How Independent are Independent Directors? The Case of Italy

Who Cares About Director Independence?

“…In this article we have expanded the analysis of the new dataset we created in Santella, Paone, Drago (2005) which refers to the population of 284 independent directors who served in 2003 on the boards of the Italian listed companies belonging to the S&P -MIB Index. The dataset verified to what extent disclosure from Italian listed companies provided a minimum level of information on each independence requirement set by the Preda Code and by the EC Recommendation by assigning three different rates: "yes" (compliance) when company disclosure showed that independent directors satisfied a specific independence requirement; "no" (non-compliance) when company disclosure contradicted a specific independence requirement; and "ns" in case of insufficient company disclosure.…”

“…The database used in this paper is built starting from the database created in Santella, Paone, Drago (2005). The aim of the exercise was to verify whether listed companies provided disclosure (to a reasonable extent) on the independence standards they declared to follow.…”

“…In Santella, Paone, Drago (2005) we analysed and quantified the extent to which corporate disclosure for the financial year 2003 allowed for verification of the independence of directors formally identified as independent by the 40 Italian blue chips. We used as a benchmark the voluntary requirements of the Italian Corporate Governance Code (Preda Code, 2002) and the voluntary requirements of the EC Recommendation (2005) on non-executive and supervisory directors (a proxy for international best practice).…”

“…The analysis made in Santella, Paone, Drago (2005) considered our population of 284 Italian independent directors as a single aggregate. In the present paper we move our analysis forward along two lines: we first separate our population in two groups: directors belonging to financial companies' boards and directors belonging to non-financial companies' boards; we then move on to aggregate directors according to the companies they belong to, so as to build a dataset of the first 40 Italian listed companies rated according to their disclosure of independence requirements.…”

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AbstractIn this article we have expanded the analysis of the new dataset we created in Santella, Paone, Drago (2005) which analysed and quantified corporate disclosure on directors formally identified as independent by the forty Italian Blue Chips. We find here a general low level of compliance with independence requirements for both financial and non-financial companies, particularly with regard to the two key independence criteria of not having too many concurring commitments and not having business relationships with the company or an associated company.

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