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Italian mergers, boards & governance - possibly not the best way

Intesa Sanpaolo, Italy’s biggest retail lender and the by-product of the takeover of Sanpaolo IMI by Banca Intesa is an excellent case study of a) how not to construct a post-merger board and b) how not to engage with shareholders and c) why EU shareholder reforms can’t come too quickly.

The bank operates what can only best be described as an unwieldy two-tier board structure. The CEO and 10 non-executive directors (including the Chairman and Deputy Chairman) make up the Management Board;  19 non-executive directors (including the Chairman and two Deputy Chairmen) make up the Supervisory Board. It’s a board structure which seems ultimately designed to cater for the myriad of shareholder factions and to facilitate acceptance of a takeover rather than the provision of an efficient management structure.

The company’s justification? ‘Intesa Sanpaolo structured its governance system, also in the light of indications contained in the Code of Conduct for listed companies, for the purpose of ensuring effective and transparent divisions of powers and responsibilities among its corporate bodies and, in particular, a correct balance between management and control operations.’

With this backdrop, the agenda for this year’s AGM brings an interesting blend of challenging governance issues.

Pursuant to Article 23.8 of the company’s articles of association, “The Chairman and the two Deputy Chairmen shall be appointed by the Ordinary Shareholders’ Meeting with special resolutions approved by the majority of attending shareholders”. Unfortunately, at the time of the publication of the agenda, no candidates for the positions were identified. So that’s tough luck for non-resident shareholders who won’t be attending the meeting and therefore won’t be able to cast an informed vote on Resolution 4.

To confuse matters further, shareholders were presented with five candidate lists for the board elections.

Since 2007 Italian law requires that the slate system is utilised where the full Board is standing for election – typically boards are appointed for terms of office of three financial years (the legal maximum).

Under the list system, shareholders may only vote for one slate of candidates from amongst the lists presented by different shareholders or groups of shareholders. The slate which receives the most votes is typically referred to as the majority slate, with the other slates which win seats being referred to as minority slates. At least one member of the board of directors is elected from the slate presented by minority shareholders (where such a list has been presented).

A shareholder or groups of shareholders are entitled to propose a list of candidates provided they hold the specified number of shares. The shareholding threshold required for the submission of the lists of candidates for the election of the board of directors and the board of statutory auditors may not exceed specified amounts under law (the percentage being dependent on the company’s market capitalisation), although the company’s by-laws may provide for a lower threshold.

The five slates, in simple terms, look like this:

  • 16 candidate slate submitted by Compagnia di San Paolo and Fondazione Cariplo – one candidate is a Supervisory Board member of UBI Banca Scpa – a competitor.
  • 9 candidate slate submitted by Fondazione Cassa di Risparmio di Padova e Rovigo, Ente Cassa di Risparmio di Firenze and Fondazione Cassa di Risparmio in Bologna – three candidates are directors of a significant shareholder
  • 2 candidate slate submitted by Assicurazioni Generali SpA 
  • 2 candidate slate submitted by a number of Institutional Investors
  • 2 candidate slate submitted by Crédit Agricole SA – neither can be considered independent because of the pending sale of a number of Intesa branches to Crédit Agricole.

Given that the French bank already controls Italian regional bank Cariparma, it’s probably not surprising that Italy’s antitrust body is worried that the presence of Credit Agricole in Intesa Sanpaolo distorting competition in the country’s banking sector.

Italy failed to hit its deadline for full implementation of the Shareholder Rights Directive, consequently nearly all companies have been tied to holding their AGM on the last Thursday in April – a four day week due to the national holiday on the same Monday. Despite the long lead time for the proposed changes, clear sign-posting of what would be needed and the alleged increase in professionalism of the investor relations industry, this year’s Italian proxy season has been one of the most chaotic for years. Lack of timely information for shareholders; obscure candidate slates; two tier disclosures and procedures for non-resident shareholders; and oppressive voting deadlines have made a mockery of shareholder democracy. 

For investors brave enough to invest in Italy the new law due to take effect at the end of October will be a welcome relief. Whether it is enough to address the internecine struggles for power in Italian boards is another question.


The Implementation of the Shareholder Rights Directive in Italy >>

1 comment to Italian mergers, boards & governance – possibly not the best way

  • The FT commented on the Intesa Sanpaolo elections today (26 Apr) noting that the right-wing political party The Northern League had made gains in Italy’s regional elections and would use its control of local banking foundations to help get its men on the Board of Intesa Sanpaolo and Unicredit.

    “We have won everything and a slice of the banks falls to us . . . It is clear that the larger banks of the north will have our men at all levels.” – Umberto Bossi


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