2018 Report on corporate governance - CONSOB AND ITS ACTIVITIES
2018 Report on corporate governance of Italian listed companies
REPORT 2018
| Ownership and control structure As for the ownership structure of Italian listed companies, in line with previous years, the majority of the companies are controlled (in about 77% of the cases a single shareholder ... more |
| At the end of 2017, the Italian Stock Exchange (Mercato telematico azionario, MTA) counts 231 domestic listed companies, with a capitalization of 543 billions of euro. Almost one firm out of two operates in the industrial sector, while the remaining are equally distributed over the financial and the service industries (Tab. 1.1). As for the ownership structure, in line with previous years, the majority of the companies are controlled (199 firms representing 86% of the total). In details, in about 77% of the cases a single shareholder is in control of the company, either with a stake higher than the half of the capital (120 companies) or with a lower stake (57 firms). Coalition of shareholders are in control of the company in 22 cases, marking a strong reduction with respect to 2010, when 51 issuers, representing 19% of all listed companies, were controlled through a shareholders' agreement. Among non-controlled firms, widely held companies keep growing steadily, from 11 in 2010 (4% of the total) up to 16 in 2017; Tab. 1.2). At the end of 2017, the average stake held by the main shareholder is equal to 47.7%, slightly higher than its previous year level. The other major shareholders and the market hold, respectively, an average stake equal to 12% and 40% of the capital (Tab. 1.3). The ultimate controlling agent is the family in 145 listed firms, accounting for the 33.5% of the market capitalization; the State (and other local authorities) in 23 large companies (34% of the market capitalization); a financial entity in 14 cases (mainly small firms). No ultimate controlling agent can be identified in 42 companies, accounting for 30% of market value, being these firms non-controlled or controlled by a non-controlled agent. The majority of the companies are non-controlled in the financial sector, whereas families and the State are prevalent in the industrial and service sectors respectively (Tab. 1.4 - Tab. 1.6). Over 2017, major shareholdings by institutional investors have remained stable, with 60 investee listed companies, amounting to 26% of the market, and an average share of capital equal to 7.7%. Italian institutional investors are major shareholders in 12 companies, the lowest value ever recorded since 2010. Over the same period, the figure has substantially grown for foreign institutional investors, present as major shareholders in 51 companies (its highest was hit in 2014 with 54 firms; Tab. 1.7). Italian institutional investors are more frequently major shareholders in small-sized and industrial companies, while foreign investors more often invest in large firms and in the financial sector (i.e. in 35% of the firms belonging to the Ftse Mib Index and in 25% of the financial sector; Tab. 1.8-Tab. 1.9). The number of stakes held by institutional investors at the end of 2017 is in line with the previous year. Over the last decade, major holdings owned by banks and insurance companies, especially Italian ones, have declined, while the opposite trend holds for ownership by foreign asset managers and private equity, venture capital and sovereign funds (Tab. 1.10-Tab. 1.12). At the end of 2017, corporate groups include pyramidal structures, representing 12% of listed companies, and mixed groups, with 6.5% of firms. Overall, the data is quite stable with respect to the previous year, as the reduction in the proportion of firms in pyramidal groups is compensated by the increase in the percentage of firms belonging to the vertical part of a mixed group. Pyramidal groups are composed mainly by large companies, accounting for 36.9% of total market value (Tab. 1.13). On average, about three firms belong to a vertical group. The degree of separation between ownership and control achieved through these structures can be measured by the ratio (so-called leverage) or the difference (so-called wedge) between the units of capital controlled on the basis of voting rights in ordinary shareholders' meetings and the units of capital owned on the basis of cash flow rights pertaining to the controlling shareholder. At the end of 2017, the average leverage is 1.6, while the average wedge is 12.3 (both lower than their long-term values; Tab. 1.14). As for deviations from the one-vote-one-share rule, at the end of 2017, 17 companies have saving shares (Tab. 1.15). In the 37 companies controlled by another listed company or/and issuing non-voting shares, the average wedge is equal to 16. The wedge records its highest value in the service sector (20.6), followed by the industrial sector (18.2; Tab. 1.16). In addition, loyalty shares have vested their increased voting power (active loyalty shares) in 14 firms, where voting rights and cash flow rights are on average 59% and 45.3% respectively, while the leverage and the wedge are on average 1.3 and 13.7. Overall, 41 firms have introduced in their bylaws loyalty shares and three companies (gone public following a merger transaction) have provided for a category of multiple voting shares (end of June 2018, Tab. 1.17-Tab. 1.19). |
