April 25, 2012 8:30 pm

Italian companies are forced into board shake-ups

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Executives from many of Italy’s most powerful companies are being forced to resign their board seats by a law that takes aim at the culture of cross-shareholdings which the government considers a threat to financial stability.

Analysts say the move is one of the biggest shake-ups in Italian corporate life since the second world war.

The law – passed by Mario Monti’s technocratic government and included in his “Save Italy” liberalisation decree – is due to come into force on Thursday. It bans executives from holding a board seat in more than one financial institution operating in the same market.

As such, it strikes at the centre of an arcane culture that has allowed a financial and corporate elite to sit on the boards of each other’s companies and so wield influence over several companies – often through only a small stake.

On Tuesday and Wednesday, executives with links to UniCredit, Italy’s largest bank by assets, Mediobanca, an influential Milanese investment bank, and Generali, Europe’s third-largest insurer by premiums with €400bn of assets, have resigned board seats.

The three institutions – linked by a series of cross-shareholdings – have long been a triumvirate of Italian corporate power where until recently six men have sat on at least two out of the three boards. However, analysts estimate the new law will affect as many as 1,500 board seats at Italian companies.

Among the most closely watched moves is the resignation of Alberto Nagel, chief executive of Mediobanca, as vice-chairman of Generali. Mr Nagel had held the position as a result of Mediobanca’s ownership of 13.5 per cent of the insurer, a stake worth €2.8bn.

Other notable executives affected are Fabrizio Palenzona, vice-chairman of UniCredit and board member of Mediobanca; Giovanni Bazoli, chairman of bank Intesa Sanpaolo and chairman of holding company Mittel; Ennio Doris, chairman of asset manager Mediolanum and Mediobanca board member; and Vincent Bolloré, the French corporate raider who sits on the board of Mediobanca and Generali.

Mario Draghi, head of the European Central Bank, and Ignazio Visco, Mr Draghi’s successor as governor of the Bank of Italy, have both warned about the dangers of cross-shareholdings to financial stability.

They have also been attacked by minority shareholder groups.

Analysts say the changes could also pave the way for a shake-up in the ownership of some of Italy’s largest companies, including Generali.

Italy’s cross-shareholdings have raised concerns about corporate governance in the past, such as the extent to which Mediobanca influences strategic choices at Generali.

While Mediobanca executives have long prized the bank’s strategic stake in the insurer, the share prices of both institutions have tumbled in the past year as Italy moved to the centre of the eurozone sovereign crisis.

Shares in Generali have lost 20 per cent of their value in the past six months, while Mediobanca shares are down 37 per cent in a large part on concerns about its exposure to its cross-shareholdings in Italian companies, including Generali.

As a consequence, analysts consider the board resignation may be a prelude to Mediobanca reducing its stake in the insurer as the bank seeks to bolster its capital ratios ahead of Basel III.

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