«They say things are happening at the border, but nobody knows which border» (Mark Strand)
by Andrea Sacco Ginevri
Abstract: This introduction to the Italian law of public companies is the first chapter of forthcoming book on the same issue and aims at giving a general overview on the main issues and rules applicable to public companies operating in the Italian markets. This paper focuses on corporate governance issues, having regard to transparency and control principles as well as to the ESG (environmental, social and governance) factors. Concluding remarks highlight that fostering long-term shareholders’ activism may be a tool for strengthening the long-term best interest of the corporation since it allows directors to manage their enterprises in a manner that emphasizes the long-term over the short-term.
Summary: 1. Introduction: public companies. Nature and significance. – 2. Protected interests. – 3. Corporate transparency. – 4. Corporate governance. – 5. Corporate control transactions. – 6. Related parties’ transactions. – 7. Classes of shares. – 8. Corporate interest.
1. A company can find new equity and financial sources in order to support its industrial plans, among others, by listing its shares (). At the end of the listing process (Initial Public Offering – “IPO”) a company becomes “public” (i.e. “listed”) since a significant number of its shares becomes widely dispersed to the public (minority shareholders) ().
This form of financing is particularly convenient for the public company (the issuer) when its shares are offered to potential investors in exchange for a capital increase. In this way, the sources injected by the investors (the new shareholders) are allocated to the share capital of the company (equity) and, therefore, can be used by the issuer to finance its industrial and strategic growth plans (business plan) without any obligation to reimburse such injections. However, the incumbent shareholders of the company typically have an interest in selling at least part of their shares to the investors in the context of the IPO process, in order to promptly monetize a portion of their equity investment () and, at the same time, maintaining a corporate control over the issuer even after the completion of the listing ().
The circumstance that, through the distribution of its shares to a large number of shareholders, the listed company collects and then manages “public savings” (see Article 47 of the Italian Constitution) explains why the Italian rules on listed companies () are very rigid and, therefore, significantly limit the private autonomy and rights of shareholders, directors, statutory auditors, potential investors, etc. (). This also explains why issuers are subject to the supervision of CONSOB (the Italian Securities and Exchange Commission) and their directors, officers and auditors are subject to material penalties and sanctions as well as to a deep judgment of responsibility ().
The special regulation of listed companies is so dissimilar from the general laws applicable to the “closed” (private) companies that, according to certain legal scholars, the two corporate structures at hand should belong to different corporate models (i.e “types”, pursuant to Article 2249 of the Italian Civil Code) (); if one adheres to this opinion, the going public or private process should both be classified as conversion (i.e. “transformation”, pursuant to Articles 2498 et seq. of the Italian Civil Code), consequently granting the right of withdrawal to shareholders who do not agree with such a transaction (see Article 2437, paragraph 1, letter. b, of the Italian Civil Code).
This issue – although of extreme interest from a theoretical point of view – is less relevant from a practical perspective, given that, on the one hand, the exclusion from the listing (delisting) expressly triggers a withdrawal right for the dissenting shareholders (Article 2437-quinquies of the Italian Civil Code) and, on the other hand, admission to listing supposes the prior adoption of material amendments to the issuer’s articles of association (aimed at aligning the corporate by-laws to the special regulation on governance matters applicable to public companies) that the incumbent shareholders are granted with the withdrawal right as a consequence of the alterations to the voting and participation rights caused by the IPO (pursuant to Article 2437, paragraph 1, letter g, of the Italian Civil Code).
In the course of its business, any listed company must ensure equal treatment for all the holders of its financial instruments (shares, bonds, etc.) who are in the same conditions (see Article 92 of the Italian Securities Act). This principle aims at ensuring that the “rules of the game” are the same for all the investors and justifies, among others, certain rules on public takeover bids – including the one requiring the bidder to offer the same consideration to all the shareholders solicited to sell their shares () – and the constraints limiting selective information flows between issuers and its related parties (such as its directors and controlling shareholder).
Since admission to the process of listing means opening up the capital to public investors, the management of the company must become transparent, efficient and protected by external influence (). This explains the existence of strict law provisions requiring issuers to disclose their operations (e.g. financial statements and inside information) and their internal structure, as well as the adoption of efficient governance measures (e.g. a minimum number of independent directors, a slate voting system for the appointment of corporate bodies, specific rules on related parties’ transactions, etc.).
Furthermore, certain corporate conflicts are typical of “open” companies (agency problems) and change in presence of a controlling shareholder (concentrated ownership) or in case of shareholding dispersed among the public (dispersed ownership). In the former case, the relationship between the controlling shareholder and minority shareholders must be carefully monitored in order to avoid the management of the listed company being affected by the personal interest of the parent company. In the second scenario, on the other hand, a management body too “self–referential” should be avoided since such a structure could incentivize management policies oriented towards short term goals (such as an excessive remuneration caused by the separation between ownership and control) ().
However, since many relevant shareholders of issuers are now, in turn, “institutional investors” – collecting public savings at the top of their corporate chain – such a phenomenon gives rise to a “dissociation of ownership from ownership” (so-called “agency capitalism”) (), which accentuates, and multiplies exponentially, the problem of the separation between ownership and control which is well-known in companies with a dispersed ownership structure.
It should also be pointed out that modern listed company aims at pursuing the corporate social responsibility objectives (“CSR”) and ESG (environmental, social and governance) factors, as demonstrated, inter alia, by the fact that issuers are required to publish an annual non–financial statement containing environmental, social, personnel, human rights and anti–corruption information (). This confirms what will be said below about the progressive institutionalization that currently characterizes the organization and management of the Italian (and European) listed companies.
