Corporate Governance Compliance Report

SECTION I - 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 main 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. Though our Company fully complies with the compulsory principles within the scope of the Corporate Governance Communiqué n.II-17.1 that was in force in 2014; due to the fact that 3 of the 5 independent members (who held position until the 22nd of September 2014) of our Board of Directors composed of 15 members, were not resident in Turkey, we were unable to comply in the mentioned period with the principle stipulating that; “within the framework of the Income Tax Law, at least half of the independent members of the Board of Directors must be resident in Turkey”. Benefiting from the exception in the Corporate Governance Communiqué regarding this issue, an approval was received from the Capital Markets Board, regarding Peter Denis Sutherland’s independent membership for a restricted period of 1 year. On the 20th of October 2014, Mustafa Kemal Olgaç was appointed to the vacant membership position of Sanford I. Weill who left his position as an independent membership in the Board of Directors. Thus, from then onwards more than half of our independent members met the principle of being resident in Turkey and therefore, compliance with all compulsory principles within the scope of the Corporate Governance Communiqué has been achieved.

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 manner. 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 non-compulsory Corporate Governance Principles that we have not yet achieved full compliance with are explained below while detailed information regarding this issue is included in the related sections of the report. Our Company was not exposed to any conflict of interest due to non-compliance with such principles.

  • Regarding the principle n. 1.5.2; In the Articles of Association, minority rights are not granted to those who are in possession of less than one twentieth of the capital, and in parallel to the general practices in the country, rights were granted to the minority within the general legislative framework.
  • Regarding the principle n. 4.3.9; No target ratio and timing has been determined for female members in the Board of Directors. Our evaluations regarding this issue continue.
  • Regarding the principle n. 4.4.7; Since business and sectorial experiences of the members of the Board of Directors have significant contribution to the Board of Directors, there are no limitations for the members of our Board of Directors to assume duties outside the Company.
  • Regarding the principle n. 4.5.5; Know-how and experience of the members of our Board of Directors is taken into consideration when appointing members to the committees in line with the relevant regulations. Some of the members of our Board of Directors can assume duties in more than one committee. However, members who assume duties in more than one committee enable communication among the committees that carry out activities in connected subjects and increase the opportunity of collaboration.
  • Regarding the principle n.4.6.5; remuneration of the members of the Board of Directors and managers who have administrative responsibilities is disclosed on a non-individual basis – in parallel to the general practices – at the footnotes of our financial statements and at the general assembly meetings.

The primary efforts in the area of Corporate Governance in 2014 were to ensure compliance with; the Capital Markets Law that includes the new regulations regarding CMB’s Corporate Governance Principles; the Corporate Governance Communiqué (prepared based on Capital Markets Law) that entered into force at the beginning of 2014; and the renewed Corporate Governance Principles.

In our Ordinary General Assembly meeting held in 2014; our Board of Directors and the Committees of the Board of Directors were established in compliance with the regulations stipulated in the Corporate Governance Communiqué, and our Company’s “Profit Distribution Policy” as well as the “Remuneration Policy for the Members of the Board of Directors and Senior Executive Managers” was approved. Before the General Assembly, 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 disclosure note that contains the compulsory information such as information on preferred shares, voting rights and organizational changes, as well as the CVs of BoD membership applicants, the remuneration policy for Board Members, and Senior Executive Managers was 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 II - SHAREHOLDERS

2.1. Investor Relations Department

In the Board of Directors meeting held on the 26th of June 2014, the Board of Directors decided that the duties stipulated in the 11th Article of the Corporate Governance Communiqué will be carried out – under the management of the CFO, Ahmet F. Ashaboğlu – by the Investor Relations Coordinator, Ms. Funda Güngör Akpınar, and the Finance Coordinator Responsible for Ensuring Compliance with Capital Markets Regulations, Ms. Nevin İmamoğlu İpek.

