividend distribution policy and the dividend distribution proposal, as disclosed to shareholders at the General Assembly, are in the report. In addition, the policy and proposal are posted on the Company website, along with a brief history of dividend distribution and detailed information about capital accumulation. In 2013, gross dividends of 18.7% were distributed to shareholders.

Dividend Distribution Policy

In determining the distribution of profit, our Group’s long-term strategy, capital requirements, investment and financing policies, profitability and cash position of our Company, our affiliates and our subsidiaries are taken into consideration. In principle, 20% of the “distributable profit for the period,” calculated within the framework of the Capital Markets Legislation and other relevant legislation, based on the net profit for the period as shown on the financial statements prepared as per the Capital Markets Legislation and subjected to independent audit, is distributed in the form of cash or stock.

Within the scope of the Capital Markets Board (CMB) Communique numbered as II-19.1 on the Dividend Payments, the amendment to Dividend Policy of the Company above will be submitted to the approval of the Shareholders General Assembly that will be held on 2 April 2014. (see page 22)

7. Transfer of Shares

Article 9 of our Company’s Articles of Association sets out the principles regarding transfer of shares and there are no provisions in the Articles of Association that complicate the transfer of B-type shares traded on the stock exchange. A-type shares that are not listed in the stock exchange, can be transferred outside of the stock exchange only with the approval of the BoD. BoD has the right to refuse approval by advising the transferor to transfer his/her shares to his/her own account, or other shareholders’ or third parties’ accounts at the real value of the shares at the time of request for approval.

SECTION II - PUBLIC DISCLOSURE and TRANSPARENCY

8. Disclosure Policy

Koç Holding Disclosure Policy encompasses what information, apart from that specified in regulations, shall be publicly disclosed; what method shall be followed to answer questions asked to the Company; what the general policies are concerning special situation announcements; and how news about the Company is to be handled when it appears in the media. The BoD is responsible for preparing, overseeing and updating the Disclosure Policy. The Disclosure Policy, which is approved by the BoD, is presented to the shareholders at the General Assembly Meeting and shared with the public on our website.

As explained in the Board of Directors’ report, our Company’s annual report, along with any information, predictions and data based on predictions, are disclosed together to the public. In addition, this information is provided in investor presentations. In the event that previously announced predictions and the grounds for them do not materialize or it is understood that they will not materialize, revised information is provided.

9. Company Website and Contents

Koç Holding’s website (www.koc.com.tr) provides current and historical information in Turkish and English. There is an Investor Relations section to provide more comprehensive information to current and potential shareholders and brokerage houses. Complete information required by the CMB Corporate Governance Principles is available on our Company website. Principles governing our website are contained in our Disclosure Policy. In addition, our e-mail address is printed on company letterhead.

10. Annual Report

The Koç Holding annual report is prepared in detail and according to CMB Corporate Governance Principles to ensure that complete and accurate information about the Company’s operations reaches the public.

SECTION III - STAKEHOLDERS

11. Disclosure to Stakeholders

As a holding company, our Company does not have any direct contact with customers, vendors, etc., but it does have relations with a wide range of stakeholders, due to its subsidiaries and affiliates. Stakeholders are informed of issues that may concern them by means of invitations to regular meetings or via intranet and electronic communication tools. Public disclosures are made by press conferences and through statements and bulletins in the media, and press releases are posted simultaneously on the Company’s official website and on the corporate social media accounts while information sharing with employees is realized through various announcements and meetings and organizations on a regular basis.

By holding our General Assembly Meetings open to all stakeholders, providing detailed information on our website, publishing comprehensive annual reports, issuing press releases and implementing other practices that promote transparency as per our Disclosure Policy, we aim to inform not only our shareholders but also all stakeholders.

Important announcements, management changes and press bulletins are posted on the intranet for the convenience of Group employees. Furthermore a periodic internal magazine (“Bizden Haberler”), which is also followed by the public, is issued by the Corporate Communications department to increase communication with the employees.

Koç Holding’s Chairman of the Board, CEO and Executive Management participate in the “Anatolian Meetings,” which are held with the dealers of our Group companies located in different parts of Turkey with the aim of exchanging views and generating ideas. In these meetings, dealers are provided with updates on the developments in the Group and their ideas can be got first hand. “Anatolian Meetings” have been held for over ten years now.

