The Rise of Relational Economic Sovereignty: How FDI Screening Is Transforming Corporate Governance

For much of the last three decades, globalization appeared to reduce the role of the State in economic governance. Privatization, liberalization, and the expansion of cross-border investment seemed to confirm a broader shift from public control to market coordination. Within this framework, foreign direct investment (‘FDI’) screening mechanisms were generally understood as exceptional instruments designed to address narrow national security concerns. That understanding is increasingly obsolete.

In our recent paper, The Age of Relational Economic Sovereignty: Foreign Direct Investment Screening in Italy and the United States, we argue that contemporary FDI screening regimes are no longer adequately understood as exceptional security tools. Rather, they have evolved into structural instruments of economic governance. More importantly, they reveal the emergence of a new model of State authority—one with significant consequences for corporate governance—which we define as relational economic sovereignty.

From National Security to Economic Governance

Italy offers a particularly revealing laboratory for observing this transformation. The Italian system evolved from the “golden share” model of the 1990s, under which the State retained special rights in privatized companies. Repeated intervention by the Court of Justice of the European Union ultimately exposed the incompatibility of ownership-based powers with the internal market.

The response was the introduction of the modern “golden power” regime, which represented a fundamental shift in the logic of State intervention. Governmental powers became detached from ownership and instead attached to transactions affecting assets or activities considered strategically relevant. The focus moved from who owns a company to what functions that company performs within broader economic and technological systems.

At the same time, the range of strategic activities expanded dramatically, encompassing sectors far removed from traditional national security concerns—including finance, healthcare, artificial intelligence, sensitive data, and advanced technologies.

This trajectory is now reinforced at the European Union level. Regulation (EU) 2026/1386, adopted to replace the 2019 FDI Screening Regulation, moves the Union framework from a relatively light model of coordination toward a more structured system of minimum requirements, shared risk criteria, and enhanced cooperation among Member States and the Commission. While final screening decisions remain with Member States, the revised framework confirms that national FDI screening is progressively embedded within a multilevel legal order.

Equally important, the modalities of intervention have changed. The Government increasingly relies on conditional approvals rather than outright prohibitions, imposing governance commitments, compliance obligations, monitoring arrangements, and restrictions on access to strategic information. As a result, FDI screening has evolved from a defensive mechanism into a sophisticated architecture of economic governance.

The Rise of Relational Economic Sovereignty

This transformation cannot be explained simply as an expansion of administrative discretion. Something more profound is occurring.

The combination of broad notions of strategic relevance, flexible intervention tools, and extensive governmental discretion creates a space in which the State acts not merely as an external regulator but as a participant in strategic economic relationships. Investors and firms must anticipate governmental scrutiny, negotiate commitments, and often remain subject to ongoing oversight long after a transaction has been approved. It is this phenomenon that we describe as relational economic sovereignty.

Under this model, sovereignty is exercised neither through direct ownership nor through traditional command-and-control regulation. Instead, it operates through continuing interaction between public authorities and private actors. Public authority becomes embedded within market processes themselves.

The Italian Government’s 2023 golden power intervention in Pirelli illustrates this evolution particularly well. The Italian Government did not prohibit Chinese participation in Pirelli. Instead, it imposed a complex set of conditions affecting governance structures, board dynamics, technological assets, data management, and information flows. More recently, additional measures limited the representation of Chinese interests within the board itself. The State did not simply review a transaction; it reshaped the governance framework of the company. The significance of the case lies precisely in the fact that governmental influence extended beyond transactional approval and into the continuing governance of the firm.

Our comparative analysis suggests that this phenomenon is not uniquely Italian. The United States, through the evolution of CFIUS, exhibits many of the same structural characteristics. National security review has expanded beyond defense-related concerns to encompass critical technologies, sensitive data, supply chains, and technological leadership. CFIUS now frequently relies on negotiated mitigation agreements that impose governance obligations and continuing compliance commitments.

Across jurisdictions, relational economic sovereignty appears to be characterized by three structural features: (1) functionalization, because intervention focuses on the strategic role performed by assets and activities rather than formal categories; (2) hybridization, because public and private governance increasingly overlap; and (3) temporal extension, because governmental influence frequently continues long after a transaction has been approved.

How Corporate Governance Adapts

The emergence of relational economic sovereignty has important implications for corporate governance.

As FDI screening increasingly allows governmental intervention to extend beyond the approval phase and into the ongoing governance of the firm, the State becomes, in a growing number of strategically relevant industries, a continuing participant in corporate relationships rather than a regulator operating solely from the outside. Public authority no longer operates exclusively through general rules or ex post enforcement. Instead, it intervenes transactionally: it negotiates, conditions, monitors, and shapes incentives.

Put differently, contemporary FDI screening transforms the State into a corporate governance actor. Although it does not formally become part of the corporation, the State may influence decisions that traditionally belonged to the sphere of private ordering. Corporate governance thus becomes a hybrid space in which public and private interests increasingly intersect.

This transformation carries at least three important implications.

First, political risk is becoming a structural component of corporate decision-making. For boards operating in strategically relevant sectors, government authorities increasingly function as stakeholders whose influence may be as consequential as that of major shareholders. Engagement with public authorities therefore becomes an integral component of corporate strategy.

Second, corporate governance itself becomes a site of regulatory intervention. Contemporary FDI screening regimes now influence board composition, technological governance, and strategic planning. The boundary between corporate autonomy and public oversight becomes progressively less stable, as decisions traditionally considered internal corporate matters become increasingly intertwined with public policy objectives.

Third, M&A transactions must increasingly be designed with governance consequences in mind. Regulatory approval is no longer simply a threshold issue. It frequently involves ongoing commitments capable of shaping the future governance of the target company. Transaction planning must therefore account not only for financial and operational considerations, but also for the possibility of continuing governmental involvement throughout the life of the investment.

Looking Ahead: Relational Economic Sovereignty and Its Limits 

At the same time, this transformation raises important normative concerns. As strategic relevance becomes broader and more fluid, legal certainty may decline. The distinction between legitimate national security concerns and industrial policy objectives becomes more difficult to police. Particularly within the European Union, expansive conceptions of economic sovereignty may generate tensions with the principles of market integration, free movement, and non-discrimination. The revised EU framework seeks to manage these tensions through common minimum requirements, cooperation mechanisms, and proportionality-based mitigation, but it does not eliminate the underlying tension between national security-based intervention and the coherence of the internal market.

Whether relational economic sovereignty ultimately enhances resilience or instead risks undermining predictability and market openness remains an open question. What already appears clear, however, is that the traditional opposition between State and market no longer provides an adequate framework for understanding contemporary economic governance. 

Increasingly, the future of corporate governance will be shaped by the relational forms of public authority emerging at the intersection of markets and national security. Understanding this transformation may become one of the central challenges of corporate governance scholarship in the years ahead.

The full paper may be found here. 

Pierluigi Matera is a Visiting Professor of Corporations at Boston University School of Law and a Professor of Comparative Law at LCU of Rome.

Ferruccio M Sbarbaro is an Associate Professor of Comparative Law and the Director of CERSIG at LCU of Rome.