Abstract
Section 46 of the Italian Constitution (dating back to 1947) reads: ‘In order to achieve the economic and social enhancement of labour and in accordance with the requirements of production, the Republic grants workers the right to cooperate, within the forms and limits established by law, in the management of companies.’
Given that the above constitutional principle has not yet been fully implemented within the Italian legal framework, the goal of this article is, first, to investigate whether this could have been done on the occasion of the launch, in 2003, of a two-tier board structure for Italian joint-stock companies, in line with the ‘German Model’ of dual governance. Secondly, a few remarks are made on the current situation and legislative perspectives in Italy, in order to assess whether, and to what extent, the introduction of new schemes of workers’ participation in company management is still an option under Italian law.
At the beginning of 2003, within the framework of a comprehensive legislative reform which had a very significant impact on the company law rules in the Italian Civil Code 1 , a dual (two-tier) management and control system was made available for the first time to Italian joint-stock companies as one of the new alternative board structures – the other being the Anglo-Saxon monistic or single-tier system. This could be opted for as an alternative to the traditional ‘horizontal’ model, under which the company’s shareholders appoint both the managing body (sole administrator or board of directors) and the controlling body (statutory auditors’ committee).
In designing the Italian dual model, inspiration was taken from the EU legislation on the European Company (SE: Societas Europaea) as well as from the experiences of various countries having adopted roughly similar forms of corporate governance. However, from a historical point of view the most important reference – given its widespread application and socio-economic significance – was the board structure of the German Aktiengesellschaft.
Just as in Germany, the dual system provided for by Sections 2409-octies et seq. of the Italian Civil Code aims, in principle, at separating ownership and power within the joint-stock company governance structure. In fact, this model envisages the interposition between the shareholders and the management board (i.e. the Consiglio di Gestione, corresponding to the German Vorstand) of a supervisory board (i.e. the Consiglio di Sorveglianza, in turn corresponding to the Aufsichtsrat), vested with the powers to appoint and revoke the Consiglio di Gestione’s members, oversee the management of the company, approve the company’s yearly financial statement, file the appropriate liability actions against the Consiglio di Gestione’s members in case of alleged mismanagement conduct, as well as with other strategic supervision duties, if so provided for by the company’s by-laws.
Whereas in Germany this separation between ownership and power within the company’s board structure is achieved by the laws regulating the Aktiengesellschaft, things appear to have gone differently in Italy, where such a goal has remained, to say the least, mostly watered down.
In fact, under Italian law the ‘cordon sanitaire’ which should guarantee the right distance between the competence of the company’s controlling shareholders and that of the corporate bodies has proved rather uncertain, due to a number of legislative mechanisms contributing to shape the Consiglio di Sorveglianza as a third layer of corporate control, i.e. the expression – just like the management board – of the controlling shareholder/s. In this respect, let it suffice to mention the circumstance that, pursuant to Italian law, (controlling) shareholders are entitled freely to revoke, even though by a reinforced majority, the Consiglio di Sorveglianza’s members.
In addition, the dual system’s management board is not granted, in Italy, the strongly executive role which German rules on the Aktiengesellschaft traditionally assign to the Vorstand. The Consiglio di Gestione, differently from the Vorstand, can delegate its powers to ‘one or more of its members’, thus reproducing within the management board that division into executive and non-executive positions which, under the dual governance paradigm, should be reflected in the different roles of the management board and supervisory board.
In its first years of application in Italy, the dual system was often subordinated to contingent and distorted purposes, rather than to the functions for which it was originally designed. In fact, the possibility to provide for a virtually unlimited number of potential directorships in the two-tier management and control bodies translates into a significant degree of flexibility, if compared with the traditional governance model under which the controlling body (Collegio Sindacale) cannot be composed of more than five members 2 and is granted by law a smaller scope of powers to those of the Consiglio di Sorveglianza. This circumstance played a crucial role on the occasion of several large corporate consolidations having taken place in the banking and public services sector after 2003, where the previously mentioned paradigmatic purpose of the two-tier system (that is, separating ownership from power) was pushed way into the background by contingent needs relating to the allocation within the new corporate bodies of representatives of all parties involved in the merger. The above situations highlighted a number of contradictions affecting the Italian dual system’s operational features and underlying philosophy, and did not contribute to its popularity among parts of the press.