In addition, our companies also hold regular meetings with their dealership network to ensure a close relationship.

Through the contact form on the company’s official website, www.koc.com.tr, or the hotline on company intranet sites, shareholders can report practices that violate regulations and ethically inappropriate transactions to the Audit Group Chairman to be communicated to the Audit Committee.

12. Support of Stakeholders’ Participation in Company Management

Group companies hold comprehensive meetings and exchange ideas during the year with dealers and providers and evaluate and work on the suggestions that come up during these meetings.

The results of periodically conducted dealer and customer satisfaction surveys are of significant importance to Koç Holding. Improvement of dealer and customer satisfaction are made part of Group companies’ management performance targets.

Throughout the year, Group companies hold meetings whereby they obtain the views of company employees regarding company practices and strategies. Additionally, employees’ opinions and comments regarding company practices are obtained and their loyalty and satisfaction levels are measured via the Employee Loyalty surveys carried out in all Group companies every year. Survey results are taken into consideration in Company’s operations and improvement goals are added to the performance score cards of the General Managers.

13. Company Human Resources Policy

“Our Most Important Asset is our People,” the statement of our Founder, Vehbi Koç, best summarizes the basic approach of Koç Group to human resources. Accordingly, Koç Group aims to become Turkey’s most admired and preferred corporation, one that creates high added value, employs professionals, each of whom are the best in their fields, and in which its employees are proud to be a part.

To achieve this goal, within the framework of the Human Resources Policy of our Company, we are committed to:

  • Attracting the most competitive young and experienced professionals who can carry our Group into the future,
  • Rewarding achievement through competitive compensation policies and high performance standards,
  • Making investments for continual development,
  • Improving loyalty of employees to the Company by creating equal opportunities in promotions and rewards,
  • Creating a working environment that is always peaceful,
  • Implementing fair, objective and transparent human resources systems.

Koç Group values its employees and respects their rights. The employment contract signed with them at the time of recruitment covers the mutual responsibilities of the Company and the employees. The Personnel Code describes in a detailed and clear manner the working standards and covers all human resources processes from recruitment to resignation.

Koç Holding’s Human Resources Department determines the strategies and basic policies and principles pertaining to these procedures and conducts relations with all employees of the Group companies. The Department has three functional units: Human Resources Coordination, which is responsible for System Development, Performance and Wage Management Coordination; Human Resources Management, which is responsible for Organizational Development, Training and Recruitment Coordination; and Industrial Relations.

Positions in the Human Resources Department:

Human Resources Director: Mert Bayram

System Development and Human Resources Coordinator (Performance, Salary Management and Recruitment): Özgür Burak Akkol

Human Resources Manager (Organizational Development, Training and Corporate Couching Processes): Burcu Berker Kanber

Industrial Relations Manager: İlber Aydemir

The Human Resources Department ensures that candidates who meet the competency criteria as described in the Human Resources policies are evaluated and recruited without discrimination and benefit from equal opportunities throughout their employment.

During recruitment, prospective employees are provided with detailed job descriptions and information about the Human Resources Department’s procedures. The Department’s operations are conducted in an integrated fashion with the participation of employees once they have been hired. In this context, employees’ performance is evaluated, competencies are measured and the improvement and career planning is performed. Work to be done is systematically assessed and the amount that needs to be done is determined. An international system is used for job evaluation; it ensures the relative grading of all jobs on the basis of responsibility levels and the contributions each makes to enabling the Company to reach its targets in every field of operation. The grades assigned according to job volume allow objective assessments to be made regarding career and wage management of employees. Sector-based market analyses of compensation are regularly conducted in order to ensure that employees receive competitive salaries. Vested benefits are added to the wage policy in line with the job grades of the employees. Moreover, the bonus system with predetermined criteria ensures that the Company achieves superior performance.

All employees are able to access through the electronic platform Koç@insan the Human Resources Systems that have been prepared for the purpose of implementing these policies. This platform offers an open communication environment where the information of all our employees is managed, and allows sharing of all policies, practices and announcements of the Human Resources Department in a fair and transparent manner.

