Corporate Governance Code and Recommendations for 2023

The New Italian Corporate Governance Code (the “Code”) was adopted by the Italian Corporate Governance Committee (the “Committee”) in January 2020, overcoming previous versions. The principles and recommendations contained therein are meant for listed companies and mirror the ones displayed also in the UK Corporate Governance Code (last version adopted July 2018). The Committee is a body formed within the Italian Stock Market Exchange (Borsa Italiana S.p.A.) and supported by main Italian investors associations. It is in charge of the promotion of best practices for corporate governance. Albeit the Code is adopted by companies on a voluntary basis, pursuant to § 2.a) of article 123-bis of the Legislative Decree no. 58/1998 (TUF), directors are required to provide for information regarding the adoption of a code of conduct for corporate governance in the annual Report of listed companies (the “Report”). If so, they shall provide for the reasons for the possible “lack of adoption” of one or more of its rules. The Committee is also in charge of monitoring on a yearly basis the state of the adoption and application of the Code. In early 2023, it delivered a letter to listed companies, containing the Committee’s Recommendations for 2023 (“REC 2023”). What follows is a quick overview of the Code’s most noticeable renewed principles, as supplemented by Recommendations for 2023.

1. The role of the board of directors (Article 1 of the Code)

Principle I enshrines that "the board of directors leads the company by pursuing its sustainable success", defined in the Code itself as "the objective […] that consists of creating long-term value for the benefit of the shareholders". Indeed, the board shall monitor the transactions of the company or its subsidiaries having a significant economic relevance. Dialogue policies with shareholders and stakeholders, which can also be adopted at the initiative of the stakeholders (REC 2023, No. 1), are one of the Code's top themes. 

2. Composition of the corporate bodies (Article 2 of the Code)

The delegation of a specific power to the chairman shall be addressed in the Report (REC 2023, No. 3).
The independence of a part of non-executive directors (to be determined relating to companies’ size) is given a particular importance. The board to assesses the independence of non-executive director and member of the supervisory board on a yearly basis, disclosing the results, based on precise, analytically identified criteria, disclosed ex ante. 

3. Functioning of the board of directors and the role of the chair (Article 3 of the Code)

The board defines the rules and procedures that regulate the prior notice limit for submission of documentation before the meetings and how the confidentiality is preserved. Such procedures shall not provide for generic exemptions on grounds of confidentiality. The chairman shall ensure its effective functioning, for instance making sure pre-meeting information is provided; the flow of information between managers and directors shall be ensured. 

4. Appointment of directors and board self-evaluation (Article 4 of the Code)

The board entrusts the nomination committee, the majority of whose members are independent directors, with the task of assisting it in the self-evaluation of the board and its committees. The evaluation is to be carried out at least once every three years, proportionately with the subject of the size, composition and actual functioning of the board.

5. The remuneration of directors, the supervisory board and top management (Article 5 of the Code)

The remuneration policy for directors is also functional to the pursuit of the company's “sustainable success”, being oriented towards a long-term horizon (at least five years). The variable component of the remuneration must represent a significant portion of the total amount and is linked to performance objectives. These latter can also be non-financial, e.g. ESG, as long as they are specific and not generic (REC 2023, No. 10).