In his concluding remarks at the Ordinary Assembly of the Bank of Italy on 31 May, Governor Ignazio Visco dedicated.
The anomaly of listed cooperatives has led to the creation of inherently hybrid entities: large groups open to global markets, with headquarters and holdings in Luxembourg, Switzerland, Ireland, the United States, China, or Singapore, but governed by territorial logic. The very choice of corporate governance bodies is often driven by regional residency requirements (this is the case, for example, with the Articles of Association of Banco Popolare, which stipulate that at least 16 Board Members must be resident in the “historic areas” of Verona, Lodi, or Novara).
In any case, Governor Visco's call is clearly aimed at Banca Popolare di Milano (“BPM”), where a transformation into a joint-stock company (SpA) was recently attempted, blocked by very strong opposition from internal structures and employee shareholders. The Bank had already undergone a profound transformation in 2011, with the modification of its governance model from traditional to dual, also urged by the Bank of Italy to limit the influence of internal structures in management. The Bank's new management, led by Chairman of the Management Board Andrea Bonomi, had decided to take the decisive step towards transformation, which was to be voted on by the extraordinary general meeting on 21 June. As was predictable, the proposal to transform into an SpA caused very strong internal protests, led mainly by the trade unions. Tensions then spread to the Supervisory Board, even putting the approval of the 2012 financial statements at risk (only 10 votes in favour out of 18). In the end, the proposal was withdrawn and the Chairman of the Supervisory Board, Filippo Annunziata, resigned, followed by three other Board members. Among the reasons for the resignations, one reads of the “persistent tendency of some to not perform their role independently”, precisely the anomaly that it was intended to resolve by modifying the governance a year and a half ago.
Why is the transformation into a joint-stock company such a hot topic for the popular banks and their shareholders? In our Frontis Governance blog, the English version, we had already dealt with the issue of listed cooperatives, with the post of 30 September 2011 “Banca Popolare di Milano's rights issue and the problem of listed cooperative banks in Italy”On that occasion, we had highlighted the absolute anomaly of cooperatives in financial markets, particularly regarding the rules governing their general meetings and the distinction between members and shareholders.
In popular companies, in fact, it is not enough to buy shares to be able to vote at the meeting and express your opinion on the company's management and strategies. Only those who possess shareholder status, and have done so for at least 90 days, have the right to express themselves. To be admitted as a shareholder of BPM, for example, you need to buy at least 2,000 shares, commit to holding the shares over time and submit a formal request to the Management Board, which may approve it or not based on the applicant's requirements, including with regard to the Bank's “cooperative spirit.”.
The main anomaly, however, besides excluding shareholders from meetings, is that each partner will be entitled to only one vote, regardless of the number of shares held, and therefore the investment made. A fine example of popular democracy, if it were not a for-profit entity listed on financial markets.
What is the outcome of such a system? That fundamental decisions for the Bank and its shareholders (but also for employees) are made by a small number of people, most likely not professional investors, representing a minimal stake in the capital and often holding interests different from value creation.
The commentary from September 2011 began precisely with the outcome of the extraordinary general meeting held in June of that year, at which a capital increase of up to €1.2 billion (later reduced to €800 million), more than double the Bank’s market capitalisation at the time, was approved by 3,840 shareholders (approximately 3.5% of the total), representing 2.02% of the share capital, of whom approximately 10% were minors. But even more striking was the main topic of discussion during the meeting, which did not focus on the capital increase – despite its potentially significant impact on shareholders“ financial interests – but on a subject that appeared far less significant: the increase, from 3 to 5, in the number of shareholders that each proxy holder may represent at the meeting. According to the Articles of Association, in fact, each proxy holder – who must not be an employee – may hold only a limited number of proxies. This further restricts the ability of outsiders to participate in the meeting, which, when it comes to ”controversial’ decisions, remains the preserve of employees, former employees (pensioners) and their relatives.
If you were shareholders, participants in a pension fund, or subscribers to an investment fund, would you be more interested in a capital increase, where the choice is between investing more money or diluting your right to dividends, or deciding whether a delegate can represent 3 or 5 partners? Conversely, if you were employees of the company, would a capital increase be more important to you, or having a significant role in strategic and organisational decisions, even with a minimal investment?
Naturally, this is a simplification of a much broader topic, but this juxtaposition provides a clear representation of how shareholder interests do not always align with those of employee-shareholders in publicly listed companies.
Which category, however, should be most protected in a listed company, and therefore open to investment from small savers?
Governor Visco's call seems to have a double meaning: on the one hand, those listed on the stock exchange should always operate according to logic that creates value for minority shareholders, and on the other, stock market listing itself distorts the mutualistic objectives of cooperatives. The popular system, in fact, has enormous merits and plays a fundamental role in the development of the territories in which it operates.
The point, in this discussion, is not to “destroy banks operating differently”, as stated in February by the Chairman of Creval and ICBPI (Italian Confederation of Popular Banks), Giovanni De Censi (“Popular, Bpm will not be a pioneer on spa”, Reuters Italia, 22nd February 2013). The problem, if anything, is the exact opposite: it is the listing itself that distorts popular banks. On the other hand, De Censi himself, during the ICBPI's annual general meeting, recalled how, in popular banks, the objectives to pursue are “different from those of a company that must create value for the shareholder” (“Bpm, you can't distort the cooperative model”, Reuters Italia, 10 May 2013), and therefore different from those of any publicly traded company open to shareholder investment.
Thanks to the brave, though unsuccessful, initiative of BPM's management, the issue of listed popular banks has finally been forcefully addressed by the Bank of Italy. The hope now is that the discussion will proceed serenely, without falsely ideological clashes, between the different (entirely material) interests at play.