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Towards the end of 1998, I thought that a series of favourable conditions was existingin Italy for convening a Committee with the aim of drawing up a Report on CorporateGovernance of listed companies and drafting a Code of Conduct. The market capitalisation of the Stock Exchange had risen close to 50% of GDP,putting the capital market back at the centre of the financial stage, the primary andsecondary legislation introduced by the Consolidated Law on FinancialIntermediation and the related implementing regulations had brought conditions inthis field into line with those prevailing in the other countries with highly developedfinancial systems, the “Comitato Piazza Finanziaria” was making good progress, theinternationalisation of the Stock Exchange was a fait accompli, with some 40% ofturnover originating abroad, the industrial and financial system had assimilated theEuropean and global scope of competition, the institutionalisation of savings hadbecome of major importance. In this increasingly international and institutional environment, success in competingfor access to the financial markets and minimising the cost of capital also depends onthe guarantees of efficiency and reliability that the system of Corporate Governancecan provide. The preparation of a Code of Conduct in the field of Corporate Governance istherefore to be seen as offering Italian listed companies an instrument able to furtherreduce the cost of recourse to the capital market. Naturally, such a Code is also a means of fostering the proper control of businessrisks and dealing adequately with potential conflicts of interest, always liable tointerfere in relations between directors and shareholders and between majority andminority interests. Nonetheless, since the economic and legal framework of the Italianeconomy and, in particular, of listed companies was and is satisfactory, the latter caninterpret the Code as an opportunity to develop further and not just as a set ofadditional procedures to comply with. Counting on this favourable climate, early in January 1999 I invited outstandingrepresentatives of the Italian economical and financial Community to participate in aCommittee that would undertake, with the necessary competence and authority, thetask of drafting of a Report and a Code of Conduct for Corporate Governance. The response was decidedly positive and demonstrated the willingness of the Italianbusiness community to tackle issues of importance for its success. The presence of institutional investors on the Committee confirmed the desire toensure the indications of the Code fully matched the objectives of the principalcounterparties. The Committee’s aim was thus to draw up a Code aligned with international practicebut heedful of specifically Italian features, based on freedom of choice in theorganisation of Corporate Governance and coupled with the correct definition ofresponsibilities in a regime of perfect transparency. The Code, which is voluntary and not mandatory, has a high degree of built-inflexibility, allowing it to be adapted to companies’ different choices, and lends itselfto revision in the future, to take account of the experience gained and changes inItalian law and business practices. If the boards of directors of listed companies will appreciate the benefits that canstem from wholehearted adoption of the Code, if they will not see it merely as aprocedure to be fulfilled with the minimum of effort, if institutional and individualinvestors will take account of companies’ Corporate Governance choices in theirinvestment decisions and if the climate of opinion will evolve favourably in thisrespect, we may believe to have contributed significantly to the success of Italiancompanies and the Italian market. Self-regulation is not a firmly established tradition in the Italian legal system or inthe Italian economy. I believe the preparation of this Code is also important because it is a significantoccasion on which firms, the Italian Exchange and investors have shownorganisational cohesion in pursuit of an objective of general interest, which has beenattained, moreover, in a short time. Successful application of the Code will thus be an important signal of the success ofself-regulation, which it will then be possible to use to advantage in other fields. The Country’s political and institutional authorities will also have a role to play,albeit indirectly, in fostering and respecting the self-regulatory efforts of a marketmade up of mature and responsible players. I wish to thank all the members of the Committee for their extraordinary commitmentto the common task, despite each having many other important duties andresponsibilities, and to express my gratitude to the Experts for their contribution ofideas and analysis. The enthusiasm and competence of Claudio Grego, Head of the Legal and RegulatoryAffairs Department of Borsa Italiana S.p.A., were fundamental in enabling theCommittee to complete soon and well its works. COMMITTEE
Managing Director Compart S.p.A.
Managing Director Borsa Italiana S.p.A.
Chairman Ania and Assicurazioni Generali S.p.A.
General Manager Romagest S.p.A.
Managing Director Sanpaolo IMI S.p.A.
Managing Director UniCredito Italiano S.p.A.
Chairman Associazione Bancaria Italiana SIGLIENTI
Managing Director Prime S.p.A.
1. Role of the Board of Directors 2. Composition of the Board of Directors 4. The Chairman of the Board of Directors 5. Information to be provided to the Board of Directors 6. Confidential Information 7. Appointment of Directors 8. Remuneration of Directors 10. Internal Control Committee 11. Relations with Institutional Investors and other Shareholders 12. Shareholders’ Meetings 13. Members of the Board of Auditors INTRODUCTION
The success of Italy’s economy depends, among many others elements, also on theefficiency and ability to grow of Italian companies, whose access to domestic andinternational financial markets is one of the indispensable prerequisites for such growth.
It is clear that, in the context of an international and global financial market, firms nowcompete for their access to the capital market. How investors decide to allocate theresources they manage is influenced both by the general conditions of each country andby the characteristics of individual firms; they not only assess economic factors but alsothe reliability and accountability of the legal system and the management of individualcompanies.
Even though the Italian financial market is already substantially international, with non-resident investors accounting for some 40% of trading, the aim of minimising the costof capital for listed companies makes it essential to maintain and, if possible, increasethe presence of both foreign investors and domestic investors.
The Consolidated Law on Financial Intermediation and the implementing regulationsissued by Consob and the Bank of Italy have contributed decisively to enhancing theesteem of Italy’s markets and companies and have laid the foundations for thespecification of a model of Corporate Governance in line with those of the countrieswith the most highly developed financial systems.
In an increasingly competitive environment, Italian firms and the companies listed onItalian markets must continuously compare themselves with the models of corporateorganisation developed in the most advanced economies in order to maintain and expandthe role and importance they have acquired. In drawing up the Code of Conduct, theCommittee has accordingly endeavoured to align the proposed system of CorporateGovernance with international standards, while taking adequate account of specificnational features, so as to allow the competitiveness and the image of Italian companiesto be appreciated in a global financial context.