The Performance Management System is available electronically across the Group through Koç@insan. This practice assures the effective and transparent dissemination of the Company’s objectives to employees, the measurement of employees’ performance in achieving these objectives, the rewarding of employees’ achievements, and the creation of their individual career development plans based on their competencies. Flawless communication with our employees at every stage of this process, mutual feedback and consensus form the foundation of this system.

Performance Management Systems allows the Human Resources department to determine performance appraisal criteria with feedback from employees on a yearly basis, to determine the extent to which the goals set have been reached at the end of the period, to identify factors positively or negatively affecting goal attainment and to establish what needs to be done to improve negative performance and to provide feedback to employees.

The results of the Performance Management System are used in determining the salaries of employees each year and as input in career planning. Salary increase principles and the annual salary increase rates for the Company are shared with employees. In addition, an Excellence in Performance and Special Commission Award is bestowed annually to reward employees for their performance. At the end of each year, Company management evaluates the performance of employees and how it has contributed to the Company, and determines the employees who deserve awards.

As part of Company’s emphasis of creating equal opportunities for its employees, employees with high development potential are ascertained based on their performance. Their competencies for positions at different levels are assessed and their career development is monitored closely. In addition, employees’ potential for senior management roles are evaluated in a fair manner using the Assessment Center tools; and candidates with potential to fulfill senior management positions in the future are selected based on objective criteria. The results of the assessment are shared with all Group companies during the annual Human Resources planning meetings, where information on all potential employees is exchanged. Back-up plans are reviewed as well.

A special Talent Management Program is conducted to identify talented leaders who we believe will play an important role in the future success of our Holding, and to ensure their development. Employees participating in this program are also included in our Corporate Coaching Program.

The Koç Academy plays an important part in the Development Planning process as it enables employees to assess their own talents, plan their most suitable development program given those talents, and monitor their own progress. By selecting the most appropriate career development activities for employees, the Human Resources Department creates an individual development plan for each employee. In addition, with the training programs, electronic trainings, articles and similar resources, the Koç Academy is becoming a much more powerful resource every day, providing further support for the professional development of our employees.

Toward the end of developing a common culture, over the past 11 years, 5,673 of our managers have attended the Group’s Leadership Development Program, which aims to improve the competency of managers who can carry our Group into the future.

Koç Group employees have priority when filling vacant positions that are available at the Group companies. KoçKariyerim is a portal that is used to announce all vacant jobs within the Group and provides our employees with the opportunity to actively participate in shaping their career path. In addition to KoçKariyerim, Group companies collaborate with the Turkish Employment Agency to raise employment.

In line with the regulations, in workplaces with unionized workers included in collective bargaining agreements, there are designated union representatives that manage employee relations. The Koç Holding Human Resources Department works in cooperation with the Human Resources and Industrial Relations departments, and Union Representatives to ensure the sustainability of a peaceful business environment.

Our Holding aims to achieve full occupational health and safety in the work place and on the job. To this end, employees are kept informed of the regulations and directives in place at the Holding and Company levels; they act in accordingly and take measures necessary to comply with them. In addition to the emphasis we place on the health and safety of our employees, the Occupational Health and Safety Committee set up in line with our principle of complying with relevant legislation continually manages the occupational health and safety issues of the Koç Group. The goals of the Committee are reviewing relevant practices across the Group, implementing necessary development and improvement programs, ensuring the good practices developed in the Group are adopted by other Group companies and determining high occupational safety standards. To reach these goals, board meetings, seminars and trainings related to Occupational Health and Safety are being organized more frequently across Koç Group of Companies.

Employee loyalty and satisfaction is assessed via surveys conducted by specialized companies on an annual basis and factors that influence employee loyalty are determined. Based on the results of these surveys, targets are set for Group companies regarding employee loyalty and actions taken for improvement in this area are monitored closely.

Our main goal with this process is to provide our employees, our most valuable asset, with an effective work environment that will make them more loyal and happy employees. Examples of initiatives started for this purpose include the KoçAilem program, the Koç Holding Pension and Assistance Foundation and the Koç Group Sports Club, which have been created to benefit employees both during and after working life.

14. Ethical Principles and Social Responsibility

The principles Koç Holding follows in exercising social responsibility as well as corporate governance and ethics were taken one step further by the signing of the UN Global Compact Treaty.