| Corporate boards At the end of 2017, the traditional management and control system is adopted by most Italian listed companies, representing 91% of market capitalization, while the one-tier and the two-tier models are adopted in total by four firms ... more |
| At the end of 2017, the traditional management and control system is adopted by most Italian listed companies, representing 91% of market capitalization, while the one-tier and the two-tier models are adopted in total by four firms (Tab. 2.1). As for corporate boards, displaying on average 10 members, almost half of the directors are independent by the Corporate Governance Code and/or the Consolidated Law on Finance (Tuf). In line with the previous year, 97 companies have on average 1.8 members appointed by minorities (2.1 minority directors in the financial, 1.9 in services and 1.6 in industrial companies; Tab. 2.2 - Tab. 2.5). At least one board member holding multiple directorships (interlocker) sits in the boardroom of 172 Italian listed companies. On average, interlockers hold 2.4 seats and account for 23% of the board. The presence of interlockers is higher in large and medium-sized firms, where they hold nearly four and three board seats, respectively. Interlockers are frequently a minority of board members: their weight is lower than 25% of the board size in 78 firms, within the range 25%-50% in 76 additional cases and greater than 50% in 23 cases. Finally, in 51 small-sized firms, representing 8% of total market value, no board member holds other directorships in listed companies (Tab. 2.6 and Tab. 2.7). The number of companies establishing board committees keeps showing an upward trend. This is particularly evident for the nomination committee, introduced by about 60% of the companies (20% in 2011), representing 82% of market capitalisation at the end of 2017. The remuneration committee and the internal control and risk management committee are established on average in 9 firms out of 10. About 20% of the companies (45 firms representing 61% of market capitalisation) have instituted the sustainability committee, surveyed for the first time in 2017 following the entry into force of the legislative decree n. 254/2016 and the related Consob regulation on non-financial reporting. In 2017, in line with the option provided for by the Corporate Governance Code, almost half of the listed companies have assigned multiple tasks to a single committee. The remuneration committee is frequently combined with the nomination committee, while the committee for internal control and risk management is combined with the sustainability committee. Committees are similar in terms of number of members, number of women and independent directors (equal on average to 3.3, 1.4 and 2.7 respectively). The average number of meetings varies from 5 (for the remuneration and the nomination committees) to 7.5 (for the internal control and the sustainability committees; Tab. 2.8 - Tab. 2.12). At the end of 2017, 193 companies declare to have performed the annual board self-evaluation recommended by the Corporate Governance Code (184 in the previous 3 years), while 44 firms have adopted a succession plan (steadily up from 23 in 2014; Tab. 2.13). Over the period 2011-2017, the average number of members of the board of statutory auditors has remained stable at 3.1, while the number of companies with a minority auditor has risen to 115 from 86. During 2017, the board met on average 13 times, with the highest frequency recorded in the financial sector (22 times; Tab. 2.14). Directors are aged on average 56.5 years, being older in Ftse Mib companies and in financial firms (almost 58 years), and younger in small and in services companies (where the average age is 55). The presence of foreign directors remains low (less than 7%), hitting the maximum value in larger firms (more than 10%) and reaching the minimum in the financial sector (less than 5%). The industrial companies and the Star index issuers count the largest number of family directors (on average 22% of the board), while the lower presence is recorded in the Ftse Mib and in the financial companies (around 5% and 6%, respectively). Boards of Ftse Mib and services firms display the highest proportions of graduated and post-graduated directors, above the average equal, respectively, to nearly 90% and 25%. The prevailing professional background is managerial (about 70% of directors), followed by consultants/professionals (around 20%) and academics (around 9%; Tab. 2.15). The characteristics of the board show a certain heterogeneity depending on the identity of the ultimate controlling agent (UCA). In family-controlled companies, the directors who are also controlling shareholders (or their family members) are about 27% and have a lower level of education. In companies controlled by the State or by a financial institution, directors are younger and more educated. Board members of public-companies are more frequently women and often academics, while in financial firms female directors are less represented, the percentage of foreign directors is higher and the managerial background is more common (Tab. 2.16). The analysis of the educational background confirms that the level of education of the board members of Italian listed companies has risen across the main subjects (Tab. 2.17). At the end of June 2018, women directorship peaks to 36% of all board seats, while female membership of the internal board of auditors exceeds 38%. In both cases, female representation in Italian listed companies shows the highest figures ever recorded. Since 2015, women have been represented