2. Article 92 of the Italian Securities Act inaugurates the regulation on issuers stating that Consob exercises its powers with regard to the protection of investors and the efficiency and transparency of the market for corporate control and the market for financial instruments.
These are the main interests protected by the regulations on listed companies, which aim at attracting public savings into the financial markets in order to channel them towards the financing of listed companies ().
This form of public savings’ allocation pursues constitutional goals, which are physiologically linked to the success of the entrepreneurial initiative, including, for example, the proliferation of jobs, the increase in tax revenues, the protection of the creditor class and suppliers, and so on.
However, in order to ensure that savings are efficiently allocated in favour of the most deserving issuers, and then diligently used and remunerated by them, it is necessary that an imperative regulation protects the correctness and transparency of the behaviour of the competent corporate bodies of such issuers, to guarantee the rights of the investors and, therefore, the good functioning of the capital market ().
These objectives also require an efficient and transparent circulation of corporate control over the issuers, given that the controlling company directs the entrepreneurial management of the listed company by exercising a dominant influence on the operational and financial management of the same and, in this way, conditioning its economic performance and results.
Consequently, in the listed company, the personal data of the main shareholders (i.e. holders of more than 3% of the voting capital) and the contents of any shareholders’ agreement concerning the listed shares (having a maximum duration of three years) shall be in public domain.
Furthermore, in case of purchase of shares exceeding 25% of the voting capital the purchaser is required to mandatory launch a totalitarian takeover bid (public tender offer) over the outstanding shares of the listed target company (see Article 106 of the Italian Securities Act); such a “mandatory tender offer” rule (MTO) aims at to discouraging the circulation of controlling shareholdings without allowing all the shareholders of the target company to monetize their shareholding selling them to the insurgent controlling entity at the same economic terms (creeping acquisitions) (see below).
In addition, a recently issued rule (Article 120, par. 4–bis, of the Italian Securities Act) imposes on those who purchase more than 10% of the voting capital of the issuer to promptly disclose the intentions underlying their acquisitions, including which are the sources of financing of their purchases and their future strategies.
Moreover, if a bidder launches an “hostile” takeover bid over the issuer (i.e. not appreciated by the incumbent directors of the target company), on the one hand, the management body of the target company cannot start or implement defensive measures and strategies (such as poisons pills and shark repellents) without the prior authorization of the shareholders’ meeting (passivity rule) – given that it is up to the shareholders to make the final decision as to whether or not the offer addressed to them is appropriate – and, on the other hand, shareholders bound to each other by a shareholders’ agreement will also be free, pursuant to law, to adhere to the public tender offer, regardless of the provisions set forth by such agreement.
These are provisions aimed at encouraging an efficient circulation of corporate control, in order to allow a change in the top management of the issuer, which is welcome when the issuer’s securities are listed at a discount with respect to the potential value of the company. Such a principle aims at ensuring an optimal allocation of the savings invested in the financial markets which should be easily allocated by the investors to the issuers which are most appealing for them, from time to time, depending on the evolution of the market as well as of the management strategies and business results of the specific companies (so–called wall street rule) ().
3. In order to promote an efficient allocation of public savings coming from the investors, corporate information plays a fundamental role. For the above-mentioned purpose of allowing investors to make informed investment choices, the information made available to the public by the issuers must be updated, understandable and equal for everybody (symmetrical) ().
In the years of greatest growth of the financial markets (before the crises of 2002–2005) the “sunlight” has been considered the best “disinfectant” against conflicts of interest and fraud. In those years, governance rules of the issuers were sporadic and of minor importance, given that –– on the assumption that the investors were able to address their investment choices –– an exhaustive and truthful information framework was considered enough, guaranteeing at the same time the equal treatment among them (protected also by the insider trading criminal sanctions).
In this respect, the regulation of the listed company subverted the logic of the anonymity of the shareholders, which is typical of the “closed” joint stock companies, imposing the transparency of the ownership structures of the issuer (i.e. significant, potential and reciprocal shareholdings), today further strengthened by the provisions on shareholders’ identification introduced by the European directives on shareholders’ rights. In addition, corporate transparency of listed companies includes the obligation to periodically publish accounting information, including interim reports (Article 154-ter of the Italian Securities Act), as well as, occasionally, detailed corporate documents, such as prospectuses and reports – as the case may be – on extraordinary operations (mergers, demergers, significant acquisitions/disposals, capital increases, etc.), on stock option plans, on significant transactions with related parties and on matters falling within the competence of the shareholders’ meeting (see, for example, Article 125-ter of the Italian Securities Act).
Of particular importance is also Article 114 of the Italian Securities Act, which requires inside information to be disclosed by issuers to the public as soon as possible (in execution of the European regulation on market abuse -– “MAR” –, mainly contained in EU Regulation No. 596/2014). Inside information has precise nature, not yet public, concerning the issuer (or its financial instruments) which, if made public, could have a significant effect on the prices of such financial instruments (price sensitiveness); for example, the execution, by the issuer, of a binding agreement relating to the implementation of an extraordinary transaction of particular importance triggers an inside information relating to the securities of such issuer ().
The main aim is to avoid information asymmetries whereby certain operators are in possession of information that could affect share prices without the general public being in possession of it.
