|Ownership and control structure
Ownership of Italian listed companies is still highly concentrated. In line with medium-term evidence, ... more
|At the end of 2016, Italian firms with ordinary shares listed on Borsa Italiana (Mta Stock Exchange) are 230. Most companies are industrial (123 of them, accounting for 53.5% of the market), followed by financial and service companies (respectively, 54 and 53 both weighting about 23% of the market). The largest firms operate in the financial and in the services sectors, with an average market value equal to about 2.5 and 2.3 billions of euro respectively (Tab. 1.1).
Ownership of Italian listed companies is still highly concentrated. In line with medium-term evidence, almost 9 out of 10 firms remain controlled either by a single shareholder or by a shareholders' agreement. In particular, in 169 cases control rests on a single shareholder, holding either more than half of the ordinary shares (116 firms) or a lower stake (53), while in 29 cases a shareholders' agreement is in force. This latter figure confirms the ongoing decline in the weight of coalitions, which at the end of 2010 were 51 and accounted for 12.4% of market capitalisation (almost twice as much as of 2016). Among non-controlled firms, cooperative companies have almost halved from the end of 2015 from 7 to 4, subsequent to corporate operations spurred on by the Law 33/2015 containing provisions on the reorganisation of the Italian cooperative banks. Widely held companies are 14 and account for almost 21% of market capitalisation (Tab. 1.2).
Consistently with the limited contestability of control in the Italian market, the average stake held by the largest shareholder at the end of 2016 is 47%, substantially stable with respect to its 2010 value (46.2%). On the contrary, the average stakes held by other major shareholders and by the market keep departing from their 2010 levels, with the former recording about a five percentage point decline to 12.8% from 17.7% and the latter slightly more than a four percentage point rise up to 40.3% (Tab. 1.3).
The ultimate controlling agent keeps being a family in the majority of listed firms (in details, 146 companies accounting for 33% of market capitalisation), predominantly in the industrial sector. The State or local authorities control 21 companies, representing 36% of total market value, mainly active in the service sector. Finally, nearly 18% of firms (26.5% of market capitalisation), mostly operating in the financial sector, are non-controlled or controlled by a non-controlled entity (Tab. 1.4 and Tab. 1.5).
At the end of 2016 institutional investors resulted to be major shareholders in 61 listed firms, representing slightly more than 26% of the market (Tab. 1.6). This figure, compared with previous years' data adjusted to account for the amendments to obligations on ownership reporting that in 2016 raised the first disclosure threshold from 2% to 3%, confirms the decline in the number of investee companies recorded over the last two years. Such a decline results from two, partially offsetting trends, with Italian institutional investors' holdings continuously decreasing since 2011 and foreign holdings stabilizing since 2015 onwards after the steady growth experienced in previous years. At the end of 2016, the average share of capital held by major institutional investors is equal to 7.5%, slightly lower than its former levels.
Italian institutional investors mainly invest in small-sized companies, while foreign investors hold more frequently major stakes in large and medium-sized companies and in financial firms (Tab. 1.7-Tab. 1.8).
In 2016, institutional investors owned overall 75 stakes (with an average magnitude of about 6% of the company's share capital), the lowest value ever since 2010. This figure is consistent with the drop in the holdings of (especially Italian) banks and insurance companies from 56 in 2010 to their lowest value of 12 in 2016, only partially offset by the increasing presence of foreign asset managers and active investors (private equity, venture capital and sovereign funds). Indeed, over the last year the number of stakes held by (mostly foreign) asset managers has markedly declined from 55 to 44, while other institutional investors' stakes (such as private equity and sovereign funds) have risen from 13 to 19 (Tab. 1.9-Tab. 1.11).
Recourse to control enhancing mechanisms, such as pyramids and dual class shares, has kept decreasing over time. Indeed, at the end of 2016 the percentage of stand-alone companies has risen to about 80% up from 56% in 1998. At the same time, firms belonging to pyramids or to the vertical structure of a mixed group have dropped to 16.5% of the Mta Stock Exchange (slightly more than 44% of market value) from nearly 39% recorded in 1998 (when they weighted 78% in terms of capitalisation), while only 1% of listed companies belong to a horizontal group (5.1% in 1998; Tab. 1.12).
