Paolo Consales
Pirola Pennuto Zei e Associati, Rome
paolo.consales@studiopirola.com

Regulatory overview

On 12 March 2024, law No 21/2024, the so-called ‘Capital Markets Law’, was published in the Italian Official Journal (Gazzetta Ufficiale). By modifying certain legal provisions in the Consolidated Law on Finance (TUF) and the Italian Civil Code, the main purpose of the Capital Markets Law, on one hand, was to simplify access to capital markets for Italian companies and allow such companies to raise capital for achieving certain targets, including sustainability targets, while, on the other hand, better safeguarding retail investors.

The new law mainly impacts the following four areas:

1. the promotion of companies’ access to Italian capital markets;
2. the rules impacting those companies with widely distributed financial instruments;
3. corporate governance; and
4. innovation of the sanctions system, mainly by providing the possibility to undertake certain commitments in order to avoid pecuniary sanctions for the breach of certain rules in the TUF.

This article will focus on two important corporate governance rules introduced by the Capital Markets Law, which may be of interest to foreign investors, it being understood that there are certain topics that will need to be elaborated in more detail by future rules and, indeed, in this regard the Capital Markets Law expressly provides that a specific regulation will be issued by the supervisory authority in charge of the control of capital markets, namely the Italian Companies and Exchange Commission (CONSOB).

Appointment of the board of directors: a list of candidates submitted by the outgoing board of directors

The Capital Markets Law, in an effort to provide certain guarantees to minority shareholders, formally regulates a practice already applied by listed companies.

Indeed, the submission by the outgoing board of directors of a list of candidates for the appointment of the new board of directors was (and is) a practice normally applied by listed companies, particularly, but not only, by those companies without a controlling shareholder, or without financial or institutional investors with a significative shareholding.

The Capital Markets Law expressly provides that companies’ bylaws may include the possibility for the outgoing board of directors to submit to the shareholders’ meeting a list of candidates for the renewal of the management body (‘BoD List’).

These rules are applicable to Italian and foreign listed companies concerning the Italian or European Union markets, but they are not applicable, for example, to foreign companies listed on the Italian market (such as Italian listed companies that decided to move their registered office abroad and become a foreign company but continue to be listed in Italy).

The possibility for the board of directors to submit a BoD List does not prevent the shareholders, where the necessary requirements are met, to create their own list of candidates for the board of directors and, in such a case, the BoD List will compete with the other list/s submitted by the shareholders.

The Capital Markets Law provides the following main rules that need to be complied with:

• the BoD List must be approved by at least two out of three of the directors, in an effort to pursue as wide an agreement as possible within the outgoing board of directors, but with implications on the way such a majority has to be counted in case, for example, conflicts of interest exist;
• the number of candidates included in the BoD List must be equal to the number of directors to be elected plus one third; and
• the BoD List must be published at least 40 days prior to the date of the relevant shareholders’ meeting, while, for the lists submitted by the shareholders, a 25-day notice period is required.

Specific rules, as follows, are provided for the election of candidates, when the BoD List achieves a majority of the votes:

1. a further individual voting procedure must be conducted on each candidate, and the candidates to be elected are chosen on the basis of the number of votes that they receive. The law does not clarify whether this vote has to be made only by the shareholders who voted for the BoD List or by all the shareholders attending the shareholders’ meeting and there is some disagreement on this point among commentators. In order to guarantee a fair gender balance and the presence of a number of independent directors in compliance with the applicable laws, it is appropriate that specific rules are included in the bylaws of companies, to be applied in cases when, after the individual vote, a fair gender balance does not exist or there is an insufficient number of independent directors among the directors to be elected; 

2. the directors representing minority shareholders are chosen as follows:

(i) if the sum of the votes for two of the minority lists is lower or equal to 20 per cent of the total votes cast, it is expected that a ‘minority premium’ (premio di minoranza) is applied, since the two minority lists must be allocated in regard to an amount of seats equal to at least 20 per cent of the members of the board of directors; or

(ii) if the sum of the votes for the two minority lists is higher than 20 per cent of the total votes cast, each list of candidates that obtained at least three per cent of the total votes shall proportionally concur with the election of the members of the board of directors.

Of course, should the BoD List be the only list of candidates put forward, all the directors will be chosen among those included in the BoD List, using the abovementioned individual voting procedure mechanism.

Moreover, in view of continuing to guarantee transparency and fairness in the management of listed companies, the Capital Markets Law also provides that, if the BoD List obtains a majority of the votes, the chairman of the internal risk committee will be chosen from among the independent directors elected from a minority list.

The new rules for appointments using a BoD List will enter into force from the first date of a shareholders’ meeting to be held after 1 January 2025.

Multiple and increased votes

In a further effort to make the Italian system more attractive to investors and also to avoid listed companies ‘migrating’ to other countries, the Capital Markets Law intervenes in respect of multiple votes and increased votes.

Multiple-voting shares are those shares that have multiple votes in terms of structure. Multiple-voting shares were already provided for by Italian law and were (and are) applicable only to non-listed companies. Indeed, the TUF prohibits listed companies from introducing multiple votes, with an exception being made if: the multiple vote is already provided by the company’s bylaws before an initial public offering (IPO) takes place and, therefore, it is kept after the completion of the IPO; or in the case of increases in capital, either in free or paid-up form and, in the last case, without excluding for shareholders the possibility to exercise the option right; as well as in the case of a merger or demerger. Of course, the newly issued multiple-voting shares will have the same characteristics as those already issued before the relevant transaction.

That being said, the Capital Markets Law has increased the possible multiple in regard to these shares from two to ten.

Alternatively, increased-voting shares, whose enhancement of voting rights is linked to the ownership of a share by a shareholder for a certain time period, can be provided by listed companies only.

Indeed, Italian law already allowed the possibility, within company bylaws, to assign an increased vote – up to a maximum of two for each share – to whoever holds the shares for an uninterrupted period of 24 months, starting from the date when such a shareholder is recorded on a special register (‘Normal Increased Vote’).

The new Capital Markets Law includes the possibility for bylaws to provide the assignment of one further increased vote, up to a maximum of ten votes per share, for each 12-month period of uninterrupted holding of the shares, subsequent to the maturity of the 24-month period mentioned above (‘Reinforced Increased Vote’). At the same time, bylaws can provide the possibility, for the relevant shareholders, to waive, even in part, the increased voting shares. Shareholders who did not agree with, or did not vote for, the introduction of the Normal Increased Vote will not benefit from a withdrawal right, which is instead guaranteed for those who did not agree with the introduction of the Reinforced Increased Vote.

Considering the nature of the increased vote, while the transfer of increased-voting shares implies the loss of the increased vote, the transfer of increased-voting shares due to mortis causa or to a merger/demerger will allow the increased vote to be kept, unless stated otherwise in the company’s bylaws, which can also be extended to newly issued shares following a free increase in capital. Also, in the case of mergers, either internal or cross-border, the relevant project may provide that increased-voting shares can be used for the exchange of shares in the merging company.

Lastly, there is no obligation to launch a public offer if the relevant thresholds are exceeded due to increased-voting shares, provided that there is no direct or indirect change in the control of the listed company.

Also, concerning some of the new legal provisions, there are still some interpretation uncertainties which can be, on the one hand, solved by detailed provisions included in company bylaws and, on the other hand, will need actual interpretation through case law. For example, the new Capital Markets Law does not address whether an intragroup transfer of increased-voting shares implies the loss of the increased vote or not.