This being said, one of the most remarkable differences between the German and Italian two-tier governance models is that Italian law does not provide for any possibility to implement forms of workers’ co-determination at board level comparable to the German Mitbestimmung auf Unternehmensebene, under which employee representatives are entitled to sit in the supervisory board of the Aktiengesellschaft.
In other words, the principle of ‘competition among corporate governance legal models’, which applies under Italian Company Law as a result of the 2003 reform, is set to serve the exclusive purpose of offering investors wanting to establish a company in Italy three different schemes of possible shareholder-management relationships, thus providing the market with more efficiency and flexibility. At the same time, however, the applicable law does not provide those investors having adopted the two-tier board structure with any (optional) set of technical tools aimed at addressing also socio-political aspects of the economy within the context of their companies.
The question is: could the Mitbestimmung principles have been adjusted to the two-tier board structure of Italian joint-stock companies organized with the dual governance model? The answer is probably yes, regardless of the doubts on the inadequacy of the above Section 46 of the Italian Constitution in recalling a model of real ‘German-style’ co-determination.
The Italian Civil Code provisions on the structure and functioning of the dual model do not contain any express reference to the concept of co-determination at the board level. On the contrary, Section 2409-duodecies, paragraph X, letter c) provides that ‘those individuals who are related to the company or to companies controlled by or under common control of the company itself, as a consequence of a labour relationship or a regular consultancy relationship or remunerated professional services which may prejudice their independence’ are not eligible to be appointed as members of the supervisory board (Consiglio di Sorveglianza). This provision is commonly interpreted as setting a ban on employees’ direct access to the supervisory board, thus leaving no room for a strict application of Mitbestimmung in the Italian two-tier board structure.
To the extent that the above interpretation – which indeed widely prevails among Italian commentators – holds true, an alternative form of (indirect) representation of the workforce at the board level can perhaps be implemented by requiring that a certain number of employees’ ‘representatives’ be appointed to the supervisory board: these being professionals entrusted by the employees with duties to act on their behalf and represent their interests with regard to issues relating to the company’s management. Indeed, such a solution deserves to be further investigated. To be put into practice, however, it would need to be governed by a set of regulatory provisions, similarly to what happens in Germany, where the modalities under which Mitbestimmung applies to the Aufsichtsrat are set forth by various special laws and regulations.
In any event, whatever scope there may be for employee representatives to participate in corporate bodies today, it must be recalled that, leaving aside the absence in Italy of rules on workers’ co-determination, the structure of the local dual system differs in many respects from the German governance structure of the Aktiengesellschaft. In such a context, the choice of the Italian legislator not to introduce the co-management item is only one – and in some ways not even the most prominent or controversial – deviation from the original model.
A number of pragmatic evaluations have probably played a crucial role in the above, considering the customary hostility shown by Italian left-wing politicians as well as the most prominent (and radical) trade unions, such as CGIL, towards any form of friendly cooperation between social partners, whereas the task of monitoring the exercise by the managers of their discretionary powers has always been assigned by CGIL to the instrument of collective bargaining. Mitbestimmung has also traditionally been opposed by Italian entrepreneurs, the employers’ organization Confindustria and classical liberals, who suspected it of being a device for offloading the costs of social justice, salary increases and production on the employers. A more open (minority) position was taken by other Italian trade unions such as CISL, UIL and UGL who, on several occasion, officially declared themselves to be ready to welcome the introduction into the Italian socio-economic system of instruments aimed at enhancing industrial democracy and loosening the historical conflict between capital and labour. However, if the above was the specific socio-political scenario at the moment when Italy took a step towards dual governance, lately something seems to be moving forward.
At the beginning of the last legislative session (2008), two bills on various forms of workers’ participation were submitted to the Italian Senate, by Senator M Castro (Pdl) and by Senator T Treu (Pd). These were later followed (2009) by two other bills on the same matters: the first one by Senators A Bonfrisco and F Casoli (Pdl) and the second one by Senator B Adragna (Pd).