Corporate Governance, in the sense of the set of rules according to which firms aremanaged and controlled, is the result of norms, traditions and patterns of behaviourdeveloped by each economic and legal system and is certainly not based on a singlemodel, that can be exported and imitated everywhere.
The issue of Corporate Governance has been the object of a debate in recent monthsbetween those who advocate a form of binding regulation and those who would leave organisational choices, in which Corporate Governance is a major factor, to companies’discretion.
The Committee has come out in favour of self-regulation, but considered it essential forthe maturation of listed companies in the field of Corporate Governance to be fosteredby the drafting of this Code of Conduct with provisions reflecting the bylaw and boardpractices of those companies that in recent years have adopted advanced models ofCorporate Governance.
The Committee is convinced that this Code of Corporate Governance, if it is taken as aguide to best practice by listed companies, can reassure the investor community as tothe existence in listed companies of a clear and well defined organisational model withan appropriate division of responsibilities and powers and a proper balance betweenmanagement and control.
In preparing the Code, it was immediately clear that the work would be decisivelyconditioned by the existing system of company law, which in Italy’s case differs insome respects from those of other continental European countries and even moremarkedly from those of the Anglo-Saxon countries.
The monistic structure of the board of directors, the obligation to have a board ofauditors as a control body, the three-year limit to the duration of corporate bodies andthe limited board presence of managers were factors the Committee had to take intoaccount.
No less important was the analysis made of the ownership structure of listed companies,which showed relatively few companies in Italy with a broad shareholder base flankedby a large number with concentrated ownership.
The Committee has identified the maximisation of shareholder value as the primaryobjective of good Corporate Governance, considering that in the longer term the pursuitof this goal can give rise to a virtuous circle in terms of efficiency and companyintegrity with beneficial effects for other stakeholders — such as customers, creditors,consumers, suppliers, employees, local communities and the environment — whoseinterests are already protected in the Italian legal system.
The Committee surveyed the systems of Corporate Governance adopted by thecompanies listed on Italian Exchange with a detailed questionnaire to which they nearlyall responded.
The findings showed that, even though the systems of Corporate Governance in force inthese companies differed according to their size, ownership structure and sector ofactivity, they appeared to be valid: what was missing, however, was a set of standardsembodying the best practice for companies to aim at.
Accordingly, the Committee proposes this Code as a model aligned with the principlesof international best practice, suitably adapted to take account of the specific featuresfound in Italy, in the belief that its wholehearted adoption by listed companies willincrease their reliability with investors.
The Code contains a minimum set of recommendations that outline an organisationalstructure for companies of which the fundamental feature is the central position of theboard of directors, charged with providing strategic and organisational guidance andverifying the existence of the controls needed to monitor companies’ performance.
The board of directors fulfils its duties well when it is able to act with the necessaryauthority and effectiveness and when its composition ensures that its decisions aremarked by the primacy of the company’s interest and the maximisation of shareholdervalue.
The Code lists the activities the board of directors undertakes and the powers itexercises to achieve the foregoing objectives and notes that its guidance functionrequires regular and sufficiently frequent meetings, as well as knowledge of the factsand independence of judgement on the part of all members.
The importance of the responsibilities and tasks of directors led the Committee to callon them to make a conscientious self-assessment of their ability to devote sufficient careand attention to the duties of the office. The Committee did not, instead, deem itdesirable to lay down quantitative guidelines in terms of number of directorships or theduration of appointments.
The balanced composition of the board, with the participation of executive directors andnon-executive directors, of which some classifiable as “independent”, guarantees thegood governance of the company as the outcome of the confrontation and dialecticbetween management powers and those of strategic guidance and supervision, while ensuring that the necessary attention is paid to the performance of the company and theprevention of conflicts of interest.
The board of directors is a unitary body. Even though decision-making powers in therunning of the company are delegated to only some directors, the non-executivedirectors, whose number and authority should result in their carrying significant weightin board decisions, have a key role to play by contributing their expertise to thedialectical debate that is the essential prerequisite for pondered and informed collectivedecisions consistent with the interests of the company.
Independence of judgement is required of all directors, executive and non-executivealike; directors who are conscious of the duties and rights associated with their positionalways bring independent judgement in performing their work.
Finally, the Committee recommends, in line with international practice, that anappropriate number of “independent” directors should be elected to the boards of listedcompanies; the role of such directors is important not only in board discussions but alsoin board committees.
In the model outlined in the Code the role of the chairman is crucial in ensuringcompliance with the principles of Corporate Governance. It is the chairman, in fact,who is responsible for the working of the board, the distribution of the informationneeded to the directors to be able speak with knowledge of the facts, and the co-ordination of the board’s activities.
The Committee has found that it is not infrequent in Italy for management powers to bedelegated to the chairman, either alone or together with other managing directors.
Accordingly, it does not recommend the separation of the two roles as a matter ofprinciple. It does, however, recommend that listed companies should make the divisionof tasks and responsibilities among the various positions absolutely clear and discloseadequate information in this respect.
The price-sensitive and other information distributed to the board of directors mustalways be considered by the directors as confidential. The Committee accordinglyrecommended that boards should adopt a procedure for the communication of companydocuments and information to third parties.
The Committee recommends, with regard to proposals for election to the board ofdirectors, that companies should comply with a transparent procedure, albeit with themaximum of flexibility.
Without prejudice to the responsibility of shareholders, especially those with a majorityor controlling interest, for proposals, the Committee recommends that the personal traitsand professional qualifications which, in the view of their proposers, render candidateseligible for election should be communicated sufficiently in advance. In this way all theshareholders will be able to cast their votes in an informed manner.