The steady decline in the degree of separation between ownership and control is confirmed by the dynamics of some indicators, such as the number of firms in the group, the leverage and the wedge. In 2016 the mean number of firms belonging to pyramids is 2.8, while it was 3.1 in 2011 and 3.3 in 1998. The average leverage has passed from 3.5 in 1998 to 2.2 in 2011 and has shrunk further to 1.7 in 2016. Finally, the average wedge has declined from 24.2% in 1998 to 17.1% in 2011 achieving 13.6% in 2016 (Tab. 1.13).
As for dual class shares, at the end of 2016 only 18 firms issue non-voting shares (70 in 1998; Tab. 1.14).
Overall, the average wedge in Italian listed companies resorting to non-voting shares and/or to pyramidal groups is 17.2%, i.e. two percentage points lower than its 2014 level. Firms in the financial sector display a lower wedge than other firms (11.3% versus 17.6% and 22.2% in the industrial and services sectors respectively; Tab. 1.15).
Finally, alternative control enhancing mechanisms that the Italian listed companies are allowed to use are also the loyalty and multiple voting shares. Pursuant to the decree 91/2014 (Decreto Competitività, as converted into Law no. 116/2014), Italian listed firms may indeed provide in their bylaws for an increased voting power, up to two votes per share, to ‘loyal shareholders' who have retained their stocks for at least two years (azioni a voto maggiorato or loyalty shares). Moreover, companies that are about to go public (as well as private companies) may provide in their bylaws for categories of stocks carrying up to three votes per share (azioni a voto plurimo or multiple voting shares). In the three years subsequent the reform, 33 companies have amended their bylaws by introducing loyalty shares, while one company (gone public because of a merger transaction) has envisaged multiple voting shares. These firms are mainly family-controlled, small-sized industrial companies, representing overall 7% of total market value (Tab. 1.16-Tab. 1.18).
At the end of 2016, the traditional system is in place in 225 listed firms, while only 5 companies have chosen an alternative model, i.e., either the single-tier system or the dual-tier model, ... more
|At the end of 2016, the traditional system is in place in 225 listed firms, while only 5 companies (representing 9.4% of market capitalisation) have chosen an alternative model, i.e., either the single-tier system (2 cases) or the dual-tier model (Tab. 2.1).
In line with previous years, boards are composed on average by almost 10 directors. On the contrary, management boards keep recording a decline in the number of members (4.3 in 2016 down from 7.7 in 2008). Finally, the average size of supervisory boards, counting 13 members, is substantially stable with respect to its long-run figure, although marking a substantial reduction with respect to its most recent levels (17 members over 2013-2015; Tab. 2.2).
On average, almost 5 directors, accounting for 47.6% of boards, are independent by Corporate Governance Code and/or by Consolidated Law on Finance - Tuf: these figures hit their highest values (respectively 6 and 53.6%) in financial companies (Tab. 2.3). Finally, 96 firms count on average about 2 members appointed by minorities (98 in 2015; Tab. 2.4).
In the majority of Italian listed companies (overall 172 cases) at least one board member holds multiple directorships in other listed companies (interlocker), while no interlocker is present in 57 small-sized firms, overall representing 8% of total market value. On average, interlockers hold two seats and account for over one-fifth of the board. The phenomenon is more relevant in larger firms, as Ftse Mib and Mid Cap companies have on average 3 interlockers on board, while smaller companies count nearly two of them. Interlockers are a minority of board members in the majority of firms as they weigh less than 25% in 75 cases and within 25%-50% in 78 additional cases (Tab. 2.5 and Tab. 2.6).
At the end of 2016, the majority of firms have established the remuneration committee and/or the internal control and risk management committee (respectively, 200 and 208), while the nomination committee is adopted by 126 companies. The situation is quite stable with respect to the previous year, apart from the nomination committee whose presence continues to increase. All committees count on average slightly more than 3 members, between 2.5 and 2.7 independent directors and around 1.3 female directors. The internal control and risk management committee records on average 7.8 meetings, followed by the nomination committee (5.2) and the remuneration committee (4.6 meetings; Tab. 2.7 - Tab. 2.10).
Over the period 2014-2016, the number of companies undergoing a board self-evaluation process has remained stable at 184, while the number of firms adopting a succession plan has shown a substantial increase (39 at the end of 2016 up from 7 in 2011; Tab. 2.11).