In this framework, the Investor Relations Department (IR) is responsible for liaising in the relations between Koç Holding and its 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 cause any inequality of information, by consulting the relevant departments and coordinating with the Group companies when required. Some of the activities that are stipulated in the Corporate Governance Communiqué are carried out by the Department of Legal Consultancy (ensuring that the General Assembly meetings are held in compliance with the regulations in force, the Articles of Association and other internal regulations of the company) and Finance Department (fulfilling all obligations of public disclosure - required by the regulations – such as; preparation of documents that shareholders will use at the General Assembly meetings, public disclosure of financial reports and material events).

IR prepares an activity report, at least annually, to the Corporate Governance Committee and CEO to be submitted to the BoD. The report regarding the activities in 2014 was submitted to the Corporate Governance Committee in order to be presented to the Board of Directors on 5 March 2015. In addition, at the beginning of every year, an investment relations strategic plan is prepared.

Investor Relations Contacts

CFO-Finance and Strategic Planning Group President: Ahmet F. Ashaboğlu

Investor Relations Coordinator: Funda Güngör Akpınar

Finance Coordinator Responsible for Ensuring Compliance with Capital Markets Regulations: Nevin İmamoğlu İpek

Investor Relations Manager: Gizem Bodur

Investor Relations Manager: Neslihan Aycıl

Finance Manager: Ayça Sandıkcıoğlu

Nevin İmamoğlu İpek and Ayça Sandıkcıoğlu have Capital Market Activities Advanced Level License and Corporate Governance Rating Specialist License. Gizem Bodur has Capital Market Activities Advanced Level License. Funda Güngör Akpınar has already fulfilled the prerequisites (exam and training) for the Capital Market Activities Advanced Level License and the Corporate Governance Rating Specialists License and is currently waiting to receive her licenses. Gizem Bodur has already fulfilled the prerequisites (exam and training) for the Corporate Governance Rating Specialists License and is waiting to receive her license.

In 2014, IR attended 14 roadshows and conferences in Turkey and abroad and held more than 600 meetings with existing and potential investors. To keep shareholders better informed of the current trends and developments, the roadshow presentations were posted on the website. One-on-one interviews were held with analysts at more than 20 meetings. In addition, 4 times per annum when quarterly financial results were announced, IR held a webcast to discuss the financial results with the investment community where the question of the investment community was answered by senior management. 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 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. Numerous information requests were sent to the Investor Relations Department mainly via e-mail from the analysts and investors regarding the company financials and developments in business areas and all questions were answered in parallel to the publicly available data/information.

2.2. Exercise of Shareholder 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 3.1 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, any shareholder can request from the General Assembly clarification of an issue via a special audit, even if the issue is not on the agenda. This request can be made provided it is necessary for the exercise of 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 periodically by an Independent Auditor elected at the General Assembly.

2.3. 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 in a manner to enable wide participation by the shareholders and to provide adequate information to the shareholders.

One Ordinary General Assembly Meeting of Koç Holding was held in 2014. It was held on 2 April 2014 with 89.92% 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 Law 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 compliance report, profit distribution proposal, independent 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 made available 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. All questions asked by our shareholders at the General Assembly meeting held on the 2nd of April 2014 were answered during the meeting. 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 at 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.

Information about aid and donations made within the related year is provided with a separate agenda item at the Ordinary General Assembly meetings. The upper limit of the donations was determined as TL 16 million for 2014 at the Ordinary General Assembly meeting held in 2014.

In 2014, there was no issue left to the decision of the general assembly for which affirmative votes of the majority of the independent members of the Board of Directors were required in order to take a decision at the Board of Directors according to CMB regulations, and such affirmative votes could not be received.

In 2014, our Company’s majority shareholders (who control the management of the Company), Board of Directors’ members, managers who have administrative responsibilities, and their spouses and blood relatives and relatives by marriage up to second-degree did not make any important transaction with Koç Holding or its associate companies which may lead to conflicts of interest and/or did not make any material transaction, related to a commercial business that is within the scope of Koç Holding’s or its associate companies’ field of activity, for their own account or for the account of others or did not become unlimited partners in other companies carrying out similar commercial businesses, except the purchase of the shares of Tek-Art Kalamış ve Fenerbahçe Marmara Turizm Tesisleri A.Ş., which was announced to the public on the 8th of May 2014.