The Committee believes that some companies may consider it helpful to establish acommittee to propose the appointments. However, the large proportion of companieswith concentrated ownership, the legal requirement for appointments to the board ofdirectors not to last more than three years and the bylaws providing for election lists insome companies with a broad shareholder base suggested that it would not be advisableto institutionalise such a committee.
Directors’ pay is a field where decisions must be taken in such a way that no directorcan influence the determination of his or her remuneration and which calls for adequatedisclosure of information and transparency concerning fees and the manner ofdetermining them. It is also important that remuneration packages should be able toattract and motivate persons with adequate experience and ability, not only for theboard but also for top management positions.
The Committee therefore recommends the setting up of a remuneration committee,which really amounts to no more than institutionalising the practice adopted in Italiancompanies in conformity with the second paragraph of Article 2389 of the Civil Code.
The Committee considers that the need to align the interests of the directors with thoseof the shareholders means recommending at least partly variable systems ofremuneration, linked to economic objectives.
The Committee recommends the setting up of an internal control system, which can beorganised in different ways according to the situation of each company. It is the task ofthe directors so encharged to set up and ensure the adequacy and effectiveness of the internal control system. A good control system, provided with adequate human andfinancial resources, increases the ability to identify, forestall and limit, as far aspossible, financial and operational risks and fraud at the company’s expense.
The Committee also recommends that all listed companies should establish an internalcontrol committee charged with analysing and addressing the problems of importancefor the control of the company’s activities.
The main recommendations in this respect are: that the committee should be establishedformally, that it should be made up of an appropriate number of non-executivedirectors, that it should give advice and make proposals, that it should report regularlyto the board of directors, and that it should assess the adequacy of the control system,the reports of the external auditors and the persons responsible for internal control andthe offers and work programmes of auditing firms.
The Committee believes that it is in the interest of listed companies to establish acontinuous dialogue with the generality of shareholders and, in particular, withinstitutional investors.
The Committee is of the view that this dialogue can be fostered by the establishment ofan ad hoc corporate structure for this function, although, especially in smallercompanies, it can be performed directly by members of the company’s governingbodies.
The Committee deemed that the behaviour of institutional investors was beyond thescope of its remit but hopes that recognition by them of the importance of the rules ofCorporate Governance contained in this Code may help to promote a more whole-hearted and widespread application of its principles by listed companies.
Shareholders’ meetings remain a key element in the relations between shareholders andthe board of directors. The Committee recommends that the participation of theshareholders in the meetings should be encouraged and facilitated and that, wheneverpossible, all the directors should attend. The Committee also recommends thatcompanies should establish rules for shareholders' meetings in order to permit theorderly and effective conduct of business.
Following the entry into force of the Consolidated Law on Financial Intermediation andthe related reform of the board of auditors of listed companies, the Committeerecommends that the members of this board should also be appointed by way of atransparent procedure and that adequate information on the candidates should be distributed in advance. The Committee is convinced that the interests of the majorityand minority shareholders must confront each other in the election of the governingbodies, whereas subsequently these bodies, and hence also the members of the board ofauditors, must work exclusively in the interest of the company regardless of whoproposed them.
The Code is an organisational and operational reference model and as such does notgive rise to any legal obligations.
The Committee nonetheless hopes that the corporate organisation provided for in theCode, although not binding, will be the model to which listed companies will graduallyrefer to in taking decisions concerning their internal organisation and manner ofoperating; the provisions of the Code are notable for their flexibility, leave ample scopefor their gradual adoption and subsequent improvement, and consider the differencesbetween companies in terms of size and ownership structure.
The Committee has decided to invite Borsa Italiana S.p.A. to acknowledge the existenceof the Code and to provide, for the companies with shares listed on the markets itmanages, to report, through procedures agreed with the Committee, on their adoption ofthe corporate organisation provided for in the Code and to give the reasons for their notcomplying with some or any of them.
The Committee recognises that some smaller companies, especially if they are not partof a group, may have difficulty in adopting the entire Code in the short term and thatother companies, such as those with a limited number of directors, may deem itdesirable to leave the functions attributed to board committees to the board itself; theCommittee nonetheless invites them to consider the advantages inherent in applying theentire Code.
The Committee firmly believes that the Code will be a powerful instrument forenhancing the esteem in the eyes of investors of all Italian companies, provided theyappreciate and embrace it with conviction as a means of raising their standards ofCorporate Governance and not just as an additional imposition to be complied withpassively.
The board of directors of the listed companies shall decide whether or not comply withthe corporate organisation provided for in the Code.
The board of directors, shall, in exercising its general powers of guidance, choose themost appropriate organisational solutions from among those the flexibility of the Codepermits.
The guiding principle in applying the Code is, in fact, “freedom with accountability”,which in the Committee’s view is the one that allows companies to pursue theirobjectives while simultaneously ensuring the transparency of their choices.
The task of verifying the suitability of the choices made and the extent of the Code’sapplication is entrusted to the institutional fora for the confrontation betweencompanies and the main actors interested in good Corporate Governance: it is thereforeto be reserved to shareholders’ meetings and encounters with institutional investors.
The Committee also believes that the Code should be reviewed from time to time inorder to keep it in line with legal and regulatory developments in Italy and abroad andthe progressive internationalisation and globalisation of markets and Italy’s economicand social structures. To this end, the Committee will continue in existence during thefirst two years of the Code’s application to carry out a study for monitoring the level ofadoption of the Code by the listed companies and to formulate and receive proposals forits revision.
Articles and Comments
Listed companies are governed by a board of directors that meets at
regular intervals and that adopts an organisation and a modus
operandi enabling it to guarantee effective and efficient performance of
its functions.