As for the boards of statutory auditors, at the end of 2016 they counted on average 3 members, of which 0.5 appointed by minorities. The average number of meetings is around 13, slightly higher than its 2012 level.
As for board diversity, at the end of 2016 directors of Italian listed firms are aged on average 56.6 years. Boards are older in companies operating in the financial sector and in Ftse Mib firms, where the average age is respectively 57.7 and 57.9. Foreign directors, representing on average 7% of the board, record the highest presence in services firms (8.5%) and in Ftse Mib companies (9.7%). Family directors (i.e. directors linked to the controlling shareholder through family connections) account for 15.6% of the board and sit more frequently in small industrial firms. Almost 90% of board members are graduates and 21.6% are also postgraduates. As for the professional background, directors are mainly managers (70%), followed by consultant/professional (21%) and academics (8.2%; Tab. 2.13).
Board composition varies with the identity of the ultimate controlling agent. In particular, boards are younger, more educated and more diverse in terms of nationality in financial institutions. On the contrary, boards are older and foreign and graduated directors are less represented when no ultimate controlling agent can be identified (Tab. 2.14).
As for the educational background, 46% of graduated directors hold a degree in economics, 18% in law and 12% in engineering. Over time, the proportion of board members graduated either in economics or in engineering has shown a slight decline in favour of directors graduated in law (Tab. 2.15).
At the end of June 2017, women directors represent over one-third of all boards members (33.6%), marking the highest figure ever recorded and in line with the gender quota mandated by the Law in 2011. Female representation has reached an even higher figure, namely 36.7% of all seats, in the internal board of auditors ('organo di controllo') of Italian listed companies. Since 2015 women have been represented in both corporate boards of nearly all listed companies (Tab. 2.16).
Such developments have been mostly driven by Law 120/2011, mandating gender quotas for the three board appointments subsequent August 2012, so that the members of the under-represented gender shall account for at least one-third of the board (one-fifth for the first term). The breakdown of Italian companies according to the term of application of gender quotas shows that most companies have already enacted the one-third gender quota. Indeed, the percentage of board seats held by women in the companies that have undergone the second and third appointment under the new Law (respectively, 112 and 12 firms) largely exceeds the mandated one-third quota (36.5% and 38.7% of total board size, respectively). Also companies that have undergone only the first board appointment record a female representation largely exceeding the one-fifth quota applying to the first term. Finally, in the 17 companies that are not subject to the Law 120/2011, in the majority of cases being newly-listed, women hold on average nearly 3 seats and account for 29% of the board (quotas will apply in the three board appointments subsequent to listing; Tab. 2.17).
The number of female directorships is higher in the Ftse Mib firms, where women hold 4.4 board seats and represent 35% of the board, while it does not vary significantly across industries (approximately 3 directorships in financial, industrial and services sectors; Tab. 2.18 and Tab. 2.19).
Consistently with the previous year, women serve as the company's CEO in 17 companies, which account for less than 2% of total market value. Over the last year, the number of chairwomen has grown from 21 to 27 in firms representing overall nearly one-fourth of total market capitalisation. The number of independent women directors has steadily grown since 2013, exceeding two-thirds of board members at half 2017. A continuous upward trend has also been recorded for women directors appointed by minority shareholders, through the slate voting mechanism, in 44 large companies, representing 65% of total market capitalisation (Tab. 2.20). Finally, the percentage of women holding multiple directorships has reached 31% of all women directors, up from 18% in 2013 (Tab. 2.21).
Overall, the raising gender diversity has affected the degree of board diversity of Italian listed companies (Tab. 2.22). The average directors' age has decreased by one percentage point, as newly appointed women are on average younger than men are. Family directors have slightly declined from 16.3% to 15.6% of the total, again following the appointments pursuant to the Law 120/2011. Indeed, over the six-year period 2011-2016 the proportion of family female directors on the total number of female board members has sharply declined from 42.2% to 12%. On the contrary, over the same period, the presence of family male directors has increased from 14.2% to 17.4%. As for the professional background, data show a reduction in the percentage of managers and an increase of consultants/professionals, mainly due to new female directors being a consultant more often than men are (Tab. 2.23). Finally, the proportion of both foreign directors and graduated directors has risen, with the former passing from 5% in 2011 to 7% in 2016 and the latter up by slightly more than two percentage points from 84% in 2011; the percentage of postgraduate directors has risen by more than six points from 15%.
