The “voto di lista” mechanism is compulsory for Italian listed companies since 2007 and calls for shareholders to vote on slates of nominees, submitted by both controlling shareholders and minorities. Through such mechanism, the worthy goal is to ensure a minority representation on corporate boards, providing that at least one director has to be elected from the slate submitted by minority shareholders.
Where the major shareholders still control more than 90% of meeting votes, the “voto di lista” represents the only way to ensure a minimum independence rate within the boards, but is it still valid when the control is much more diluted and minority shareholders represent more than 30% of meeting quorums?
The analysis of three AGMs called in 2012 provides us with good examples of the main risks of the “voto di lista”, as it is defined by the law and by almost all corporate By-laws: to increase the representative powers of the major shareholders above their real ownership and, in many cases, to make useless the shareholders’ vote itself.
Three meetings are analyzed below, but dozens of similar cases can be counted among 2012 Italian meetings.
Fiat and Fiat Industrial
The two companies are part of the same group and their major shareholder is the holding company Exor, that in both cases submitted a slate including a number of nominees equal to the directors to be elected less one: 8 nominees out of 9 directors in Fiat and 10 out 11 in Fiat Industrial. Both By-laws provide that all directors less one have to be elected from the majority list, but the definition of the two slates was risky: if no minority lists were submitted, another meeting would have been called to integrate the Board. Furthermore, both slates included only one woman, with a gender quota of 12.5% in Fiat and 10% in Fiat Industrial. The new Italian law provides that, starting from the next renewal, both genders shall represent at least 20% of the Board members.
Probably, people at Exor were sure that at least one minority slate would have been submitted, and they were also comfortable that such slate included the woman needed to reach (in advance) the regulatory gender quotas. A group of institutional shareholders (the same in both companies) actually submitted the slates with such characteristics: a woman nominated in Fiat and a woman in Fiat Industrial. Both nominees of outstanding professional profile, and both will improve the independence and diversity rates within the boards. But were two slates really needed? At the end of the day, regardless the votes received, all nominees would have necessarily been appointed.
The “minority” slates obtained 29% of votes in Fiat and 37% in Fiat Industrial. As per a basic proportionality principle, minorities would have appointed 3 directors in both cases; as per the “voto di lista” mechanism, as defined by Fiat’s By-laws, 30% of votes entitles to only 10% of directors.
UniCredit
The UniCredit’s AGM, called on May 11th to appoint the new directors, presents almost the same scenario: two slates of nominees have been submitted and, also in this case, the only nominee of the group of institutional shareholders is a woman. Whatever the voting results, all UniCredit’s directors are already appointed. Furthermore, also in this case the minorities’ nominee will allow the company to reach in advance (by chance?) the regulatory gender quota of 20%.
UniCredit’s major shareholders jointly represent approximately 20% of the share capital, a percentage that does not ensure the majority of votes. Nonetheless, thanks to the “voto di lista” mechanism as defined by UniCredits’ By-laws, they will elect all board members less one.
Both UniCredit and Fiat Group cases are clear examples of one of the distortions caused by the “voto di lista”: the major shareholders’ power is further strengthened, thanks to the exclusion of the proportionality principle. Anyway, the By-laws’ provision of only one director elected by the minorities is understandable (even if not justifiable) in such cases: majority shareholders took advantage of the law, by allowing the lowest possible representation to minorities.
What happens where there are no major shareholders? The case of the only Italian large public company, Prysmian, is even more clear about the paradoxes created by a wrong definition of the “voto di lista” mechanism.
Prysmian
The company recently modified its By-laws by enabling the Board of Directors itself to submit a slate of nominees. As no shareholders control the company, such provision aims at ensuring that at least one slate is submitted and also at guaranteeing a continuity of the company’s management. The paradox arises because the election mechanism has not been changed accordingly: 9 directors out of 11 are still elected from the slate of nominees that obtains the majority of votes. As there is no majority shareholder, what happens in case a slate of 11 nominees is submitted by an activist investor? In that case, almost the entire Board would change, drastically affecting the management of the company.
Fortunately, for Prysmian’s incumbent managers, no “minority” slates including 11 nominees have been submitted at the 2012 AGM: the Board’s slate included 11 nominees, the major shareholder Clubtre (holding 6% of the share capital) submitted only 3 nominees and the slate submitted by the usual group of institutional shareholders (representing 1.8%) included only 2 nominees.
Here is the paradox: the Board’s nominees did not count on any predefined amount of votes while the other slates counted respectively on 6% and 2% of the share capital, but none of the “minority” lists included a sufficient number of nominees to fulfil the Board. In case, for instance, Clubtre obtained the majority of votes, only 5 directors out of 11 would have been elected (three from the Clubtre’s list and two from the “minority” lists). A new meeting should have been convened to integrate the Board, to the detriment of the company’s management. In such scenario, voting shareholders’ choice was to vote for the slate submitted by the Board or to put the continuity of the company’s management at risk.
At the AGM, held on April 18th, the Board’s nominees obtained 83% of votes, but such very high approval is also due to the responsible vote of the shareholders, that had no real choice.
Such paradox would have been easily avoided by amending the election mechanism provided by the By-laws. Probably, also the only Italian large public company is still linked to the old culture of the controlling shareholder (that does not exist anymore).
The reported cases (only few among dozens) are clear signals that the voting mechanism needs to be changed. A regulatory amendment, forcing to apply the real “voto di lista” mechanism, would allow a greater proportionality: the votes obtained by each slate shall be divided by the integers from one to the number of directors to be elected; the resulting quotients are then allocated, one each, to the nominees on that list, in accordance with the order in which their names appear there; all the nominees on all the lists (including the majority one) are then arranged in descending order of their individual quotients.