in the corporate boards of nearly all listed companies (Tab. 2.18). Women representation has been largely driven by Law 120/2011, which mandates gender quotas for three board nominations after August 2012. The majority of listed companies have already enacted the one-third quota. In particular, the companies that have already undergone the second and the third nomination by June 2018 (respectively, 156 and 24) display a percentage of board seats held by women equal to about 36%. The one-third quota is on average reached (35%) also by the 31 firms that should still comply with the one-fifth reduced quota, being at the first appointment under the law. Finally, in the 17 companies that do not have any obligation, being either newly-listed (quotas will apply in the three board appointments after listing) or having already completed the three board nominations under the law, women have approximately three board seats and account for almost one-third of the board (Tab. 2.19). The number of directorships held by women is on average 3.6 and increases with firm's size (4.6 and 4.1 board seats in companies belonging to the Ftse Mib and Mid Cap Indexes, respectively) though not varying significantly across industries (Tab. 2.20 and Tab. 2.21). In slight decline as compared to previous years, women serve as the company's CEO in 14 firms, which account for less than 2% of total market capitalization. Chairwomen (honorary chairwomen included) are 25, serving in large companies that represent 28% of total market value. The weight of women acting independent board members has peaked to 72% of all female directorships in 2018, in continuous growth since 2013. Minority shareholders have appointed 61 women through the slate voting mechanism in 52 large companies, accounting for 63% of total market value (Tab. 2.22). Finally, over one-third of women on board (34.5%) are interlockers, considerably up from the 18% figure recorded in 2013 (Tab. 2.23). Since 2011, board attributes have experienced some changes, following also the entrance of the women appointed after 2012. The average age of directors has slightly declined, newly appointed women being younger than men, although at the end of 2017 it has remained substantially stable at its 2016 level. The proportion of directors holding a first degree has increased, thanks to the rise in the percentage of female graduates from 75% to 91%. The professional profiles have become more diversified, as female members more frequently have an academic or a consultancy background (respectively, 13.6% and 32% in 2017) and less frequently a managerial profile (about 54% in 2017). In addition, women play the role of independent directors and of committee members more frequently than men. The share of family directors has overall remained stable at around 16%, resulting from opposite trends in female and male sub-groups. In particular, the incidence of family women has progressively decreased (from 42% in 2011 to around 11% in 2017), while that of family men has risen by more than four percentage points (up from 14.2% in 2011; Tab. 2.24 - Tab. 2.26). In line with previous years, in 2017 the average attendance at board meetings, equal to 92.4%, is higher in the companies controlled by the State or local authorities and in Ftse Mib firms (Tab. 2.15 and Tab. 2.16). |
| Annual general meetings The 2018 Annual General Meetings (AGMs) of the 100 most capitalized Italian listed companies show large participation by shareholders, and in particular by institutional investors. In detail, ... more |
| The 2018 Annual General Meetings (AGMs) of the 100 most capitalized Italian listed companies show large participation by shareholders, and in particular by institutional investors. In detail, the 2018 AGMs season records the highest figures of both the share capital represented at the meeting (72.6% on average) and the institutional investors' participation (exceeding 21% of the company's capital). Attendance by both Italian and foreign institutional investors has grown over the last year (+2% as compared to 2017; Tab. 3.1). Attendance hits the highest level in industrial firms, followed by listed utilities and financial companies (75.8%, 72% and 67% of the share capital, respectively). These latter, however, display the highest presence of institutional investors (24% of the share capital versus 20-21% in industrial and utilities firms; Tab. 3.2). In 2018, Italian investment funds, banks and insurance companies have attended 81 AGMs, twice as much as the meetings attended in 2012-2013, and have cast votes for 3% of the AGM. Foreign institutional investors have participated to the meetings of all of the 100 largest Italian companies since 2015; in 2018 they have cast on average about 29% of the AGM's votes (28.1% held by investment funds and 0.6% by banks and insurance companies; Tab. 3.3). As for the institutional investors' vote on the remuneration policy in 2018, endorsement accounts for 13% of the share capital and nearly 57% of the shares owned by institutional investors. Abstention and rejection of the policy by institutional investors have increased over the last year to about 8% of the share capital and 41% of the total number of the shares they hold. In line with previous years, other investors' agreement with the remuneration policy is expressed by about 51% of the company's share capital and 98% of their votes (Tab. 3.4). Focusing on institutional investors' dissent, as measured for the purposes of this report by