Directors' attributes show a certain degree of variation depending also on their link with the controlling agent. In particular, the percentage of graduated and postgraduate directors is higher among non-family directors. Moreover, professional backgrounds of non-family directors are more diversified, as 34% of them hold a profile other than the managerial one, a figure dropping to about 6% among family board members (Tab. 2.13).
On average, board members attended 92% of the 2016 board meetings. Ftse Mib firms and companies controlled by the State record the highest participation rates (respectively, 94.3% and 95.8%; Tab. 2.13 and Tab. 2.14).
|Annual general meetings
The 2017 AGMs of the 100 major Italian companies by market capitalisation confirm the large participation by shareholders, the presence thereof has steadily exceeded 70% of the share capital since 2012 ... more
|The 2017 Annual General Meetings (AGMs) of the 100 major Italian companies by market capitalisation confirm the large participation by shareholders, the presence thereof has steadily exceeded 70% of the share capital since 2012. In 2017 the attendance by institutional investors has marked its highest rate over the last six years by hitting 19.4% of the share capital. This results from the stable increase in the participation of foreign institutional investors, equalling on average 18.3% of the share capital (eight percentage points higher than its 2012 value), whereas over the time span under consideration attendance of Italian institutional investors has remained substantially unchanged (Tab. 3.1).
Participation is higher in industrial firms (75.6% of the share capital), followed by listed utilities (72.3%) and financial companies (61.2%), which however have experienced the highest presence of institutional investors (20.6% of the share capital; Tab. 3.2).
The last proxy season has recorded the highest attendance of Italian investment funds, banks and insurance companies, over the last six years, with 76 AGMs (almost twice as much as the meetings attended in 2012 and 2013) and votes cast for over 2% of the shares represented at the AGMs. Since 2015, foreign institutional investors have attended the AGMs of all the 100 largest Italian companies, casting an increasing percentage of votes (in 2017 about 27% of the total number of votes; Tab. 3.3).
As for voting behaviour, institutional investors' endorsement of the remuneration policy (say-on-pay) accounts for 13% of the share capital and about 64% of institutional votes, whereas abstention and rejection are overall stable at about 6% of the share capital and one-third of the total number of their shares. The proportion of votes against the remuneration policy has however slightly increased over the last year, while that of abstentions has slightly declined. In line with previous years, the agreement with the remuneration policy cast by other investors points out for about 51% of the company's share capital and 98% of their votes (Tab. 3.4).
Shareholders' dissent in say-on-pay, which for the purposes of this Report comprises votes against the remuneration policy and abstentions, has slightly risen over the last year, peaking its highest record of 9.6% of the AGMs, with institutional investors' accounting for 8.8%. For Ftse Mib firms, dissent shows a trend reversal, as it has considerably increased over the last year up to 11% of the AGM and 32% of institutional investors' votes (from 9% and 27% in 2016, respectively) after the steady decline recorded since 2012. In MidCap companies, overall dissent is stable at around 9% of the AGMs, after experiencing an increase over the period 2012-2015, although over the last year institutional investors' disagreement as a percentage of their total votes has risen by three percentage points up to 40% (Tab. 3.5).
In line with previous years, dissent by the AGMs is considerably lower in the financial sector as compared to industrial firms and utilities (about 7% of total votes versus 10% and 11% respectively). Accordingly, in the financial sector institutional investors cast their dissent on the remuneration policy with a markedly lower frequency than in the industrial and services industries (26% versus nearly 37% of their shares respectively). However, since the introduction of the say-on-pay financial companies have experienced a rise in the dissent by institutional investors by three percentage points up to 6.7% in 2017 (Tab. 3.6).
Finally, institutional investors' more frequently endorse remuneration policies in companies with dispersed ownership (in widely held firms dissent levels to 20% of the total number of institutional shares; Tab. 3.7), and in companies where they hold a major stake (Tab. 3.8).
|Related party transactions
Pursuant to the disclosure regime envisaged by Consob Regulation on Related Party Transactions, since 2011 Italian listed companies have reported 423 material RPTs (31 in the first half of 2017), ... more
|Pursuant to the disclosure regime envisaged by Consob Regulation on Related Party Transactions (hereinafter RPTs), since 2011 Italian listed companies have reported 423 material RPTs (31 in the first half of 2017), i.e. transactions exceeding specified quantitative thresholds. As in the previous years, such transactions were often entered into by small-sized companies and firms operating in the financial sector (Tab. 4.1 and Tab. 4.2).
