Corporate Governance Changes in the 20th Century: A View from Italy

Abstract

In this paper, I consider four stages of Italian development in the 20th Century: liberalism, the mixed economy, the welfare state and the new economic constitution. In the first stage, liberalisation favoured economic and financial development. However, an important feature of Italian governance was the role played by the State. Initially this role was limited to supporting industrial growth; in the second stage of economic development, it involved the acquisition of banks and industrial companies by the State. Public ownership of large sectors of the economy and the equity markets' limited role in the financing of industry made company law modernisation less important from a policy perspective. In addition, the incumbent capitalists benefited from the State's occupation of large sectors of the economy. As a result, the rules on joint-stock companies, which were included in the Civil Code of 1942, were very mild in protecting minorities and largely ignored the joint-stock companies' role in the capital markets. More than thirty years elapsed before the introduction, in the third stage of Italian development, of disclosure rules for listed companies and of a securities regulator. Corporate governance reform was delayed until the end of the '90s, while a general reform of company law was enacted in 2003 reflecting a new stage of financial development started in the 90s as a consequence of trade liberalisation both in the EC and worldwide. However, astounding financial scandals showed that even the recent reforms are based on shaky foundations, to the extent that both public and private enforcement are weak, particularly with respect to listed companies. On balance, the Italian experience, despite offering examples of convergence towards global standards, does not support the 'strong convergence' theory and is better explained by the rival scholarly position which sees political forces and path dependency as shaping and constraining economic evolution.