The Committee believes that the primary responsibility of the board ofdirectors of a listed company is to set the company’s strategic objectivesand to ensure they are achieved.
In this sense the board performs a leadership function that isimplemented not only through the meetings of the board, to be held atregular intervals, but also through the effective commitment of eachdirector in such meetings and in those of the committees of the board.
The board of directors shall:
a) examine and approve the company’s strategic, operational and
financial plans and the corporate structure of the group it may

b) delegate powers to the managing directors and to the executive
committee and revoke them; it shall specify the limits to such
delegated powers, the manner of exercising them and the
frequency, as a general rule not less than once every three
months, with which such bodies must report to the board on the
activity performed in the exercise of the powers delegated to

c) determine, after examining the proposal of the special committee
and consulting the board of auditors, the remuneration of the
managing directors and of those directors who are appointed to
particular positions within the company and, where the
shareholders’ meeting has not already done so, allocate the total
amount to which the members of the board and of the executive
committee are entitled;

d) supervise the general performance of the company, with special
reference to situations of conflict of interest, paying particular
attention to the information received from the executive
committee (where established), the managing directors and the
internal control committee and periodically comparing the results
achieved with those planned;

e) examine and approve transactions having a significant impact on
the company’s profitability, assets and liabilities or financial
position, with special reference to transactions involving related

check the adequacy of the general organisational and
administrative structure established by the managing directors for
the company and the group;

g) report to the shareholders at shareholders’ meetings.
As stated above, the board of directors’ tasks include providing strategicand, regarding the group, organisational guidance.
The board is also the collective body responsible for verifying theexistence of the controls needed to monitor the performance of thecompany.
In addition, the board has the authority to appoint one or more managingdirectors and an executive committee, requiring them, however, toprovide adequate information on the exercise of the powers delegated tothem.
The Committee believes that the board has the right and the interest tomonitor that there is not a significant concentration of decision-makingpower in the bodies with delegated powers without an adequate system ofcontrols.
In fact, while it is certainly necessary for companies to have a strongexecutive leadership endowed with adequate powers and able to exercisethem to the full, it is equally necessary for the board of directors,collectively, to supervise the running of the business in a predeterminedand agreed manner.
At all events, the Committee recommends that, in addition to mattersreserved to the board by law or the bylaws, the powers delegated tomanaging directors should not cover the most important operations(including, in particular, those with related parties), the examination andapproval of which remains the exclusive responsibility of the board.
As regards such operations, the Committee recommends that theinformation provided to the shareholders’ meeting should be sufficientlydetailed, so as to allow the advantages they offer the company to beunderstood.
Directors shall act and decide autonomously, having full knowledge of
the facts, and pursue the objective of creating value for the
shareholders. Directors shall accept their appointment to the board
when they deem they can devote the necessary time to the diligent
performance of their duties.

The Committee recommends that each director should perform his or herfunctions conscientiously and that board decisions should accordingly betaken by directors who have full knowledge of the facts they are calledupon to discuss and approve.
The decisions of each director are autonomous to the extent that they aretaken in the light of his or her unbiased assessment of the facts in theinterest of the generality of shareholders. Accordingly, even whenoperational choices have already been assessed by the controlling shareholders (individually or under a shareholders’ agreement), eachdirector is required to cast his or her vote autonomously, making choicesthat can reasonably be expected to maximise shareholder value.
The creation of value for the generality of shareholders is the primaryobjective the directors of listed companies seek to achieve. The emphasisplaced on shareholder value, apart from reflecting the approach that isinternationally prevalent, is in conformity with Italian law, which seesthe interest of the shareholders as the reference parameter for the actionof those who lead the company. For listed companies, moreover,promoting the value of the shares is also the indispensable premise for aprofitable relationship with the financial market.
Independence of judgement is requirements of the decisions of alldirectors, executive and non-executive alike, regardless of whether thelatter are “independent” within the meaning of Article 3 below.
The reference to the time to be devoted to the diligent performance of theduties of directors confirms the principle that all directors areindividually required to make an appropriate commitment to theposition, so that companies can benefit from their expertise. Eachdirector is therefore responsible for assessing in advance his or herability to play the role diligently and effectively.
Directors are required to know the duties and responsibilities
associated with their position. Managing directors shall endeavour to
inform the board of the main statutory and regulatory innovations
concerning the company and the governing bodies.