According to the tunnelling taxonomy developed by Atanasov et al. (2014), RPTs have been categorized into three major types – asset, cash flow and equity tunnelling – based on the nature of resources transferred to the possible benefit of companies' insiders. Most of the RPTs reported since 2011 are financing contracts or other contracts, involving the transfer of a portion of companies' cash flow, which does not impact on long-term productive assets though (53.4% of the total). About 28% of material transactions disclosed over the same time period regard the transfer of major long-term assets. Finally, 18% of material RPTs consist of reserved capital increase, mergers or other transactions resulting in a rearrangement of the related party's ownership claims over the firm's equity (Tab. 4.3).
Moreover, almost 83% of all RPTs have been entered into with the controlling agent or with other shareholders exerting significant influence over the company. Infra-group transactions, namely those entered into with subsidiary or associate companies, account for nearly 11% of the total, while few material RPTs took place with non-shareholder directors or key managers or with firms affiliated with them (5.2% of the total; Tab. 4.3).
Listed companies have also reported to Consob material arm's length RPTs in the ordinary course of business, which may benefit of a waiver from the approval and disclosure obligations set forth by Consob Regulation. Reporting, mainly accomplished by large companies included in the Ftse Mib Index, has overall involved 174 transactions and has declined over years (Tab. 4.4). Since 2016 reporting companies are predominantly operating in the financial sector (Tab. 4.5)
The large majority of material RPTs transactions in the ordinary course of business fall among the operating activities of the listed company, thus involving the supply of typical goods and services for non-financial companies and financing contracts for banks (respectively, 34% and 29% of all material RPTs in the ordinary course of business). In addition, one-third of funding transactions undertaken by non-financial firms were regarded as in the ordinary course of business (being closely related to the operating business). Material RPTs in the ordinary course of business mostly occur with controlling or major shareholders (85% of the total; Tab. 4.6).
|Focus: non-financial reporting
Information plays an important role in corporate world. Making information accessible to interested and affected parties is an important first step in the process of stakeholder engagement ... more
|Information plays an important role in corporate world. Making information accessible to interested and affected parties is an important first step in the process of stakeholder engagement. So far, firms have typically provided financial information. However, in recent times attention to non-financial information has significantly grown, due to the inadequacy of traditional financial reporting to fulfil the increasing need of investors and other stakeholders of additional insights on companies' value and their model of value creation.
Non-financial information is related to long-term issues such as climate change, energy efficiency, gender diversity, employee engagement, reputation, innovation, human rights, anti-corruption and bribery matters. Non-financial reporting can significantly stimulate the transition to a sustainable business strategy, which in turn may enable companies to create value not only for their shareholders but also for the society as a whole. Through long-term orientation, companies can strike a balance between the needs of current and future generations and contribute to a smart, sustainable and inclusive growth.
Institutional investors with long-term investment time horizons have progressively come to recognize the importance of environmental, social and governance risk management (ESG factors) in security selection and portfolio construction. Consistently with this attitude, an increasingly positive relationship between financial performance and sustainability performance has been detected: as shown by recent analyses on the US market, nowadays intangibles account for 80 per cent of stock value (Ocean Tomo, 2015).
The role of non-financial information has recently been acknowledged also by the European institutions, as shown by the recent initiatives of the European Parliament and the European Commission. In the resolution of 6 February 2013 the European Parliament underlined the relevance for companies to disclose information on social and environmental factors: ‘disclosure of non-financial information is vital for managing change towards a sustainable global economy by combining long-term profitability with social justice and environmental protection'. Moreover, the European Parliament called on the Commission to bring forward a legislative proposal on the disclosure of non-financial information by undertakings. Following this resolution, has been adopted the Directive 2014/95/EU, which requires certain large undertakings to prepare a non-financial statement containing information relating to at least environmental, social and employee-related matters, respect for human rights, anti-corruption and bribery matters, with the aim to enhance the consistency and comparability of non-financial information disclosed throughout the Union. Such statement should include a description of the policies, outcomes and risks related to those matters.
