Corporate Governance in Italy

Abstract

This paper has analysed the Italian prevailing corporate governance system in terms of issues such as ownership and control structures, structure and functioning of the boards, executive remuneration and evaluation, the mission of the companies, the role of banks and market for corporate control. The issues determined by the presence of the blockholder have been analysed as well as the changes that derive from the Draghi reform. The Italian system of corporate governance seems to be effectively summarised by the expression`weak managers, strong blockholders and unprotected minority shareholders', paraphrasing Roe`s (1994) sentence.

The remuneration of independent directors in the UK and Italy: An empirical analysis based on agency theory

“…The settings of Italy and the UK were chosen on the basis that important differences exist between the two corporate governance systems (Melis, 2000). Comparing institutional settings characterized by such diversity in corporate governance practices should enhance the potential generalizability of the findings, by allowing account to be taken of the potential variation existing in governance practices in firms that operate in highly developed countries (e.g., Minichilli, Zattoni, Nielsen & Huse 2012).…”

“…Moreover, UK listed firms are usually characterised by a principal-agent problem (Mallin, 2010), while Italian listed firms are characterized by a principal-principal agency problem (Melis, 2000), and different agency problems might have a different influence on remuneration practices (Bebchuk et al, 2002;Filatotchev & Allcock, 2010) as well as on the role of INEDs (Johanson & Østergren, 2010).…”

“…Italian non-financial listed firms are characterised by the presence of a controlling shareholder who is able to monitor directors (Melis, 2000;Volpin, 2002). His/her presence reduces the agency problem between executive directors and shareholders, but gives rise to the principalprincipal agency problem between the controlling shareholder and minority shareholders (Zattoni 1999;Melis, 2000).…”

“…His/her presence reduces the agency problem between executive directors and shareholders, but gives rise to the principalprincipal agency problem between the controlling shareholder and minority shareholders (Zattoni 1999;Melis, 2000). The appointment of an adequate number of INEDs to the board has been considered as a solution 'for guaranteeing the composition of the interests of all the shareholders, both majority and minority ones' (Italian Code of Conduct, 2006; (Melis & Gaia, 2011).…”

Compensation Committee Quality and Effective Executive Remuneration

“…Indeed, in closely held firms, large blockholders may act at the expense of minority shareholders and expropriate their wealth (Johnson, LaPorta, Lopez-De-Silanes, & Shleifer, 2000). As controlling owners are usually directors and also top managers of their companies (Melis, 2000), they have the power to influence the board decision making in order to receive pay in excess of the optimal amount for shareholders (Bebchuk, Fried, & Walker, 2002;Bebchuk & Fried, 2006). With the aim of preventing this expropriation, minority shareholders hold the right to appoint at least one compensation committee director to their own slate.…”