The 2017 update of the Frontis Governance guidelines is available in the section Documents & Links of the site.
The guidelines have been defined on the basis of the general governance principles defined by the ECGS network partners, applied to the specificities of the Italian market. ECGS website General guidelines adopted by the network partners for European markets will be available shortly.
The corporate governance principles for the Italian market have been defined in continuity with what was prepared in 2016. No substantial changes to the guidelines and voting policies have been reported, but an attempt has been made to clarify some points in greater detail.
The main changes introduced in the 2017 update are listed below.
Dividend distribution
It has been specified in greater detail that the dividend distribution should be entirely covered by consolidated net profit and cash generation.Free cash flow). In the event that the proposed dividends are not entirely covered by Free cash flow, Frontis Governance takes into account the issuer's overall level of debt and its dividend policy.
With particular reference to banking groups, the distribution of dividends is also analysed in relation to sector-specific factors, such as exposure to non-performing loans or any need for capital strengthening.
In the event that shareholders are granted the option to receive dividends, in whole or in part, in the form of shares (so-called scrip dividendthe analysis considers the company's ability to cope with the maximum amount of cash dividends anticipated by the proposal (i.e. if no shareholder were to opt for share dividends).
Name and composition of the Board of Directors or Supervisory Board
To ensure a degree of continuity in the Council's activity at the end of the triennial term, Frontis Governance and ECGS view positively the introduction of partial Council renewal mechanisms in each year of the term (so-called staggered elections. Through these mechanisms, the assembly elects one third of the Directors each year, for an individual term of 3 years, maintaining the requirements for independence and gender diversity as laid down by laws and regulations unchanged.
Issuers are invited to clearly state the members of the Committee responsible for assessing related party transactions. In many cases, this task is assigned to the Audit Committee, which, however, is not always composed entirely of independent Directors, and in some cases the composition of the Committee of Independent Directors tasked with providing an opinion on related party transactions is not specified.
The new guidelines specify that the representative of significant shareholders – that is, those holding at least 3% of the voting rights – is deemed by Frontis Governance to be non-independent, given that the specific interests of an individual shareholder may conflict with those of the shareholders as a whole.
It has also been specified that strong concerns regarding the close independence of a Councillor may also arise if the remuneration collectively received from the Reference Group significantly exceeds market averages and/or is close to the average salary of executives.
Remuneration policies
It has been specified that variable compensation plans, both short-term and long-term, which are not linked to a plurality of performance parameters, or which depend preponderantly on a single parameter, can be negatively assessed. All plans should furthermore include at least one relative performance parameter, i.e. calculated by comparison with comparable companies in terms of size and reference sector.
It has also been clarified that variable remuneration plans that do not include clauses can be viewed favourably. clawback (i.e. the possibility of clawing back incentive payments already made, in case of breaches of rules and regulations, significant long-term economic or financial deterioration, or if the incentive was awarded based on data that subsequently proved to be incorrect), provided that a significant portion of all variable remuneration, both short and long-term, is deferred for an additional period of at least 3 years and linked to the sustainability of the results upon which the remuneration itself was awarded.
Some plans may include the possibility of co-investing a portion of the incentive in company shares; at the end of a specific period vesting, the beneficiary will be able to receive further free shares in proportion to the shares purchased at the time of co-investment (matching shares). The attribution of matching shares should always be linked to further long-term performance conditions. In the event that no performance conditions are foreseen, the matching shares The attributable shares should not exceed 20% of the shares initially acquired through the co-investment. If performance conditions are stipulated, the ratio between matching shares and shares purchased should not exceed 1:1. In any case, the assessment of plans matching shares is always carried out taking into account the overall structure of variable remuneration plans, with particular reference to performance periods and criteria, and the maximum total amount.
Purchase and disposal of own shares
The circumstances under which a negative assessment can be issued for the authorisation to purchase own shares have been specified in greater detail. In particular, an adverse recommendation may be issued if:
- the purchase of treasury shares is proposed as an alternative to dividend distribution or the company is unable to distribute dividends;
- The level of debt is excessive compared to similar companies, or has increased significantly in recent financial years.;
- own share purchases are exclusively used to offset the effects of a plan scrip dividend assessed as not in line with Frontis Governance guidelines;
- The purchase of own shares is mainly aimed at serving an incentive plan not in line with Frontis Governance guidelines;
- Variable remuneration depends predominantly on performance criteria that could be influenced by own share transactions (such as Earnings Per Share), unless the company has specified how it intends to neutralise their potential positive impact on incentives.
Board of Statutory Auditors Name
A specific paragraph has been inserted regarding voting policies for the renewal of the Board of Statutory Auditors. In particular, it was wished to recall that many articles of association provide that the candidate in first place on the list that came second in terms of votes (“minority list”), signed by shareholders not connected with those who signed the most voted list, is automatically appointed Chairman of the Board of Statutory Auditors. For this reason, the analysis of the lists takes into consideration the most stringent independence requirements and the track record of candidates in external mandates, with particular attention to candidates listed in first place on each list.
Frontis Governance – Corporate Governance Principles and Voting Guidelines 2017