Regulation and Self-Regulation of Related Party Transactions in Italy

The Harvard Law School Forum on Corporate Governance and Financial Regulation 2014-05-20


Editor's Note: The following post comes to us from Luca Enriques, Professor of Business Law at LUISS University (Rome). The post is based on a paper co-authored by Professor Enriques, and Marcello Bianchi, Angela Ciavarella, Valerio Novembre and Rossella Signoretti of CONSOB (Commissione Nazionale per le Societa e la Borsa).

Agency problems and tunneling are traditional features of corporate governance in Italy. Where ownership is concentrated, dominant shareholders have both the incentives and the means to monitor managers but they may also extract private benefits through self-dealing transactions that favor the related party at the expense of minority shareholders. Pyramids and other control enhancing mechanisms (CEMs) make minorities more vulnerable to abusive self-dealing. The regulatory environment proved to be too lax. The late 1990s reforms failed to specifically address conflicts of interests in listed companies. Further, as a result of the 2003 corporate law reform, directors are allowed to vote even if their interests conflict with those of the firm and parent companies within integrated groups may legitimately force subsidiaries into possibly harmful transactions, provided some procedural and substantial requirements are met. With the exception of corporate governance codes, no specific new rule addressed the fairness of related party transactions (RPTs).

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academic research empirical research securities regulation angela ciavarella closely-held corporations controlling shareholders europe general governance institutional monitoring internal control italy luca enriques marcello bianchi related parties rossella signoretti tunneling valerio novembre


June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation,

Date tagged:

05/20/2014, 15:50

Date published:

05/20/2014, 09:21