Governance of listed companies: how politics and consob deal with the practice of the list of candidates presented by the board of directors – Shareholders

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According to the Italian law regulating listed companies (Legislative Decree no. 58/1998), the directors of listed companies are appointed by the shareholders’ meeting on the basis of lists (lists of candidates) submitted by the shareholders holding a qualifying holding identified also on the basis of the Consob regulations (the Italian public authority in charge of regulating the Italian financial markets).

This mechanism ensures minority representation at board level, requiring that at least one board member be chosen from the second list (if any) with the second highest number of shareholder votes.

There is also a practice that a list of candidates for the board of directors is submitted to the general meeting by the board itself. This option is not provided for by Legislative Decree no. 58/1998, but it is regulated autonomously by the statutes of more and more listed Italian companies. The Italian scholars and the Consob also recognize this option provided that the delivery of such a list does not prejudge the designation of the members voted by the minority shareholders. In addition, the Corporate Governance Code adopted in 2020 (a “soft law” code promoted by the Borsa Italiana) recognizes this practice, specifying that it must “be implemented in such a way as to guarantee transparency in its formation and presentation” and that the candidate selection process should be managed primarily by independent directors.

Considering that a growing number of Italian companies have recently amended their statutes to allow the board to submit its own list of candidates for the renewal of the same body, on December 2, 2021, Consob promoted a consultation process that resulted in the publication of a so-called “warning notice” (Richiamo di Attenzione) with the aim of pointing out some critical aspects related to the submission of the lists by the Board of Directors and some possible solutions. Moreover, last October, some Italian parliamentarians promoted a bill aimed at regulating this practice, proposing solutions criticized for their lack of flexibility. However, such a bill is still a long way from being discussed by the competent legislative committee and then approved by the Italian Parliament.

This article summarizes and analyzes the considerations set out in the Consob warning notice issued on January 21 2022, which are extremely useful guidelines for Italian listed companies to mitigate the potential risk arising from the presentation by the board of directors of a list of candidates in terms of lack of transparency, unfair competition between the lists of nominees and self-perpetuation of the board of directors. Among the remedies suggested by Consob are: (i) the adoption of a specific internal procedure aimed at regulating ex-ante the process of identifying candidates, which could be carried out by independent directors, possibly by appointing an ad hoc committee – different from the appointments committee – composed solely of independent directors; (ii) appropriate, timely and specific communication to shareholders of the procedure followed to select the candidates on the list, the adviser engaged, the results of the meetings of the board ruling on the list (including an indication of the number of directors who have voted against or abstained); (iii) the need to carry out an in-depth analysis – on the basis of additional criteria more suited to this practice – of the possible existence of a “relevant link” (criterio di collegamento) between a list submitted by the council and the lists submitted by shareholders of the issuer who are also present directly or indirectly (for example through their representatives) on the board of directors of the issuer presenting the list. This, essentially, because the existence of a “relevant link” between the lists, prevents the one which receives the least votes from being considered as a real “minority list”, thus excluding its right to benefit from the Board seats reserved for minorities.

Originally published February 10, 2022

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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