Board “independence” in Italy

Posted on June 20, 2011


On May 27th the Board of Directors of Generali Assicurazioni ascertained the existence of independence requirements of 12 members out of 17 (70%), showing a great independence of the Board. Looking at the names and curricula of the “independent Directors”, it seems anyway that some independence requirements are not completely fulfilled: three of “independents” are owners or Directors of companies that, together with Generali itself, are part of the shareholder agreement controlling Mediobanca (major shareholder of Generali), two of them are managers of Mediobanca, two others are significant shareholders of Generali (controlling more than 2% where free float is 78%), and finally one is the CEO of a company reported in Generali’s Financial Statements as one of “major Companies insured by Assicurazioni Generali”. What remains? A Board with only 4 strictly independent Directors out of 17…from declared 70% to actual 24%. Three quarters of the actual independent Directors in Generali have been elected from the slate of nominees presented by Assogestioni (the Italian Funds Association). Generali’s By-laws provide that just three Directors are elected from the slate of nominees “which obtained the second-largest number of votes” (so the one presented by independent shareholders).

Unfortunately Generali is not the only case in Italy, it seems to be a “normal” behaviour to consider related parties as independent, as Italian law in fact allows it (despite art. 148, para. 3 of Italian Legislative Decree 58/98 provides that “persons who are linked to the company, the companies it controls, the companies it is controlled by and those subject to common control” should be not considered as independent, but this provision just pertains to the internal control body).

What to do to change such behaviours? Probably a legislative intervention would be needed, in order to equalize Directors’ independence requirements to the ones already provided for Statutory Auditors, or in order to oblige companies’ By-laws to provide more proportionality in the mechanism of election of Directors, assuring more representatives to minority shareholders.

Controlling Authorities and legislators are too conditioned by bureaucratic procedures, and so too slow to adequate the regulation. At this stage, the real control on corporate governance behaviours should be a prerogative of shareholders, that exercise such control through their vote at General Meetings. But it seems that asset managers are still far from taking it upon themselves: Italian Mutual and Pension Fund managers still represent less than 3% of independent shareholders voting at Italian Meetings.

Posted in: Boards