Italy to review corporate governance rules after shareholder pressure

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Italy is open to reviewing its controversial new rules on corporate governance after growing pressure from institutional investors who have called on Giorgia Meloni’s government to rethink parts of its capital markets law.

Treasury under-secretary Federico Freni told the Financial Times that the Italian government would consider amending the country’s corporate laws after fierce criticism of the new rules by the International Corporate Governance Network, a group of global investors with assets under management of $77tn.

The ICGN warned in a recent letter, first reported by the Financial Times on Monday, that it was “hard to understand” how a new system for appointing corporate boards would work, and asked how foreign investors could participate in a closed door shareholder meeting.

The new rules “may undermine the Italian market’s competitiveness and reduce its attractiveness for institutional investors”, the letter added.

Freni told the Financial Times that “all the issues” raised by the ICGN and other investors will have “the utmost attention” of the commission drafting new financial markets rules.

This over arching legislation, known as the TUF, is currently being updated and any changes to corporate governance could be included within it.

“The new financial market law is an opportunity we cannot miss to fix problematic aspects of the capital markets regulation,” he added.

The new set of capital markets rules — approved in March follow guidelines issued under Mario Draghi’s government in 2022 — are aimed at making the country’s capital markets more attractive and preventing delistings from the Milan stock exchange.

“Once the commission is finished drafting the new financial markets law, there will be a parliamentary process where all the stakeholders will be heard and the aim is to reach the best possible solution for the development of the Italian financial market,” said Freni.

The new financial markets law could over-rule certain aspects of the capital markets bill approved in March.

Freni said the Treasury had commissioned a comparative study in order to understand best practices across other European markets. However, there is no “punitive” intention against investors, he added.

“The government has refocused the public debate on the pivotal role of financial markets as an economic growth driver. We are trying to change rules and regulations that have often hindered the market development and disincentivised listings.”

The provisions affecting corporate governance, however, have proved widely controversial.

The new law on board appointments replaces a system that was unique to Italy but that overseas investors had grown used to, even though critics said it was complex and too often meant little turnover of board members.

Under the changes, if an outgoing board wishes to run for re-election or present its own slate of new candidates, the list must be broader by one-third than the board seats available.

This roll call of names must also be presented at an earlier date than potential candidate lists brought by other investors. A two-stage voting process will be held.

In addition to the ICGN’s concerns, the Italian parliament has warned that the two-stage voting process was hard to put into practice and Freni said the government was open to considering better alternatives.

The investor group said rules allowing shareholder meetings behind closed doors with investors designating a representative would damage smaller shareholders and compromise transparency. It invited the Italian government to adopt a hybrid system instead.

Freni said that the designated representative was an “excellent solution” but in terms of the meeting logistics, Italy was open to considering other options that worked better “for the market and investors”.