Introduction

Consistency with European developments, Italian public opinion, business actors, policy and law-makers, have recently become more concerned with the governance, functioning and sustainability of the current economic system and its effects on society at large. This has been mainly due to the increasing challenges to the global economic and social order arising from corporate scandals and systemic financial meltdowns; social, health and demographic imbalances; environmental degradation; and clashes between democracies and autocracies. The outcome of such challenges has contributed to the development of new economic and social scenarios, which have deeply changed the traditional business settings for both corporate shareholders and boards of listed companies.

Within this context, in line with US and European trends, Italian economists, policy-makers and legal scholars renewed their focus on the functioning and governance of the joint stock company limited by shares. This is the most important private player in the capitalist economy, sometimes considered a “psychopath machine” by causing negative externalities (although compensated by corporate social responsibility initiatives), at other times a “mindful entity”, capable of acting for the good by considering in its activity stakeholders’ needs and a vast array of environmental, social and governance (ESG) factors.

In addition to the above mentioned trends and developments, the current taxonomy of corporate shareholders’ rights and forms of shareholders’ engagement and activism in listed companies has been recently shaped by several other factors:

• the ever-changing private pension and mutual funds dimension and impact on the Italian capital markets;
• long-term social, political and demographic changes, as shareholders’ activism is essentially a socially, economically and politically driven phenomenon;
• the evolution of the long-standing and divisive debate between shareholder and stakeholder value as a primary purpose for the joint stock company (a debate that entails differing political approaches in addition to economic theories, legal approaches and business attitudes);
• the debate advocating more effective empowerment for all types of corporate shareholders in the governance of listed companies to enhance shareholders’ engagement, stewardship and activism (by many legal scholars considered a cornerstone of listed companies’ governance models) and achieve better and sustainable corporate governance policies and practices; and
• a reduction of shareholder activism costs compounded by an increased payoff due to the relatively recent changes in the Italian corporate governance and securities law with an enhanced role for proxy advisors. 

Indirect Shareholder Empowerment

Among these trends and developments there have also been a few efforts to introduce empowerment of “indirect shareholders”, such as retail savers and investors in mutual or pension funds, engaging their fund and asset managers for a better use of their institutional voting rights with particular regard to non-financial, ESG and stakeholder matters.

This trend also gave rise to a better ability for shareholders of Italian listed companies, in particular institutional investors, to use their voting rights and “voice” to (i) engage with and influence portfolio companies boards and management, as well as (ii) limit agency issues and costs with respect to insider controlling shareholders or block-holders. Such shareholders’ engagement can also potentially benefit those shareholders who due to “rational apathy”, whereby private costs are higher than the relevant benefits, would follow the mere path of exit and sale – also known as “wall street rule or walk”.

The above trend was accelerated by a relatively recent shift in the perception by Italian policy-makers and the wider business environment of the potential benefits arising from the increase of shareholders’ engagement, stewardship, and, in certain cases, activism with a long-term perspective of promoting better corporate governance and countering the influence and actions of shareholders or other corporate governance activists with short-term perspective.

Italian Legislation

In recent years, the Italian legislature, while pursuing convergence with European Union corporate governance models and investor protection rules, has enacted a series of laws and regulations (although not devoted to the regulation of any specific form of shareholder engagement or activism) which have, among other things, significantly improved outsider investors and minority shareholders protection from agency issues and costs arising from moral hazards by companies’ boards or from the exploitation of undue benefits by insider controlling or block-holder shareholders.

The above, in particular through the implementation in 2019 of the EU Directive 2017/828, which amended EU Directive 2007/36 and further boosted the engagement of institutional investors with a long-term investment perspective in order to balance the complex net of relationships among minority shareholders, insider controlling shareholders and block-holders, and companies’ board and management. Such balance within the legal framework is ensured by the three corporate governance systems set forth by the law: one-tier, two-tier and Italian traditional systems (all of them with their pros and cons) as moulded by the Italian capital markets and business environment as well as by actual, if the case, judicial enforcement.

Since the implementation of the above-mentioned directives, the Italian legislature has adjusted the national legislation, and potential activists should take into account in planning their strategies:

• the thresholds triggering the performance of specific shareholder actions, such as the shareholding disclosure thresholds to the Italian securities market regulator (CONSOB), which would result in giving to the market at large insights on the activists’ next course of action and allow the target company to set up defences in the event of hostile activism; and
• the disclosure requirements to the public at large about the activists’ envisaged strategy and its implementation in the event of extraordinary transactions (eg, the so-called early disclosure provisions requiring the relevant investor to declare its intention and plan for a six-month period).

Furthermore, and in relation to thresholds and information requirements, the Italian legislature has also envisaged some limited exceptions to the acting in concert provisions, the full impact of which is still to be fully understood in its actual deployment. 

