Protected by the Law? Improving the Protection of Minority Shareholders in Italian Public Companies...

Protected by the Law?Improving the Protection of Minority

Shareholders in Italian Public Companies

Enrico GiordanoChadi A. Salloum

Our approach to presenting MSPs

•Going “back to basics”

•Presenting key Minority Shareholders’ Protections and

•Suggesting guidelines for constructive shareholder involvement

Roadmap

Italian Civil Code As amended by Law No. 6/2003 (on Corporate Law

Reform)

Consolidated Financial Act Legislative Decree No. 58 of February 24, 1998

Investor Protection Act Law No. 262 of December 28, 2005 (on the protection

of savings; this law amended the Civil Code and the Consolidated

Financial Act)

Consolidated law on Financial Intermediation As amended by law n. 262/05 (on protection of

savings):

CG & MSPs: Legal Sources

Traditional

B of D in charge of ordinary and extraordinary management

B of SA supervises proper management and compliance with law and by-laws

CG Systems: Overview

B of SA

Shareholders

B of D

Two-tier

Superv. Board supervises proper management and compliance with law and by-laws

Mgmt. Board in charge of ordinary and extraordinary management


Shareholders Superv. Board Mgmt. Board

One-tier


Shareholders

B of D

Mgmt. Ctrl. Com.

B of D in charge of ordinary and extraordinary management

Mgmt. Ctrl. Com. supervises proper management and performs other functions delegated by B of D


Fiduciary duties of directors

Duty of care

Duty of loyalty

Duty of candor

Conflict of interest

Duty to disclose

Listed Company: “Special S.p.A.”

Oversight by Consob

Stringent legislative framework

Higher level of scrutiny

Resulting in additional

protections

Key rights and protections Participating in the election of corporate bodies

Reporting irregularities to the board of statutory auditors

Requesting Court intervention

Requesting the call of a shareholders’ meeting and additions to its agenda

Instituting legal action against the company’s corporate bodies

Challenging the board of directors and shareholders’ meeting resolutions

Listed Company: “Special S.p.A.”

1. Election of corporate bodies

B of D 2.5% holders of share capital to present own slate

Right to elect at least one director

Election of independent directors

• For the first time mandated by law

• One if B of D has more than seven members

• What does it mean to be independent?

Borsa Italiana: a leader in corporate governance

Listed Company: Key MSPs

B of SA Exclusive right to elect Chairman of B of SA

Election of independent statutory auditor

• Broadened criteria in line with changes to B of D



2. Adoption of the Code of Conduct

For the first time, the law recognised the existence and importance of the Code

Comply or explain

• Annual disclosure

• Monitoring by Consob

• Role of statutory auditors


3. Reporting irregularities to B of SA Any holder suspecting mismanagement has the right

to report

if 2 % holder of share capital complains, B of SA has to:

• investigate

• report to shareholders’ meeting


4. Requesting Court intervention 5% holder of share capital suspecting serious

mismanagement that could damage the company may request the Court to intervene and investigate

B of SA may

• on its own initiative or

• on basis of shareholders’ reporting irregularities to it

request the Court to intervene and investigate


5. Requesting the call of a shareholders’ meeting or additions to its agenda

10% holder of share capital may call the meeting

2.5 % holder of share capital may request additions to agenda

• New MSP under IPA

Important tools for minority shareholders to be heard and trigger discussions


6. Bringing legal action against directors

Direct action by the Company Approved by shareholders’ meeting or resolved upon

by 2/3 of the B of SA, for breach of fiduciary duties

5 years time limit from the day directors cease office

Unless opposed by 5% of share capital, company may abandon or settle action


6. Bringing legal action against directors (cont.)

Derivative action by shareholders 2.5 % holder of share capital may bring a derivative

action for breach of fiduciary duties


Unless opposed by 5% of share capital, company may abandon or settle action

Recovery is only for the benefit of the company


6. Bringing legal action against directors (cont.)

Direct action by shareholders Any shareholder may bring a direct action for

damages on the basis of:

• malice, fraud or negligence


Damages are awarded to shareholders


7. Challenging resolutions

Shareholders’ meeting 0.1% holder of share capital may challenge if:

• resolutions are not in conformity with law or by-laws

Any shareholder is entitled to be awarded damages as a result of resolutions’ non compliance with law or by-laws


7. Challenging resolutions (cont.)

B of D Most important new MSP

• Direct mean to scrutinise management

0.1% holder of share capital may challenge if:

• resolutions cause damage to shareholder’s interests

The Code of Conduct and legislation have provided minority shareholders the necessary tools to protect their interests

Minority shareholders are protected by law, but need to be proactive in a responsible and constructive way

Conclusions & Guidelines

Minority shareholders should:

Know their rights and remedies

Communicate to management areas of their concern

Attend shareholders meetings

Not be deterred by the complexity of legal issues by reaching out to local counsel for guidance and assistance

Conclusions & Guidelines

Enrico GiordanoPartner & Head of Capital Markets

[email protected]

Chadi A. SalloumAssociate

[email protected]

Via XXIV Maggio 43 - 0187 Romatel. +39 06 466221

fax. +39 06 [email protected]

Rome Milan Turin London New York Brussels

Protected by the Law? Improving the Protection of Minority Shareholders in Italian Public Companies...

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