Carmine Di NoiaHead of Capital Markets

and Listed Companies Division

Assonime

Listed Companies and the Reform of Corporate Law

London, June 26, 2003

A Focus on the New Corporate Governance Models

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Summary

Overview of the new corporate governance models

The Two-tier board model

The One-tier board model

Summary

Overview of the new corporate governance models

The Two-tier board model

The One-tier board model

Traditional Model

Board of Statutory

Auditors Collegio Sindacale

Board of

Directors Consiglio di Amministrazione

Shareholders’ Meeting - Assemblea

appoints

Two-Tier Board Model

appoints

appoints

Shareholders’ Meeting

Consiglio di sorveglianza

Consiglio di gestione

Supervisory Board

Managing Board

One-Tier Board Model

Shareholders’ Meeting

Board of DirectorsAudit Committee

appoints

Comitato controllo sulla gestione

Overview of the new corporate governance models

Overview of the new corporate governance models

New models in line with Council Regulation on European Company (Regulation 2157/2001, effective as from 8 October 2004)

Implementation of models by by-laws may give rise to “competition among rules”: the model which better fulfils corporation’s needs will prevail

Same models in different legal systems may have different effects. The adoption of alternative models by Italian corporations will probably be slow (path-dependency)

Traditional corporate governance model

Chairman

Executive Directors Non Executive/Independent Directors

Board of StatutoryAuditors

Shareholders’ Meeting

Committee for Appointment of Directors

Committee on Remuneration and Stock Option

Internal Control Committee

Internal Control System

InvestorRelations

Internal Procedures for Confidential Information

Board of Directors/Sole Director

Audit Firm

Summary

Overview of the new corporate governance models

The Two-tier board model

The One-tier board model

Two-tier board model: overview

Separation of ownership and control. Powers from Shareholders’ Meeting to Supervisory Board.

A “transplant” from the German (and French) system: however no involvement of employees.

Two-tier system: who appoints whom

Two-tier board modelTraditional model

Board of Auditors

BoD

G.M.

Supervisory Board

Managing Board

Shareholders’Meeting

appoints

appoints

Two-tier System may prevent hostile takeovers because it would compel the bidder to change two separate boards

Focus

Managing Board

Consiglio di gestione

Supervisory BoardConsiglio di sorveglianza

Composition of boards

At least 3 members (one auditor). Bylaws may establish other requirements (independence, professionality, honourableness)

Number of members (not less than 2) fixed by bylaws

No person may at the same time be a member of both the supervisory board and the managing board

Appoint and revoke members of the managing board Bylaws can entitle GM with this task

Tasks of Supervisory Board

Tasks of GM in the traditional model

Approve annual accounts

Bylaws may provide for approval of annual accounts by GM in case supervisory board does not approve them. Shareholders may challenge resolution which approve annual accounts.

The Supervisory Board shall:

Supervise the work of the managing board. Bring actions for liability of managers and report to GM on the supervision carried out

No audit duties, which are performed by:

Audit Firm

Tasks of Managing Board

shall be responsible for managing the company

may delegate powers to individual directors

The Managing Board:

GM does not have management powers

A 3-board system?

Two-tier Board model and listed companies

Two-tier Board model is applicable to listed companies (see Article 223-septies )

Focus on:

Minority appointment of at least one member of Supervisory Board

Action for liability taken by shareholders vs. members of Supervisory Board?

Summary

Overview of the new corporate governance models

The Two-tier board model

The One-tier board model

One-tier Board model: overview

Supervisory body within the Board of Directors

A “transplant” from the Anglo-Saxon system

Attractive to listed companies (today, they have both an audit committee and a board of statutory auditors; risk to duplicate controls – and costs).

Board of DirectorsConsiglio d’Amministrazione

Shareholders’ Meeting

One-tier system: who appoints whom

Audit Committee

Comitato controllo sulla gestione

appoints

appoints

Bylaws may delegate, to GM, powers to appoint Audit Committee

Composition of boards

Board of DirectorsConsiglio d’Amministrazione

At least 1/3 of members shall be independent*

* Independence requirements = those applicable to members of board of auditors in the traditional model + those fixed by Corporate Governance Code

Consists entirely of non-executive, independent members. At least 3 members. By-laws may lay down further independence requirements

Audit Committee

Comitato controllo sulla gestione

Oversees the adequacy of the company organisation, administration, accounting and internal control system

Members cannot perform any executive task

Board of Directors

Audit Committee

Tasks of boards

shall be responsible for managing the company (same tasks as in the traditional model)

GM does not have management powers

Audit Firm

Audit duties performed by:

One-tier Board model and listed companies

One-tier Board model is applicable to listed companies (see Article 223-septies )

Focus: minority may appoint at least one member of Audit Committee

Focus

The Reform abolishes the duty for shareholders to deposit shares 5 days before the day of G.M. in order to vote at G.M. However this does not introduce the “record date” in our system. Market operators are analysing the implications of new Article 2370.

No more limit for listed bonds of listed companies.