In mid-2009 Senator P Ichino, in his capacity as sponsor of the project, was appointed to work on a text aimed at identifying a possible bipartisan solution. However, shortly after Senator Ichino’s draft unified legislative proposal had been favourably received within the Senate, the Ministry of Labour agreed with the social partners temporarily to freeze the passage of the bill, in order to allow the Ministry's experts to obtain more extensive knowledge on the applicable domestic and international legal framework and further to investigate the most popular practices in the field of workers’ participation in Italy. 3 Only at the end of 2011 was the Restricted Committee chaired by Senator Ichino authorized to submit to the Labour Committee of the Senate an upgraded version of the unified bill.
The legislative proposal thus put forward by the Committee led by Senator Ichino expressly provides for the possibility for Italian companies to conclude with trade unions corporate collective agreements aimed at establishing several forms of workers’ participation (to be applied either jointly or alternatively), ranging from information and prior consultation duties to employees’ profit-sharing models, to forms of workers’ involvement in the management of the company.
In particular, under Section 3 of Senator Ichino’s unified bill, Italian joint-stock companies with more than 300 employees, which are organized with a two-tier board structure 4 , could agree with trade unions that a certain number of employees’ representatives sit in their Consiglio di Sorveglianza. The above corporate collective agreements should also regulate, on a case-by-case basis, how to manage the allocation within the Consiglio di Sorveglianza of the memberships to be granted to the workers’ employees, as well as the modalities of their appointment. The employee representatives so appointed in the Consiglio di Sorveglianza are entitled to the same information and voting rights as the other members of such a controlling body, and this general rule applies also in relation to ‘high-level management’ corporate matters, such as corporate strategic choices and industrial and financial plans, in case the Consiglio di Sorveglianza is granted the power to address them by the company’s by-laws.
The solution in the text submitted by Senator Ichino, which evidently draws on certain aspects of the German Mitbestimmung, would make it possible for workers to participate in the company’s two-tier corporate governance subject to the prior acceptance of the co-determination, at the negotiation stage, by social partners. The rationale behind it is based on the widely shared view that, when promoting within the Italian industrial context some form of workers’ participation in corporate governance, this should necessarily take place ‘from below’, i.e. based on a voluntary and contractual choice to be taken by the individuals/entities involved in the industrial relationships. All in all, this scheme would mean a significantly different approach from that of the German model, where the applicable laws on Mitbestimmung, prompted by a strong and rooted culture of co-determination, simply and mandatorily provide that all joint-stock companies – as well as any other company whose employee numbers exceed certain thresholds – must be subject to co-determination statutes.
In any case, the solution envisaged under the bill reflects an attitude of gradual reformism, leaving to companies’ autonomous negotiations a first experimental evaluation of how attractive the co-determination system may be for the Italian industrial environment. This approach is indeed valuable and should be preferably put into practice by focusing, at least at the initial stage, on companies significantly involved in matters related to delocalization, foreign ownership, latent conflicts of interest and intense confrontations between trade unions and owners. Such a first stage might subsequently be followed by further applications of similar schemes to different contexts.
One of the most significant impacts of the recent global financial crisis on the Italian business environment is that it calls for the need for local companies thoroughly to rethink their corporate governance structures and convert, to some extent, their traditional business model focused on the maximization of the company shareholders’ value to a more responsible ‘stakeholders’ value approach’, enhancing – among others – the skills and satisfaction of their employees. Under the latter approach, certain corporate issues affecting a wide range of individuals and organizations should be addressed jointly by the ownership/management and the workforce, rather than by the former unilaterally. All in all, this scheme should be regarded as simply the other side of the coin of the other scheme under which both employers and workers are bound to bear the burden represented by all sorts of costs, risks and disadvantages weighing on their company as a consequence of the market crisis.
In the light of the above, we look forward to the development of a more responsible debate on workers’ participation in the Italian corporate governance environment, in relation to both manufacturing industry and the banking and financial sector, to be enhanced not only for the sake of the workers’ interests, but also for a better functioning country.
Footnotes
Funding
This research received no specific grant from any funding agency in the public, commercial, or not-for-profit sectors.