Is the Supervisor really independent? Frontis Governance analyzed the Statutory Auditors at Italian listed companies: the main results

Posted on February 14, 2013


The derivative scandal that recently hit the third Italian banking group, Banca MPS, the contested acquisition of Lactalis American Group by Parmalat and the Fondiaria-Sai’s huge losses caused by related party transactions, are few of the latest events that raised concerns about the effectiveness of internal controlling systems at Italian companies.

Frontis Governance just released an analysis of the supervisory bodies at major Italian issuers, to better understand the strict independence of their members. The Italian proxy advisor analyzed the curricula of 116 Statutory Auditors and 75 Supervisory Board members, in charge at January 31st.

As per the analysis, concerns arise over the strict independence of almost one-third of board members (32.5%): 9 Chairmen of the Board of Statutory Auditors (or 26% of total Chairmen), 22 Auditors (27%) and 31 members of the Supervisory Board (41%).

The main factors of risk are related to:

  • more than 9 years of service within the same Group (22 Supervisory Board members, 12 Auditors and 3 Chairmen) – as per the Italian Corporate Governance Code, 9 years is the maximum tenure to be defined as independent,
  • excessive remuneration paid by the Company or the Group (11 Auditors and 2 Chairmen),
  • excessive number of memberships at related companies (10 Auditors, 3 Chairmen and 1 Supervisory Board member).

Concerns also arise with regards to other criteria, equally serious although probably less evident: strong links with political bodies, previous positions at external auditors of the Company and consultancy payments by Group companies. In four cases concerns arise over all members of the Board of Statutory Auditors (Atlantia, Banco Popolare, Buzzi Unicem and Tod’s).

Transparency is also an issue: 12 companies do not disclose any personal information about the Statutory Auditors on their website, while large part of the other ones just publish partial information and do not disclose all Auditors’ memberships.

As per the Frontis Governance’s guidelines (based on ECGS’ corporate governance principles), companies should not limit themselves to just comply with legislative duties. An effective corporate governance is attained by understanding and improving all voluntary actions and procedures needed to pursue the best interest of the company and its shareholders, also considering the specificities of the sector, corporate dimensions and specific moment.

None of the analyzed companies breaks any law, and in any case the purpose of the analysis is not to discover illegal procedures. What is relevant here, is that the mere compliance with standard rules may undermine the fiduciary relationship between shareholders and corporate bodies. Strong connections with relevant shareholders, long-standing professional relationships with the Group or its advisers, excessive payments or significant links with entities in conflicting interests, are all factors of risk that should always be avoided, whether allowed by the law or not.

Download here the full report

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