The Committee believes that it is up to individual directors to know theduties and responsibilities associated with the position of director.
Managing directors shall endeavour to ensure that all the directors arekept abreast of the main innovations in the legal framework withinwhich the company operates, especially the legal provisions concerningthe performance of the functions of director.
The board of directors shall be made up of executive directors (i. e. the
managing directors, including the chairman where he or she has
delegated powers, and those directors who perform management
functions within the company) and non-executive directors. The
number and standing of the non-executive directors shall be such that
their views can carry significant weight in taking board decisions.

Non-executive directors shall bring their specific expertise to board
discussions and contribute to the taking of decisions that are consistent
with the shareholders’ interests.

In Italy non-executive directors normally outnumber executive directors.
The Committee recommends that, in practice, each company should determine the number, experience and personal traits of its non-executivedirectors in relation to its size, the complexity and specific nature of itssector of activity, and the total membership of the board.
The fact that decision-making powers in the running of the company aredelegated to only some directors does not eliminate the importance of theboard of directors really being able, in the performance of its strategicand supervisory duties, to express authoritative judgements that are thefruit of authentic discussion among professionally qualified persons.
The primary role of the non-executive component is to make a positivecontribution to the performance of these duties.
Non-executive directors enrich board discussions with expertise acquiredoutside the company of a general strategic or specific technical nature.
Such expertise allows matters under discussion to be analysed fromdifferent standpoints and thus helps to fuel the dialectical debate that isthe distinctive prerequisite for pondered and conscious collectivedecisions.
The contribution of non-executive directors is also useful in matterswhere the interest of the executive directors and the more general interestof the shareholders might not coincide. In fact, the non-executivecomponent of the board, because it is not involved in the running of thecompany, can assess the proposals and the behaviour of the executivedirectors with greater detachment.
An adequate number of non-executive directors shall be independent, in the
sense that they:

a) do not entertain business relationships with the company, its
subsidiaries, the executive directors or the shareholder or group of
shareholders who controls the company of a significance able to influence
their autonomous judgement;

b) do not own, directly or indirectly, a quantity of shares such that they
may control the company nor participate in shareholders’ agreements to
control the company.

Independence of judgement is required of all directors, executive andnon-executive alike: directors who are conscious of the duties and rightsassociated with their position always bring independent judgement totheir work.
In particular, non-executive directors, since they are not directly involvedin the running of the company, are qualified to bring an independent andunbiased judgement to the resolutions proposed by the managingdirectors.
The Committee recommends that, in line with international practice, anumber of “independent” directors should be elected to the boards oflisted companies that is adequate in relation to the total number of non- executive directors and significant in terms of representativeness. Therole of independent directors is important, not only in board discussionsbut also for their participation in the committees, dealt with later in theCode, established by the board of directors to address issues that aredelicate and potential sources of conflicts of interest.
The Committee notes that the most delicate aspect in companies with abroad shareholder base consists in aligning the interests of the managingdirectors with those of the shareholders. In such companies, therefore,the predominant aspect is their independence from the managingdirectors.
By contrast, where the ownership is concentrated, or a controlling groupof shareholders can be identified, the problem of aligning the interests ofthe managing directors with those of the shareholders continues to exist,but there emerges the need for some directors to be independent from thecontrolling shareholders too, so as to allow the board to verify thatpotential conflicts of interest between the interests of the company andthose of the controlling shareholders are assessed with adequateindependence of judgement The Committee recognises, however, that this need may be attenuatedwhere the company is controlled by a plurality of mutually independentpersons, none of whom is in a position to exercise a dominant influence.
Classifying non-executive directors as independent does not imply anyparticular value, either positive or negative, but is simply the result of afact: the absence, as the rule states, of business relationships with themanaging directors of the company (especially for companies with abroad shareholder base) and with the controlling shareholders (especiallyfor companies with a concentrated ownership) that would affect inrelation with their importance (to be evaluated on a case by case basis)their independence of judgement and unbiased assessment of the work ofthe management.
Director’s fees and a shareholding of a size that does not give control ofthe company in question do not nullify his or her independence.
The legal structure of Italian governing bodies means that it is possiblefor members of the executive committee to be considered non-executiveand independent directors insofar as this committee is a collective bodythat does not attribute individual powers to its members.
Lastly, the Committee believes that the presence on the board of directorsof members who can be considered “independent” is the best way toguarantee the composition of the interests of all the shareholders,majority and minority alike. Accordingly, in the correct exercise of therights to elect directors, it is possible for “independent” directors to beproposed by the controlling or majority shareholders; independence is anobjective quality that cannot be affected by the type of shareholdermaking the proposal.
The chairman shall call the meetings of the board and shall endeavour
to ensure that the members of the board are provided reasonably in
advance of the date of the meeting (except in cases of necessity and as a
matter of urgency) with the documentation and information needed for
the board to express an informed view on the matters it is required to
examine and approve.

The chairman shall co-ordinate the activities of the board of directors
and moderate its meetings.

Where, in order to promote the effective and efficient management of
the company, the board has delegated powers to the chairman, it shall
disclose adequate information in its annual report on the powers
delegated following that organisational choice.

