Empowering institutional investors in concentrated ownership corporate contexts: the case of Italy

This Article provides an extensive analysis of the role of institutional investors within contexts of concentrated corporate ownership and designs a policy framework that can help explain what regulatory measures legislatures and regulators can take to foster non-activist institutions’ more active ownership by providing minority shareholders with a wider range of powers by which to exert pressure on the controlling stockholders and the corporate management. In this respect, the Italian regulatory system, given some distinctive features that make it unique, clearly shows that institutional investors can play a major role also where concentrated ownership structures prevail, and that regulation can greatly contribute to shaping an environment favorable to institution’s active stewardship. Indeed, despite high levels of ownership concentration of publicly listed companies, institutional investors have grown into prominent players on the Italian corporate governance scene. Regulatory action taken in Italy over time has been strongly driven by minority shareholder empowerment, whether by enhancing minority shareholder rights or supporting minorities’ actual ability and willingness to exercise shareholder rights. For example, one distinctive characteristic of Italian corporate governance is the so-called slate voting system for director elections, which enables minority shareholders to appoint at least one board member and so exert intra-board monitoring. Since, in recent years, ownership of listed companies is becoming increasingly concentrated at the international level, the framework provided by this Article is of interest for many countries including the United States, where controlled companies represent a significant number of publicly traded firms.