The Italian “shareholders’ spring” is very late, but something is changing

Posted on June 29, 2012

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A strongly concentrated ownership structure, local actors that are basically passive and its nature of peripheral market for large institutional investors contributed to keep Italian companies far from the “shareholders’ spring”. No relevant news came from the 2012 proxy season, or at least it seems so looking at the meeting minutes: remuneration policies, incentive plans and share buyback programmes (often needed to service incentive plans) obtained an average of almost 90% favourable votes, at Italian large companies. The only exception was Impregilo, where the remuneration report was rejected with 51% of opposing votes, much more due to the fight between the two major shareholders (Gavio Group and the competing constructor Salini) than to the weight of minorities’ vote. At other 5 meetings, opposing votes and abstentions exceeded 20%, though without causing any relevant effect: Fiat Industrial (38.4%), Telecom Italia (31.9%), Finmeccanica (31.2%), Fiat (26.7%) and Saipem (20.3%).

It might be objected that changes do not necessarily come from “proxy fights”: the voice of opposition may itself push companies to a greater alignment between shareholders’ and top managers’ interests. Actually, several FTSE-MIB companies recently stated they are going to redefine the overall remuneration of the Board members: among others, A2a, Banca MPS and Intesa Sanpaolo announced a reduction of Board’s compensation. Nevertheless, all announcements are related to the non-executive Directors’ remuneration, that is directly subject to shareholders’ vote, while the great concerns are referred to the Executives’ ones, that have a greater impact on the companies’ financials and that seem to be not well enough aligned with the value creation in the long-term period.

The Ministry of Economy and its wholly-owned CDP (Cassa Depositi e Prestiti S.p.A.) solicited their controlled companies Eni, Finmeccanica and Terna to more rigorous remuneration policies. Nevertheless, both the Ministry and CDP voted in favour of all the criticized remuneration reports.

Anyway, beyond the meetings’ outcome and the various announcements, it seems that something is starting to move also in Italy, and ECGS is still on the front line. Even before the proxy season, the international network of proxy advisors and its local partner Frontis Governance raised concerns on the egregious compensations and their misalignment with shareholders’ interests. The letter sent on January 2012 to the Board of UniCredit, asking for the claw-back of the extra-severance payment paid to the former CEO Alessandro Profumo, probably represents the first real engagement in Italy regarding Executives’ compensation.

Also during the proxy season, some investors raised the voice: the hedge fund Amber Capital, one of the most active on the Italian market, strongly contested the acquisition of Lactalis USA by Parmalat (that is 83% owned by Lactalis Group itself…) voting against the financial statements and submitting its own slate of nominees for the election of the Board of Directors. Still Amber reported suspected irregularities of Fondiaria-Sai’s related parties procedures to the company’s Statutory Auditors and, with more than 5% of Impregilo’s share capital, the fund will likely be crucial in the ongoing fight between Gavio and Salini.

The Italian voice of dissent is not so spread to be defined as “shareholders’ spring”, but even few cases may be so loud to push companies to redefine their policies, despite the huge conflicts of interest governing the market.

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