2.4. Voting Rights and Minority Rights

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

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. However, for decisions concerning the amendment to the Articles of Association or filing a lawsuit of acquaintance and responsibility, all shares have 1 (one) right to vote. As stated in Company’s Articles of Association, shareholders of preferred stock do not have the privilege to nominate candidates to the BoD.

If amendments are required to the Articles of Association, A Group preferred shareholders meet and approve the decisions taken at the General Assembly Meeting. 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.

2.5. Dividend Right

Koç Holding’s Dividend Policy is determined at the General Assembly Meeting in 2 April 2014 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.

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 2014, gross profit of 16.03% was distributed to the shareholders.

Dividend Distribution Policy

Our Company makes profit distribution within the framework of; the provisions of the Turkish Code of Commerce, Capital Markets Regulations, Tax Regulations and other relevant regulations as well as the article regarding profit distribution in our Articles of Association. In profit distribution, a balanced and consistent policy is pursued between the interests of the shareholders and the interests of the Company in compliance with the Corporate Governance Principles.

In principle, as long as the relevant regulations and financial means are convenient, at least 5% of the distributable period profit – calculated within the framework of the Capital Markets Regulations by taking into consideration the market expectations, our long-term group strategy, and capital requirements, investment and financing policies, profitability and cash status of our Company, our subsidiaries and associated companies – is distributed to the shareholders in cash.

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.

Unless reserve funds that must be set aside according to the Turkish Code of Commerce and the dividend determined for the shareholders above are not reserved, no decision can be taken; to set aside other reserve funds, or to transfer the profit to the following year, to distribute dividend to the holders of jouissance shares and Koç Holding Pension and Aid Fund Foundation; and unless dividend determined for the shareholders is not paid in cash, no dividend payment can be made to these persons.

The aim is to make profit distribution within one month at the latest following the General Assembly meeting. Profit distribution date is decided by the General Assembly. General Assembly or the Board of Directors (if authorized) may decide to make dividend payment with instalments in compliance with the Capital Markets Regulations.

According to the Company’s Articles of Association; As long as it gets authorized by the General Assembly and complies with the Capital Markets Regulations, the Board of Directors may distribute “advance dividend”.

2.6. 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 III - PUBLIC DISCLOSURE AND TRANSPARENCY

3.1. 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.

3.2. Annual Report

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 IV - STAKEHOLDERS

4.1. 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, stakeholders can report practices that violate regulations and ethically inappropriate transactions to the Audit Group Chairman to be communicated to the Audit Committee.

4.2. Support of Stakeholder 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.

4.3. 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,
  • To create equal opportunity with all Human Resources applications,
  • To increase employees’ engagement to the Company with career opportunities and awarding processes,
  • Improving engagement 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. Employees’ rights are structured within the scope of the regulations in force, labor contacts, personnel guidelines and code of ethics.

Koç Holding’s Human Resources Directorate determines the strategies and basic policies and principles pertaining to these procedures and conducts relations with all employees of the Group companies. The Directorate has three functional units: The first department is in charge of Compensation, Performance and Koç Holding HR processes; the second department is in charge of Organizational Development, Training and Recruitment processes, the third department is the Industrial Relations Department.

Positions in the Human Resources Directorate:

Human Resources Director: Özgür Burak Akkol

Human Resources Coordinator (Compensation, Performance, Koç Holding HR Process): Fatih Ay

Human Resources Coordinator (Organizational Development, Training and Recruitment): Damla Tamakan

Industrial Relations Coordinator: 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 Directorate’s procedures. The Directorate’s operations are conducted in an integrated fashion with the participation of employees once they have been hired. Employees are given information about job descriptions and task distribution as well as performance and awarding criteria. 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.