Koç Holding aims at being a symbol of trust, continuity and respect for Turkey and its customers, shareholders, dealers and subsidiaries by working with its employees to achieve sound growth and to provide goods and services at universal quality and standards as it strives to achieve customer satisfaction. Our values guide us on the path of attaining these goals and are shared via our website with the public. In order guarantee their being effectively disseminated to all of our employees and being passed down to future generations, “Principles of Ethical Behavior and Praxis” were drawn up in writing and announced on 11 October 2010 to all Koç Holding employees. In addition, the Principles of Ethical Behavior and Praxis of Koç Holding are shared with public via the official Internet site of the Company.

Koç Holding’s “Principles of Ethical Behavior and Praxis” are obligatory for all Group companies; they regulate relations between employees, customers, the state, shareholders, competitors, subcontractors, distributors, authorized dealers and services. All new employees are informed about these principles and praxis, which are an appendix to the personnel regulations; in addition, our employees can access this resource over the intranet portal. The Ethical Behavior Principles are not disclosed to the public on the Internet website. The application of the Ethical Behavior Principles and the monitoring of compliance with them are executed by separate Ethical Behavior Committees in each Koç Holding company. In the event of updating or, if necessary amending, the Holding’s “Principles of Ethical Behavior,” proposals such changes are submitted to the Koç Holding BoD for approval.

Koç Holding and the Group companies put social responsibility, which was introduced by Vehbi Koç, one of the pioneers of institutionalization in Turkey, into practice through social projects and in the way they do business. Vehbi Koç Foundation, which is Turkey’s first private foundation, is continuing to mark its leadership in the fields of education, healthcare and culture, setting lasting examples in the institutionalization of these services. The institutions of the Foundations each of which is set up as a center of excellence, aim to contribute to the development of Turkish society via the services it delivers. Koç Holding and Koç Group companies support the activities of the Foundation through many social responsibility projects they undertake. Koç Group’s objective to further improve as a socially responsible corporation was confirmed with the participation in the Global Compact, an official and international framework.

Koç Holding’s and the Group companies’ approach to social responsibility is based on the principle espoused by our founder Vehbi Koç: “I live and prosper with my country.” Within this context, Koç Group seeks to create value for the society, in which it has grown and developed, through projects that will contribute to the development of the society. Every year, thousands of scholarships are extended to successful students with limited financial means and numerous projects are initiated in the fields of culture, art, environment and healthcare. In addition to projects in Turkey, Koç Group actively contributes to the promotion of Turkey in the international arena by sponsoring various exhibitions. The Vehbi Koç Foundation is now the sponsor of the Gallery for Ottoman Art in the Metropolitan Museum of Art, one of the world’s most prominent museums. The two galleries within the Islamic Art section have been renovated and opened in 2010, bearing the name of the Koç Family. Koç Holding has become sponsor to the Istanbul Biennial for 10 years between 2007 and 2016, an important step to support contemporary art in Turkey. In 2009, where the Vehbi Koç Foundation celebrated its 40th year, Koç Family was honored with one of the most esteemed international awards of its kind, the Andrew Carnegie Medal of Philanthropy, and in 2011, with the BNP Paribas Philanthropy Award and the Commander of the Order of the British Empire (CBE), for philanthropic contributions.

Koç Group, which has been a pioneer in Turkey, has acted through the Vehbi Koç Foundation to establish the first privately-owned museum and the first private student dormitory in Turkey, making it a leader in the area of corporate citizenship. Koç Holding and Koç Group companies contribute to society with their projects in a common understanding and shared principles.

Since 2006, Koç Holding activities in education have focused on vocational education, which it believes can create the highest added value.

