Modernizing Italy's Corporate Governance Institutions: Mission Accomplished?

Abstract

This essay takes stock of the corporate governance reform efforts Italian policymakers have engaged in since the beginning of the 1990s. After describing the reform process and its drivers (a concern for Italian equity markets’ attractiveness in an increasingly competitive and global framework, scandals, and EC activism), the essay analyzes the main reforms to single out what has worked (i.e. had a practical positive impact on Italian listed companies’ corporate governance) and what has not worked. After concluding that the corporate governance legal framework has greatly improved as a result of reforms, the essay identifies a number of areas in which further steps could be taken to protect investors against the risk of expropriation by corporate insiders. It is also argued, however, that the mother of all corporate governance reforms in Italy would be a change in legal and political culture; legal culture should change so as to put substance over form, function over doctrine. That would be a precondition to effective enforcement of corporate and securities laws. Political culture should change from one that deems it to be the norm for politicians to decide on the allocation of corporate control to one more respectful of property rights. Two modest, bottom-up proposals to help change legal culture in the long run are finally put forth.