Italy’s push to reform its capital markets hits a hitch

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In recent years, Italy has suffered from a succession of reputational blows from some big corporate names shifting their listing or legal headquarters outside the country.

Last year Exor, the holding company controlled by the Agnelli family, moved its listing to Amsterdam. That came a few years after the holding company for the merged Mediaset businesses in Italy and Spain — MediaforEurope — chose the Netherlands to base its holdings company. Likewise Campari has moved its registered office there.

Now Italy is attempting to stem the trend. It is close to approving a long awaited set of measures aimed at improving the appeal of its capital market to local businesses. The measures include simpler listing requirements and the option to issue shares with much greater multiple voting rights.

The new proposed rules follow the OECD’s 2020 warnings about improving the country’s capital markets to boost economic growth and the findings of a report compiled by the Italian treasury under former prime minister Mario Draghi. They are seen in Milan as a step in the right direction although business figures argue taxation reform is needed to make Italy’s markets more attractive.

But there’s a catch. Politicians from the governing coalition have proposed a series of convoluted amendments to the regulations to change the way directors at listed companies are appointed in order to give minority investors more influence over board decisions.

In Italy, a board of directors including the chief executive typically has a three year mandate. At the end of that term, the board has the option to nominate candidates for the next term, often many of the same directors. If the proposed amendments were to be approved, the possibility of the board renominating directors would be significantly curbed, say corporate governance experts.

Under one proposed amendment, the board cannot present a slate of candidates if there is a single investor who owns more than 9 per cent of the company and nominates directors. According to another one, if the board’s slate wins a majority but there’s a second slate that obtains at least 20 per cent of the votes, the latter is in effect boosted to 49 per cent and given half of the board seats minus one.

Companies such as UniCredit, Telecom Italia, Mediobanca and Generali could all be affected by such potential new rules. Some lawyers and academics believe the proposed changes in companies’ governance would cause a new unnecessary shock to foreign investors, just weeks after the controversial banks windfall tax which sent Italian banking shares plunging last month.

Funds and other institutional investors usually own small stakes in Italian companies and typically back a board’s slate of candidates. “The mechanism makes the decision simple for international investors,” says Stefano Caselli, dean of the SDA Bocconi School of Management. “The outgoing board has skin in the game, if they propose unlikely candidates they will damage their reputation, if not investors will back them . . . it’s pretty straightforward.”

But critics claim the mechanism hands excessive power to the boards of directors. Francesco Gaetano Caltagirone, the 80-year-old founder of an eponymous building group, says the power of the board to nominate a slate of directors is based on the Anglo-American model where shareholder ownership is less concentrated. “It is hard to find an investor [in that model] that has the interest or sufficient shares to present a list of board candidates,” Caltagirone told policymakers. He also argued that investors should be allowed to vote on the single board candidates as opposed to a list of them as a whole.

Last year, his group put forward a slate of board candidates for Generali, where he now owns a 6.2 per cent stake. It was also backed by Delfin, the holding company of the late Leonardo Del Vecchio which owns roughly 10 per cent in the insurer. The move lost out against the outgoing’s board list. A similar battle is brewing over Mediobanca’s board renewal next month. Mediobanca is the largest investor in Generali while Delfin and Caltagirone are the two largest shareholders in Mediobanca. They own a 19.8 per cent and 5.6 per cent stake, respectively.

That makes the amendments timely for those shareholders but Caselli argues the changes won’t make Italy look like a friendly place for other investors. “The subject is totally unrelated to the important capital markets reform at hand, and complicates matters without need,” he says.

silvia.borrelli@ft.com