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Protected by the Law?

C hiomenti S tudio L egale. Protected by the Law? Improving the Protection of Minority Shareholders in Italian Public Companies. Enrico Giordano Chadi A. Salloum. Roadmap. C hiom enti S tudio L egale. Our approach to presenting MSPs Going “ back to basics ”

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Protected by the Law?

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  1. Chiomenti Studio Legale Protected by the Law? Improving the Protection of Minority Shareholders in Italian Public Companies Enrico Giordano Chadi A. Salloum

  2. Roadmap Chiomenti Studio Legale • Our approach to presenting MSPs • Going “back to basics” • Presenting keyMinority Shareholders’ Protections and • Suggesting guidelines forconstructive shareholder involvement

  3. Chiomenti Studio Legale CG & MSPs: Legal Sources • Italian Civil Code As amended by Law No. 6/2003(on Corporate Law Reform) • Consolidated Financial Act Legislative Decree No. 58 of February 24, 1998 • Investor Protection Act Law No. 262 of December 28, 2005 (on the protection of savings; this law amended the Civil Code and the Consolidated Financial Act) • Consolidated law on Financial Intermediation As amended by law n. 262/05(on protection of savings):

  4. Chiomenti Studio Legale CG Systems: Overview • Traditional • B of D in charge of ordinary and extraordinary management • B of SA supervises proper management and compliance with law and by-laws B of D Shareholders B of SA

  5. Chiomenti Studio Legale CG Systems: Overview • Two-tier • Superv. Board supervises proper management and compliance with law and by-laws • Mgmt. Board in charge of ordinary and extraordinary management Shareholders Superv. Board Mgmt. Board

  6. Chiomenti Studio Legale CG Systems: Overview • One-tier B of D Shareholders Mgmt. Ctrl. Com. • B of D in charge of ordinary and extraordinary management • Mgmt. Ctrl. Com. supervises proper managementand performs other functionsdelegatedby B of D

  7. Chiomenti Studio Legale CG Systems: Overview • Fiduciary duties of directors Duty of care Duty of loyalty Duty of candor • Conflict of interest Duty to disclose

  8. Chiomenti Studio Legale Listed Company: “Special S.p.A.” Higher level of scrutiny Oversight by Consob Stringent legislative framework Resulting in additional protections

  9. Chiomenti Studio Legale Listed Company: “Special S.p.A.” • Key rights and protections • Participating in the election of corporate bodies • Reporting irregularities to the board of statutory auditors • Requesting Court intervention • Requesting the call of a shareholders’ meeting and additions to its agenda • Instituting legal action against the company’s corporate bodies • Challenging the board of directors and shareholders’ meeting resolutions

  10. Chiomenti Studio Legale Listed Company: Key MSPs • Election of corporate bodies • B of D • 2.5% holders of share capital to present own slate • Right to elect at least one director • Election of independentdirectors • For the first time mandated by law • One if B of D has more than seven members • What does it mean to be independent? • Borsa Italiana: a leader in corporate governance

  11. Chiomenti Studio Legale Listed Company: Key MSPs B of SA • Exclusive right to elect Chairman of B of SA • Election of independent statutory auditor • Broadened criteria in line with changes to B of D

  12. Chiomenti Studio Legale Listed Company: Key MSPs • Adoption of the Code of Conduct • For the first time, the law recognised the existence and importance of the Code • Comply or explain • Annual disclosure • Monitoring by Consob • Role of statutory auditors

  13. Chiomenti Studio Legale Listed Company: Key MSPs • Reporting irregularities to B of SA • Any holder suspecting mismanagement has the right to report • if 2 % holder of share capital complains, B of SA has to: • investigate • report to shareholders’ meeting

  14. Chiomenti Studio Legale Listed Company: Key MSPs • Requesting Court intervention • 5% holder of share capital suspecting serious mismanagement that could damage the company may request the Courtto intervene and investigate • B of SA may • on its own initiative or • on basis of shareholders’ reporting irregularities to it • request the Court to intervene and investigate

  15. Chiomenti Studio Legale Listed Company: Key MSPs • Requesting the call of a shareholders’ meeting or additions to its agenda • 10% holder of share capital may call the meeting • 2.5 % holder of share capital may request additions to agenda • New MSP under IPA • Importanttools for minority shareholders to be heard and trigger discussions

  16. Chiomenti Studio Legale Listed Company: Key MSPs • Bringing legal action against directors Direct action by the Company • Approved by shareholders’ meeting or resolved upon by 2/3 of the B of SA,for breach of fiduciary duties • 5 years time limit from the day directors cease office • Unless opposed by 5% of share capital, company may abandon or settle action

  17. Chiomenti Studio Legale Listed Company: Key MSPs • Bringing legal action against directors (cont.) Derivative action by shareholders • 2.5 % holder of share capital may bring a derivative action for breach of fiduciary duties • 5 years time limit from the day directors cease office • Unless opposed by 5% of share capital, company may abandon or settle action • Recovery is only for the benefit of the company

  18. Chiomenti Studio Legale Listed Company: Key MSPs • Bringing legal action against directors (cont.) Direct action by shareholders • Any shareholder may bring a direct action for damages on the basis of: • malice, fraud or negligence • 5 years time limit from the day directors cease office • Damages are awarded to shareholders

  19. Chiomenti Studio Legale Listed Company: Key MSPs • Challenging resolutions Shareholders’ meeting • 0.1% holder of share capital may challenge if: • resolutions are not in conformity with law or by-laws • Any shareholder is entitled to be awarded damages as a result of resolutions’ non compliance with law or by-laws

  20. Chiomenti Studio Legale Listed Company: Key MSPs • Challenging resolutions (cont.) B of D • Most important new MSP • Direct mean to scrutinise management • 0.1% holder of share capital may challenge if: • resolutions cause damage to shareholder’s interests

  21. Chiomenti Studio Legale

  22. Chiomenti Studio Legale Conclusions & Guidelines • The Code of Conduct and legislation have provided minority shareholders the necessary tools to protect their interests • Minority shareholders areprotected by law, but need to be proactive in a responsible and constructive way

  23. Chiomenti Studio Legale Conclusions & Guidelines • Minority shareholders should: • Know their rights and remedies • Communicate to management areas of their concern • Attend shareholders meetings • Not be deterred by the complexity of legal issues by reaching out to local counsel for guidance and assistance

  24. Chiomenti Studio Legale Enrico Giordano Partner & Head of Capital Markets enrico.giordano@chiomenti.net Chadi A. Salloum Associate chadi.salloum@chiomenti.net Via XXIV Maggio 43 - 0187 Roma tel. +39 06 466221 fax. +39 06 46622600 roma@chiomenti.net www.chiomenti.net Rome  Milan  Turin  London  New York  Brussels

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