In our paper ‘Enforcing Rules on Related Party Transactions in Italy: One Securities Regulator's Challenge’, we investigate the Italian experience in the enforcement of related party transaction (RPT) rules, introduced in 2011 after a long debate following the 2003 Company law reform. Our contribution focuses on the challenges faced by Consob, the Italian stock exchange watchdog, which has been entrusted with extensive powers as regards both the implementation and the enforcement of the relevant rules.
Our research looks into the enforcement actions carried out by Consob between 2011 (when the new rules on RPTs entered into force) and 2017, focusing on two emblematic case studies concerning two Italian blue-chips that first put Consob’s regulatory approach to test.
In implementing a regulation aimed to ensure “transparency and procedural and substantial fairness to RPTs” (in the words of the delegating legislation), Consob’s regulation relied on mandatory disclosure requirements of material RPTs and on independent director approval.
More precisely, the disclosure regime introduced by Consob has compelled Italian listed companies to give immediate disclosure of material transactions and detailed information about the rationale of both the decision to enter into such transactions and of their terms. We now have a better sense of the significance of self-dealing and greater market scrutiny thereon.
The second pillar of the regulatory framework (a veto power for independent directors on material RPTs, following their involvement in the negotiations) proved trickier to enforce. The questions of whether directors were effectively independent and whether they were promptly and genuinely involved in the negotiation stage of material RPTs proved particularly challenging.
The paper also shows how, after a first phase where Consob was particularly active in the enforcement of RPT rules, Consob’s zeal declined, as evidenced by its internal organizational arrangements, its change in strategic priorities, its ongoing supervisory practices, and the frequency of fines.
While some contingent factors may have contributed to that evolution (like the rebalanced composition of the Consob’s governing body in the direction of a lawyer-dominated board, which favoured a more formalistic vision), we speculate that the decreasing zeal by Consob also reflected market players’ failure to internalize legal constraints on tunneling as social norms, on the one hand, and the absence of any meaningful private enforcement, on the other.
The paper is our contribution to a joint research project of the University of Oxford Faculty of Law and the Research Center Sustainable Architecture for Finance in Europe (SAFE) at Goethe University Frankfurt with the support of the European Corporate Governance Research Fund (ECGRF). It will be published as a chapter in Luca Enriques and Tobias H. Tröger (eds), The Law and Finance of Related Party Transactions (CUP, forthcoming).
Marcello Bianchi is Deputy Director General of Assonime (Association of the Italian joint stock companies) in charge of Corporate Governance and Capital Markets Area.
Luca Enriques is the Allen & Overy Professor of Corporate Law at the University of Oxford.
Mateja Milič is a member of Assonime, working in the Capital Markets and Listed Companies Unit.