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Enhancing Minority Shareholder Protections in Italian Public Companies

This document by Chiomenti Studio Legale outlines the legal framework and protections for minority shareholders in Italian public companies. It addresses key legal sources, such as the Italian Civil Code and relevant financial acts, before offering practical guidelines for constructive shareholder involvement. The analysis discusses governance structures, key rights, and significant actions minority shareholders can take to safeguard their interests. The recommendations aim to improve minority shareholder engagement and strengthen their position in corporate governance.

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Enhancing Minority Shareholder Protections in Italian Public Companies

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  1. Chiomenti Studio Legale Protected by the Law? Improving the Protection of Minority Shareholders in Italian Public Companies Enrico Giordano Chadi A. Salloum

  2. Roadmap Chiomenti Studio Legale • Our approach to presenting MSPs • Going “back to basics” • Presenting keyMinority Shareholders’ Protections and • Suggesting guidelines forconstructive shareholder involvement

  3. Chiomenti Studio Legale CG & MSPs: Legal Sources • 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):

  4. Chiomenti Studio Legale CG Systems: Overview • Traditional • B of D in charge of ordinary and extraordinary management • B of SA supervises proper management and compliance with law and by-laws B of D Shareholders B of SA

  5. Chiomenti Studio Legale CG Systems: Overview • 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

  6. Chiomenti Studio Legale CG Systems: Overview • One-tier B of D Shareholders Mgmt. Ctrl. Com. • B of D in charge of ordinary and extraordinary management • Mgmt. Ctrl. Com. supervises proper managementand performs other functionsdelegatedby B of D

  7. Chiomenti Studio Legale CG Systems: Overview • Fiduciary duties of directors Duty of care Duty of loyalty Duty of candor • Conflict of interest Duty to disclose

  8. Chiomenti Studio Legale Listed Company: “Special S.p.A.” Higher level of scrutiny Oversight by Consob Stringent legislative framework Resulting in additional protections

  9. Chiomenti Studio Legale Listed Company: “Special S.p.A.” • 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

  10. Chiomenti Studio Legale Listed Company: Key MSPs • 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 independentdirectors • 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

  11. Chiomenti Studio Legale 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

  12. Chiomenti Studio Legale Listed Company: Key MSPs • 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

  13. Chiomenti Studio Legale Listed Company: Key MSPs • 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

  14. Chiomenti Studio Legale Listed Company: Key MSPs • Requesting Court intervention • 5% holder of share capital suspecting serious mismanagement that could damage the company may request the Courtto 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

  15. Chiomenti Studio Legale Listed Company: Key MSPs • 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 • Importanttools for minority shareholders to be heard and trigger discussions

  16. Chiomenti Studio Legale Listed Company: Key MSPs • 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

  17. Chiomenti Studio Legale Listed Company: Key MSPs • 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 • 5 years time limit from the day directors cease office • Unless opposed by 5% of share capital, company may abandon or settle action • Recovery is only for the benefit of the company

  18. Chiomenti Studio Legale Listed Company: Key MSPs • 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 • 5 years time limit from the day directors cease office • Damages are awarded to shareholders

  19. Chiomenti Studio Legale Listed Company: Key MSPs • 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

  20. Chiomenti Studio Legale Listed Company: Key MSPs • 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

  21. Chiomenti Studio Legale

  22. Chiomenti Studio Legale Conclusions & Guidelines • The Code of Conduct and legislation have provided minority shareholders the necessary tools to protect their interests • Minority shareholders areprotected by law, but need to be proactive in a responsible and constructive way

  23. Chiomenti Studio Legale 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

  24. Chiomenti Studio Legale Enrico Giordano Partner & Head of Capital Markets enrico.giordano@chiomenti.net Chadi A. Salloum Associate chadi.salloum@chiomenti.net Via XXIV Maggio 43 - 0187 Roma tel. +39 06 466221 fax. +39 06 46622600 roma@chiomenti.net www.chiomenti.net Rome  Milan  Turin  London  New York  Brussels

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