Paragraph 7 of Article 114 maintained the rules on internal dealing, pursuant to which significant shareholders (with a stake of at least 10% of the share capital of the issuer) are required to notify to Consob and to the public all the transactions carried out by them on shares issued by such issuer. By doing so, the transactions in the securities of the listed company carried out by the most important shareholders are monitored in detail.
With the above-mentioned disclosure obligations, Consob plays a very important role in protecting the issuers’ compliance. On the basis of Article 115 of the Italian Securities Act, Consob, in order to monitor the fairness of the information provided to the public, may, also in general, require issuers (as well as the subjects that control them and the companies controlled by them) to communicate news and documents, establishing the related procedures, as well as to obtain information from certain categories of subjects and to carry out inspections.
Finally, particular attention should be paid to the rules on the disclosure of shareholders’ agreements. The need for transparency in the structures of listed companies requires their publication, under penalty of nullity of the agreement, within 5 days from their subscription. It is important to note that such agreements, even if null and void (e.g. because, for instance, they are not published), are in any case able to trigger the obligation of the parties to launch a public tender offer in concert over the issuer if such agreements aggregate a percentage of voting capital higher than the threshold of the mandatory tender offer (25%) ().
More in particular, Article 101-bis, paragraph 4-bis, letter a), of the Italian Securities Act provides that shareholders’ agreements give rise to an “acting in concert” which is relevant for the purposes of the mandatory tender offer (if the applicable conditions are met) without the possibility, for the parties of the agreement, to provide evidence of the contrary (presumption iuris et de iure).
4. As a result of the financial crises at the beginning of this millennium (in Italy the Parmalat and Cirio crashes), the autonomy of the issuers’ by-laws – with regard to governance – has been significantly limited by the introduction of certain mandatory law provisions (mainly by Law No. 262 of 2005) ().
First of all, the Italian legislator introduced mandatory and binding rules on the appointment and composition of the management body of listed companies. In this regard, in order to allow minority shareholders to designate at least one director, the obligation to appoint the management body on the basis of a “slate voting system” (voting list) has been introduced (). According to such a mechanism, shareholders holding, even jointly, a minimum share capital threshold () have the right to submit a list of candidates for the office of director, indicated in the list according to a progressive number (see Article 147-ter, paragraph 1, of the Italian Securities Act) (). The by–laws are then free to distribute among the various lists duly filed the number of new directors to be elected, provided, on the one hand, that at least one of them is taken from minority lists (i.e. not connected in any way to those presented by the majority shareholder/s) and, on the other hand, that the list ranked first in terms of number of votes appoints the highest number of new directors. In the market practice, generally the by-laws provisions grant a fixed number of directors to the list ranked first (e.g. 9/10 of the new board of directors), while only in few cases the new directors are adopted according to a principle of pure proportionality (e.g. with the “quotient calculation”) which aims at assuring a wider representation of the shareholders’ designees within the board of directors ().
In order to further ensure a sound and thoughtful dialectic within the management body, a minimum number of independent directors shall be appointed (see Article 147-ter, paragraph 4, of the Italian Securities Act) (). Those directors shall be independent from the listed company itself and from its controlling shareholders/executive officers (). In compliance with the recommendations contained in the Code of Conduct for Listed Companies (), the independent directors are often members of the internal committees with investigative, proposing and advisory functions (nomination and remuneration committee, internal control committee, sustainability committee, etc.) ().
Moreover, if a listed company is subject to the direction and coordination activity by its parent company (see Articles 2497 et seq. of the Italian Civil Code), all the internal board committees must be entirely composed of independent directors. In addition, if the parent company is also listed, the majority of the members of the board of directors of the controlled listed company must be independent. The purpose of these rules is to strengthen the protection of the management autonomy and independence of judgement of those who manage a listed company which is subject to the direction and coordination activity carried out by another entity, in order to further protect minority shareholders and other stakeholders of the subsidiary (company creditors, counterparties, etc.) ().
However, the role of the independent director must not be overestimated, given that, on the one hand, all the directors of the company are required to pursue only the corporate interest, regardless of who appointed them and their personal or professional relationships (see Articles 2391 and 2391-bis of the Italian Civil Code), and, on the other hand, beyond formal independence, what really ensures autonomy of judgment is the circumstance that the value of the person is actually higher than the value of the office held ().
In listed companies, without prejudice to the applicability of the principle of equal treatment among shareholders who are in the same position, even corporate rights are not always the same for all the shareholders. Following the “Lehman Brothers” crisis (), also the Italian legislator began to distinguish between shareholders with a short-term investment perspective (in the negative meaning: “speculators”) and shareholders interested in the sustainable growth of the company in a medium–long term view (“patient capital”), strengthening the governance rights of the latter in the listed company through a series of incentive measures, among which, the increase of the voting right and of the dividend in favour of the long-term shareholders (i.e. those shareholders holding their shares – on an ongoing basis – for at least two years – see Article 127-quater and 127-quinquies of the Italian Securities Act) (). These measures, by derogating from a pure plutocratic principle which normally governs joint stock companies, are intended to strengthen the role of shareholders who, by virtue of their long–term ownership of shares, show a greater interest than other shareholders in the sound and prudent management of the company in the long-term perspective ().
