Corporate law: how to reform it in 20 steps

Today more than ever the ultimate goal of an ambitious reform of the law of joint stock companies should be to encourage the birth and growth of businesses, facilitating their ability to raise capital. To this end, it is necessary, as in any self-respecting attempt at reform, to "strike the rents" that the corporate system, even in its current conformation, allows to extract from existing companies. [1]

Elsewhere I have duly indicated which provisions of the 2003 reform have increased the income of those who provide services related to company law. To these are added, as always, the controlling shareholders, who extract private benefits to the detriment of investors, making external investment in Italian companies less attractive.

Here I will list a number of possible reforms aimed at modernizing company law, making it better suited to serve the interests of the economy as a whole.

For convenience and brevity, and at the risk of sounding apodictic, I will summarize my ideas for a reform in twenty proposals for growth-oriented company law. Others could be added, but reasons of brevity and deference to the widespread predilection for round figures lead to moderation (as we will see, only quantitative). The list is this:

1. Explain that the regulation of joint-stock companies is mandatory only when it is expressly established, that the relative rules are of strict interpretation and that their analogical application is prohibited, inserting a general principle according to which all statutory and shareholders' clauses that are not expressly prohibited are valid. [2]
2. Allow the creation of limited liability partnerships, according to the model of the limited liability partnerships.
3. Review the regulation of disclosure obligations in the business register, limiting them to those imposed by European legislation.
4. Suppress the regulation of shareholders' agreements in unlisted companies.
5. For newly incorporated companies only, remove the limits on deviations from the one share, one vote principle, including the prohibition of multiple voting shares, also allowing (also in relation to existing companies) holders of specific categories of shares to appoint one or more directors in a separate meeting.
6. Review, at least as regards newly incorporated companies or those to be listed in the future, the quorums envisaged for the exercise of minority rights, bringing the supplementary threshold to zero and providing for a maximum statutory threshold no higher than the currently envisaged threshold.
7. Allow directors to submit certain proposals to the meeting; on the other hand, exclude the approval of the financial statements from the matters within the competence of the shareholders' meeting, unless the statute provides otherwise.
8. Clearly restore the prohibition, originally envisaged by the 1942 civil code, to express one's vote for the shareholder in conflict of interest, also typifying certain hypotheses (e.g. transactions with related parties, including mergers with the parent company).
9. Expect the one-tier model to become the one-tier model default, dictating a complete discipline of the same without specific or generic references to other models. In unlisted companies, there should be no special provisions regarding internal controls (in other words, the discipline would be that of the traditional model, net of the rules on the board of statutory auditors, without prejudice to the European constraint regarding the statutory audit of the accounts), while for listed companies, it would be sufficient to provide for the obligatory nature of an internal control committee made up of independent directors, one of whom with accounting skills, in addition to what is further imposed in this regard by directive 2006/43/EC.
10. Review the discipline of directors' liability, clearly introducing the business judgment rule (no liability, not even for inadequacy of the organizational structure or for defects in the decision-making process, if there is no proof of bad faith, manifest irrationality or conflict of interest), also allowing the statutes to exempt the directors from liability for violation even with gross negligence at least of the duties provided for by art. 2381, fifth and sixth paragraphs, of the Italian Civil Code
11. Provide for a regulation of transactions with related parties of greater importance, in which the conduct of the negotiations and the decision on the transaction are the responsibility of a committee of independent directors, which should however be followed, unless the articles of association provide otherwise, for approval by the shareholders' meeting according to the model of whitewash. In any case, information on the transaction should be given to the market well in advance of the committee's decision. Reintroduce the duty of abstention for directors in conflict of interest, also with reference to typified hypotheses.
12. Liberalize the issuance of bonds, without prejudice to the necessary limits if reserved financial activity is mainly carried out on the asset side.
13. Align the provisions that configure the so-called "net system" with European standards, eliminating purely domestic regulations in this regard (e.g. legal reserves).
14. Review the regulation of the right of withdrawal, identifying the conditions in clearly typified situations of potential abuse, even prospective, by the majority shareholder or directors and reviewing the criteria for determining the reimbursement value in order to attribute to the withdrawing shareholders the value fair share of their participation.
15. Suppress the regulation of the reduction of the capital below the legal limit (art. 2447 of the civil code) and the references to the same contained in other regulations.
16. Extend the statutory autonomy of limited liability companies up to the limits allowed by European law. All the rules not imposed by the latter should be supplementary, with the exception of well-limited exceptions involving third parties (such as, for example, articles 2471 and 2471-up to, cc).
17. Provide that access to the regulation of management and coordination activities is subject to a resolution of the extraordinary shareholders' meeting, attributing the right of withdrawal to dissenting shareholders.
18. In any case, to exclude the application of the provisions on management and coordination to companies with listed shares, in which the influence of the controlling shareholder must not be able to legitimately harm the corporate interest; introduce the liability (even outside the groups) of the controlling shareholder for damages that the listed controlled company or its minority shareholders have suffered as a result of conduct in conflict of interest or contrary to the duty of correctness of the shareholder or of representatives of the subsidiary who have acted in its interest.
19. For medium-small listed companies (based on capitalization) and for those to be listed in the future, make the provisions on minority directors and those on gender quotas supplementary.
20. Extend the power provided for by art. 2409 of the civil code (complaint for serious irregularities) to banks and insurance companies, in the event of a breach of directors' duties regarding conflicts of interest and transactions with related parties.