Moreover, current securities and corporate laws have expanded the shareholders’ right of “voice” and their ability to monitor companies’ extraordinary and general shareholders’ meetings by:

• providing for a broad number of matters to be discussed at shareholders’ meetings; and
• improving and simplifying (at least from the perspective of institutional investors) the calling and adjourning of shareholders’ meetings;
• increasing the voting quorum for some extraordinary corporate matters;
• increasing pre-meeting information requirements with shareholders’ rights to submit questions before meetings to which the relevant board is obliged to respond;
• reducing the costs for shareholders to exercise their voting rights by also allowing a more effective use of proxies, similarly to other main continental European jurisdictions; and
• setting forth an effective mechanism of “voice” for Italian listed companies shareholders – the so-called slate voting (voto di lista), which provides for one member of the board of directors and the board of auditors being reserved to minority shareholders.

Corporate Governance Soft Law

The trends and developments in the Italian hard-law realm have then been complemented in the past years by further improvements in the corporate governance soft-law or self-regulation arena, which nowadays can be considered an essential element of the regulation of listed companies. This has been achieved mainly through the provisions and principles provided for by the last edition of the Italian Corporate Governance Code and, as of January 2021, by the Assogestioni-promoted set of Italian Principles of Stewardship. The Italian Corporate Governance Code is based on the comply or explain principle, enhancing share ownership activism via better engagement and stewardship practices and providing additional information rights and duties for both fund and asset managers and companies’ boards with respect to long-term practices and companies’ sustainability.

Moreover, as a general and positive trend, it is worth noting that in 2022 the Italian government is continuing the reform of the civil and criminal justice system within the scope of the National Recovery and Resilience Plan (NRRP), mostly financed by the European recovery plan known as Next Generation EU. The NRRP plan and the actual reform of the Italian justice system should have a positive impact on the protection of minority (including institutional) shareholders’ instances and claims, if the case, before Italian courts, improving the timing issues related to judicial remedies.

Activist Campaigns

As a result of all the above-mentioned changes, the phenomenon of shareholders’ engagement, stewardship and activism in Italy has registered a slow but steady growth, at least with respect to the Italian market size and features, and notwithstanding the fact that 2022 registered a slowdown in terms of public activist campaigns (there have been two campaigns in 2022 so far versus nine campaigns in 2021). These two campaigns were carried out by a European hedge fund and by two insider block-holder coalitions with a long-term strategic agenda. On the contrary, during 2020 and 2021, Italian capital markets demonstrated a more dynamic activism, by registering, respectively, four and nine public activist campaigns most of which with different targets and motivations.

Activist campaigns in Italy have usually been pursued by a limited number of recurring large European corporate controlling shareholders or coalitions of block-holders with a strategic agenda, as well as some US global activist hedge funds and European activist boutiques. In addition, it seems that a quieter activist form of shareholders’ engagement, usually carried out by large global institutional investors, is slowly maturing in the Italian corporate environment through an increase of regular informal and discreet interactions between outsider investors and companies’ boards, compounded by a slowly growing attendance (although still below European standards), of all types of shareholders at ordinary and extraordinary general shareholders’ meetings. 

The Prevalence of Controlling Shareholders in the Italian Market

It has to be highlighted that Italian capital markets are still distinguished by a relatively limited number of large, medium and small listed companies (ie, 232 companies listed on Euronext Milan, the Italian main market; 174 companies on Euronext Growth Milan, the former AIM, and only one company on MIV investment vehicles, as of 31 December 2021). Most of these companies are characterised by a concentrated ownership structure with the presence of an insider controlling shareholder or block-holders (eg, industrial families, the State, wealthy individuals and private financiers which most of the time defend not only their investment but their local reputation and legacy) and only a limited number of listed companies could be considered as public companies in the sense of widely dispersed ownership.

Such controlling shareholders, in some cases, also benefit from a peculiar ownership structure, such as the “pyramid” (although diminishing in number) and from a series of control-enhancing mechanisms put in place through by-law provisions or shareholder agreements which make it complex for outsider minority shareholders to challenge companies’ strategies and boards’ decisions.

The Future of Shareholder Activism in Italy

The Italian business and corporate framework is mainly due to a combination of factors , among others:

• historical, social and cultural legacies affecting the authorities’ and business operators’ approach versus shareholder activism and sometimes foreign activists;
• complex listing rules and procedures – currently under review to simplify and boost listings on the Italian markets;
• to a certain extent, increasing competition from the deep surge of private equity industry and alternative private capital markets in Italy; and
• the still not always effective tie-in between interventionist institutional investors with their enhancing stewardship and engagement instances and the attitude of most of the Italian listed companies in which they invest.

Accordingly, the predominant form of shareholder activism in Italy is carried out by minority and outsider shareholders, usually global institutional investors, seeking to defend the long-term share value of their investments and, in rare cases, to preserve the sustainability of the target company. The above by enforcing their minority rights and investment protection rules to limit strategies and decisions pursued by the company’s board and/or by the controlling shareholders or block-holders which might have abused their dominant position.

