The Independence of Those Who Control

THE ROLE OF INDEPENDENT ADMINISTRATORS EXPLORED IN AN ANALYSIS BY GIOVANNI STRAMPELLI

Independent directors are responsible for monitoring management opportunism and protecting shareholders’ interests, yet their role is still widely debated. “We need to ask ourselves how to make their role effective in controlled companies”, says Giovanni Strampelli, associate professor of Business Law. To take financial and family ties between directors and controlling shareholders into account is not enough. A director may have an incentive to overlook his own duty because of non-material relationships.

Professor Strampelli therefore proposes the adoption in the United States of the Italian legal regime where minority shareholders have some power over the election of some independent directors. In Italy, minority shareholders are usually institutional investors acting under the guidance of Assogestioni, the Italian Investment Management Association that plays a central role in selecting candidates using the services of headhunters and observing enhanced independence requirements.

“We must take the human element into account, too. Over time, directors inevitably create social links which can weaken their independence. So, they must be subjected to stricter term limits. They are often professionals who do not have specific skills compared to those of the executive directors. In order to enhance their authority, they must receive full information from the executive directors and be given the power to monitor transactions that are influenced by controlling shareholders”. Finally, public disclosure of advice provided may strengthen the link between a director’s individual vote and his/her reputation, and thus further promote his/her independence.

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by Claudio Todesco