The Committee believes that the role of the chairman is fundamental inensuring the effective working of the board and efficient CorporateGovernance. The chairman is responsible for calling meetings, settingthe agenda, arranging (in a manner agreed with the managing directors)for the distribution of adequate and timely information to the directors(especially the non-executive directors) and ensuring that all thedirectors can effectively make a knowledgeable and informedcontribution to board discussions.
In cases of necessity and as a matter of urgency exceptions to theforegoing information requirement may arise.
The Committee considers that in some circumstances the nature of thematters to be discussed, the need for confidentiality (especially forcompanies whose activity involves the interests of third parties) and therapidity with which the board must decide may impose limits on theinformation to be provided.
The Committee considers, in principle, that chairmen and the managingdirectors each have their own tasks, but notes that it is not infrequent inItaly for the same person to hold the two positions or for somemanagement powers to be delegated to the chairman even where thereare managing directors. Limited to the powers delegated to the chairman,he is also a managing director.
The Committee therefore believes that the board of directors, where itdeems this to be desirable in order to achieve a more efficient running ofthe company, has the right to delegate management powers to thechairman alone or with others. In such case the board should includeadequate information in its annual report on the duties andresponsibilities of the chairman and the managing directors.
The executive committee - in the person of its chairman - and the managing
directors shall periodically report to the board of directors on the activities
performed in the exercise of their delegated powers.
The bodies with delegated powers shall also provide adequate information
on transactions that are atypical, unusual or with related parties whose
examination and approval are not reserved to the board of directors.
They shall provide the board of directors and the board of auditors with the
same information.

The committee recommends that the exercise of the powers delegated tomanaging directors and the executive committee should be accompaniedby the provision of adequate and regular information to the board, on anorganised basis.
The interval between such reports depends on the importance of thedelegated powers and the frequency with which they are exercised andmay also vary with the sector in which the company operates and the sizeof the company.
The Committee recommends that the bodies with delegated powersshould pay particular attention to (and provide specific information on)the most delicate matters, i.e. transactions that are atypical, unusual orwith related parties.
Such transactions, which are certainly legitimate when undertaken in theinterest of the company, must, however, either be approved by the boardof directors as a whole, as in the case of those of particular significancereferred to in Article 1.2, subparagraph e), or, when carried out on thebasis of delegated powers or not of material significance, be reportedadequately to all the members of the board.
Lastly, the Committee believes that, since the board of directors isrequired by law to inform the board of auditors, all the directors mustpossess at least as much information as is provided to the board ofauditors.
The managing directors shall take care of the handling of confidential
information; to this end they shall propose to the board of directors
the adoption of an internal procedure for the disclosure to third
parties of information concerning the company, with special reference
to price-sensitive information.

All the directors are required to treat the documents and information
they acquire in the performance of their duties as confidential and to
comply with the procedure for the disclosure to third parties of such
documents and information.

Listed companies, in view of the importance of the disclosure ofinformation, both for investors and for the regular formation of prices inthe financial markets on which they are listed, must pay special attentionto the diffusion of information to third parties, especially if it is pricesensitive.
The Committee recommends, inter alia owing to the positive value of thecorrect disclosure of information to the market, that listed companiesshould adopt an internal procedure for the communication of suchinformation designed to prevent its being communicated selectively (i.e.
given early to certain persons, such as shareholders, journalists oranalysts) or in an untimely, incomplete or inadequate manner. Themanaging directors are required to propose to the adoption of such aprocedure to the board of directors and to take care of the handling ofconfidential information and the communication to the market ofinformation concerning important facts.
The Committee believes it must underscore the absolutely confidentialnature of the information directors acquire in the performance of theirfunctions and call on them to comply with the procedure forcommunicating information to third parties.
Proposals for appointments to the position of director, accompanied
by detailed information on the personal traits and professional
qualifications of the candidates, shall be deposited at the company’s
registered office at least 10 days before the date fixed for the
shareholders' meeting or at the time the election lists, if provided for,
are deposited.

Where the board of directors has established a committee to propose
candidates for appointment to the position of director, the majority of
the members of such committee shall be non-executive directors.

The Committee recommends that the election of members of the board ofdirectors should take place in accordance with a transparent procedure.
In general, proposals for the election of directors are put forward by themajority or controlling shareholders, who obviously make a preliminaryselection of the candidates.
In the case of companies with a broad shareholder base, instead,candidates are also put forward, sometimes by means of election listsprovided for in the bylaws, by minority or non-controlling shareholders.
In both cases it is in the interest of the generality of shareholders to knowthe personal traits and professional qualifications of candidates (as wellas the positions they hold) sufficiently in advance for them to be able tocast their votes in an informed manner, especially in the case ofinstitutional investors, which are often represented in shareholders'meetings by proxies.
The Committee believes that it is also possible for such characteristics tobe assessed in the light of the positions that each candidate might becalled upon to hold in the company (chairman, managing director,member of the executive committee, etc.).
The Committee has envisaged the possibility of listed companiesestablishing a nomination committee to propose candidates for election,especially where the board sees that it is difficult for shareholders tomake proposals, as may be the case in listed companies with a broadshareholder base.
In such cases the Committee recommends the establishment of anomination committee, but recognises that the function can be performedby the board of directors itself when it is small.
This committee, which can obviously receive proposals fromshareholders as well as formulating its own, serves the primary purposeof rendering the selection procedure transparent. The majority of themembers of the committee should be non-executive directors.
The board of directors shall form a remuneration committee. The
committee, the majority of whose members shall be non-executive
directors, shall submit proposals to the board on the remuneration of
the managing directors and of those directors who are appointed to
particular positions and, on the indication of the managing directors,
on the criteria for determining the remuneration of the company’s top
management. To this end the committee may employ external
consultants at the company’s expense.