Moreover, in order to reduce the rational apathy which generally causes the inactivity of minority shareholders (), the Italian Securities Act (see Article 125-bis et seq.) and the European directives on the involvement of shareholders () encourage the participation of the latter in the corporate life of the company, and in particular in the meetings of shareholders, facilitating the use of proxies (see Articles 125-bis et seq. of the Italian Securities Act) – which can be requested and collected by those who aim at influencing the result of the vote (see Articles 136 et seq. of the Italian Securities Act) () – and strengthening the previous corporate information flows. Moreover, in listed companies, only those who are shareholders of the issuer at the end of the seventh trading day prior to the date of the meeting (the so–called record date) are entitled to attend and vote at the shareholders’ meeting. This rule aims at preventing that the vote could be influenced by speculative intentions, such as in case of encumbered shares or other devices according to which the shares are exchanged immediately before the shareholders’ meeting (and then delivered back) for the sole purpose of altering the results of the vote (e.g. through securities lending transactions, or similar).
It should be also noted that the board of statutory auditors of listed companies () has the duty to inform Consob of any irregularity discovered during the course of its supervisory activities (see Article 149 of the Italian Securities Act) (). Even the auditing monitoring is particularly incisive in the issuers, considering the obligation of such companies to appoint – in addition to the statutory auditors (one of them to be elected by minority shareholders) both an external auditing firm in charge for reviewing their accounts (see Legislative Decree No. 39 of 2010) and an officer responsible for the corporate accounting documents (see Article 154-bis of the Italian Securities Act), as a further comfort, for the investors, on the truthfulness and accuracy of accounting information disclosed by the issuer.
5. In public companies a transfer of a controlling stake triggers certain obligation for the new controlling shareholders aimed at complying with the equal treatment rule. A change of control over a listed target company could affect the business perspective of the company, and therefore the potential value of the shares.
In addition, since the corporate control grants to the controlling shareholder the so-called “private benefits” of control (see below the paragraph on related parties’ transactions), generally such a purchaser pays a controlling premium to the former controlling entity (the seller of the controlling stake) ().
Therefore, according to the equal treatment rule, in public companies – in the European Union Countries (i.e. those subject to the EU Directive No. 2004/25 on takeover bids) – when a purchaser acquires a stake in the share capital of a public company higher than a fix threshold (in Italy the 25 per cent) of the voting share capital, in the absence of another controlling shareholder, such a purchaser is required by the applicable law (in Italy see Article 106 of the Italian Securities Act) to launch a mandatory tender offer over the remaining voting shares.
The mandatory tender offer shall be launched at a price per share not lower than the highest consideration paid by the offeror in the 12 months preceding the acquisition of the controlling stake. This is a rule which grants the minority shareholders with an exit right in case of a change of control (which may affect the business strategies of the companies) at the same terms and conditions agreed by the former controlling shareholder ().
The same obligation to launch a mandatory tender offer is triggered even if the significant stake has been exceeded by several persons acting in concert (). In the recent years an increasing number of legal frameworks deal with the notion of “persons acting in concert” in the international financial systems. References to such concept are generally aimed at achieving different goals, ranging from the extension of the parties bounded by disclosure duties vis-à-vis either the public or the competent supervisory authorities – in case of acquisition of significant stakes in banks, insurance companies, investment firms and listed issuers – to the identification of the joint offerors under the applicable takeovers’ rules. However, the lack of legal certainty provided by the current EU rules on this subject is perceived as an obstacle to effective shareholders’ cooperation since equity-investors need to know when they can share information and cooperate with one another without running the risk that their actions may trigger unexpected legal consequences. For such a purpose, certain financial laws and regulations make a distinction between a “white-list” of permitted acting in concert conducts – that typically include initiatives promoted by minority shareholders (concerning the harmonized exercise of their reciprocal corporate rights) – and a “black-list” of personal connections that generally trigger a presumption of joint-responsibility among the entities acting in concert ().
6. In listed companies, also related parties’ transactions are regulated by specific rules. Related parties’ transactions mean all transfers (direct or indirect) of resources, services or obligations from an issuer to a related entity associated with it (typically, but not exclusively, its directors, the parent company and certain other parties considered structurally close to the company) ().
The regulation at hand aims at protecting the minority shareholders of the listed company from the risk of an extraction of the so–called “private benefits of control” (tunneling transactions). Tunneling transactions might be dangerous for minorities since they can cause a transfer of financial sources in favour of related parties at unfair conditions. In other words, in order to safeguard the consistency of the equity investment made by minority shareholders, the legislator has introduced devices aimed at safeguarding the correctness of the transaction process as well as its economic convenience, to ensure that it would be carried out at fair conditions and at market standard ().
Consob Regulation on Related Parties’ Transactions deals with the subject at hand and assigns a central role, within the corporate process, to a special internal board committee composed of independent directors who are not related to the specific transaction. The “related parties committee” has the duty to issue an opinion on the convenience and substantial correctness of the related parties’ transaction as well as on the compliance of such transaction with the corporate interest of the issuer ().
If case of negative opinion, the board of directors may go forward with the decision–making process only provided that – in the most significant transactions (in terms of size) – also an approval by the shareholders’ meeting is obtained. In such a case, the shareholders’ meeting “authorization” could be duly adopted only if the majority of the minority shareholders votes in favour of the transaction (whitewash mechanism) ().
However, considering that the terms and conditions of the most important related parties’ transactions are disclosed to the market – through the publication of a specific information document on the main legal and economic terms of such transaction () – it is rare, in practice, the overruling by the shareholders’ meeting of the negative opinion of the special committee ().
The special rules on related parties’ transactions make safe the general rules on corporate conflict of interests (Articles 2373, 2391 and 2497 et seq. of the Italian Civil Code) and therefore add new contents and procedure to them in order to strengthen their scope of application.
