The Board Index Italy 2009 provides a broad picture about how the Boards of Directors function and on their characteristics, by examining the Boards of 142 Italian Listed Companies.
From a thorough analysis of the characteristics of these Boards, the key messages seem to be that even if there are signs of a gradual improvement in the governance of the companies, there are still several critical areas which do not allow for the enhancement of the role and for the contribution on the part of the Board itself in the company management.
In particular, we found eight main critical areas:
- The activity of the Board is mainly focused on Compliance issues, rather than on driving, addressing, supporting and controlling the management work and acting as a trait d’union between the management, the shareholders and the market, which should instead be the Board’s key activity.
- The CEO Succession Plan is rarely addressed within the Board, except for emergency situations. This is unfortunately a very Italian issue.
- The Board composition suffers from a basically blocked system, due both to the Italian shareholders characteristics (mainly Government and Family owned business) and to the absence of a structured process within the Board for the selection of Directors.
- "Non-appropriate" composition of the Board means: insufficient coverage of necessary skills; too many affiliations for each Director; low presence of women, foreign Directors and minority representatives; interlocking directorship; low turnover; too many non-Executive and non-Independent Directors; oversize Boards.
- Board activities often suffer from an absence of reflecting on what works and what doesn’t work in the Board itself. This reflection is usually carried out by means of a process called Board Assessment. Furthermore, the Board is often affected by the absence of specific training and induction programs dedicated to the Directors, i.e. regarding the Company core business and the risk areas.
- About the Top Management compensation issue: it is necessary to actually make the Remuneration Committee effective and guarantee authentic transparency to shareholders on the remuneration policies and structure, i.e. introducing the "say on pay" procedure also in Italy.
- The Cost of the Board of Directors in Italy does not seem to be linked to clear parameters and there are no clear causes explaining cost differences, dynamics and the value created.
- Due to the increasing complexity of the activities and formal issues required, there is an increase, rather than a decrease expected by the Regulators, of the average number of positions held by each Statutory Auditor.