The issue of the remuneration of managing directors and those entrustedwith special duties can, in nearly all listed companies, be largely basedon a practice similar to that which it is intended to institutionalise here.
In fact, the preparation of a proposal for such remuneration is usuallydelegated to directors who are non-executive or in any case able toformulate proposals without incurring conflicts of interest.
The Committee therefore recommends the establishment of aremuneration committee consisting prevalently of non-executivedirectors, which does not involve any special problems under Italian lawsince, in conformity with the second paragraph of Article 2389 of theCivil Code, the committee’s function is only to make proposals, so thatthat the power to establish the “remuneration of directors appointed toparticular positions in accordance with the articles of association”remains with the board of directors.
The remuneration committee is also entrusted with the task of identifyingand proposing to the board, on the basis of the indications provided bythe managing directors, the adoption of criteria for the remuneration ofthe top management of the company able to attract and motivate personswith adequate ability and experience. The committee may avail itself of consultants, who may be useful in providing the necessary informationon market standards for remuneration systems.
Determining the politics and levels of the remuneration of topmanagement obviously remains the task of the managing directors.
As a general rule, in determining the total remuneration payable to the
managing directors, the board of directors shall provide for a part to
be linked to the company’s profitability and, possibly, to the
achievement of specific objectives laid down in advance by the board
of directors itself.

The Committee believes that the appropriate structuring of the totalremuneration of managing directors is one of the main means of aligningtheir interests with those of the shareholders and that systems of variableremuneration linked to results, including stock options, makes it easier tomotivate the entire top management and promote its loyalty.
However, it is for the board of directors to decide whether to makeextensive use of such systems of remuneration and set the objectives formanaging directors.
The managing directors shall ensure the effectiveness and adequacy of
the internal control system; they shall define its procedures, appoint
one or more persons to run it and provide them with appropriate

The internal control system is charged with the task of checking
effective compliance with the operational and administrative internal
procedures adopted to guarantee a sound and efficient management
and to identify, forestall and limit, as far as possible, financial and
operational risks and fraud at the company’s expense.

The persons appointed to run the internal control system shall not be
placed hierarchically under a person responsible for operations and
shall report on their activity to the directors delegated to the task and
to the internal control committee (provided for in article 10 below) and
the members of the board of auditors.

The Committee is aware that no control system can entirely preventevents leading to unexpected losses or unintentional misrepresentationsof operational facts, but it believes that the establishment of an effectiveinternal control system is a key aspect of the good governance of listedcompanies.
The internal control system can be organised in different ways, inaccordance with to the situation of each company.
The managing directors appoint one or more persons to run the system,define the most suitable procedures to ensure its effectiveness and adequacy, and give the persons appointed to run the system resourcesand powers allowing them to perform their task effectively.
In the light of the best practice found in listed companies and thesupervisory rules applicable to some categories of financialintermediaries, the Committee recommends that the persons appointed torun the internal control system should be free from hierarchical ties withthe persons subject to their control, in order to prevent interference withtheir independence of judgement.
The internal control system covers both financial risks and operationalrisks, including, therefore, those arising in connection with theeffectiveness and efficiency of operations and compliance with laws andregulations.
The persons appointed to run the internal control system report to themanaging directors to allow them to intervene promptly where necessaryand to the internal control committee and the board of auditors to keepthem informed of the results of their work.
10.1. The board of directors shall establish an internal control committee,
charged with the task of giving advice and making proposals and made
up of an appropriate number of non-executive directors. The chairman
of the board of auditors and the managing directors may participate in
the committee’s meetings.

10.2. In particular the internal control committee shall:
a) assess the adequacy of the internal control system;
b) assess the work programme prepared by the persons responsible
for internal control and receive their periodic reports;
c) assess the proposals put forward by auditing firms to obtain the
audit engagement, the work programme for carrying out the audit
and the results thereof as set out in the auditors’ report and their
letter of suggestions;

d) report to the board of directors on its activity and the adequacy
of the internal control system at least once every six months, at
the time the annual and semi-annual accounts are approved;

e) perform the other duties entrusted to it by the board of directors,
particularly as regards relations with the auditing firms.
The Committee recommends that the board of directors, in performingits supervisory duties, should establish an internal control committeecharged with the task of analysing and addressing the problems ofimportance for the control of the company’s activities.
This committee is the formally constituted body able to assessautonomously and independently from both the managing directors onissues concerning the safeguarding of the company’s integrity and fromthe auditing firms on the results set out in the auditors’ report and theirletter of suggestions.
This explains the composition of the committee, as well as the provisionmade for the possible participation, at the meetings of the Committee, ofthe chairman of the board of auditors, as the representative of the controlbody provided for in the bylaws. The managing directors may alsoparticipate in the internal control committee since they are empowered tointervene in the matters examined and to identify adequate measures totackle potentially critical situations.
The list of the committee’s tasks is not exhaustive since the board ofdirectors may decide, in the light of the company’s nature and theparticular types of risk incurred in its entrepreneurial activity (considerbanks and insurance companies), to entrust other tasks to the committee.
The chairman of the board of directors and the managing directors shall,
while complying with the procedure for the disclosure of documents and
information concerning the company, shall actively endeavour to develop a
dialogue with shareholders and institutional investors based on recognition
of their reciprocal roles. They designate a person or, where appropriate,
create a corporate structure to be responsible for this function.

