ITALY

By Carlotta Amaduzzi

The third quarter is traditionally quiet for the Italian market since most Italian companies generally hold their annual meetings during the second quarter. However, there were still several corporate governance developments in the quarter.

Public policy debate during the quarter revolved around two significant reforms affecting Italian companies: the labor market and the commercial register's reform.

Labor Market Reform

On Oct. 24, 2003, the so-called "Biagi Reform" came into effect. The reform was named in memory of Professor Marco Biagi, consultant to the Ministry of Welfare, who published the White Book on the Labor Market in Italy and was assassinated in 2002. The reform affects placement office procedures and it introduces several new and more flexible employment contracts (for example, job sharing and staff leasing). With respect to industrial groups and listed companies in general, the reform will allow holding companies to control at the central level all employment issues, ranging from hiring procedures to compensation decisions. In addition, the reform will open the opportunity to hire personnel in relation to specific assignments for longer periods of time without incurring sanctions. The main objective of the reform is to allow greater flexibility within the Italian job market - an area traditionally protected by national laws. In addition, it will open reorganization opportunities that could improve Italian companies employment related costs, traditionally relatively high.

Commercial Register's Reform

The modifications to the Commercial Register relate to the introduction of electronic means to allow companies to comply with legislative obligations. These modifications aim to reduce red tape and therefore allow a faster and more cost-effective accomplishment of bureaucratic directives. The old Commercial Register is therefore transformed into a new "Electronic Commercial Register" allowing companies to reduce costs and time associated with these legal requirements.

Italy is traditionally considered a country with high bureaucratic costs. The modifications introduced would improve the situation by allowing the use of digital signatures as well as the Internet and other software applications to produce official documents, request authorizations, and accomplish mandatory tasks with respect to the Commercial Register. The Register, in fact, is by law the "book" in which all major events connected to any company's existence must be reported and consequently disclosed to the public, starting from the founding of a company to its liquidation, including approval of financial accounts.

Company Law Reform

Both of the above-mentioned reforms are particularly important if read in connection to the wider reform taking place with respect to Italian Company Law which was confirmed on Jan. 17, 2003, when Legislative Decree n.6 was promulgated. This reform, effective on Jan. 1, 2004, touches on governance-related issues for both listed and non-listed companies. Some of the major issues include financial accounts' composition, shareholder pacts' terms, shareholders' right of withdrawal, bonds issuances, companies' board structures, conditions under which it is possible to oppose general meetings' resolutions and the role and responsibilities of internal statutory boards. Companies will be given a transition period of nine months (Jan. 1-Sept 30, 2004) to adapt to the new legislation.

Accounting Reform – A consequence of European Union's New Regulations

Another important issue that stirred debate over the quarter is the debate that has been taking place at the European level regarding the adoption of most International Accounting Standards (IAS) in relation to European company accounts. On Sept. 29, 2003, an EU Regulation was adopted to this end. As a consequence, consolidated financial accounts referring to fiscal year 2005 will be completed following these accounting standards, and starting in Jan. 2004 a pro forma budget could already be published applying the IAS. In addition, the EU Commission declared that, as soon as Dec. 2003, European listed companies may be asked to inform the public on their transition strategy with respect to the adoption of the new accounting standards, therefore helping the process to speed up and produce its effects more rapidly. Two of the most discussed standards have not yet been adopted: principles number 32 and 39 regarding the definition of fair value. Great expectations have been triggered by this reform at the international level. Finally, the US and the EU are working closely together to try to define common grounds to meet in the middle with respect to adopting uniform accounting standards and possibly to alleviate European companies' accounting obligations in the US.