7. In the context of the regulation on listed companies, the organization and functioning of special shares classes (i.e. shares other than common shares) plays a significant role since the introduction of savings shares by Law No. 216 of 1974 (). These rules aimed at attracting investment from investors who were more interested in the remuneration of their investment in shares than in the governance rights attached to the shares ().
Following the 2003 Italian corporate law reform – which considerably extended the set of financial instruments that a company can issue to attract new capital sources – the special shares issued by the listed companies remained subject to strict and mandatory rules (see Articles 145 et seq. of the Italian Securities Act) ().
Traditionally, the issuance of special classes of shares aimed at achieving several goals, including a “customization” of shares offered to investors. With regard to savings shares, which constitute the paradigm of a special class of shares in listed companies, Article 145 of the Italian Securities Act does not lay down precise rules for the privileges to which they are entitled to, but leaves the identification of the content of the economic privilege, as well as the conditions, limits, methods and terms for achieving and exercising it, entirely to the articles of association of the issuer ().
The class at hand benefits from certain ‘class’ protections, represented, in particular, by the special shareholders’ meeting and the common representative of the special class. With regard to the first device, Article 146 of the Italian Securities Act extends the scope of the rules concerning the powers and functioning of the special meeting with respect to the provisions of the Italian Civil Code regulation (). With regard to the second device, Article 147 of the Italian Securities Act grants the special representative certain mandatory powers (of impulse, execution and supervision) to protect the special class ().
It is a shared opinion, and confirmed by practice, that in listed companies – despite the good intentions of the legislator – savings shares (and other special shares) have not received among the public of investors the success originally hoped for. The experience of recent years has shown, in fact, a progressive decrease in the number of special shares in circulation, deriving from compulsory conversion transactions ().
In a nutshell, in public companies the claim of the preferred shareholders is typically limited to a fixed dividend and a fixed amount on liquidation, and this claim shall be satisfied before the common shareholders can receive anything. Their rights to a prior, but limited, dividend resemble the rights of creditors, who also must rely on their contractual rights and do not vote in the general shareholders’ meeting. However, according to Italian corporate law, the preferred shareholders have a veto power against fundamental transactions such as, for example, certain mergers, demergers, charter amendments that jeopardize their preferred rights.
Therefore, notwithstanding their limited percentage of share capital, preferred shareholders on the one hand have the power to prevent a corporation from transactions that may increase the common shareholders’ value, and, on the other hand, are not subject to any redemption right neither by the common shareholders nor by the corporation itself.
In light of the above, certain legal scholars argued that granting a redemption right ex lege to the common shareholders in case the preferred shareholders should vote against certain fundamental transactions may be a tool for strengthening the best interest of the corporation because it allows at the same time directors and common shareholders – representing, the latter, the majority of the share capital – to achieve the corporate benefits arising from such fundamental transactions, and the dissenting preferred shareholders to withdraw from the corporation at a fair market value ().
8. The fact that the issuers collect and manage public savings has a significant impact on the conformation of the relative corporate interest. This concept, in particular, on the one hand, drives the entrepreneurial strategy and the ordinary management of the company and, on the other hand, limits the sphere of influence of the shareholders and managers, since neither the directors nor the shareholders can act in conflict with the corporate interest of the issuer ().
Since in the modern listed company a plurality of interests come into contact, many of them theoretically classifiable as “corporate”, the governance structure and rules of the company clarify how to weight the different positions at stake according to the decision–making criteria typical of legal persons (first, the majority rule) ().
When some of the interests at stake are qualified as “extra–corporate”, then the rules on the conflict of interests settle the contrast. In such a circumstance, the legislator makes a selection of the legal goods in competition, generally privileging the objective of safeguarding the public savings.
This being said, it is a consolidated opinion that, in the management of a listed company, the interest of the shareholders will drive the action of the directors (). But having identified the interest of the shareholders as the boundary within which administrative discretion can legitimately be explained, we do not have yet a clearly traceable line of demarcation, considering that the widespread heterogeneity of the positions (and therefore of the interest) within the shareholders is well-known. In short, we can distinguish, within the corporate structure, between (a) industrial and financial shareholders, (b) conservative and speculative shareholders, (c) actual and potential shareholders, (d) common and special shareholders, etc. ().
Shareholders are, in turn, more often financial institutions (funds, banks, insurance companies) representing further and shattered upstream interests, giving rise to a phenomenon called “agency capitalism”.
Therefore, the goals of a company’s strategy driving the actions of the directors – including any determination regarding the resolution of conflicts of interest – do not have an abstract content but are affected by the initial and evolving structure of values under the corporate initiative and business, as expressed by the shareholders ().
In other words, the business program that still seems to prevail today is the one oriented, even in listed companies, towards the promotion of the interest of the shareholders when the latter is in direct conflict with the one of other stakeholders (so called: shareholders’ value theory).
However, the shareholders’ interest should be necessarily abstract, referable to an ideal and virtuous corporate shareholding, which pursues objectives of sustainable profitability in the long–term view (). This notion of corporate interest reduces the possibility of extraction of private benefits of control by the majority shareholders (and their trusted directors) and strengthening the role of long-term shareholders aims at producing positive effects on the perspective value of listed securities.
In short, making certain shareholder rights dependent on continuous ownership is a good way of developing corporate governance because it helps the management to act in the long-term interest of the company. In a nutshell, fostering long-term shareholders’ activism may be a tool for strengthening the long-term best interest of the corporation because it allows directors to manage their enterprises in a manner that emphasizes the long-term over the short-term.