The Committee believes that it is in the interest of listed companies toestablish a continuous dialogue with the generality of shareholders and,in particular, with institutional investors.
In fact, correct, complete and continuous communication withshareholders is something that is appreciated by present and prospectiveinvestors.
In view of the special role and functional specialisation of institutionalinvestors, the Committee recommends that companies identify the personresponsible for relations with investors and that highly capitalisedcompanies with a broad shareholder base establish a corporate structuredevoted to this function and provided with adequate means andprofessional skills.
The Committee also recognises that, in smaller companies with a simplerorganisation, the task of handling investor relations could be performeddirectly by appropriately identified members of the top management ofthe company.
The specification that the dialogue with institutional investors must beestablished in compliance with companies’ communication procedures isintended as a reminder that it must not lead to the communication ofimportant facts before they are communicated to the market.
The Committee deemed that the behaviour of institutional investors wasbeyond the scope of its remit. It nonetheless hopes that recognition bythem of the importance of the rules of Corporate Governance containedin this Code may prove to be an important element in fostering a moreconvinced and widespread application of the Code’s principles by listedcompanies.
12.1. The directors shall encourage and facilitate the broadest possible
participation of shareholders in shareholders' meetings;
12.2. As a general rule, all the directors shall attend shareholders' meetings;
12.3. Shareholders' meetings shall also be an opportunity to provide
shareholders with information on the company, while complying with
the procedure concerning price-sensitive information.

The Committee believes that, even where the means of communicationwith shareholders, institutional investors and the market are widelydiversified (including telematic systems), shareholders' meetingscontinue to provide an opportunity to establish a profitable dialoguebetween directors and shareholders. With reference to this dialogue it isagain necessary to recall the duty of companies not to communicate pricesensitive information to shareholders without simultaneously disclosingit to the market.
Accordingly, the Committee recommends that, in choosing the place,date and time for shareholders' meetings, directors should bear in mindthe objective of making it as easy as possible for shareholders to attendand, since such meetings are an occasion for dialogue betweenshareholders and directors, that the latter should be present, especiallythose who, in view of the duties with which they are entrusted in theboard of directors and/or the committees of the board, can make a usefulcontribution to the discussion in the meeting.
12.4. The board of directors shall propose for the shareholders’ approval a
set of rules to ensure the orderly and effective conduct of the
company’s ordinary and extraordinary shareholders' meetings, while
guaranteeing the right of each shareholder to speak on the matters on
the agenda.

The Committee recommends that companies should establish rules forshareholders' meetings laying down the procedures to be followed inorder to permit the orderly and effective conduct of business, withoutprejudice, however, to the right of each shareholder to express his or heropinion on the matters under discussion.
The matters covered in the rules can include the maximum duration ofindividual interventions, their order, the voting procedures, theinterventions by directors and members of the board of auditors, as well as the powers of the chairman, inter alia with regard to settling orpreventing conflicts in meetings.
12.5. In the event of a significant change in the market value of the
company, the composition and/or the number of shareholders, the
directors shall assess whether proposals should be submitted to the
shareholders' meeting to amend the bylaws as regards the majorities
required for the approval of resolutions to adopt the measures and
exercise the rights provided for to protect minority interests.

With reference to the legal provisions protecting the rights of minoritiesthat require minimum percentages to be fixed for the exercise of votingrights and the prerogatives of minorities, the Committee recommendsthat directors should continuously assess the desirability of adapting suchpercentages in line with the evolution of the company’s size andshareholder structure.
13.1. Proposals to be submitted to the shareholders' meeting for
appointments to the position of auditor, accompanied by detailed
information on the personal traits and professional qualifications of the
candidates, shall be deposited at the company’s registered office at
least 10 days before the date fixed for the shareholders' meeting or at
the time the related lists are deposited.

13.2. The members of the board of auditors shall act autonomously with
respect to shareholders, including those that elected them.
13.3. The members of the board of auditors are required to treat the
documents and information they acquire in the performance of their
duties as confidential and to comply with the procedure for the
disclosure to third parties of such documents and information.

As laid down in Article 7.1 for the election of directors, the Committeerecommends that the members of the board of auditors should be electedby means of a transparent procedure and that shareholders should receivethe information they need to exercise their voting rights in an informedmanner.
The Committee believes that in a correct system of CorporateGovernance the interests of the generality of shareholders must all be puton the same footing and equally protected and safeguarded.
The Committee is convinced that the interests of the majority and thoseof the minority must confront each other in the election of the governingbodies; subsequently, the governing bodies, and hence also the membersof the board of auditors, must work exclusively in the interest of thecompany and to create value for the generality of shareholders.
Accordingly, the members of the board of auditors proposed or elected bythe majority or the minority are not their “representatives” on the boardand even less are they authorised to communicate information to thirdparties, especially the shareholders who elected them. They must alsocomply with the procedure established for the disclosure of informationconcerning the company to third parties.
1999 Comitato per la Corporate Governance delle Società Quotate All rights reserve. No part of this book may be reproduced or transmitted in any form or by any means,electronic or mechanical, including photocopying, recording, or any information storage or retrievesystem without prior permission from the copyright owners. 1st edition October 1999 by Borsa Italiana S.p.A. The Report and the Code of conduct are available on the web site:


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