Corporate governance can be defined as “the system by which companies are directed and controlled” (Cadbury 1992). Corporate governance is about power, “the wielding of power over corporate entities” (Tricker 1998). It delineates the distribution of rights and responsibilities among firm stakeholders, and establishes the rules and procedures for taking major decisions within the firm (OECD 2015). As such, corporate governance is intertwined with the identification of corporate objectives, and with the way these objectives are pursued and their attainment is controlled.
From such a broad perspective, corporate governance is a system consisting of several mechanisms, whose aim is to balance the implicit tension between the firms and their stakeholders, so that company’s goals are fulfilled. The several waves of corporate scandals that have unexpectedly hit large listed companies in the last decades all over the world underline that good corporate governance cannot be taken for granted. It is the result of values, rules, and processes developed at both country- and firm level. Therefore, corporate governance is a key topic for both policymakers and practitioners.
This book is about corporate governance in Italy. It is intended to provide an understanding of the characteristics and the peculiarities of corporate governance of Italian listed companies. Although we present the legal environment in which Italian companies operate, as it clearly influences governance choices and design at the firm level, this book is not written primarily from a legal perspective. Our purpose is to critically examine the choices that Italian companies, and the people in the corporate boardrooms, make in designing corporate governance systems, the potential benefits and problems that they imply, and the antecedents of such choices. This book is, therefore, particularly relevant for a wide international audience, including non-Italian investors, corporate directors, scholars, and practitioners. Our ambition is to provide several insights to those shareholders, directors, or managers who will work with or serve on a board of a medium or large Italian listed company. As such, it may be used as a textbook in postgraduate university courses and executive education programs on corporate governance in Italy.
In writing this book, we have attempted to build on the knowledge accumulated in the extensive body of both academic and professional empirical research. We are aware that this approach does not always lead to simple recommendations as not every corporate governance question is amenable to simple solutions. However, we believe that our approach has the advantage of being grounded in factual evidence, rather than being merely based on opinion. As you will see, not every corporate governance question has been properly solved and several questions are still open and looking for rigorous empirical examination. When there is a gap in knowledge, we will provide the state-of-the-art as experts in the field and make it clear that further investigation is needed to address a specific issue. Nevertheless, we believe that this book provides useful insights that enable the reader to make judgments and, eventually, decisions supported by a deep understanding of corporate governance in Italy.
In each chapter we focus on a specific feature of corporate governance in Italy, describe its characteristics, its underlying rationale, its potential benefits and costs. Whenever useful, we integrate systematic knowledge with anecdotal case evidence, which may help the reader grasp the subtleties of corporate governance in Italy. At the end of each chapter we provide some key points to remember.
The book is divided into four main parts. Part 1 looks at corporate governance from a macro perspective. It provides an understanding about the institutional framework that characterizes corporate governance in Italy. In particular, Chapter 1 provides an overview of Italian economy and an introduction of the prevailing corporate governance model. Chapter 2 provides an overview of the corporate governance legislation and its antecedents (often major corporate governance scandals, as it generally occurs in most of the countries).
Part 2 describes the formal and informal institutions that characterize the governance environment in Italy and frame corporate governance in the Italian listed companies. More specifically, Chapter 3 focuses on the formal external institutions, that is, investor protection, the Italian Securities and Exchange Commission, external audit, and the market for corporate control. Chapter 4 complements the reader’s knowledge about the overall institutional framework, by focusing on the informal external institutions, such as the sociocultural norms that characterize the Italian society, the role of news media, and corporate governance best practices.
Part 3 takes a microperspective and contains three chapters presenting a rich empirical evidence on how corporate governance works in Italian listed companies. In particular, Chapter 5 illustrates the characteristics of their ownership and control model, including how dominant shareholders use control enhancement devices to wield their power over the company, and whether and how minority shareholders are active and have their interests successfully safeguarded. Chapter 6 illustrates the boards’ structure, which traditionally characterize Italian companies, with a board of directors and an external board of statutory auditors, and provides a rich description on Italian boards’ structural characteristics (i.e., composition and structure) and how they work in practice. Chapter 7 focuses on board selection processes and CEO turnover and provides an understanding of how and how much CEOs, other executives, independent directors, and statutory auditors are compensated and incentivized in Italy.
Finally, Part 4 critically examines the current and future corporate governance challenges in Italy, the forces resisting convergence toward an Anglo-American model as well as the triggers for change.