In this context, the recently introduced provisions aimed at enhancing ESG factors and corporate social responsibility within the listed company further support the above-mentioned vision of the corporate interest.
() As an alternative – or in addition – to the listing of its own shares, a company may increase its financial means by offering to the public instruments other than shares, including, for example, debt securities (bonds) or hybrid securities (participatory financial instruments) or even more complex instruments. Moreover, a company may expand its corporate structure without having to list its shares; in this case, when the qualitative and quantitative conditions indicated in Article 2-bis of Consob Regulation on Issuers are met. The company at hand shall take the status of “issuer of financial instruments distributed to the public to a significant extent” and will be subject to the rules provided for these categories of company (see mainly Article 2325-bis of the Italian Civil Code and 116 of the Italian Securities Act). Without prejudice to the foregoing, this chapter focuses solely on the rules and problems typical of listed companies; therefore, in the following discussion any reference to the category of “issuers” or “listed company” shall be understood to be limited to the subjective class constituted by “listed companies with shares”, which may be either joint stock companies or cooperative companies.
() According to the Regulation of the Markets organized and managed by Borsa Italiana S.p.A., the initial free float ought to be at least equal to 25 per cent of the share capital of the issuer (Article 2.2.1). Free float may be defined as the number of current shares issued by a company, not representing the portion of the share capital constituting the controlling interest, available for trading on the Stock Exchange. Also, the shareholdings bound by shareholders’ agreements and those subject to restrictions on the transferability of shares (lock-ups) with a duration of more than 6 months are excluded from the calculation of the free float, as well as those shareholdings equal to or greater than 5 per cent of the share capital of the issuer.
() In order to reconcile the interest of the historical shareholders in partially monetizing their investment and in equipping the listed company with new equity (which is instrumental in realizing the latter’s business plan) – and thus in making the issuer’s shares more attractive to new investors – the listing procedures often provide that, up to a certain amount of subscriptions to the offer, the resources collected are allocated to the increase in the issuer’s capital and, if the above threshold of subscriptions is exceeded (the achievement of which testifies the success of the IPO), the surplus collected is paid to the historical shareholders against the transfer of part of their shares to the new shareholders.
() The capacity of maintaining control over the listed company is considered a value – also in economic terms – for those who achieve it. Indeed, the holding of a controlling interest in a company with a widespread shareholding, allowing the parent company to appoint the majority of the administrative body and to approve the financial statements at the ordinary shareholders’ meeting, enables to extract the so-called “private benefits of control” (within the limits currently permitted by the rules on related party transactions pursuant to Article 2391-bis of the Italian Civil Code and the relevant Consob regulation) and, more generally, to direct the activity and strategies of the issuer at will. This explains the frequent use by newly listed companies, especially abroad, of so-called “dual class shares”, i.e. distinct categories of shares through which the historical shareholders preserve control by means of enhanced shares (e.g. with multiple votes, ex Article 127-sexies of the Italian Securities Act) and reserve to the market (rectius: to the minority shares) ordinary shares or even shares of a special category weakened in terms of voting rights (according to the paradigm of the shares without full voting rights). See Goshen and Hamdani, Corporate Control and Idiosyncratc Vision, The Yale Law Journal 560 (2016); Zingales, Insider Ownership and the Decision To Go Public, Rev. Econ. Stud. 425 (1995).
() The regulation of the listed company is mainly to be found in the Italian Securities Act and in the implementing regulations issued by Consob, but –although partially – it is also to be found in the Italian Civil Code and in the European Directives. Amplius see Costi, La disciplina delle società quotate, Torino (2018); Cera, La società con azioni quotate nei mercati, Bologna (2018); Blandini, Società quotate e società diffuse. Le società che fanno ricorso al mercato del capitale di rischio, Tratt. dir. civ. notar., Napoli (2005); Montalenti, La società quotata, Tratt. dir. comm., directed by Cottino, Padova (2004); Meo, Le società con azioni quotate in borsa, Tratt. dir. priv., edited by Bessone, Torino (2002).
() See d’Alessandro, La provincia del diritto societario inderogabile (ri)determinata. Ovvero: esiste ancora il diritto societario?, Riv. soc. 34 (2003).
() As a confirmation of what has been stated in the text, listed companies – like other supervised companies that collect and manage public savings (such as, for example, banks and insurance companies) – are defined as “public interest entities” by certain regulations of special law (Article 16 of Legislative Decree No. 39 of 2010 on auditing accounts).
() See Oppo, Sulla «tipicità» delle società quotate, II Riv. dir. civ. 483 (1999).; contra, Spada, Tipologia della società e società per azioni quotata, I Riv. dir. civ. 211 (2000).
() Such consideration, in case of a mandatory takeover bid, must be not lower than the highest price paid off by the offeror (or by those persons acting in concert with him) in the last 12 months for the purchase of the same securities. This is because it is assumed that the highest price paid in the last 12 months by the offeror incorporates the control premium (i.e. the consideration paid to the previous parent company for the purchase of the relevant share above the threshold of the mandatory tender offer). Therefore, in application of the principle of equal treatment, any control premium would be granted equally – even if proportionally – to all shareholders interested.
() See Capriglione, Introduzione, Aa.Vv., I contratti dei risparmiatori, edited by Capriglione, Milano (2013).
() Traditionally, see Berle and Means, The Modern Corporation and Private Property, New Brunswick and London (1932); Jensen and Meckling, Theory of the Firm: Managerial Behaviour, Agency Costs and Ownership Structure, J. Financ. Econ. 305 (1976).
