Listed Companies and the Reform of Corporate Law A Focus on the New Corporate Governance Models Carmine Di Noia Head of Capital Markets and Listed Companies Division Assonime 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.

Overview of the new corporate governance models Summary Overview of the new corporate governance models The Two-tier board model The One-tier board model

Overview of the new corporate governance models Summary Overview of the new corporate governance models The Two-tier board model The One-tier board model

Overview of the new corporate governance models Two-Tier Board Model appoints Shareholders’ Meeting Consiglio di sorveglianza Consiglio di gestione Supervisory Board Managing Board One-Tier Board Model Shareholders’ Meeting Board of Directors Audit Committee appoints Comitato controllo sulla gestione Traditional Model Shareholders’ Meeting - Assemblea appoints Board of Statutory Auditors Collegio Sindacale Board of Directors Consiglio di Amministrazione

Overview of the new corporate governance models New models in line with Council Regulation on European Company (Regulation 2157/2001, effective as from 8 October 2004) Implementation of models by by-laws may give rise to “competition among rules”: the model which better fulfils corporation’s needs will prevail Same models in different legal systems may have different effects. The adoption of alternative models by Italian corporations will probably be slow (path-dependency)

Traditional corporate governance model Chairman Executive Directors Non Executive/Independent Directors Audit Firm Internal Control System Investor Relations Internal Procedures for Confidential Information Board of Statutory Auditors Shareholders’ Meeting Board of Directors/Sole Director Committee for Appointment of Directors Committee on Remuneration and Stock Option Internal Control Committee

Overview of the new corporate governance models Summary Overview of the new corporate governance models The Two-tier board model The One-tier board model

Two-tier board model: overview Separation of ownership and control. Powers from Shareholders’ Meeting to Supervisory Board. A “transplant” from the German (and French) system: however no involvement of employees.

Two-tier system: who appoints whom Traditional model Two-tier board model Board of Auditors G.M. Supervisory Board Managing Board Shareholders’ Meeting BoD Focus appoints Two-tier System may prevent hostile takeovers because it would compel the bidder to change two separate boards appoints

Consiglio di sorveglianza Composition of boards At least 3 members (one auditor). Bylaws may establish other requirements (independence, professionality, honourableness) Supervisory Board Consiglio di sorveglianza Number of members (not less than 2) fixed by bylaws Managing Board Consiglio di gestione No person may at the same time be a member of both the supervisory board and the managing board

Tasks of Supervisory Board Tasks of GM in the traditional model The Supervisory Board shall: Appoint and revoke members of the managing board Bylaws can entitle GM with this task Approve annual accounts Bylaws may provide for approval of annual accounts by GM in case supervisory board does not approve them. Shareholders may challenge resolution which approve annual accounts. Supervise the work of the managing board. Bring actions for liability of managers and report to GM on the supervision carried out No audit duties, which are performed by: Audit Firm

Tasks of Managing Board shall be responsible for managing the company may delegate powers to individual directors The Managing Board: GM does not have management powers A 3-board system?

Two-tier Board model and listed companies Two-tier Board model is applicable to listed companies (see Article 223-septies ) Focus on: Minority appointment of at least one member of Supervisory Board Action for liability taken by shareholders vs. members of Supervisory Board?

Overview of the new corporate governance models Summary Overview of the new corporate governance models The Two-tier board model The One-tier board model

One-tier Board model: overview Supervisory body within the Board of Directors A “transplant” from the Anglo-Saxon system Attractive to listed companies (today, they have both an audit committee and a board of statutory auditors; risk to duplicate controls – and costs).

One-tier system: who appoints whom Shareholders’ Meeting appoints Board of Directors Consiglio d’Amministrazione Bylaws may delegate, to GM, powers to appoint Audit Committee appoints Audit Committee Comitato controllo sulla gestione

Composition of boards At least 1/3 of members shall be independent* Board of Directors Consiglio d’Amministrazione At least 1/3 of members shall be independent* * Independence requirements = those applicable to members of board of auditors in the traditional model + those fixed by Corporate Governance Code Consists entirely of non-executive, independent members. At least 3 members. By-laws may lay down further independence requirements Audit Committee Comitato controllo sulla gestione

Tasks of boards Board of Directors GM does not have management powers Board of Directors shall be responsible for managing the company (same tasks as in the traditional model) Audit Committee Oversees the adequacy of the company organisation, administration, accounting and internal control system Members cannot perform any executive task Audit duties performed by: Audit Firm

One-tier Board model and listed companies One-tier Board model is applicable to listed companies (see Article 223-septies ) Focus: minority may appoint at least one member of Audit Committee

Focus The Reform abolishes the duty for shareholders to deposit shares 5 days before the day of G.M. in order to vote at G.M. However this does not introduce the “record date” in our system. Market operators are analysing the implications of new Article 2370. No more limit for listed bonds of listed companies.