The Italian 2020 Corporate Governance Code is one of the first European codes (together with the Spanish and the Dutch ones) that require—although on a comply or explain basis—listed companies to develop an adequate policy for managing their dialogue with the ‘generality of shareholders’. According to the Code, the policy shall be adopted by the board, upon the proposal of the Chairperson in agreement with the Chief Executive Officer, taking also the engagement best practices adopted by institutional investors and asset managers into account.

The company’s engagement policy aims to promote an open dialogue with all investors and to ensure that all interactions are carried out in an appropriate manner. Nevertheless, the adoption of a formal policy is a challenge for listed companies since international examples, let alone best practices, are few, still evolving and heterogeneous, if not diverging.

To support companies, Assonime (the Italian Association of Joint-Stock Companies), one of the main promoters of the Italian Corporate Governance Code, has established a Forum on Companies Dialogue with Shareholders. Over one hundred Italian listed companies, ie roughly 40% of all Italian listed companies (excluding businesses listed on Italy’s SME Growth Market, AIM), have participated in the initiative. Based on the work carried out within the Forum and with the support of academics from Bocconi University and of AIGI (the Italian Association of in-house lawyers), in July 2021 Assonime published a set of Principles aimed at identifying and addressing the major issues to be considered by listed companies when drafting their policies. With Georgeson’s support, the Principles were also discussed with several major Italian and international institutional investors and asset managers active in the Italian market.

Assonime’s Principles rely on three tenets:

The supervisory role of the Board of Directors, which steers the company’s dialogue with investors, through the approval and possible updating of the Policy, and monitors its implementation;
The operational tasks of the ‘Responsible Directors’, namely the CEO and/or the Chair of the Board, who are in charge of implementing the policy by managing each step of the dialogue;
The role of the Contact point (usually the company’s ‘Investor Relations’ or the ‘Corporate Affairs’ offices), entitled to receive investors’ engagement requests.

Based on these three pillars, each company can tailor its policy according to its concrete operational needs and investors’ demands. While orienting the companies in the definition of their own policy, the Principles identify the key issues to reflect upon in the tailoring exercise.

Once the company’s key actors (CEO and/or Chair) are entrusted with the management of the dialogue, it is still essential for the company to ensure correct and complete communications, equal treatment of investors, the consistency of the company’s voice and the integrity of the information released, also in consideration of market abuse rules, is of the essence. Responsible Directors should therefore ensure that appropriate and timely information about the development of the dialogue with shareholders is provided to the Board of Directors, which may have to be involved in the process in case of particularly relevant or urgent issues that deserve its attention.

The Principles also tackle some aspects of the dialogue which may be particularly delicate. In regard of investors’ requests to have a direct dialogue with individual board members (eg an independent director), the Principles clarify that the involvement of specific directors is evaluated by the Responsible Directors, possibly with the support of the board, following an assessment of their role in respect of the specific topic the investors may want to discuss: for example, when the topic is the company’s remuneration policy, the Responsible Directors can, and often should, involve the Chair of the Remuneration Committee.

As to one-way communications (also called ‘listening-mode only’), ie meetings, in which directors or executives are supposed to simply ‘listen’ to investors’ observations, requests or criticism, the Principles clarify that they should take place only exceptionally. Nevertheless, where deemed appropriate, the Principles suggest that companies ensure that any ‘one-way’ interaction is managed with the appropriate safeguards, as identified in the company’s policy.

While companies’ engagement practices are often still inchoate, especially for smaller issuers, Assonime’s Principles will help pave the way for their future evolution, especially since a new challenge is already knocking at the door: how should the Board promote the company’s dialogue with other relevant stakeholders?

The Principles can be downloaded here.

Marcello Bianchi is Deputy Director General of Assonime (Association of the Italian joint stock companies) in charge of the Corporate Governance and Capital Markets Area.

Giuseppe Catalano is the Chair of AIGI, the Italian Association of In-house Lawyers.

Mateja Milič is senior analyst in the Corporate Governance and Capital Markets Area of Assonime.

Marco Ventoruzzo is Professor of Law, and Head of the Angelo Sraffa Department of Legal Studies of Bocconi University.