Moreover, the Directive requires companies to inform the market on ‘the diversity policy applied in relation to the undertaking's administrative, management and supervisory bodies with regard to aspects such as age, gender, or educational and professional backgrounds, the objectives of that diversity policy, how it has been implemented and the results in the reporting period'. The underlying idea is that diversity of competences and views facilitates a good understanding of the business organization and affairs of the undertaking concerned.
The Directive 2014/95/EU has been implemented in Italy by Legislative Decree no. 254 of December 30, 2016, in force since January 25, 2017. The new provisions are applicable from the fiscal year starting on January 1, 2017 and during the 2017 calendar year. Following the Legislative Decree, Consob had its consultation with the financial market on the regulatory provisions aimed at implementing the Decree.
Given the developments mentioned above, it is interesting to review how Italian listed companies are doing with respect to non-financial reporting. Before going through this, however, it is important to recall briefly the main concepts and methods underlying the disclosure of non-financial information.
Non-financial reporting rests on the key concept of materiality. Materiality analysis allows organizations to obtain a clear view of the areas that matter most to them and at the same time to their stakeholders, to prioritize and to take the right actions to improve their performance in those areas. The process of labelling material topics requires a comprehensive framework that systematically identifies and prioritizes issues, risks and opportunities. To this respect, there are two main frameworks of reference.
The first one is developed by the Global Reporting Initiative (GRI) in its G4 Reporting Principles and Standard Disclosures. GRI standards emphasize the need to report on issues that reflect their economic, environmental and social impacts on the basis of a dialogue with their stakeholders. According to the GRI, 'material aspects are those that reflect the organization's significant economic, environmental and social impacts; or that substantively influence the assessments and decisions of stakeholders'. Following this standard, material aspects are identified by analysing their relevance to both the firm and its stakeholders. The final output is the materiality matrix, which ranks each matter under consideration both by the importance to the organization itself and by the relevance to the organization's stakeholders, such as customers, employees, NGO's and suppliers. Issues are material when they are relevant to both firms and stakeholders.
The alternative approach comes from the Integrated Reporting (IR) guiding principles and framework, where material aspects are selected taking into account their capacity to create value over time: 'a matter is material if it could substantively affect the organization's ability to create value in the short, medium or long term'. Matters related to value creation, strategy, governance, performance or prospects are considered relevant. The point of view of key stakeholders (providers of financial capital, in particular) is critical.
Clearly, IR guiding principles and G4 Reporting Principles and Standard Disclosures can be combined and used together.
This section gives an overview of the current situation in non-financial disclosure by Ftse Mib companies and has two objectives. First, evidence is gathered on how many firms have voluntary disseminated non-financial information in 2016 and which document they published (either a Sustainability Report or an Integrated Report). Data are also collected on whether non-financial disclosure rests on the materiality analysis as well as on the process underlying such analysis.
Second, the analysis ascertains whether non-financial issues are considered also at the board level, i.e., whether firms take into account directors' non-financial skills and competences when dealing with board composition and functioning. This is an important topic given that, on the one hand, institutional investors increasingly ask boards to oversee non-financial matters and, on the other, Italian directors do not seem fully aware of the relevance of non-financial matters yet (see Integrated Governance Survey - NedCommunity - Methodos 2017).
The majority of Ftse Mib companies (26 out of 33) published a report on non-financial issues related to 2016 fiscal year, i.e. either a Sustainability Report (18 cases) or an Integrated Report (4 cases) or both (4 cases; Fig. 5.1).
Among the 26 firms reporting on non-financial issues, 24 have conducted a materiality analysis. Moreover, they have all described the process underlying the analysis itself, even if with different levels of detail.
In order to explore the way companies appraised the relevance of the identified non-financial issues, attention was paid on whether they carried out both an internal (i.e., from their own perspective) and an external (i.e., from the stakeholders' perspective) analysis.
In 21 cases the relevance to the company of the selected matters is identified after embarking on a dialogue with the top management, while in three cases no information on the internal bodies involved in the materiality assessment is provided. Eleven firms out of 21 disclose the way managers have been involved in the process, mainly through interviews and questionnaires, while the remaining companies don't give any explanation.
With reference to the external assessment, 19 out of the 24 firms presenting the materiality analysis state that stakeholders have been directly involved in the process, one firm doesn't provide any information, while the remaining four companies seem to have accounted for the stakeholders' point of view by relying on the internal bodies rather than engaging the stakeholders themselves.
