Directors' Duty of Care in Corporate Governance: Legal, Technological, and Sustainability Perspectives

Av. Baran Can KAYA

TABLE OF CONTENTS

ACKNOWLEDGEMENTS 5

GENİŞ ÖZET .7

TABLE OF CONTENTS 13

ABBREVIATIONS  19

ENTRANCE. 21

AIM AND SCOPE OF THE THESIS  22

PROBLEMS AND KEY RESEARCH QUESTIONS. 22

RESEARCH METHODS. 23

STRUCTURE OF THE THESIS 23

LITERATURE REVIEW  26

CONTRIBUTION AND ORIGINALITY OF THESIS . 27

FIRST CHAPTER

DUTY OF CARE OF DIRECTORS IN JOINT STOCK COMPANIES

GENERAL OVERVIEW OF THE DUTY OF CARE OF DIRECTORS IN JOINT

STOCK COMPANIES . 29

1.1. Place of the Duty of Care in the Law of Obligations and the TCC 29

1.2. Legal Nature of the Duty of Care. 34

1.2.1. Legal Nature of the Duty of Care Within the Scope of the

Employment Agreement  34

1.2.2. Legal Nature of the Duty of Care in Joint Stock Companies. 35

1.3. Fundamental Functions of the Duty of Care in the Management of

Joint Stock Companies. 37

1.3.1. Providing Transparency and Legal Security 37

1.3.2. Identifying the Duties of Directors . 38

1.3.3. Contributing to Corporate Governance . 38

1.3.4. Role of the Duty of Care in Legal Liability of Directors. 39

EVALUATION OF THE DUTY OF CARE AS TO PERSON AND TIME 40

2.1. General Overview 40

2.2. Evaluation of the Duty of Care as to Person 40

14 Table of Contents

2.2.1. Members of the BoD  40

2.2.2. Characteristics of the Duty of Care for Legal Person Members

of BoD . 41

2.2.3. Characteristics of the Duty of Care of Directors of Controlled

Company. 43

2.2.3.1. Characteristics in Fully Controlled Companies . 43

2.2.3.2. Characteristics in Partially-Controlled Companies . 45

2.2.4. Characteristics of the Duty of Care of Independent Members of

BoD . 47

2.2.5. Characteristics of the Duty of Care of the Chairman and Vice

Chairman of the BoD  48

2.2.6. Characteristics of the Duty of Care in Joint Stock Companies

with Sole Shareholder. 48

2.3. Third Persons in Charge of Management  49

2.3.1. General Overview . 49

2.3.2. Examination of Third Persons in Charge of Management  50

2.3.2.1. Third Parties to Whom Management or

Representation Authority Has Been Transferred . 50

2.3.2.2. Commercial Representatives and Commercial Agents.51

2.3.2.3. De Facto Bodies of Companies . 52

2.3.2.4. Trustees  53

2.3.2.5. Liquidators  53

2.4. Evaluation of the Duty of Care as to Time . 54

2.4.1. General Overview . 54

2.4.2. Beginning Period of the Duty of Care . 54

2.4.3. Ending Period of the Duty of Care  55

2.5. Joint Stock Company as the Incumbent of the Duty of Care . 56

SUBJECT OF THE DUTY OF CARE AND CRITERIA REGARDING THE DUTY OF

CARE .57

3.1. General Overview  57

3.2. Acceptance of the Duty of Care . 58

3.3. Duty of Care in the Process of Decision-Making 59

3.4. Duty of Care in Determining the Company’s Management

Organization. 62

3.5. Other Areas 63

3.6. Criteria Regarding the Duty of Care . 64

3.6.1. General Overview . 64

3.6.2. Subjective Criterion  64

Table of Contents 15

3.6.3. Objective Criterion . 65

3.6.4. Objective Criterion in Accordance With Applicable Law 65

LEGAL CONSEQUENCES OF THE DUTY OF CARE OF THE MEMBERS OF BoD . 67

4.1. Legal Liability . 67

4.2. Due Cause for Dismissal of the Members of BoD and the Directors. 70

4.3. Due Cause for Terminating Joint Stock Companies. 70

BUSINESS JUDGMENT RULE AND THE DUTY OF CARE . 71

5.1. General Overview 71

5.2. Application of the Business Judgment Rule in Turkish Law. 72

