The Italian corporate governance system features a high concentration of direct ownership, for both listed and unlisted companies. The analysis of direct ownership and of the identity of owners reveals that a major role is played by families, coalitions, the State, and above all by other companies. The largest stake in listed and unlisted companies is held by other non‐financial or holding companies. The amount held by financial institutions is limited. More than 50% of all Italian industrial companies belong to pyramidal groups. The main reason for this structure, especially among listed companies, is the possibility of controlling vast resources with a limited amount of capital.

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Nearly 86% of listed Italian companies now claim to be in formal compliance with the provisions of the Italian Corporate Governance Code, which, like many codes in EU countries, give companies the option to either comply or explain their decision not to do so. But in the wake of the recent financial crisis, the effectiveness of such self‐regulatory corporate governance codes has been subjected to increasing skepticism. In particular, critics wonder whether such governance codes actually encourage the adoption of best practices and promote better governance. This article presents a governance indicator (CoRe) devised by the authors that attempts to assess the actual, or effective, levels of compliance with the Italian Corporate Governance Code in terms of listed companies' procedures for dealing with related party transactions (RPTs). The authors report that the companies' level of effective compliance with regard to RPTs is considerably lower than their publicly reported levels of formal compliance. The authors also report that higher levels of effective compliance tend to be found in companies where (1) minority shareholders have appointed one or more directors; (2) independent directors serve on important committees; and (3) there are significant holdings by institutional investors—particularly foreign investors—who participate in general shareholder meetings.

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