This content is from: Local Insights


On July 2002 Borsa Italiana SpA, the company responsible for the Italian Stock Exchange, issued a revised version of the Code of Conduct for Italian listed companies which was set forth in 1999. The Code of Conduct has been drafted by the Committee for the Corporate Governance of Listed Companies.

The code of conduct contains a flexible set of recommendations on the corporate organization of listed companies, which is aimed at maximizing share value, reducing business risk and adequately dealing with potential conflicts of interest.

The Code is divided into 13 sections. The first nine sections relate to the board of directors (role, composition, appointment and remuneration of its members, internal control system, chairman, handling of confidential information) while the remaining three sections relate to the members of the board of auditors and the relationship between the board of directors and shareholders, in particular institutional investors.

One of the novelties of the revised Code of Conduct, which is inspired by national and international best practice, concerns independent directors. Independent directors are non-executive directors who do not have business relationships with the company, its subsidiaries, its executive directors or its controlling shareholders and do not have control over the company. According to the recent amendments their independence must be subject to a periodical evaluation and must be based on more detailed criteria than was the case under the former version of the Code of Conduct. The outcome of the periodical evaluation of their independence must be disclosed to the market.

The revised Code of Conduct also provides a new definition of "internal control", which is in line with international standards. Internal control should be aimed at monitoring the efficiency of operations, the reliability of financial information, the adherence to laws and regulations and the protection of the company's assets. In this respect the board's duties and responsibilities on internal control are better defined.

Companies are recommended to define general criteria in order to identify transactions with related parties that require the approval of the board of directors. Such transactions must be substantially and procedurally fair and directors with an interest in a transaction must give the board prompt and exhaustive information on the existence of that interest. When required by the nature, size and characteristics of a transaction, companies are recommended to require a fairness opinion from an adviser (bank, auditing firm, other expert) or a legal opinion from a legal counsel.

As for confidential information, the Code suggests the adoption of internal procedures as well as of a code of behavior aimed at regulating the duties of disclosure on transactions carried out by "relevant persons" (insider dealing). Disclosure intervals should be shorter than those established by the rules of Borsa Italiana.

The revised Code of Conduct will be applicable on a voluntary basis. The comparison between the issuers' corporate governance and the revised Code will form the object of an annual report, which will be made available to shareholders.

Although not supported by specific legislation, the Code undoubtedly represents an effort to establish a uniform approach to corporate governance among listed companies.

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