Pros And Cons Of An Imported Model Of Corporate Governance

  1. An Introductive Overview On Italian Corporate

    Governance

    In order to increase the competitiveness of the Italian

    market, especially from an international perspective, the

    Italian corporate reform, enacted by the Legislative Decree

    6/2003, provides for three management models for Italian

    corporations:

    the traditional model, which allows shareholders to

    appoint a board of directors with responsibility for managing

    the company and a panel of statutory auditors with

    responsibility for auditing the accounts and ensuring

    compliance with the law;

    the German model, comprising a Board of Directors and a

    Supervisory Panel; and

    the Anglo-Saxon model, providing for a Board of Directors

    and an internal Audit Committee.

    As clearly showed by a research conduced by the Association

    of Italian Chambers of Commerce and the Register of enterprises

    in March 2007, the traditional model is the most common and

    popular model adopted by Italian commercial entities. According

    to this research, in fact, only 143 limited companies had

    adopted the German model, compared with almost 25,000 which are

    organized according to the traditional model.

    Its wide diffusion is simply explained by the fact that it

    was the only corporate management model available to Italian

    limited companies before the reform in 2004. In fact, leaving

    aside the strengths and weaknesses of the traditional model,

    its popularity is essentially a consequence of an ingrained

    familiarity in Italian commerce, because it is a model devised

    and developed in Italy with a set of very well-know rules.

    Article 2409 octies of the Italian Civil Code

    demonstrates the leading role of the traditional model in the

    Italian corporate system. In fact, in absence of a provision to

    the contrary in a company's bylaws, the traditional model

    applies by default.

    However, it remains to be seen whether either the German or

    the Anglo-Saxon model, both of which are relatively new to

    Italy, offers a viable alternative to the traditional

    model.

    The present article identifies the strengths and the

    weaknesses of the German model and shows that it may be

    particular useful in a private equity context, enabling private

    equity funds to manage their Italian portfolio companies more

    efficiently.

  2. Diffusion Of The German Model In

    Italy

    As said in the precedent paragraph until march 2007 only 143

    limited companies have adopted the German model. Otherwise, the

    financial and banking world have had strongly revaluated the

    German model. In fact, several large, high-profile corporations

    have recently adopted it, including Intesa San Paolo, the

    company formed by Italy's largest bank merger; Mediobanca,

    Italy's most prestigious merchant bank; Banche Popolari

    Unite/Banca Lombarda and Banca Popolare di Verona/ Banca

    Popolare Italiana.

    Furthermore, outside the banking world, several listed

    companies have adopted the model, including Societ

    Sportiva Lazio, The Serie A football club; Ergo Previdenza, an

    insurance company; M&A Management & Capitali and Monti

    Ascensori. Other prominent companies have either already

    adopted the model or are further investigating it.

  3. Supervisory Panel

    The main difference with the traditional model is the

    existence in the German model of a supervisory panel, while

    there is no difference between the traditional model and the

    German model in respect of the role, duties and liabilities...

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