Among firms mentioning the stakeholders' involvement, six do not deliver any information on the way they were engaged. In the remaining cases, companies dialogue with stakeholders with different tools, being surveys and questionnaires the most widespread, followed by multi-stakeholders forum, focus groups and workshops.
The materiality analysis allows firms to detect the topics that are relevant to their organizations, the environment and the community. It is interesting to check whether companies consider non-financial topics relevant also with respect to the board members' selection, that is whether they choose directors by taking into account also the skills required to preside non-financial matters. This feature was explored by referring to various documents.
First, the board evaluation process performed over the year was considered. According to the Corporate Governance Code (article 1, criterion 1.c.1 let. g)) 'the Board of Directors shall perform at least annually an evaluation of their performance, as well as their size and composition, taking into account the professional competence, experience, (including managerial experience) gender of its members and number of years as director'.
Second, the guidelines issued by the board in charge in occasion of directors' appointment were analysed. Indeed, according to article 1 criterion 1.c.1 h) of the Corporate Governance Code, the board of directors, 'taking into account the outcome of the evaluation (...), report its view to shareholders on the managerial and professional profiles, deemed appropriate for the composition of the Board of Directors, prior to its nomination'.
Finally, it was checked whether the induction sessions organized by the firm for corporate boards considered also non-financial issues, in the light of the Code recommendation ex art. 2, criterion 2.c.2 stating that 'The chairman of the Board of Directors shall use his best efforts to allow the directors and the statutory auditors, after the election and during their mandate, to participate, in the ways deemed appropriate, in initiatives aimed at providing them with an adequate knowledge of the business sector where the issuer operates, of the corporate dynamics and the relevant evolutions, of the principles of proper risk-management as well as the relevant regulatory and self-regulatory framework'.
As shown in the following Table the board self-assessment refers to non-financial issues only in two cases: one underlying the need to devote more time to the analysis of matters related to informatics systems and to social and environmental sustainability, and the other highlighting the special attention dedicated by directors to sustainability and social responsibility topics.
Regarding the guidelines issued by companies prior to the board appointment, non-financial issues are considered relevant in 10 cases. Expertise on corporate governance topics are deemed important in most of the cases (8 out of 10); remuneration competences are required in 4 cases; skills related to digital innovation are suggested in 3 cases, while only two boards underline the importance of competence on non-financial matters.
Finally, 7 firms have organized training programmes (one off-site) for corporate boards on non-financial topics during the year.
|Focus: board diversity in Europe
This Section focuses on the composition of corporate boards across five European countries, i.e., France, Germany, Italy, Spain and the United Kingdom, over the period 2005-2016 ... more
|This Section focuses on the composition of corporate boards across five European countries, i.e., France, Germany, Italy, Spain and the United Kingdom, over the period 2005-2016. Data refer to the major thirty listed firms by market capitalisation of each of the sampled country. For the sake of comparison, financial companies, which are subject to different rules from those envisaged for corporate firms, are not included. Data are drawn from Boardex, a dataset containing information on the characteristics of directors all around the world. Detailed descriptive tables for every country are reported at the end of this Section (Tab. 6.1-Tab. 6.6).
Over 2005-2016, board size has declined on average in all countries (Fig. 6.1). In Germany, where the two-tier system is envisaged, members of major firms' supervisory boards passed from 17 to 15.6 over the period under consideration. In French listed firms boards have steadily been bigger than elsewhere since 2008, reaching an average size of 14 directors at the end of 2016 versus the almost 11 members recorded in Italy and the United Kingdom.
Until 2012 women's representation on boards of the largest European firms has remained limited, with Italy recording the lowest figures (Fig. 6.2). Since then, however, the presence of female directors has significantly grown thanks to legislative and self-regulatory initiatives adopted over time.
Gender balance has shown the largest acceleration in major French companies, where by the end of 2016 women accounted on average for 40% of board directors, up from 7% in 2005. This result was triggered by the 2011 Law, which has envisaged a progressive application of gender quotas from 2014 onwards. In detail, listed companies had to set the proportion of board members of each gender no lower than 20% for the first appointments after 1 January 2014, and no lower than 40% for the first appointments after 1 January 2017. This provision has also been extended to large unlisted firms with more than 500 employees or revenues higher than 5 million euros.