() See Rossi, Proprietà, controllo, mercato: una triade scomposta, Proprietà e controllo dell’impresa: il modello italiano stabilità o contendibilità, Milano 15 (2008). See also Gilson and Gordon, The Agency Costs of Agency Capitalism: Activist Investors and the Revaluation of Governance Rights, Columbia Law Review 883 (2013).
() The primary regulation regarding the communication of non-financial information is contained in Legislative Decree No. 254 of 30 December 2016, which implements Directive 2014/95/EU into Italian law. See Angelici, Divagazioni sulla “responsabilità sociale” d’impresa, Riv. soc. 3 (2018).
() See Costi, Tutela degli interessi e mercato finanziario, Riv. trim. dir. e proc. civ. 769 (1999).
() See Sacco Ginevri, Staggered Boards, Banks and Public Companies: Quo vadis?, European Business Law Review 575 (2017).
() The principle of free competition in the exercise of economic activity is intended to ensure the triumph of the most efficient corporations; see Ascarelli, Teoria della concorrenza e dei beni immateriali, Milano 30 (1960).
() See Mignoli, Vecchio e nuovo nel diritto societario, Riv. not. 1043 (1973) and La società per azioni, problemi-letture-testimonianze, Milano, I, 75 (2002) et seq. More recently see Capriglione, I «prodotti» di un sistema finanziario evoluto. Quali regole per le banche? (Riflessioni a margine della crisi causata dai mutui sub-prime), I, Banca e borsa 53 (2008).
() In the case of a prolonged, multi-stage process, the issuer may, under its own responsibility, delay public disclosure of inside information relating to that process (e.g. during advanced negotiations where, however, there is still no certainty that a binding agreement will be reached). See Article 17, par. 4, of MAR.
() It should be noted that, pursuant to paragraph 5 of Article 122 of the Italian Securities Act, the regulation concerning the shareholders’ agreements refers also to those agreements (executed in any form) having as object the exercise of voting rights in listed companies and in their controlling entity (voting syndicates), or the establishment of obligations of prior consultation for the exercise of such rights (consultation syndicates), or the limit to the transfer of the relevant shares or of financial instruments that grant the right to purchase or to subscribe them (blocking syndicates) or the purchase of shares or financial instruments, or to have as their object or effect the exercise, even jointly, of a dominant influence, or which are intended to favour or counteract the achievement of the objectives of a public tender offer, including commitments not to adhere to an offer.
() See Aa.Vv. La nuova legge sul risparmio. Profili societari, assetti istituzionali e tutela degli investitori, directed by Capriglione, Padova (2006).
() Slate voting is a statutory mechanism – introduced in Italy for the first time for privatized companies by Legislative Decree No. 332 of 1994 (converted into Law No. 474 of 1994) – which derogates from the general principle on the basis of which the majority formed in the ordinary shareholders’ meeting appoints the entire board of directors (see Article 2369, paragraph 4, of the Italian Civil Code).
() The articles of association establish the minimum shareholding required for the submission of slates, not exceeding one fortieth of the share capital or a different amount established by Consob regulation, taking into account the capitalization, the free float and the ownership structure of listed companies.
() If the articles of association so provide, the outgoing administrative body, in competition with the legitimate shareholders, may also submit to the shareholders’ meeting its own slate for the renewal of the body itself. This mechanism is increasingly used by large Italian listed companies, especially where there is no controlling shareholder and, therefore, the so-called “slate of the board” is able to coagulate the votes of the market.
() Amplius Ciocca, Il voto di lista nelle società per azioni, Milano (2018).
() At least one of the members of the board of directors, or two if the board of directors is constituted by more than seven members, must meet the independence requirements established for statutory auditors by Article 148, paragraph 3, of the Italian Securities Act and, if the articles of association so provide, the additional independence requirements set out in codes of conduct drawn up by companies that manage regulated markets or by trade associations. The independent director who, after his appointment, loses the requirements of independence must immediately inform the board of directors and, in any case, his office shall cease.
() See Regoli, Gli amministratori indipendenti tra fonti private e fonti pubbliche statuali, Riv. soc. 382 (2008).
() Reference is made to the code of conduct drafted and updated by the committee for corporate governance established by Borsa Italiana S.p.A. – a private body composed of operators in the sector – in order to allow a rapid and flexible ability to adapt to the practical needs that arise in the markets. The Code of Conduct provides for non-binding recommendations addressed to issuers subject to the comply-or-explain rule pursuant to Article 123-bis of the Italian Securities Act; see Bosi, Autoregolamentazione societaria, Milano (2009).
() See Stella Richter, I comitati interni all’organo amministrativo, Riv. soc. 260 (2007).
() Reference is made to Sacco Ginevri, La nuova regolazione del gruppo bancario, Torino, 54 (2017).
() See Ferro Luzzi, Indipendente… da chi?; da cosa?, Riv. soc. 207 (2008).
() See Capriglione, Crisi a confronto (1929 e 2009). Il caso italiano, Padova (2009); Masera, La crisi globale: finanza, regolazione e supervisione alla luce del rapporto De Larosière, Scritti in onore di Francesco Capriglione, Padova 1121 (2010).
() See Tombari, “Maggiorazione del dividendo” e “maggiorazione del voto”: verso uno “statuto normativo” per l’investitore di medio-lungo termine?, I Banca e borsa 303 (2016).