However, thanks to the constant coverage by the Italian press and the attention of the public at large on some important shareholder activist campaigns and relevant legal fights between shareholder activists or between different groups of corporate block-holders with a strategic agenda, the phenomenon of shareholders’ activism in Italy will most likely persist and evolve in the coming years.

Discreet campaigns and activism

In Italy the umbrella term “shareholder activism” includes all the broad array of activism forms similar to other European jurisdictions. However, it usually refers to those “ex-post” strategies and tactics set forth by minority and outsider shareholders of a listed company against agency issues and matters caused by controlling shareholders or block-holders or, to a minor extent, by the board and management of the target company. In such a corporate environment, whereby minority protection becomes the core aspect and most important concern, the actual performance of shareholder activist strategies and tactics might be quite different from those strategies and tactics used to engage companies with widely dispersed ownership.

Within this scope, shareholder activists traditionally do not set out aggressive tactics to achieve their strategies, instead performing their campaigns in a discreet manner, possibly behind-the-scenes, by engaging and co-operating with the relevant board and management and/or controlling shareholder rather than against them, through informal and confidential discussions, sometimes through letters to the board and other shareholders with a moderate level of confrontational engagement (ie, low-cost activism).

This is especially true in relation to those institutional investors’ activist strategies involving general shareholders’ meeting resolutions and concerning the appointment of new company boards, often by recurring to the so-called slate vote process (voto di lista), ie, by presenting a minority list of candidates to the board and increasingly through proxy voting, which effectively enhances the minority shareholders’ power to appoint one minority member on the board of directors and on the board of auditors of the target company. In addition to the above, other strategies pursued by Italian activists include:

• changes in companies’ strategies, capital allocation, or best in class governance policies and practices, including remuneration policies and incentive plans;
• M&A and other extraordinary transactions;
• operational improvements; and
• the rising trend of stakeholder matters and ESG initiatives and issues.

In doing so, institutional investors increasingly team up with other minority shareholders but rarely do their activities involve the public opinion and emerge into public view.

Public activism

The more vocal Italian activism landscape includes a limited number, but a broad variety, of hedge fund activists and activist boutiques that pursue proactive activist campaigns and strategies over a target’s specific issues, entailing the acquisition of a minority shareholding – usually without taking control – in a usually largely capitalised, but under-performing, listed company. Their envisaged objective is to change the target’s strategy and governance and, allegedly, increase the company’s performances (which nowadays should include non-financial and ESG indicators) and share value in a relative short period of time.

Such campaigns usually entail more powerful tactics, including swift stake building, media engagement and public actions, pre or court litigation together with, although more rarely in the Italian environment, active support of fellow activists (eg, creation of a “wolf-pack” with private equity buyout funds active in private investment in public equity (PIPE) or public-to-private (PTP) transactions) that could entail acting in concert regulations and other connected legal constraints. This form of ex-ante and high-cost activism, albeit more frequently present in the last few years in the Italian marketplace, is expected to remain a rare form of activism in Italy, considering the features of the Italian corporate landscape and capital markets where the State and wealthy industrialist and financier families, with their merits and shortcomings, have an active role in the governance of listed companies. Indeed the success of activist campaigns very much depends upon shareholders’ rights and protections as well as upon the business and legal environment in which they develop.

On the one hand, companies’ boards and the management of Italian listed companies are becoming more sensitive than in pre-pandemic years to shareholders’ instances and in general to the activism phenomenon. On the other hand, a stronger shareholders’ activism has emerged, also thanks to the relatively recent surge of institutional investors in the ownership of listed companies, which often congregate and team up with other peers or sometimes with hedge fund activists.

As a result, awareness of the activist phenomenon is growing among the members of the boards of Italian listed companies and, importantly, of their traditional trusted advisors. Nowadays, such boards are much more responsive than just a few years ago in bridging the various instances that may arise from the full spectrum of outsider minority shareholders with all “solicitations” that can come from controlling shareholders or block-holders coalitions.

However, Italian boards and management, together with their controlling shareholder, should devote further energy and resources to the activism phenomena and to relevant market practices in order to be effectively prepared and deal with activist campaigns, to better engage with shareholders and stakeholders also by means of increasing investor-relations capabilities and legal skills as well as crafting their companies’ by-laws with a set of provisions which could address activist campaigns, such as statutory limitations on voting rights, special classes of shares (including loyalty shares) and increased voting rights or multiple voting shares. 

Indeed, shareholder activism in Italy is here to stay and in the 2023 proxy season it is expected to continue its ongoing quiet evolution and to grow in magnitude and relevance within the Italian capital markets environment, while adjusting to the current corporate landscape. This is also thanks to a surge of instances coming from society at large and minority and institutional shareholders in respect of stakeholders, non-financial, social and environmental issues, which often become a gateway to facilitate activist campaigns and the involvement of other outsider investors, such as private equity funds. The expected outcome in the next few years is a more sophisticated shareholder activism landscape in Italy.