The “Vocational Education: A Crucial Matter for the Nation” project initiated by Vehbi Koç Foundation in partnership with the Ministry of Education in 2006, completed its 7th year in 2013. The project carried out during this period with voluntary support of 20 Koç Group companies and 579 Koç Group Employees undersigned numerous successful projects. With the project, 8,118 students from 264 schools in 81 cities were granted financial aid and 80% of the financial aid beneficiaries who applied for internships at Koç Group companies, were hired as interns. The project served as a model for other initiatives aimed at improving the quality of vocational training. One good case of this is the “Vocational Training Development Cooperation Model,” which has received awards from numerous institutions both local and international. Over time, this model has become an integral part of the vocational training initiatives and human resources policies of Koç Group companies and with the micro projects that were developed as part of this initiative, eight of the Koç Group companies set up 29 laboratories and seven training centers in five different sectors as well as one vocational high school and one vocational college. In addition, the experienced gained with the “Vocational Education: A Crucial Matter for the Nation” project was shared with NGOs such as the Education Reform Initiative (ERG) and the Society of Private Sector Volunteers (OSGD) in an effort to expand the impact of the project.

“For my Country” is a Koç Holding social responsibility project that was initiated in 2006 to encourage the spread of individual entrepreneurship as part of the notion of responsible citizenship. It is a corporate undertaken with extensions throughout Turkey. The Project strives to create a participatory attitude that encourages Koç Holding companies, employees, dealers and suppliers to get involved in solving social problems. The project focuses on a separate social need every two years. Between 2012 and 2015, it participated with the Alternative Life Association and the United Nations Development Program (UNDP) in a campaign entitled “For my Country: Barrier-Free Life.” The objective of this campaign was to provide a role model for practices that support the improvement of the disabled in work and social life in order to make a permanent change in their lives, and to create social awareness and sensitivity of the disabled. In this “For my Country” project, since May 2012, awareness has been raised in 34 Koç Group companies, in employees, and in 24 provinces through our distributors serving as For our Country Ambassadors, to reach 78,373 persons. The “Right Approach to Disability” program trained 357 volunteer trainers and held 1,534 public training sessions. In addition, 64 mini-projects were undertaken to make our companies, distributorships and stores disability-friendly. Through this effort, action began in Koç Group companies to comply with legal requirements for employing disabled citizens and to develop products and services for the disabled. Moreover, our companies continued to provide support to the project and realized a total of 39 social responsibility projects through cooperation with other Group companies and with NGOs and governmental agencies.

Koç Group is dedicated to support important projects that can be left as a legacy to society. One such project is the International Istanbul Biennial is one of those projects of which Koç Holding has assumed sponsorship for the ten-year period 2007-2016. Organized by Istanbul Foundation for Culture and Arts and acknowledged as the most prominent art event in Europe along with Venice Biennial, the 13th Istanbul Biennial was held 14 September -20 October 2013 under the title of “Mom, Am I a Barbarian?.” The goal of this project was to create awareness of contemporary art in our country and to increase general interest in contemporary art. To further this goal, Koç Holding provided the funds to make admission to the Biennial free. Through this support, the Biennial had a record-breaking 337,429 visitors at five exhibition venues, which included Antrepo Nr 3, Galata Private Greek Primary School, ARTER, SALT Beyoğlu and 5533 in Block 5 of IMC.

Koç Holding and its affiliates started Koç Fest in 2006 to bring entertainment and music to universities and creating a unique and traditional festival for college students. Over the past seven years, it has organized a total of 72 festivals in 28 cities. Firmly believing in the importance of sports as a factor enhancing quality of life, in 2009, Koç Holding became the main sponsor of the “Turkish University Sports Games” organized by the Turkish University Sports Federation. With this sponsorship, the event was renamed as the “Turkish Koç Fest University Sports Games.” It has since become the most prestigious and most broadly attended college sports event in Turkey and an indispensable aspect of the festival. Through this initiative, Koç Fest has become the largest youth festival in Turkey, bringing together sports, music and entertainment under one umbrella. Since 2009, Koç Fest has hosted over 20,000 athletes from 185 colleges in 46 branches every year. Some of the athletes and teams successful at these games held as part of the festival regularly represent Turkey at international events with support from Koç Holding. In 2013, Koç Fest visited six universities and the grand final was held at Adana Çukurova University with around 5,000 college students in attendance.

