Corporate Law Reforms in Europe: The Two-Tier Model and the One-Tier Model of Corporate Governance in the Italian Reform of Corporate Law

Abstract

This paper explores the Italian reform of corporate governance of 2003, which, for the first time, allowed corporations to choose among three different models of governance in part inspired by foreign legal systems.

Italian corporations have three governance options. First, corporations may adopt the Italian traditional system of governance which has been modernized by the reform of corporate law. This model of governance is still the most influential and most commonly used in Italy. Besides the traditional model two other "alternative" systems of governance were created by the 2003 reform: the two-tier system and the one-tier system. The first model owes its basic structure to the German tradition, where the shareholders' meeting appoints a supervisory board, which then appoints a management board. In contrast, the one-tier model derives from the Anglo-American tradition. In this system the shareholders' meeting appoints the board of directors, which then appoints a number of directors to an audit committee entrusted with monitoring functions.

Taking into account the initial goals of the Italian legislator in designing the 2003 reform, we illustrate how the models have been implemented in Italian practice, and describe the initial predictions of their benefits and disadvantages. Then, we provide some empirical evidence of the practical consequences of the Italian reform of corporate governance three years after its enactment, and we investigate whether the predictions mentioned above were accurate.

Keywords: Corporate Law, Corporate Governance, Board Structure, Italy, European Community, European Union, EC Company Law, Comparative, Freedom of Contract, Regulatory Competition, Convergence, Two-Tier, One-Tier

JEL Classification: K22