NYSE: Corporate Governance Guide

Transcription

1 NYSE: Corporate Governance Guide

2 Italy Carlo Croff, Partner, and Enrico Giordano, Partner Chiomenti The key corporate governance provisions for Italian listed companies are found in: the Italian Civil Code the Consolidated Financial Act (Legislative Decree No. 58/1998) Regulations No /2007 and No /1999 adopted by Consob, the Italian supervisory authority for listed companies the Corporate Governance Code adopted in 1999 by the Committee for Corporate Governance of Borsa Italiana S.p.A. the company that is responsible for the organization and management of the Italian stock exchange and that is part of the London Stock Exchange Group as last amended in The Corporate Governance Code sets out high corporate governance standards in line with international best practices. The Consolidated Financial Act sets out the comply or explain principle requiring listed companies to disclose information about their compliance with the Corporate Governance Code in an annual formal report on corporate governance. The report must include, among other things: (1) some specific information about the ownership structure of the issuer; (2) rules for the appointment and replacement of directors; (3) the key features of the internal control and risk management system; (4) how shareholders general meetings are regulated; and (5) the structure and functioning of the management and control bodies and internal committees. In 2013, 223 (93 percent) of the 239 Italian listed companies confirmed their compliance with the Code in their corporate governance reports (source: Committee for Corporate Governance, Annual Report 2013). The foregoing provisions implement the rules and recommendations provided at the European level (Directive 2007/36/EC on shareholders rights in listed companies; Directive 2006/43/EC on the audit of annual accounts and consolidated accounts; Commission Recommendations 2004/913/EC, 2005/162/ EC, and 2009/385/CE on director remuneration). 300 NYSE: Corporate Governance Guide

3 Chiomenti Italy The Italian Civil Code provides for three different management and control systems: the traditional system, in which the shareholders meeting appoints a board of directors and a board of statutory auditors the two-tier system, in which the shareholders meeting appoints the supervisory body, which in turn appoints the corporate body vested with the management of the company the one-tier system, in which the shareholders meeting appoints a board of directors which in turn appoints, from its members, the supervisory body. The following description covers only the traditional system, since the vast majority (over 95 percent) of Italian listed companies adopt it. The shareholders general meeting The shareholders general meeting is made up of the holders of the company s ordinary shares. Competences of an ordinary general meeting include the appointment of directors and statutory auditors and resolutions regarding their liability, and the appointment of the external auditors. An extraordinary general meeting (for which higher majorities are required) is mandatory for amendments to the by-laws, including extraordinary transactions (eg share capital increases, mergers, and demergers). Board of directors The board of directors is responsible for the ordinary and extraordinary management of the company. It must make decisions with full knowledge of the facts and autonomously with the aim of pursuing and creating value for the shareholders over the medium-long term. The board can delegate certain functions to one or more directors (the chief executive officer/s) and/or to an executive committee of some of its members. By law, some matters cannot be delegated, such as the drafting of the financial statements. Moreover, the Corporate Governance Code recommends that the entire board be entrusted with the primary responsibility for determining and pursuing the strategic targets of the company as well as the (1) examination and approval of the strategic, operational, and financial plans of the company; (2) evaluation of the general performance of the company; (3) resolutions upon material transactions; and (4) periodical evaluation of the performance of the board and its committees. In light of the above, directors are designated as either: (1) executive, that is, those vested with management powers, or (2) non-executive, whose role is to enhance the board s discussion and to provide an independent, unbiased judgment on the proposed resolutions, particularly those where the respective interests of executive directors and shareholders may not be aligned, such as executive director remuneration and the internal control and risk management systems. Although independence of judgment is required of all directors, some board members must meet specific independence requirements set out in the applicable laws and regulations and recommended by the Corporate Governance Code. In particular: 1. The Consolidated Financial Act requires that, in order to qualify as independent, a director shall not be: (a) under any legal disability, bankrupt, disqualified from public office, or incapable of exercising managerial functions (b) associated with the company, any of its subsidiaries, any parent company, or any companies under common control, or with the directors of any such entities through personal relations (eg marriage and kinship), a self-employment or employment relationship, or any other relationship of an economic or professional nature that might compromise independence. NYSE: Corporate Governance Guide 301

