The 2019 update of the Frontis Governance guidelines for Italian companies is available in the section Documents & Links of the site.
As every year, the guidelines were defined on the basis of the general principles defined by the ECGS network partners, applied to the specificities of the Italian market. In defining the principles, ECGS partners took into account the observations and comments of their institutional investor clients. On ECGS website general guidelines adopted by the network for European markets are available.
The document includes a first section devoted to the governance principles used in all analyses carried out by Frontis Governance, regardless of the shareholders' meeting event, on the basis of which the voting policies are defined, which are set out in the second section of the document by main topics subject to shareholder vote.
In the first section of the document, it was specified how the more general principles of corporate governance are also applicable to unlisted companies, which for some years now have been included, albeit still marginally, in the scope of analysis of Frontis Governance. Obviously, the analysis of the governance of such companies must take into account the specificities of an unlisted company compared to a listed one, especially with regard to transparency and the protection of minorities. The possibility of defining specific guidelines for unlisted companies is currently being assessed.
Apart from formal changes, aimed at facilitating reading and clarifying certain aspects, the main new features of the voting guidelines and policies for 2019 are outlined below:
- Gender diversityFor the majority of Italian listed companies, the legal requirement that each gender be represented by at least one third of the members of corporate bodies will expire with the next renewal of corporate offices (the 2011 'Golfo-Moscow' law applies for three consecutive terms of office, of a maximum of three financial years each). Frontis Governance supports corporate initiatives (amendments to the articles of association or regulations) aimed at overcoming the temporary nature of the regulatory constraint by permanently ensuring gender balance in the composition of corporate bodies. According to the principles of the ECGS network, each gender should represent at least 30% of the members of corporate bodies.
- Number of mandatesWithout prejudice to the limits on the number of positions held as defined in the guidelines (no more than five non-executive positions, or one executive and one non-executive position, in a listed company or a company of significant size), it has been specified that Frontis Governance favourably assesses the appointment of independent directors who hold non-executive positions in more than one listed company, as this may constitute a greater guarantee of independence from the individual issuer.
- Variable compensation plansIn order to ensure greater alignment with long-term performance, the limit on variable compensation was increased from 300% to 400% for fixed compensation, while the limit of 150% for annual bonuses remained unchanged. In specific cases, variable remuneration exceeding the above limits may also be positively assessed, provided that the fixed is not excessive (compared to industry and market averages), the variable largely depends on long-term performance, and the consistency between the remuneration structure and corporate strategies is clearly demonstrated. It is also required that the company always disclose the level of achievement of the objectives on the basis of which both short-term and long-term variable remuneration is paid (ex-post), just as it would be preferable to communicate at least the minimum target for annual bonuses, i.e. the threshold below which the bonus will not be paid (ex-ante).
- Fixed feesIn order to allow for a correct assessment of the relationship between fixed compensation of top executives and average salaries, especially for a homogenous comparison of changes, it is recommended that the consolidated financial statements show the average salaries paid in each geographical area in which the group operates.
- Sustainability-related performance criteriaThe provision of performance parameters linked to environmental and/or social sustainability is generally supported, provided the parameters used are measurable and clearly aligned with the issuer's characteristics and strategies. Following reports received from investors specialised in sustainability issues, it has been specified that the mere presence or ranking in sustainability indices is not viewed positively. Such a performance parameter in fact risks incentivising short-term behaviour, not necessarily aligned with the issuer's strategies, aimed solely at the attribution of a score by the index providers.
- Capital transactionsIt was specified that, in addition to adherence to specific guidelines, the Frontis Governance assessment must also take into account how the company has handled authorisations to increase capital or purchase treasury shares in the recent past (generally, in the last five financial years).
It must always be specified that the guidelines only represent the general principles on which Frontis Governance analyses are based, but are not and must not be applied mechanically to all realities analysed. All Frontis Governance analyses are carried out on a case-by-case basis, taking into account its own principles and the specificities of the issuer and the sector in which it operates.
Frontis Governance - Corporate Governance Principles and Voting Guidelines 2019