Koç Holding and Koç Group companies view the activities and investments relating to corporate citizenship as an integral part of doing business. Approaches to and studies on corporate citizenship are a way of doing business internalized by Koç Group and represent one of the basic foundations of the natural workflow. Koç Group has assumed an important social mission, not just in terms of the large number of people it employs, the economic value it creates and the taxes it pays, but also through its philosophy of corporate social responsibility integrated with sustainable management. Working life, environmentally practices and social development are the three main performance areas of Koç Holding Sustainable Management. Performance in every area is monitored and directed by professional organizations, in light of corporate commitments, policies and targets, using systems and processes created on the basis of international norms. Koç Holding Sustainable Performance Assessment and Reporting System is used in the evaluation of performance. Through the system, which became operational in 2010, the periodic performances of the Holding and affiliated companies are assessed on the basis of hundreds of key performance criteria created for specific areas of operation. The results obtained are periodically reported, in compliance with GRI Standard B-level reporting requirements and the parameters of the UN Global Company, to shareholders for their consideration. Koç Group Corporate Social Responsibility Report, initially a biannual publication when it began to be prepared in 2006, is now published annually and posted on the website of Koç Holding to be shared with public.

SECTION IV - BOARD OF DIRECTORS

15. Structure and Formation of the Board of Directors

The structure of the Koç Holding BoD complies with CMB Corporate Governance Principles; its members are not involved in management or otherwise engaged in running the day-to-day operations of the Company. The CEO, Osman Turgay Durak, the chief executive, is not a member of BoD.

None of our BoD Members, holds an active management position. They were elected during at our 10 April 2013 General Assembly, at which activities for 2013 were discussed. Information about the BoD Members is summarized in the table below; their CVs can be found on our website and in our annual report.

Name Surname

Position

Current Positions Held

Outside the Partnership

 

Independent

BoD

Member?

Committees and

Position

Rahmi M. Koç

Honorary

Chairman

BoD Member in companies within and outside the Group

Not independent

Member

Executive Committee

Chairman

Mustafa V. Koç

Chairman

BoD Member in companies

within and outside the Group

Not independent

Member

Executive Committee

Member

Temel Kamil Atay

Vice-

Chairman

BoD Member in companies

within the Group

Not independent

Member

Executive Committee

Member; Risk Management

Committee Member

Ömer M. Koç

Vice-

Chairman

BoD Member in companies

within the Group

Not independent

Member

Executive Committee

Member

Semahat S. Arsel

Member

BoD Member in companies

within the Group

Not independent

Member

Executive Committee

Member

Dr. Bülent Bulgurlu

Member

BoD Member in companies

within the Group

Not independent

Member

Corporate Management

Committee Member;

Nomination and

Remuneration Committee

Member

İnan Kıraç

Member

BoD Member in companies

within and outside the Group

Not independent

Member

Ali Y. Koç

Member

BoD Member in companies

within the Group

Not independent

Member

Executive Committee

Member

John H. McArthur

Member

BoD Member in companies outside the Group, University Faculty Member

Not independent

Member

 

Heinrich V. Pierer

Member

BoD Member in companies

outside the Group

Not independent

Member

Sanford I. Weill

Member

BoD Member in companies

outside the Group

Independent

Member

Peter Denis Sutherland

Member

BoD Member in companies

outside the Group

Independent

Member

Audit Committee
Chairman

Dr. Kwok King Victor Fung

Member

BoD Member in companies

outside the Group

Independent

Member

Muharrem Hilmi Kayhan

Member

Söktaş Tekstil ve Ticaret A.Ş.

Chairman of BoD

Independent

Member

Audit Committee Member;

Risk Management

Committee Chairman;

Nomination and

Remuneration Committee

Chairman

Kutsan Çelebican

Member

Consultant, Independent BoD Member at Arçelik A.Ş. and Tüpraş A.Ş.

Independent

Member

 

Audit Committee Member;

Corporate Governance

Committee Chairman

The duties of the BoD Chairman and CEO are performed by two different persons. Attention should be paid to the allotment of time BoD members need for corporate business; there should be no restrictions on assuming other positions or duties outside the Company. This is particularly the case for independent members, whose business and sectoral experience makes such a vital contribution to the BoD. Prior to the General Assembly, the CVs of the BoD Independent Members are provided to shareholders so that they can see what positions they hold outside the Company.

All the independent member candidates’ candidacy declarations and CVs were submitted to the Corporate Governance Committee for review prior to the General Assembly held on 10 April 2013 and decisions were made to select Independent Board Members.

