Faculty of law blogs / UNIVERSITY OF OXFORD

The New Italian Corporate Governance Code—a Step Forward for a More Sustainable and Proportional Corporate Governance Model


Marcello Bianchi
Deputy Director General of Assonime (Association of the Italian joint stock companies), in charge of the Corporate Governance and Capital Markets Area
Mateja Milič
Senior analyst in the Corporate Governance and Capital Markets Area of Assonime and research staff to the Technical Secretariat of the Italian Corporate Governance Committee


Time to read

4 Minutes

In January 2020, the Italian Corporate Governance Committee released the new edition of the Corporate Governance Code. The Committee’s overall review followed such an innovative approach with regard to both the structure and the contents of the Code, that, rather than a new edition, it can be considered a completely new one.

The drafting process involved a broader range of participants than in previous Code’s reviews. Although the Corporate Governance Committee already comprises representatives from the main market components (i.e. issuers, investors and Stock Exchange representatives), in the latest review it engaged more intensely with all the Italian listed companies: this was done mainly through a public hearing and some individual meetings. The participation of individual companies and especially SMEs proved to be highly valuable: indeed, the suggestions provided by smaller listed firms and family-owned companies (regardless of their size) challenged the Committee to develop weighted governance practices that suit their various needs better.

The first outcome of this new consultation process is the Code’s enhanced proportionality: although the Code’s principles still apply to all companies, its recommendations are now better articulated according to company size and ownership structure. While in the past proportionality was limited to size only, the Code’s new edition goes beyond the traditional target of large companies (mainly financial institutions and SOEs) to better suit small-medium and/or family-owned industrial firms that represent the backbone of the Italian economy and disproportionately bear the costs and the compliance burdens of a market listing.

To this end, the Code offers a simplified and balanced governance framework for two classes of companies: ‘controlled companies’ (where one or more shareholders, bound by a voting agreement, hold more than 50% of votes at the AGM) and ‘smaller companies’ (which do not exceed 1 billion euro of market capitalisation for at least three consecutive years). ‘Controlled companies’ can now benefit from a simplified regime in the board and the committees’ composition, as well as in its nomination and the self-assessment processes. Such a simplified regime is designed to support the controlling shareholder’s vision in governance and business decisions, considering his or her greater exposure to the performance of the company’s value and its performance in a long-term perspective. ‘Smaller companies’ can now rely on the Code’s more relaxed recommendations concerning the number of independent directors (at least two), the establishment of board committees (more flexibility in entrusting the board with the committees’ functions) and the board’s self-assessment (at least every three years).

The second fundamental innovation regards the company’s purpose. The Committee decided to follow the Code’s traditional approach, which was already focused on long-term value creation and the assessment of all relevant (financial and non-financial) risks, by better integrating sustainability issues and stakeholders’ expectations in the company’s purpose. The new Code opens up to an enlightened shareholder value by setting the pursuit of ‘the sustainable success of the company’s business’ as the main goal of the board, and defining the former as ‘the long-term value creation for the benefit of shareholders, ensuring adequate consideration of the interests of other stakeholders’. The sustainable success goal is further developed throughout the Code, which identifies it as the loadstar of the company’s strategy and business plan, of its internal control and risks management system, as well as of its internal (eg management remunerations) and external (stakeholder dialogue) governance. The dialogue with shareholders and stakeholders is revealed to be the cornerstone of the company’s sustainable success. For this purpose, the new Code elaborates more detailed best practices for the board’s engagement with the company’s shareholders (adoption of an engagement policy and proper remit to all board members), while leaving the decision of how to promote a dialogue with other stakeholders up to individual companies. Ensuring proper flexibility, we believe that the Code can therefore be effective in nudging companies toward an open discussion with all their relevant constituencies and in opening up the companies’ businesses to wider forms of accountability.

The third innovation regards the Code’s support for private ordering. Whenever deemed appropriate, the new Code suggests that companies need to adequately assess the flexibility offered by the legislative framework, in relation both to the core choice among the ‘traditional’ (board of directors plus board of auditors), the one-tier and the two-tier board structures, and to more specific governance options, such as differentiated voting and cash-flow rights (eg loyalty shares or multiple voting rights), board’s size and composition, directors’ tenure and the thresholds for the exercise of minority shareholders’ rights. While emphasising the benefits of tailored governance measures, the new Code focuses also on the transparency of the internal decision-making process, which should ensure at least the disclosure of: i) how the decision has been taken within the company; ii) the reasons and the expected impact on the company’s strategy; iii) any dissenting opinion expressed by individual directors.

In addition to the above-mentioned structural innovations, the new Code confirms certain long-standing choices of the old one (eg regarding the role of independent directors, the functions of board committees, information flows and internal control and risk management systems), bolstering some existing recommendations to take into account the ‘areas of further improvement’ that are highlighted in the Committee’s annual monitoring, which is based on the Assonime-Emittenti Titoli Corporate Governance Report (all editions are available here). To this end, the Code enhances some existing recommendations (regarding the qualitative and quantitative assessment of directors’ independence, the quality of board pre-meeting information, the role of the board chair) and takes a step forward by recommending some best practices that were only suggested in the previous editions (regarding the succession plan for executive directors, gender balance and equality of treatment not only within the corporate bodies but also within the business organisation as a whole).

The new Code is expected to be adopted by domestic and non-domestic companies listed on the Italian main market by 2021. Compliance with the new Code is expected to be disclosed in companies’ 2022 Corporate Governance Reports.

Marcello Bianchi is Deputy Director General of Assonime (Association of the Italian joint stock companies) in charge of the Corporate Governance and Capital Markets Area, and Coordinator of the Technical Secretariat of the Italian Corporate Governance Committee.

Mateja Milič is senior analyst in the Corporate Governance and Capital Markets Area of Assonime and research staff to the Technical Secretariat of the Italian Corporate Governance Committee.



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