Finding an Italian path to good governance

Italy needs to find its own way to corporate governance, according to local
industry association Nedcommunity.

Corporate governance has become an increasingly core issue in asset management, including in Italy, where industry association Assogestioni recently approved a new stewardship code in line with the one issued by the
European Fund and Asset Management Association (EFAMA) in 2012.

It sets out a series of best practice principles mainly focusing on transparency and risk management. The six principles listed by EFAMA and
subscribed to by Assogestioni for the Italian industry call on investment management companies to have documented policy available to the public on their ownership responsibilities; to monitor their investee companies; to establish clear guidelines; to consider cooperating with other investors, where appropriate, to exercise their voting rights in a considered way; and to report on their exercise of ownership rights and voting activities and have a policy on external governance disclosure.

Massimo Menchini, head of Corporate Governance at Assogestioni, who took the lead on the process to get the stewardship code implemented in Italy, said: “Good governance standards are crucial to re-establish trust in finance actors.”

“It is important to improve the degree of conversation between issuers and
managers in order to protect final investors and savers. It is also important
to create a strong connection between the investment process and corporate governance in view of longterm horizons.”

Menchini adds that Italian institutional investors in corporate governance and managers committees will start implementing the code on a comply-or-explain basis starting from 2015.

While Assogestioni approaches the issue from the investor’s point of view, Nedcommunity the first Italian association aiming at enhancing the role of non-executive members on both boards of directors and supervisory boards, is campaigning to promote the concept of good corporate governance among firms.

Paola Schwizer (pictured), president of the association, explains: “We take care of promoting a more aware and responsible culture in the way firms’ executive and non-executive directors deal with investors.”

“We cooperated with the International Corporate Governance Network in organising their 2013 conference in Milan and we are closely following the issue of involving institutional investors in the debate.”

Many aspects of governance have improved in Italy over the past few year, but the road ahead is still long both for Italian investors and boards, Schwizer says.

“While an effort in terms of increasing transparency has been certainly made, the places where firms interact with institutional investors are not optimal.”

“While roadshows are good for investors to meet CEOs and other financial top managers, we believe that it would be more effective if institutional investors were put in touch straightaway with chairmen and independent directors with whom they might start a more constructive dialogue and set a more forward-looking agenda on corporate governance.”

Schwizer feels that companies have done a good job on making strategic plans and administrative reports available online, but more needs to be done to explain certain decisions and votes, and that the ‘comply-orexplain’
code needs better implementation across boardrooms and committees.

Even good examples of corporate governance in Italy struggle to be recognised, she says. “There is a tendency to make a lot more noise about bad practice examples and to relegate good ones to a corner. We will soon be part of the European Confederation of Directors’ Associations based in Brussels ,and every time I travel there they are surprised to hear of the good examples of corporate governance that we have in Italy,” Schwizer says.

Another domestic advantage that a code may bring is that where, for example, banks are already having to abide by many strict rules, they may be more partial to a best practice code, which may encourage reflection rather than blind adherence.

Finally, Nedcommunity’s president urges the industry to bear in mind that Italy does not have the same capital structure as other markets such as the UK, one which many board directors and investors tend to look at.

“There is a tendency in Italy to blindly look at the UK market as an absolute model, but Italy is not the UK and we need to bear that in mind if we want corporate governance to work.”

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