Detailed information about Human Resources policies and applications are available in page 28 of the Annual Report.

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 Directorate 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 deployment 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.

As part of Company’s emphasis of creating equal opportunities for its employees, employees with high development potential are determined 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 the 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 all potential employees are reviewed. Succession plans are discussed as well.

A special Talent Management Program is conducted to identify talented leaders who we believe may play an important role in the future success of our entire Group, and to ensure their development. Our employees in this program have a variety of development opportunities such as; learning from the expert, participating in projects, getting corporate coaching, getting to know different functions and positions, sharing their expertise.

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

In order to fully implement the provisions of the collective bargaining agreement and labor legislation for our employees and to expand good applications, Industrial Relations Coordination Committee meetings are held on a quarterly basis during the year within the scope of the agenda determined in line with the requirements of our companies. Also with the aim of ensuring correct implementation of labor legislation and Group HR policies and procedures, detailed technical trainings about different disciplines of work and seminars and trainings about new regulations are regularly developed.

The Group aims to achieve complete 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 Group 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 Coordination Committee set up in line with our principle of complying with relevant legislation continually manages the occupational health and safety issues of the Group. The goals of the Coordination 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 the Group. Work accident reports are consolidated and tracked as they get centrally piled up twice a year.

Employee engagement and satisfaction is assessed via surveys conducted by specialized companies on an annual basis and factors that influence employee engagement are determined. In addition, employees’ opinions regarding the issues like “human resources applications” and “management’s style” are received with these surveys. Accordingly, Group companies are given targets that will improve employee engagement while enhancement activities are closely monitored and employees are encouraged to participate in the management.

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, which its’ details are explained page 30 of Annual Report, 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.

4.4. Ethical Principles and Social Responsibility

Koç Holding and Group companies continue their approach in the field of corporate social responsibility by embracing our founder Vehbi Koç’s motto “I live and prosper with my country” as a fundamental principle. In this light, since the date it was founded, Koç Group has always yearned to channel the strength and know how it has gotten from the society in which it developed into projects that would in turn create shared value for the very same society. Koç Group confirmed that it has adopted corporate social responsibility as a way of doing business in 2006 by signing the UN Global Compact which constitutes an official and international framework for corporate social responsibility.

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. Our sustainability management, consisting primarily of environmental practices, social development and work life, is reported and reviewed by our internal auditor in guidance with our corporate goals and promises and internationally accredited processes using the Koç Group Sustainability Performance Assessment and Reporting System. 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.

In accordance with the GRI Standard reporting requirements and as per the UN Global Compact parameters; the received results are periodically reported in order to be reviewed by Koç Group shareholders. The Koç Group Corporate Social Responsibility Report, initially issued every year and now annually, may be accessed by the public through our website Information on Koç Groups performance regarding human rights, worker rights, environmental policy, ethical values and development can be found at www.koc.com.tr in our report. In order to carry these efforts further, the “Koç Group Sustainability Management Project” was launched in 2014 aiming to help Koç Group companies develop sustainable business models within the framework of an integrated strategy. The project aims to rethink our priorities in our sustainability approach. Within the framework of the assessments, the plan is to conduct the targeting and performance measurement processes with a subject based, integrated approach for the entire Group.

Ethical Rules

Koç Holding aims to be 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 whilst achieving customer satisfaction. Our values guide us on the path of attaining these goals and are shared via our website with the public. In order to ensure these values are spread to our employees and passed down to future generations the “Principles of Ethical Behavior and Praxis” were drawn up in writing and announced on 11 October 2010 to all Koç Holding employees.

Koç Holding’s “Principles of Ethical Behavior and Praxis” regulate relations between employees, customers, the state, shareholders, competitors, subcontractors, distributors, authorized dealers and services and hold for all Group companies. 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. Koç Group’s Code of Ethics and Business Conduct can be accessed on Koç Holding 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 changes are submitted to the Koç Holding BoD for approval by the Ethical Behavior Committees.