() Reference is made to Sacco Ginevri, L’attribuzione di diritti particolari agli azionisti di lungo termine in una prospettiva comparata, Riv. dir. soc. 231 (2012).
() “Rational apathy” of small shareholders means the lack of interest of the latter in the participating in the decisions concerning the issuers in whose capital they participate, which is considered economically efficient because a different (more proactive) approach would require the expenditure of resources, including economic ones, which are essential for proper monitoring and possible intervention in management activities.
() This is the Shareholder Rights Directive II, which amends the EU Directive No. 36 of 2007 (the so-called Shareholder Rights Directive I), both relating to the exercise of certain rights of the shareholders of listed companies which are functional to encouraging their long-term commitment.
() These are functional devices to avoid excessive absenteeism of members. See Marchetti, D.Lgs. 58/1998. L’incidenza sulla disciplina delle assemblee: primi commenti, Società 557 (1998).
() The board of statutory auditors, like the board of directors, is also elected through slate voting, with the specification that the chairman of the board of statutory auditors shall be drawn from the candidates included in the minority list (Article 148 of the Italian Securities Act).
() See Valensise, Il “nuovo” collegio sindacale nel progetto italiano di corporate governance, Torino (2000).
() In this respect see Dick and Zingales, Private Benefits of Control: An International Comparison, journal of Finance 537 (2004).
() See Enriques, The Mandatory Takeover Bid Rule in the Takeover Directive: Harmonization without Foundation, ecfr, 440 (2004).
() See Sacco Ginevri, Sustainable Governance and Regulation of Banks and Public Companies: a study of the concept “Acting in Concert”, Corporate Governance and Sustainability Review 42 (2017).
() An overview of such conducts is provided by ESMA, Information on shareholder cooperation and acting in concert under the Takeover Bids Directive – first update, June 2014, available at www.esma.europa.eu – in which the authority recognizes that shareholders may wish to cooperate in a variety of ways and in relation to a variety of issues for the purpose of exercising good corporate governance without, however, seeking to acquire or exercise control over the companies in which they have invested.
() Pursuant to Article 2391-bis of the Italian Civil Code, the rules on transactions with related parties set forth therein, and implemented by Consob Regulation on Related Parties’ Transactions, as subsequently amended and interpreted by Consob, shall be applied to Italian issuers (pursuant to Article 2325-bis of the Italian Civil Code). The catalogue of related parties is contained in attachment 1 to the afore-mentioned Consob Regulation.
() See Miola, Le operazioni con parti correlate, Amministrazione e controllo nel diritto delle società, Torino 643 (2010).
() Moreover, in order to monitor the progress of the negotiations, one or more members of the committee specifically delegated are generally involved in the negotiation phase and in the preliminary phase through the receipt of a complete and timely flow of information and with the right to request information and to make observations to the executive bodies and to the persons in charge of conducting these phases. See Article 8, paragraph 1, letter b), of the aforementioned Consob Regulation.
() See Article 11 of the aforementioned Consob Regulation.
() See Article 5 of the aforementioned Consob Regulation.
() See Enriques, Related Party Transactions: Policy Options and Real-world Challenges (with a Critique of the European Commission Proposal), EBOR 1 (2015).
() Since their origin, savings shares have been featured by the lack of voting rights at the shareholders’ meeting, which is balanced by the mandatory granting of financial privileges.
() In particular, the introduction of saving shares was aimed at separating, with greater transparency, the role of the control group from the one of the saving shareholders, so as to concentrate on ordinary shareholders any negative results arising from entrepreneurial activity and, at the same time, strengthen the equity position of shareholders without powers of management influence. See Ferri, Il Decreto Legge 8 aprile 1974, n. 95 e le modificazioni apportate con la legge di conversione, I Riv. dir. comm., 192 (1974).
() Reference is made to Sacco Ginevri, Azioni di risparmio (voce), Digesto delle discipline privatistiche, commercial section, Update *******, Torino 20 (2015).
() See Sepe, Sub Art. 145 of the Italian Securities Act, Il testo unico della intermediazione finanziaria, edited by Rabitti Bedogni, Milano 768 (1998).
() See Maugeri, Azioni di risparmio e assemblee di categoria: prime note sul coordinamento tra t.u.f. e nuovo diritto societario, I Giur. comm., 1302 (2004).
() See Giampaolino, Le azioni speciali, Milano (2004).
() See Sacco Ginevri, Attivismo degli azionisti di risparmio e operazioni straordinarie, I Giur. comm. 1092 (2014).
() See Sacco Ginevri and Sbarbaro, The Role of Preferred Shareholders in Fundamental Transactions: Preliminary Thoughts, European Business Law Review 765 (2015).
() See Minervini, Gli amministratori di società per azioni, Milano 189 (1956).
() See Oppo, Eguaglianza e contratto nella società per azioni, Riv. dir. civ. 32 (1974).
() See Angelici, La società per azioni e gli «altri», L’interesse sociale tra valorizzazione del capitale e protezione degli stakeholders, Milano 56 (2010).
() See Sacco Ginevri, Il conflitto di interessi nella gestione delle banche, Bari (2016).
() See Oppo, La tutela dell’azionista nel progetto di riforma, Riv. soc. 1220 (1966).
() See Sacco Ginevri, The Rise of Long-Term Minority Shareholders’ Rights in Publicly Held Corporations and Its Effect on Corporate Governance, EBOR 587 (2011).
Andrea Sacco Ginevri is Full Professor of Law and Economics at the Law Faculty of Università Telematica Internazionale Uninettuno in Rome