There were points in the independence declarations of the Independent Board Member candidates that did not fully meet all of the criteria specified in the CMB Corporate Governance Principles. Upon receiving a favorable judgment from the CMB, an election was held at the General Assembly. Due to failure to comply with the relevant provision of the Income Tax Law that requires at least half of the Independent Members of the Board of Directors to reside in Turkey as per the Corporate Governance regulations of CBM, an approval has been obtained from the Capital Markets Board during the meeting held on 06 March 2013 that allowed Dr. Kwok King Victor Fung to become an independent member for a period of one year only. All of the BoD independent Members submitted their independence declarations to the Corporate Governance Committee and no condition eliminating independence appeared during the 2013 activity period.

16. BoD Operating Principles

Matters which have been made subject to the decision of the BoD in the Company’s Articles of Association are determined through notification of Executive Management and BoD members by the concerned departments, who, in turn determine the agenda for Board Meetings. In the event that any one of the members of the BoD notifies Company Executive Management about a decision that must be taken about a certain matter, the agenda of the meeting is drawn up accordingly. Matters that are to be discussed at the Company’s BoD meeting are collected at the General Secretariat, which consolidates and places them on the agenda.

Koç Holding A.Ş. General Secretariat has been assigned the duties of determining the agenda for the Koç Holding A.Ş. BoD Meetings, preparing Board decisions within the scope of the provisions of TCC 390/IV, making disclosures to the BoD and ensuring the flow of communication.

The BoD meets as many times as business dictates. At the meetings held in 2013, the Board made 32 decisions, four of which were strategic. At least two Independent Members attended all of the meetings. For decisions involving related party transactions, a majority of Independent Members were present.

Every member has one vote at BoD meetings; differences of opinion and grounds for opposing votes and specific questions raised by Members of the BoD at Board Meetings are recorded in the Resolution Book. Since no opposition or difference of opinion has been declared recently, no public announcement has been made in this regard.

The Articles of Association of the Company stipulate that BoD decisions be made according to general provisions concerning meetings and decisions; however, a majority quorum is required for any decision regarding participation in a new company or the disposal of shares of an existing subsidiary. In these kinds of decisions, the following quorums must be met: 7 on 9-Member Boards, 8 on 10-Member Boards, 9 on 11, 12 and 13-Member Boards, 10 on 14-Member Boards, and 11 on 15-Member Boards.

No related party transaction or important transaction which, in the absence of Independent Members’ approval, required General Assembly approval in 2013.

Board Members and Senior Executives of our Company are covered by an “Executive Responsibility Insurance” policy that provides coverage up to EUR 50 million.

17. Number, Structure and Independence of BoD Committees

Our Company has established committees to enable the BoD to perform its functions and meet its responsibilities fully. The activities of these committees are conducted under specified procedures. The decisions they reach are submitted to the BoD, where an ultimate decision is made. Members who serve on more than one committee facilitate communication and increase the opportunities for cooperation between committees handling related subjects.

BoD declares that the committees had provided the expected contributions.

Audit Committee

Established by a BoD decision on 4 April 2003, the Audit Committee fulfills the functions stipulated in the Capital Market Regulations for Audit Committee.

The Company BoD decided on 15 July 2013 that the Audit Committee shall consist of three Independent Members, with Peter Denis Sutherland as Chairman, and Muharrem Kayhan and Kutsan Çelebican as members.

In 2013, the Committee, the operating principles of which are posted on our Company’s website, submitted to the BoD a written report of its views on the choice of independent auditor, its assessments of annual and interim financial statements in terms of their truth, accuracy, and compliance with the accounting principles adopted by the Company as well as the decisions made during Committee meetings held in February and November.

Corporate Governance Committee

The Corporate Governance Committee was established by the BoD on 29 March 2007 to monitor the Company’s compliance with the Corporate Governance Principles. The Committee examines the reasons for cases of no implementation of some of the principles and it makes recommendations to the BoD for the improvement of practices. The BoD resolved on 15 July 2013 that the Corporate Governance Committee shall consist of two members and decided to appoint the Independent Member Emine Kutsan Çelebican as its Chairperson and Bülent Bulgurlu as the member. The Company has posted the Committee’s operating principles on our website. The Committee evaluates Corporate Government Practices and the Corporate Governance Compliance Report.

