On April 21, 2023, the Italian Government submitted a draft law to the Italian Parliament aimed at improving the competitiveness of the Italian capital markets. The so-called “Capital Markets Bill” has the main goals of stimulating the Italian IPO market as well as incentivizing investors to invest in companies listing in Italy. The proposed legislation came on the heels of a debate over the shortcomings of the Italian capital markets1 and the need to undertake a comprehensive reform to make the current regulatory system more flexible and increase its attractiveness2. The bill is swiftly advancing toward approval.
On October 24, 2023, the Senate passed the bill, and it is now pending approval from the Chamber of Deputies. The proposed new legislation, which covers a large variety of topics, has the potential to significantly reshape the Italian corporate governance framework. The final version of the bill is likely to be approved before the upcoming 2024 proxy season, affecting, inter alia, rules on multiple voting structures, shareholder meeting participation, and board renewals.
Amongst the main changes, the proposed bill will lead to further distortions of the one-share, one-vote principle thus exacerbating existing concerns among some investors over the potential “race to the bottom” taking place in many European markets. Proposed changes include the increase, from three to 10, in the maximum number of votes that can be attached to multiple voting shares (azioni a voto plurimo) (article 13)3. Changes would also increase, from two to 10, the maximum number of voting rights that can be attached to each share held by “long-term” shareholders (voto maggiorato) (article 14)4.
The bill also introduces the possibility for listed companies to permanently provide that participation in shareholder meetings and the exercise of voting rights can take place exclusively through a representative designated by the company (article 11). Although this meeting format was introduced to deal with the COVID-19 emergency, the bill also extends the application of the corresponding emergency legislation until December 31, 20245, giving listed companies time to adopt it permanently via bylaw amendments.
Additionally, unlike the initial text submitted by the government in April, the bill passed by the Senate also incorporates new rules on slates of candidates submitted by outgoing boards of directors in the event of board renewals (article 12)6. The new rules have raised significant public concern considering, among other things, their potential to further complicate the Italian bundled election system (voto di lista) and their impact on future board elections at several companies7. Given the original intent of the bill and the complexity of the issue in question, some have argued that a potential review of the Italian election system may deserve a more in-depth analysis by the regulator, divorced from partisan interests and treated under a separate legislative process.
Approval of the bill would also grant the Italian government broad powers to reform the Italian Consolidated Law on Finance and the rules on joint-stock companies included in the Italian civil code. Such delegation must be exercised within 12 months of the bill’s final passage through one or more legislative decrees (article 19).
1 See Capital Market Review Italy 2020, Creating Growth Opportunities for Italian Companies and Savers released by the Organisation for Economic Co-operation and Development (OECD) in January 2020.
2 As underlined by the Italian Ministry of Economy and Finance in the Green Book on the Competitiveness of financial markets in order to support growth published in March 2022. Also see the recent Manifesto per lo Sviluppo dei Mercati dei Capitali in Italia, signed by multiple stakeholders and containing proposed actions to reinvigorate the capital markets in Italy.
3This special category of shares, which is foreseen by article 2351 of the Italian civil code, can only be issued before going public on a regulated market, but it can be kept after the IPO according to art. 127-sexies of Legislative Decree 58/1998 (Consolidated Law on Finance).
4 Currently, up to two voting rights per share may be granted to those shareholders who maintain their shares for at least 24 continuous months and register them in a special register kept by the company. The new provisions, which have been introduced during the discussions at the Senate, allow company bylaws to grant an additional vote for each additional 12-month period of possession, up to 10 votes per share.
5 The previous deadline was July 31, 2023. During the last triennium, most Italian listed companies prevented physical shareholder participation in their general meetings by designating an exclusive proxyholder of all shareholders to which shareholders should grant proxy. Most shareholder meetings have not been broadcast, and shareholders have not been able to actively interact with management during the meeting.
6 Article 12 includes the following rules, among others: i) The slate of the outgoing board should be approved with the support of at least two-thirds of the directors; ii) The board list must include a number of candidates equal to four-thirds of the number of directors to be elected; iii) The board list should be submitted and disclosed at least 40 days before the board election; iv) If the board list gets the relative majority of votes, and aggregate support received by the first two shareholder slates is higher than 20%, seats will be allocated proportionally to the shareholder lists that receive at least 3% of the votes. If the board list gets the relative majority of votes, and aggregate support received by the first two shareholder slates is not higher than 20%, shareholder lists will contribute to the final board composition in proportion to the votes received and for an amount of no less than 20% of the directors. The remaining seats will be allocated to the board list; v) After the first vote on the slates, if the board list gets the relative majority of votes, shareholders will have the opportunity to vote on each candidate of the board list; vi) Companies should adapt their bylaws so that the aforesaid provisions apply as from the first general meeting after Jan. 1, 2025.
7 Including possible proxy fights at Assicurazioni Generali in 2025 and Mediobanca in 2026. Despite its flaws (complexity, bundled election etc.), the Italian voto di lista system has long been regarded as a useful instrument to ensure that minorities elect at least one director in a context characterized by concentrated ownership and majority lists submitted by controlling shareholders. In parallel, at the very few Italian public companies with no significant shareholder, the slate of the outgoing board has generally been considered unproblematic. Things get more complicated in intermediate situations, especially when the outgoing board decides to submit its list of candidates in the presence of dissenting significant non-controlling shareholders (e.g. Assicurazioni Generali in 2022 and Mediobanca in 2023).
By: Gianluca Antipasqua, Southern European Research, ISS Governance