4 Italy Chiomenti 2. The Corporate Governance Code requires that, in order to qualify as independent, a director must not have or have had any current or recent direct or indirect business relationship with the company or persons linked to the company, whether for themselves or on behalf of a third party, which might affect their independent judgment. The board must evaluate annually the independence of directors on a factual basis rather than legalistically, and the results of the evaluation must be disclosed in the annual report on corporate governance. Factors indicating lack of necessary independence include if the director: (a) controls the company, directly or indirectly, or is able to exercise dominant influence over it, including through provisions of any shareholders agreement (b) is or has been in the preceding three fiscal years a significant representative of the company, of a strategically important subsidiary, or of a company under common control, or of a company or entity controlling or able to exercise considerable influence over the company (c) has or had in the preceding fiscal year, directly or indirectly, a significant commercial, financial, or professional relationship: with the company, one of its subsidiaries, or any of its significant representatives with an entity or individual that controls the company or with any significant representatives of such entity or is, or has been in the preceding three fiscal years, an employee of any of the foregoing (d) receives or has received in the preceding three fiscal years, from the company, a subsidiary, or the parent company, any significant remuneration beyond fixed compensation as a director (e) was a director of the company for more than 9 years in the last 12 years (f) is an executive director in another company in which an executive director of the listed company is also a director (g) is a partner or a director of a legal entity in the same network as the company s external auditors (h) is a close relative of anyone falling within the above paragraphs. An important role is also attributed to the chairman of the board of directors, who must ensure that the documentation relating to the board agenda is made available to directors and statutory auditors in a timely manner prior to the board meeting. The Corporate Governance Code recommends the division of key management competences, particularly of the chair and CEO roles. Where these two offices are held by the same person, the code recommends the appointment of a lead independent director to be the representative of non-executive and independent directors within the board. Composition and election The number of directors and their term of office are established by the by-laws or by the general meeting. The general meeting appoints the board through a slate election system. At least one director must be appointed from the minority slate that obtained the largest number of votes, and the relevant director must be free of any direct or indirect link with the shareholders who filed or voted in favor of the slate that obtained the majority of votes. Gender balance must be on a ratio of at least 1:3 (either way). Furthermore, the applicable laws and regulations and the Corporate Governance Code require that there be a minimum number of independent directors on the board. In particular: the Consolidated Financial Act requires that at least one director (or two, if the board consists of more than seven members) must meet the independence requirements in that act 302 NYSE: Corporate Governance Guide

5 Chiomenti Italy the Corporate Governance Code requires that an adequate number of non-executive directors (usually 3 or 4) must meet the Code s own independence requirements Consob Regulation No /2007 requires that a majority of the directors of a company which is subject to management and coordination activity (attività di direzione e coordinamento) by another listed company must meet the independence requirements under the Corporate Governance Code. Committees In addition to the executive committee, the board of directors can establish committees with initiative and advisory functions. The Corporate Governance Code requires the establishment of: A control and risk committee : this supports the analysis and decisions of the board relating to internal control and risk management and the approval of periodical financial reports. Under the Consob Regulation No /2007, this committee is mandatory for companies that are subject to management and coordination activity by another company. This committee is part of the internal control and risk management system recommended by the Corporate Governance Code in order to provide consistency between the effective management of the company and the objectives defined by the board of directors, promoting an informed decisionmaking process. In particular, the system is to focus on ensuring the safeguarding of corporate assets, the efficiency and effectiveness of management procedures, the reliability of financial information, and the compliance of management with laws and regulations, including the by-laws and internal procedures. The internal control and risk management system must be focused on two key aspects: (1) identification, evaluation, and monitoring of business risks, and (2) integration and coordination among the bodies and corporate functions involved in such system. The board of directors must define the guidelines of the control system and periodically evaluate its adequacy. A remuneration committee : this submits proposals or opinions to the board concerning the remuneration of executive directors and for the periodic assessment of the adequacy, the overall consistency and the actual implementation of the remuneration policy for directors and key managers of the company. A director cannot participate in meetings of the remuneration committee in which proposals are formulated to the board of directors relating to his/her own remuneration. In line with the recommendations of the European legislative bodies, the Corporate Governance Code recommends that the remuneration of directors and key management personnel be established with a view to attracting, retaining, and motivating people with the professional skills necessary to successfully manage the company. The remuneration of executive directors and key management personnel is to be defined in such a way as to align their interests with pursuing the primary objective of the creation of value for the shareholders over the medium-long term. With specific regard to banks and banking groups, Banca d Italia, the Italian central bank, has recently launched a public consultation on proposed amendments to the existing Regulation of March 30, 2011, on remuneration policies, aimed at implementing Directive 2013/36/EU (Capital Requirements Directive IV). Although the consultation closed in January 2014, the new rules have not yet been published. The new rules are aimed at providing in the interest of all stakeholders remuneration systems that are linked to the bank s results and structured taking into account the capital and liquidity requirements of such companies. NYSE: Corporate Governance Guide 303