5.3. Evaluation Regarding the Application of the Business Judgment Rule

in Turkish Law 75

SECOND CHAPTER

THE IMPACT OF DIGITALISATION OF COMPANIES

TO THE DUTY OF CARE OF DIRECTORS

EFFECT OF AI (ARTIFICIAL INTELLIGENCE) TO THE DUTY OF CARE OF

DIRECTORS 77

1.1. Definition of AI  77

1.2. Regulations Regarding AI. 78

1.3. Incorporating AI into Companies. 80

1.3.1. Use of AI to Support Human Decision Making . 82

1.3.1.1. Assisted AI  83

1.3.1.2. Augmented AI  84

1.3.2. Hybrid Model (Amplified AI)  85

1.3.3. Use of AI to Replace Human Beings in Company Boardrooms  86

1.3.3.1. Autonomous AI  86

1.3.3.2. Autopoietic AI. 87

1.3.4. Evaluation of AI Models in Company Boardrooms. 88

1.3.5. Evaluation of AI Models in Company Boardrooms According to

TCC . 88

1.4. Evaluation of AI Systems in Terms of Principles of Corporate

Governance . 90

1.5. Effect of AI-based Technology to the Duty of Care and Liability of

Directors  95

1.5.1. General Overview. 95

1.5.2. Evaluation of Effect of AI-based Technology Regarding the

Duty of Care . 96

16 Table of Contents

1.5.2.1. Missed Opportunities . 97

1.5.2.2. Falling Traps 98

1.5.2.3. Effect of Not Using AI-based Technologies in

Companies to the Duty of Care of the Directors 98

1.5.2.3.1. Evaluation of the Use of AI Systems in

Companies in Terms of the Business

Judgment Rule 100

1.5.3. Evaluation of the Effect of AI-based Technology Regarding

Legal Liability  102

1.5.4. Evaluation of the Use of AI in Mergers in Terms of the Duty of

Care of the Directors. 105

EFFECT OF BLOCKCHAIN TO THE DUTY OF CARE OF DIRECTORS 107

2.1. Definition of Blockchain. 107

2.2. Operation of Blockchain. 110

2.3. Types of Blockchain Technology  111

2.4. Use of Blockchain in Companies and Company Law 111

2.4.1. Use of Blockchain in Registration to the Trade Registry. 112

2.4.2. Use of Blockchain in Share Ledger Records  113

2.4.3. Keeping Financial Records in Blockchain  115

2.4.4. Use of Blockchain in AGMs . 116

2.4.5. Use of Blockchain in Board Meetings . 119

2.5. Contribution of Blockchain to the Corporate Governance Principles 120

2.6. Evaluation of the Relation Between Blockchain Technology and Data

Protection in Terms of the Duty of Care of Directors  121

2.7. Evaluation of Blockchain Technology Regarding the Duty of Care of

Directors. 123

2.7.1. Evaluation of Blockchain Technology in Terms of the Business

Judgment Rule  124

THIRD CHAPTER

THE IMPACT OF SUSTAINABILITY ISSUES TO THE DUTY OF CARE OF DIRECTORS

CONCEPTS OF ESG, CORPORATE SOCIAL RESPONSIBILITY(CSR) AND

SUSTAINABILITY 127

1.1. General Overview  127

1.2. Concept of ESG. 128

1.3. Concept of CSR. 129

1.4. Concept of Sustainability and Sustainable Development  131

1.4.2. The UN Sustainable Development Goals  134

Table of Contents 17

1.4.3. Sustainable Development Plans of Türkiye 136

THE IMPACT OF SUSTAINABLITY ISSUES TO THE DUTY OF CARE OF THE

DIRECTORS 139

2.1. The Relation Between Sustainability, Sustainable Development and

Company Law  139

2.2. Evalution of a Proposal for a Directive on Corporate Sustainability Due

Diligence Within the Scope of Duty of care of the Directors. 142

2.3. Evalution of Shell vs. Clientearth Case in Terms of Duty of Care of The

Directors as a Case Study  146

2.4. Evaluation of Article 369 of TCC In Accordance With Sustainability

Issues . 148

2.5. Evaluation of the Business Judgment Rule in Terms of Sustainability

Issues . 151

CONCLUSION . 153

REFERENCES  157