Social Investments

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 conduct business.

In the “Corporate Social Responsibilities” section of our Annual Report, detailed information is available about the Social Responsibility projects carried out in 2014 by Koç Holding A. Ş. and Vehbi Koç Foundation (“Foundation ”) – Turkey’s first private foundation.

SECTION V - BOARD OF DIRECTORS

5.1. Structure and Formation of the Board of Directors

The structure of the Koç Holding BoD complies with CMB Corporate Governance Principles; the CEO, Osman Turgay Durak, the chief executive, is not a member of BoD.

In the table below, brief information is given about our current Members of the Board of Directors who all are non-executive members in accordance with the definition made in the CMB Corporate Governance Principles. Members of our Board of Directors, except Mr. Mustafa Kemal Olgaç, were elected at the General Assembly meeting on the 2nd of April 2014 for a term of office until the General Assembly meeting to be held for the discussion of the activities of 2014. Mr. Sanford I. Weill who was elected as a member of the board of directors at the same General Assembly meeting, resigned on the 22nd of September 2014. For his vacant position, Mr. Mustafa Kemal Olgaç was appointed, upon CMB’s consent, as an Independent Member of the Board of Directors, to be subject to the approval of the first General Assembly on the 20th of October 2014, and to complete the term of position of the resigning board member until the first General Assembly.

Information About Current Board of Directors

Name Surname

Position

Current Positions Held

Outside the COMPANY

Independent

BoD Member?

Committees and

Position

Rahmi M. Koç

Honorary

Chairman

BoD Member in companies within

and outside the Group, Member and

Chief of Committee in

companies within the Group

Not independent

Member

Executive Committee

Member

Mustafa V. Koç

Chairman

BoD Member in companies within

and outside the Group Member and

Chief of Committee in

companies within the Group

Not independent

Member

Executive Committee

Chairman

Temel K. Atay

Vice-

Chairman

BoD Member in companies Member and

Chief of Committee in

companies within the Group

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 Member and

Chief of Committee in

companies within the Group

Not independent

Member

Executive Committee

Member

Semahat S. Arsel

Member

BoD Member in companies

within the Group Member and

Chief of Committee in

companies within the Group

Not independent

Member

Executive Committee

Member

Dr. Bülent Bulgurlu

Member

BoD Member in companies

within the Group Member and

Chief of Committee in

companies within the Group

Not independent

Member

Corporate Governance 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 Member and

Chief of Committee 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

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. Member and

Chief of Committee in

companies within the Group

Independent

Member

Audit Committee Member;

Corporate Governance

Committee Chairman

Mustafa Kemal Olgaç

Member

BoD member in companies outside the Group

Independent

Member

The CVs of BoD Members and CEO can be found on our website and in our annual report. (See page 124-126)

The duties of the BoD Chairman and CEO are performed by two different persons. Attention is paid to the allotment of enough time BoD members need for corporate business; there are no restrictions for BoD members on assuming other positions or duties outside the Company. Such a restriction is not deemed necessary as the business and sectorial experience of BoD members makes a vital contribution to the BoD. Prior to the General Assembly, the CVs of the BoD Independent Members and the positions they held outside the Company are provided to shareholders.

All of the five the independent member candidates’ candidacy declarations and CVs submitted prior to the General Assembly held on 2 April 2014 were reviewed by the Corporate Governance Committee on its meeting at 29th of January, 2014 and by the Board of Directors on its meeting at 31st of January 2014, and decisions were made to appoint 5 Independent Board Members.

The criteria specified in the CMB Corporate Governance Principles that the Independent Board Member candidates did not fully meet were specified in the independence declarations of the candidates. 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 Corporate Governance regulations of CMB, that requires at least half of the Independent Members of the Board of Directors to reside in Turkey as per the Income Tax Law, an approval has been obtained from CMB at 24 February 2014 that allowed Peter Denis Sutherland to become an independent member for a period of one year only.