Over the last years, gender diversity has been steadily advancing also in Italian large corporates, driven by the implementation of Law 120/2011. The Law mandates gender quotas for the three board appointments after August 2012. According to the Law, the members of the under-represented gender shall account for at least one-third of the board (one-fifth for the first term). Following the newly enacted gender Law, Italy is now the second country, after France, displaying the highest percentage of female directors (31.4% at the end of 2016).
Germany has addressed gender representation in 2015, by passing the Gender Equality Act applicable from January 2016. The Law requires that at least 30% of supervisory board members of some big companies have to be women. Probably due to increasing market pressure, female representation in supervisory boards has however started to grow long before the adoption of the Law, almost tripling its value over the time span under review, from 10% in 2005 to 27% in 2016.
Differently from the countries analysed so far, the rise in female representation in major British and Spanish firms was driven by self-regulatory initiatives.
In the United Kingdom, a 2011 recommendation was designed to achieve 25% of female representation in Ftse100 companies by 2015. Following this initiative, the percentage of women holding a seat in the boards of the sampled companies has risen from 9.6% in 2005 to 28.6% in 2016.
The Spanish Self-Regulatory Code advocates for a greater female representation on corporate boards through a 2015 recommendation, suggesting that before 2020 the director selection policy should pursue the goal of having at least 30% of board seats held by women. At the end of 2016, therefore, major Spanish companies still lag behind their European peers, with a percentage of female directors slightly lower than 19%, which is nevertheless substantially higher than its 2005 level (3.6%).
Apart from France, representation of foreign directors has increased across all the European sampled countries, although at a different pace. Large firms in the United Kingdom have traditionally been the most diverse in terms of nationality, while Italian companies lie at the other end of the spectrum (Fig. 6.3). In details, in 2016 foreign directors accounted for almost half of the board members in major British companies (36.7% in 2005), while achieving 11% in the board of the Italian peers (6% in 2005). Board composition in terms of nationality has experienced a rise in diversity also in Germany and Spain, while remaining substantially stable in France.
Evidence shows that over time the proportion of independent directors on corporate boards has increased across Europe (Fig. 6.4). At the end of 2016, the United Kingdom is the country with the highest representation of independent directors (67.8%), followed by Italy (58.7%), France (51.4%), Spain (46%) and Germany (where 15% of the members of the supervisory boards are independent).
Over the period considered, the average age of board members' has remained substantially unchanged in Germany and Italy, while rising by about two years in the United Kingdom and Spain (Fig. 6.5). At the end of 2016, boards are the oldest in large Spanish firms, where directors are on average 61.3 years old, while being the youngest in Italy, where the average age is 57 years.
As for the level of education, the proportion of graduated directors has persistently ranged between 80% and 90% in all large European firms over the whole period under consideration (Fig. 6.6). The only exception concerns German supervisory boards, which have recorded on average slightly more than 50% of graduated directors, although this percentage has steadily risen over the last few years.
Finally, it is interesting to compare board members' characteristics (i.e., gender, nationality and age) across executive and non-executive directors (for Germany data refer respectively to the members of the management and the supervisory boards; Fig. 6.8 - Fig. 6.7).
At the end of 2016, as expected, executive directors are less diverse then non-executive ones both in terms of gender and nationality. As for gender diversity, on average women account for 33% of non-executives versus 5.7% of executives: this difference is less marked in the United Kingdom (34% versus 11%) and Germany (26% versus 7%), than in the other countries (in Italy and in France female representation among executives accounts for only 3% and 6%, respectively).
When it comes to the directors' nationality, on average foreign board members represent 28% of non-executive directors and 20% of executives. This mismatch is far more pronounced in Spain and France than in Italy and the United Kingdom. In German large companies, the proportion of foreign directors is higher in the management board (31% versus 23% in the supervisory board).
As for age, on average non-executive directors are 59 years old, almost 4 years older than executives. This difference, however, shrinks to one year in Italian and French major companies, while reaching 7 years in British firms.
The Report was prepared by:
Nadia Linciano (coordinator) - CONSOB, Head of the Economic Studies, Research Department (email@example.com)
Angela Ciavarella - CONSOB, Economic Studies, Research Department (firstname.lastname@example.org)
Rossella Signoretti - CONSOB, Corporate Governance Department (email@example.com)
The opinions expressed in the Report are the authors' personal views and are in no way binding on Consob.
ISSN 2281-535X [online]