Stefano Micossi Director General, Assonime Overview of the corporate governance structures 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 3924,87,2 68,0 Germany 3021,47,2 71,4 Italy 3035,59,9 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 3528,913,8 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 /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 1 st, 2004)

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

Traditional corporate governance model Assemblea Sistema di controllo interno Investor Relations 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. Investor Relations Confidential Information Audit Firm Internal Control Executive Directors 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 Directors Board of Auditors Comm. for Appointment Comm. on Remuneration Internal Control Comm. Investor Relations Confidential Information Audit Firm Internal Control Executive Directors

Internal and External Controls Internal ControlsExternal 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 Statutory Auditors  Controls compliance of management decisions with the law and with principles of “good management” No audit duties Protection of minority interests: at least one member appointed by minority Chairman Non Executive Independent Board of Directors Board of Auditors Comm. for Appointment Comm. on Remuneration Internal Control Comm. Investor Relations 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 Directors Audit Committee appoints Shareholders’ Meeting Consiglio di sorveglianza Consiglio di gestione Supervisory Board Managing Board Comitato 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 Model General 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

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.