According to Italian Law regulating listed companies (legislative decree no. 58/1998), directors of listed companies are appointed by the shareholders' meeting on the basis of slates (lists of candidates) submitted by shareholders holding a qualified shareholding identified also on the basis of Consob (the Italian public authority responsible for regulating Italian financial markets) regulations.

This mechanism ensures that minorities are represented at the board level, imposing that at least one member of the board of directors must be selected from the second list (if any) which obtained the second highest number of votes from the shareholders.

There also exists a practice according to which a list of candidates for the board is submitted to the shareholders' meeting by the board itself. This option is not envisaged under legislative decree no. 58/1998, but it is autonomously regulated by the articles of association of more and more Italian listed companies. Italian scholars and Consob also acknowledge this option provided that the submission of such list does not prejudice the appointment of members voted by minority shareholders. Also, the Corporate Governance Code adopted in 2020 (a "soft law" code promoted by Borsa Italiana) recognizes this practice, setting out that it must "be implemented in a way that ensures transparency in its formation and presentation" and that the process of selection of candidates must be managed essentially by independent directors.

Considering that a growing number of Italian companies recently amended their articles of association to allow the board to submit its own list of candidates for renewal of the same body, on 2nd December 2021 Consob promoted a consultation process which resulted in the publication of a so-called "warning notice" (Richiamo di Attenzione) with the purpose to point out certain critical aspects related to the submission of lists by the board of directors and certain possible solutions. In addition, last October, certain members of the Italian Parliament promoted a draft law aimed to regulate this practice, proposing solutions which have been criticized for their lack of flexibility. However, such draft law is still far from being discussed by the competent legislative commission and then approved by the Italian Parliament.

This article summarizes and analyzes the considerations set out in the Consob warning notice published on 21st January 2022, which are extremely useful guidelines for Italian listed companies to mitigate potential risk arising from the submission by the board of a list of candidates in terms of lack of transparency, unfair competition among the lists of candidates and self-perpetuation of the board of directors. Remedies suggested by Consob include: (i) the adoption of a specific internal procedure aimed at regulating ex-ante the process to identify candidates, which might be led by independent directors, possibly by way of appointment of an ad hoc committee - different from the nomination committee - composed only by independent directors; (ii) appropriate, timely and specific disclosure to shareholders of the procedure followed to select the candidates in the list, the advisor engaged, the results of the board meetings resolving on the list (including an indication of the number of directors who voted against it or abstained); (iii) the necessity to carry on a deep analysis - on the basis of additional criteria more tailored on this practice - on the potential existence of a "relevant connection" (criterio di collegamento) between a list submitted by the board and lists submitted by shareholders of the issuer who are also present directly or indirectly (for example through their representatives)) in the board of directors of the issuer presenting the list. This, essentially, because the existence of a "relevant connection" among lists, prevents the one receiving a lower number of votes to be considered as a genuine "minority list", therefore excluding its right to benefit of seats at the board level reserved to minorities.

Originally Published 10 February 2022

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