6 Italy Chiomenti A nomination committee : this formulates opinions and recommendations to the board regarding the board s size, composition, and professional skills, and submits specific proposals if the company approves the adoption of an executive director succession plan. The remuneration and the nomination committees are frequently combined in a single committee entrusted with both functions. Each committee usually comprises at least three directors. The Corporate Governance Code requires committees to be composed of non-executive directors, the majority of which (including the chair) must meet the independence requirements. Committees of listed companies subject to management and coordination activity by another company must comprise only independent directors. Oversight of related party transactions is, under Consob s Regulation no /2010, entrusted to a committee of independent directors (which can be either an ad hoc committee or one of the other internal committees). The committee must opine on the benefit to the company of the relevant transaction as well as on the appropriateness and fairness of its terms. The proposal for a directive approved by the European Commission on April 9, 2014, aimed at strengthening the voice of shareholders, requires the approval of the shareholders meeting for related party transactions of particular significance. Board evaluation In order to strengthen the functioning of the board of directors, in 2011, the European Commission published a Green Paper underlining that the board should annually evaluate its work, taking into account its composition, organization, and functioning. In Italy, such recommendation is also contained in the Corporate Governance Code, which requires the directors to carry out, at least annually, an assessment on the functioning, size, and composition of the board and of the internal committees. In 2013, 183 (77 percent) of the 239 listed companies confirmed that they had carried out such self-evaluation (source: Committee for Corporate Governance, Annual Report 2013). Board of statutory auditors/auditing The board of statutory auditors is the body entrusted with supervisory duties over the company and, in particular, over: the compliance of the management of the company with the general law and the by-laws the observance of principles of good management the adequacy of the company s organizational structure, as well as the adequacy and effectiveness of the internal control and risk management system the actual implementation of corporate governance rules as provided by the Corporate Governance Code. The audit of annual and consolidated accounts is carried out by independent external auditors appointed by the shareholders meeting. The external auditors must be appointed for nine years, and the key audit partners responsible for carrying out the audit must rotate from the audit engagement within a maximum period of seven years from the date of appointment. In this context, the board of statutory auditors: submits proposals to the general meeting regarding the external auditors to be appointed supervises the financial reporting process and the adequacy of the company s accounting system, the audit of annual and consolidated accounts and the independence of the external auditors. Statutory auditors have the right at any time, jointly or severally, to carry out inspections and investigations, and to ask directors for information on specific transactions or business. 304 NYSE: Corporate Governance Guide

7 Chiomenti Via Verdi MILAN ITALY Tel Web Carlo Croff Partner, Milan carlo.croff@chiomenti.net Carlo Croff joined Chiomenti in 1984 and became a partner in He has been a senior partner since He previously worked at Crowell & Moring in Washington, D.C., in 1982, and at Debevoise & Plimpton in New York from 1982 to 1984, where he was a senior managing partner. Mr. Croff is a business lawyer specializing in providing assistance to Italian and foreign clients in corporate mergers and acquisitions, banks, insurance and other regulated entities, and real estate. Mr. Croff graduated in law from the University of Padua in He received his LLB in international law from Cambridge University (UK) in 1980 and his LLM in international law from Harvard University, Cambridge, Massachusetts in He is a member of the Belluno Bar (Italy, 1982) and was admitted to New York State Bar (1985). Enrico Giordano Partner, Rome enrico.giordano@chiomenti.net Enrico Giordano joined Chiomenti in 1992 and became a partner in He represents Italian and international issuers and investment banks in a wide variety of public and private finance transactions. He has worked on major Italian and foreign privatization transactions and has significant experience in the areas of initial public offerings and other public and private equity and equity-hybrid securities offerings, as well as debt offerings. He also advises Italian and international clients with respect to corporate and securities law matters, as well as debt, tender offers, exchange offers, and other restructuring transactions involving listed companies. Mr. Giordano graduated in law, from the University of Rome in 1989 and received a PhD in private comparative law from University of Macerata in He is a member of the Rome Bar (Italy, 1992).

8 NYSE: Corporate Governance Guide Published by White Page Ltd, in association with the New York Stock Exchange, NYSE Corporate Governance Guide has been developed as a timely resource to help listed companies address key corporate governance issues including: o Navigating the changing landscape of corporate governance o Selecting and developing a high-quality board o Implementing risk-management controls o Overseeing a succession plan for senior management o Communicating effectively with shareholders o Assembling a comprehensive ethics and compliance program To view the book in which this chapter was published, to download ipad and Kindle-compatible editions, a complete PDF file and/or to order hard copy versions, please go to: The information in this publication is not offered as advice on any particular matter and must not be treated as a substitute for specific advice. In particular, information in this publication does not constitute legal, professional, financial or investment advice. Advice from a suitably qualified professional should always be sought in relation to any particular matter or circumstances. The publishers and authors bear no responsibility for any errors or omissions contained herein. Published by White Page Ltd White Page