Upon the resignation of Mr. Sanford I. Weill on the 22nd of September 2014, Corporate Governance Committee evaluated Mr. Mustafa Kemal Olgaç’s statement for candidacy and his résumé at the meeting held on the 30th of September 2014, and presented a proposal to the Board of Directors for him to be nominated as an Independent Member of the Board of Directors. As a result of the evaluation made by the Board of Directors, the proposal was accepted and a request was made to the CMB for consent. Subsequent to the consent of the CMB, Mr. Mustafa Kemal Olgaç was appointed as an Independent Member of the Board of directors on the 20th of October 2014. With this appointment, the provision in CMB’s Corporate Governance regulations – stipulating that at least half of the independent members of the Board of Directors must be resident in Turkey according to Income Tax Law – was met.

All of the BoD independent Members submitted their independence declarations to the Corporate Governance Committee and no condition eliminating independence appeared during the 2014 activity period.

We believe that creating diversity in terms of knowhow, experience and point of view within our Board of Directors, will have positive impacts on the Company activities and on the effective working of the Board of Directors. In this regard, our evaluations continue to determine a target ratio and timing for female members of the Board of Directors who contribute to representation of different opinions in the Board of Directors.

5.2. BoD Operating Principles

The agenda for Board meetings is determined through notification of Executive Management and BoD members by the related departments about the issues which the Company’s Articles of Association exclusively requires discussion and decision at BoD level. 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.

General Secretariat has been assigned the duties of determining the agenda for the Koç Holding 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 2014, the Board made 36 decisions, four of which were during meetings at which strategic issues were discussed. At least two Independent Members attended all of the meetings. For decisions involving participation in a company or sale of existing shares, 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.

Board Members and Senior Executives of our Company are covered by a “Directors and Officers Liability Insurance” policy.

While monitoring the Company activities, the Board of Directors evaluates whether there is a possibility of developing a conflict of interest or not and, if so, estimates the results of this conflict of interest for the Company and takes necessary decisions to ensure that most appropriate action for Company interests is taken. Furthermore, in related party transactions, the Board of Directors evaluates the possible risks of misconduct besides compliance with legal regulations and determined regulations. Related party transactions are evaluated with scrutiny in the Board of Directors.

5.3. 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 03 April 2014 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 2014, 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.

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 03 April 2014 that the Corporate Governance Committee shall consist of two members and decided to appoint the Independent Member Kutsan Çelebican as its Chairperson and Bülent Bulgurlu as the member. Considering the amendment made to the Corporate Governance Communiqué; CFO Ahmet F. Ashaboğlu was appointed to the Corporate Governance Committee with the Board of Directors decision taken on the 26th of June 2014.

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 BoD’s and senior managers’ remuneration according to CMB Corporate Governance Principles. The BoD also decided on 03 April 2014 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 03 April 2014 that the Committee shall consist of two members with Independent Member Muharrem Hilmi Kayhan as Chairman and Temel K. 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 03 April 2014, Rahmi M. Koç, Mustafa V. Koç, Semahat S. Arsel, Ömer M. Koç, Ali Y. Koç and Temel K. Atay and A. Ümit Taftalı - were elected as Committee 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.

5.4. 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.

5.5. 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 with the budget, monitors strategic developments and develops new strategies and makes investment decisions taking into account the management’s 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/penalties.

5.6. 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 shareholders through the “Disclosure Note,” published three weeks before the Ordinary General Assembly held on 02 April 2014, and was implemented after the General Assembly. The policy that was publicly announced on our Company website and in the Annual Report, is added to the agenda of the Ordinary General Assembly Meeting that will be held on the 31st of March 2015 to discuss the activities of 2014 so that our shareholders will be given the opportunity to present their opinions on the Policy. 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 remuneration of the members of the Board of Directors and managers who have administrative responsibilities is disclosed on a non-individual basis - in parallel to the general practices - at the footnotes of our financial statements and at the general assembly meetings. 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.