Stefano MicossiDirector General, Assonime

Overview of the corporate governancestructures of Italian listed companies

London, June 26, 2003

This presentation is solely for the use of the attendees to this event. No part of it may be circulated, quoted, or reproduced for distribution without prior written approval from Assonime. This material was used by Assonime during an oral presentation and it is not a complete record of the discussion.

Summary

The traditional corporate governance model for listed companies

The Reform of Corporate Law

Conclusions

Summary

The traditional corporate governance model for listed companies

The Reform of Corporate Law

Conclusions

Market*Shareholders with more than 2%*

France 39 24,8 7,2 68,0

Germany 30 21,4 7,2 71,4

Italy 30 35,5 9,9 54,6

(Source: CONSOB’s Annual Report, March 2003)* In percentage. Data referred to blue-chip companies.

Ownership structure of listed companies in Italy compared to other EU members

Spain 35 28,9 13,8 63,0

Largest Shareholder*

Number of companies

Country

Legal and regulatory sources of the Governance System

Legislative Decree n. 58/1998

(Consolidated Law on Financial Intermediation)

Market Rules and Instructions issued by Borsa Italiana (listing authority)

Consob Regulation n. 11971/99 (Implementing provisions of Legislative Decree 58/98 on issuers)

Corporate Governance Code (revised edition July 2002)

Italian Civil Code, as amended by Legislative Decree n. 6/2003 (“the Reform of Corporate Law”: rules effective as of January 1st, 2004)

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

Traditional corporate governance model

Assemblea

Sistema di controllo interno

InvestorRelations

Presidente

Amministratori non esecutivi/ indipendenti

Consiglio d’Amministrazione/

Amministratore Unico

Collegio Sindacale

Comitato per le nomine

Comitato per la remunerazione

Comitato per il controllo interno

Amministratori Esecutivi

Società

Revisione

Procedure per trattamento informazioni riservate

Assemblea

Approves annual accounts

Appoints and revokes directors, appoints members of board of auditors and audit firm

Approves amendments to the articles of association

Annual General Meeting

Extraordinary General Meeting

Protection of minority interests- right to call meetings (10%)- right to withdraw from

mergers and de-mergers- postal vote

Chairman

Non Executive Independent

Board of Directors

Board of Auditors

Comm. for Appointment

Comm. on Remuneration

Internal Control Comm.

InvestorRelations

Confidential Information

Audit Firm

Internal Control

Executive Directors

Shareholders’ Meeting

Shareholders’ Meeting

Reform prevents GM from any management task

The management of the company is under its exclusive responsibility

Approves consolidated accounts Shareholders’ interests:

- non-executive and independent directors having influence on board decisions

- prescriptions on quality and timing of information flows, notably for

operations with related parties

Must assess the adequacy of the corporate organisation, administration and accounting principles

Introduced by Reform

Shareholders’ Meeting

Board of Directors

Chairman

Non Executive Independent

Board of DirectorsBoard of Auditors

Comm. for Appointment

Comm. on Remuneration

Internal Control Comm.

InvestorRelations

Confidential Information

Audit Firm

Internal Control Executive

Directors

Internal and External Controls

Internal Controls

External Controls

Board of Statutory Auditors

Internal Control Committee

Internal Control System

Compulsory

body

Recommended

body

Recommended

procedure

Audit Firm Compulsory

body

Supervisory

Authority

Internal Controls:Board of StatutoryAuditors

Controls compliance of management decisions with the law and with principles of “good management”

No audit dutiesProtection of minority interests:at least one member appointed by minority

Chairman

Non Executive Independent

Board of DirectorsBoard of Auditors

Comm. for Appointment

Comm. on Remuneration

Internal Control Comm.

InvestorRelations

Confidential Information

Audit Firm

Internal Control

Executive Directors

Shareholders’ Meeting

Summary

The traditional corporate governance model for listed companies

The Reform of Corporate Law

Conclusions

The Reform of Corporate Law:The Broad Picture

• Enhanced statutory and contractual freedom• Different rules for stock corporation (SpA) and

limited liability company (Srl)• New governance models for stock companies• Enhanced role of company boards, and

independent directors within company boards• New general rule of transparency: directors

must disclose any direct and indirect interest; enhanced requirements of motivation of decisions

• New rules on the responsibility of directors of companies belonging to a group

The Reform: basic company types

Limited Liability Companies (Srl)

Stock Companies (Spa)

open to markets

Large degree of contractual freedom in designing articles of incorporation and bylaws

Stricter rules for the protection of shareholders and other stakeholders (e.g. creditors)

Listed Companies

Companies with shares

distributed to public but not

listed *

*i.e. companies with 200 shareholders and 5mln € capital

Models of joint stock companies

Traditional Model

Board of Statutory

Auditors Collegio Sindacale

Board of

Directors Consiglio di Amministrazione

Shareholders’ Meeting - Assemblea

Two-Tier Board Model

One-Tier Board Model

Shareholders’ Meeting

Board of DirectorsAudit Committee

appoints appoints

appoints

appoints

Shareholders’ Meeting

Consiglio di sorveglianza

Consiglio di gestione

Supervisory Board

Managing BoardComitato controllo sulla gestione

Reform’s novelty

The Two-Tier Board Model

• A “transplant” from German system

• The supervisory board:– Appoints and controls the managing board – Can participate to managing board meetings– Shall approve financial statements

• More similar to a board of auditors (however, with the power to appoint/dismiss managing directors) than to a true supervisory board

• Some doubts exist about the efficiency of such a system: it is not a mere “transplant”, but a “mutation”: will the result be viable?

General Meeting

Supervisory Board

Managing Board

A “transplant” from Anglo-Saxon system

The Board:

- same as in the traditional model,

- must appoint an Audit committee, responsible for overseeing the adequacy of the company organisation, administration, accounting and control systems

Independence requirements for directors are a legal prescription: 1/3 of the Board and the whole audit committee

The One-Tier Board ModelGeneral Meeting

Board of Directors

Audit Committee

The One-Tier Board Model

The model may be useful:– For listed companies (today they have both

an audit committee and a board of statutory auditors; risk to duplicate controls – and costs)

– For companies listed on Anglo-Saxon markets (having regulatory requirements about audit committees)

Summary

The traditional corporate governance model for listed companies

The Reform of Corporate Law

Conclusions

Conclusions

Corporate Governance of the Italian listed companies is in line with international best standards

Advanced disclosure and protection of minority interests

Foreign investors have the same protection of domestic investors.