The Mandatory Representation of Minority Shareholders on the Board of Directors of Italian Listed Corporations: An Empirical Analysis

Abstract

At the end of 2005 the Italian legislator modified the rules on the appointment of the members of the board of directors of listed corporations. Now these legal entities are not free to design the appointment strategies of the members of the board, but it is mandatory for listed corporations to reserve at least one seat on this corporate body to persons not appointed by the majority or by the controlling shareholder.

In this paper we use some descriptive and regression analyses to investigate the situation of Italian listed corporations before and after the introduction of the mandatory representation of minority shareholders on the board of directors. We analyze data collected on December 31, 2005, few days before the enactment of the reform, and on December 31, 2006, one year after the enactment of the reform and six months before the end of the transitory period. Our goal is to investigate the characteristics of Italian listed corporations that implemented the representation of minority shareholders during the first twelve months of the transitory period that followed the enactment of this reform.

In particular, we study the relationship between the appointment on the board of directors of a representative of minority shareholders and the following explanatory variables: the percentage of non-executive members sitting on the board, a dummy variable that indicates whether the corporation examined is included in the S&P Mib Index, another dummy variable that indicates whether the corporation examined is a bank, the capitalization of the corporation, the number of the members of the board of directors and the existence of a single shareholder that owns more than the 50% of the shares of the corporation.

We conclude this study discussing the results of these analyses and examining the first reactions of Italian listed corporations to the 2005 reform of corporate governance.

Keywords: Corporate governance, director elections, board elections, European Union, EC company law, Italy, protection of minorities

JEL Classification: G3, K2, K22