Nomination and Remuneration Committee

The BoD decided on 17 July 2012 to create a Nomination and Remuneration Committee to be responsible for nominating people for BoD membership and determining senior managers’ remuneration according to CMB Corporate Governance Principles. The BoD also decided on 15 July 2013 that the Committee shall consist of two members, with Independent Member Muharrem Hilmi Kayhan as chairman and Dr. Bülent Bulgurlu as member. The Company has posted the Committee’s operating principles on our website. The Committee convenes at least twice a year.

Risk Management Committee

The BoD decided on 17 July 2012 to create a Risk Management Committee to comply with Article 378 of Turkish Commercial Code No. 6102, which went into effect in July 2012, and to facilitate the effective operation of committees set up under the BoD through the early detection of risks to the Company’s assets, development or existence, to implement the measures necessary to deal with identified risks, and to manage risk. The BoD also decided on 15 July 2013 that the Committee shall consist of two members with Independent Member Muharrem Hilmi Kayhan as Chairman and Temel Kamil Atay as member. The Company has posted the Committee’s operating principles on our website. The Committee convenes at least six times a year.

Executive Committee

The BoD created its Executive Committee on 15 May 2012 to provide effective coordination between the BoD and other administrative units of the Company and thereby enhance the efficacy of the BoD, and to steer investments toward more appropriate strategic goals and to improve business development. At the BoD meeting held on 15 July 2013, BoD’s Non-Executive Members - Mustafa Rahmi Koç, Mustafa Vehbi Koç, Semahat Sevim Arsel, Mehmet Ömer Koç, Yıldırım Ali Koç and Temel Kamil Atay and A. Ümit Taftalı - were elected as members.

The Company has posted the Committee’s operating principles on our website. The Committee convenes regularly at least once a month. The BoD is not always able to meet when it wants to or as often as it would like, so one of the functions of the Executive Committee is to monitor developments in the Company’s sectors of operation and to keep the BoD informed of them. Another of its functions is providing coordination between the administrative structure of the Company and the BoD. It also makes recommendations for developing appropriate Company strategies and increasing the effectiveness of its operations.

18. Risk Management and Audit Mechanism

Risk Management and Reporting at Koç Holding is conducted under the Finance Department in coordination with other departments. Risks are investigated through periodically prepared reports and meetings and they are evaluated in detail. The main risks to which Koç Holding is exposed are monitored under four main headings: financial (foreign exchange, liquidity and capital, credit, counterparty and interest risks), strategic, operational and legal; information on these risks is supplied periodically to the Risk Management Committee and the BoD. Detailed information about risk management is contained in the relevant section of the annual report.

19. Company Strategic Goals

Koç Holding BoD manages and represents the Company through its strategic decisions, taking into consideration particularly long-term interests in light of keeping the Company’s risk-growth-profits balance at the most appropriate level through a rational and cautious risk management approach. Our BoD determines Koç Holding’s strategic goals, identifies the human and financial resources needed to achieve them, and oversees the performance of management.

The BoD, through the strategic meetings it holds four times a year, compares the Holding’s quarterly financial performance, monitors strategic developments and develops recommendations. Besides evaluating financial and operational indicators, in its end-of-year performance evaluation, the BoD assesses the extent to which the company’s strategies have been implemented, thereby forming a basis for determining performance and rewards.

20. Financial Rights

The “Remuneration Policy for BoD Members and Senior Managers,” which contains the remuneration principles and the criteria used in determining every right, benefit and remuneration given to BoD Members and Senior Managers, was posted on our website for inspection by our partners through the “Disclosure Document,” published three weeks before the Ordinary General Assembly held on 10 April 2013, and began to be implemented after the General Assembly. The total payments made within the framework of the “Remuneration Policy for BoD Members and Senior Managers” are assessed every year by the Nomination and Remuneration Committee and the BoD. The payments made to BoD members and senior managers are indicated in financial table’s footnotes and explained to the public along with general practices. Koç Holding does not get involved in transactions that might lead to conflicts of interest such as extending loans to members of the BoD or executives, or providing collateral on their behalf.