The 'Mps' derivative scandal, Parmalat's disputed acquisition of Lactalis American Group and Fondiaria-Sai's huge losses due to related-party transactions are just a few of the recent events that have cast doubt on the effectiveness of internal control systems at Italian companies.
Frontis Governance has just published an analysis of the supervisory bodies at major Italian issuers, intended to provide a better understanding of the strict independence of their members. The Italian proxy advisor analysed the curricula vitae of 116 Statutory Auditors and 75 Supervisory Board members, in office as of 31 January.st.
According to the analysis, concerns have been raised regarding the strict independence of almost one-third of board members (32.5%): 9 Chairmen of the Board of Statutory Auditors (or 26% of the total number of Chairmen), 22 Auditors (27%) and 31 members of the Supervisory Board (41%).
The main factors of risk are related to:
- more than 9 years of service within the same Group (22 Supervisory Board members, 12 Auditors and 3 Chairmen) – as per the Italian Corporate Governance Code, 9 years is the maximum tenure to be defined as independent,
- excessive remuneration paid by the Company or the Group (11 Auditors and 2 Chairmen),
- excessive number of memberships at related companies (10 Auditors, 3 Chairmen and 1 Supervisory Board member).
Concerns also arise with regards to other criteria, equally serious although probably less evident: strong links with political bodies, previous positions at external auditors of the Company and consultancy payments by Group companies. In four cases concerns arise over all members of the Board of Statutory Auditors (Atlantia, Banco Popolare, Buzzi Unicem and Tod’s).
Transparency is also an issue: 12 companies do not disclose any personal information about the Statutory Auditors on their website, while a large part of the others merely publish partial information and do not disclose all Auditors’ memberships.
As per Frontis Governance's guidelines (based on ECGS’ corporate governance principles), companies should not limit themselves to merely complying with legislative duties. Effective corporate governance is achieved by understanding and improving all voluntary actions and procedures necessary to pursue the best interests of the company and its shareholders, also considering the specificities of the sector, company size, and current circumstances.
None of the analysed companies breaks any law, and in any case the purpose of the analysis is not to uncover illegal procedures. What is relevant here, is that the mere compliance with standard rules may undermine the fiduciary relationship between shareholders and corporate bodies. Strong connections with relevant shareholders, long-standing professional relationships with the Group or its advisors, excessive payments or significant links with entities in conflict of interest, are all factors of risk that should always be avoided, whether allowed by the law or not.