the votes against the remuneration policy and abstentions, overall disagreement has increased over the last year by almost 2 percentage points, peaking the highest record of 11% of the AGMs (of which 10.6% by institutional investors). Since 2017, dissent has markedly grown in Italian blue chips, inverting the trend of decreasing dissent experienced over 2012-16 by Ftse Mib companies. In detail, the dissent recorded by these firms peaks 12% of the AGM and 37% of institutional investors' votes (in 2016, the same figures were about 9% and 27%, respectively). Mid Cap firms also show an increase in the dissent by institutional investors, who have disagreed with the remuneration policy for 11% of the AGMs and 46% of the votes they cast (up from 40% in 2017; Tab. 3.5). Ever since the introduction of say-on-pay, dissent by the AGMs has been considerably lower in the financial sector as compared to industrial firms and utilities. Accordingly, in 2018 average institutional investors' dissent records 9% of the AGM in the financial sector as compared to 11% in the industrial and 10% in the services sectors. It is worth pointing out, however, that in 2018 the dissent in the financial sector has experienced a rise, with institutional investors disapproving the remuneration policy with 33% of their shares (up from 25.7% in 2017; Tab. 3.6). Finally, institutional investors' dissent appears to be lower in widely held companies (19% of their shares as opposed to a dissent ranging from about 32% to 58% in the other companies; Tab. 3.7) and when institutional investors hold a major stake (28% of their shares versus 48% recorded in other companies; Tab. 3.8). |
| Related party transactions Pursuant to the disclosure rules on Related Party Transactions, since 2011 Italian listed companies have reported 484 material RPTs (29 in the first half of 2018), ... more |
| Pursuant to the disclosure rules on Related Party Transactions (hereinafter RPTs), since 2011 Italian listed companies have reported 484 material RPTs (29 in the first half of 2018), i.e. transactions exceeding the quantitative thresholds provided in Consob Regulation. Consistently with previous years, material RPTs have been more often entered into by small-sized companies and in the financial sector (Tab. 4.1 and Tab. 4.2). Following the tunneling taxonomy developed by Atanasov et al. (2008), RPTs have been categorized into three major types – asset, cash flow and equity tunneling – based on the nature of the resources transferred to/from the company's related party. Since 2011, most reported RPTs are financing contracts or other contracts involving the transfer of a portion of companies' cash flow (53.7% of the total). Almost 30% of material RPTs have encompassed the transfer of major long-term assets, hence affecting firms' productive capacity. Finally, 16% of material RPTs consisted 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). Looking at the counterparty, about 82% of all RPTs have been entered into with the controlling shareholders or with other shareholders exerting significant influence over the company. Infra-group transactions, entered into with subsidiary or associate companies, account for nearly 13% of the total, while less than 5% of RPTs has been concluded with non-shareholder directors or key managers or with firms affiliated with them (5.2% of the total). In the first semester of 2018, material RPTs have primarily involved the company's cash flow (48%) and have been entered into with controlling or significant shareholders (83%; Tab. 4.3). Listed companies have also entered into material, arm's length RPTs in the ordinary course of business, that benefit of a possible waiver from the disclosure obligations set forth by Consob Regulation. Pursuant to such waiver, 193 material RPTs in the ordinary course of business have been reported to Consob, especially by Ftse Mib companies across every industry (Tab. 4.4 and Tab. 4.5). Nearly two thirds of material RPTs transactions in the ordinary course of business relate to the corporate operating activities, i.e. the supply of typical goods and services for non-financial companies and financing contracts for banks (respectively, 34.7% and 30.1% of all material RPTs in the ordinary course of business). In addition, nearly 33% of material RPTs transactions in the ordinary course of business consist of funding transactions undertaken by non-financial firms that have been waived, being closely related to the operating business. Material RPTs in the ordinary course of business mostly occur with controlling or major shareholders (86% of the total). Finally, most of the 8 ordinary transactions reported in the first semester of 2018 have entailed bank financing with the controlling company (Tab. 4.6). |
The Report was prepared by:
Nadia Linciano (coordinator) - CONSOB, Head of the Economic Studies, Research Department (n.linciano@consob.it)
Angela Ciavarella - CONSOB, Economic Studies, Research Department (a.ciavarella@consob.it)
Rossella Signoretti - CONSOB, Corporate Governance Department (r.signoretti@consob.it)
Lucia Pierantoni - CONSOB, Economic Studies, Research Department (l.pierantoni@consob.it)
Eugenia Della Libera - CONSOB, Economic Studies, Research Department (e.dellalibera@consob.it)
Elena Frasca - CONSOB, Economic Studies, Research Department (e.frasca@consob.it)
The opinions expressed in the Report are the authors' personal views and are in no way binding on Consob.
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