Document

EALE 2007: “Corporate Law and Economics and Corporate
Governance”. Copenhagen Business School (CBS) 13 September 2007
“Who cares about director
independence?”
Independent directors and company disclosure:
the case of Italy in 2003
P. Santella, C. Drago, G. Paone
The paper is available free of charge
on IDEAS:
http://ideas.repec.org/p/pra/mprapa/2288.html
and SSRN:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=971189
Data and methodology
 Data are collected for 40 companies making the S&P MIB
index in 2003: 284 independent directors (101 belong to not
financial companies and 183 from financial companies)
 Two sets of independence criteria (EC and Preda) and 12
single criteria considered (7 EC and 5 Preda)
 Every rate for each criterion is assigned (“from the investor
point of view”) using three different qualitative outcomes:
“yes” compliance, “no” not compliance “ns” not disclosure.
 We derive from the initial data the adjacency matrices of
cross-directorships and dual directorships.
 Free float data (to study the relationships between free float
and global rates) source: Consob
Independent directors
and company disclosure
in Italy
P.Santella, C.Drago, G.Paone
2
By single criteria
By set of criteria (Preda and EC)
Exploratory data analysis: general
compliance
Company level
Company profiles
Ranking
Ranking
Scores
Scores
Global rates by company
Single criteria by company
Network level
Network structure
Independent directors
and company disclosure
in Italy
P.Santella, C.Drago, G.Paone
Network analysis
3
EC Global rates by company
“Ns” rates (yellow)
Highest compliance
and highest
disclosure: 80 Fiat,
78.57 Enel and
76.79 Finmeccanica
These companies are characterised by
an higher level of compliance and
disclosure (lower ns rates) but not
always lower levels of not compliance
EC criteria: Companies that show higher
Independent directors
compliance
are Fiat, Enel, Finmeccanica.
and company disclosure
Such companies
also show higher free floatP.Santella, C.Drago, G.Paone
in Italy
“No” rates (red)
“Yes” rates (blue)
4
These two groups of
companies are
characterised by
different data
structures (higher
compliance and
disclosure versus
lower not
compliance and
lower disclosure)
by considering the
median level (60%)
as global
compliance rates we
can build two visual
groups.
Independent
The situation
doesdirectors
not change much for Preda criteria. Similar companies
and company disclosure
on topinofItaly
the ranking (Enel, Fiat and ENI), for
which also
we observe
high
P.Santella,
C.Drago,
G.Paone
levels of not compliance but also high levels of disclosure
5
ns
fam
yesns
ns
0
1
professional qualification
shares owned
ec business relationships
1
0
1
yes
ns
0
ec.bus
1
yes
0
no
financial
no
financial
sha
ns
no
1
financial
yes
pro
family ties
yes
0
no
1
oth
0
other committments
yes
bus
no
bus relationships
financial
Independentfinancial
directors
and company disclosure
in Italy
financial
permanence on the board
cross-directorships
financial
0
1
yes
no
1
ec.cro
nsno
0
yes
ec.per
nsno
1
yes
ec.add
additional remuneration
0
financial
Lower compliance for three key criteria:
other commitments and business
relationships
financial
Mosaic plots: counts by rate are proportional
P.Santella, C.Drago, G.Paone
6 to
length (of the split rectangle fin\not fin)
0
other committments
1
0
1
oth
yes ns
ns
yes
bus
no
no
business relationships
financial
financial
1
ns
0
yes
ec.bus
no
ec business relationships
Independent directors financial
and company disclosure
in Italy
P.Santella, C.Drago, G.Paone
7
family ties
pro
yes
fam
0
1
yes
nsno
1
ns
0
professional qualification
financial
financial
0
1
yes
sha
no
shares owned
Independent directors financial
and company disclosure
in Italy
P.Santella, C.Drago, G.Paone
8
In general higher compliance and
compliance and disclosure:
comparative boxlots preda\ec
disclosure for not financial companies
either for preda and ec
0
1
60
40
20
0
0
20
40
60
80
1
80
0
ec_yes
ec_no
pr_yes
ec_ns
Independent directors
and company disclosure
in Italy
Graphs by financial
pr_no
pr_ns
Graphs by financial
P.Santella, C.Drago, G.Paone
9
EC Company global rankings: corporate profiles
Assicurazioni Generali
Alleanza Assicurazioni
Autostrade
Autogrill
Banca Antonveneta
Benetton
nco Popolare di Verona e Novara
Bulgari
RAS
Banca Intesa
Capitalia
Seat Pagine Gialle
San Paolo IMI
Enel
Mediolanum
Mediobanca
STMicroelectronics
Snam Rete Gas
Fiat
ENI
Mediaset
Luxottica
Banche Popolari Unite
Banca Popolare di Milano
Edison
Italcementi
Gruppo Editoriale l'Espresso
RCS Mediagroup
Banca Monte dei Paschi di Siena
E.Biscom (Fastw eb)
BNL
Fondiaria SAI
Finmeccanica
Banca Fideuram
Mondadori
Telecom Italia Mobile
Telecom Italia
Independent
directors Each star represents a
ec.no
Star plot
of global rankings:
and company disclosure
company.
Every rank of global rate is proportional
to the
P.Santella,
C.Drago, G.Paone
in Italy
length of the ray.
Pirelli & Co
ec.yes
ec.ns
Unicredito
Tiscali
10
Company global rankings: corporate profiles
Higher free float companies: strong
“environmental pressure” on higher
disclosure (and higher compliance)
Cooperative banks: higher not
compliance and lower compliance for
EC criteria
Assicurazioni
Generali
Autostrade
Alleanza Assicurazioni
Autogrill
Banca Antonveneta
Benetton
Bulgari
nco Popolare di Verona e Novara
RAS
Banca Intesa
Capitalia
Luxottica
Seat Pagine Gialle
San Paolo IMI
Enel
Mediolanum
Mediobanca
STMicroelectronics
Snam Rete Gas
Pirelli & Co
Mondadori
Telecom Italia Mobile
Telecom Italia
ec.no
ec.ns
Independent directors
and company disclosure
in Italy
Fiat
ENI
Mediaset
Gruppo Editoriale l'Espresso
Banche Popolari Unite
Banca Popolare di Milano
Edison
Italcementi
RCS Mediagroup
Banca Monte dei Paschi di Siena
E.Biscom (Fastw eb)
BNL
Fondiaria SAI
Finmeccanica
Banca Fideuram
pr.yes
P.Santella, C.Drago, G.Paone
Unicredito
Tiscali
ec.yes
pr.ns
pr.no
11
Company rankings by independence criteria: corporate profiles
Higher free float companies: higher
compliance but known lower
performances in relational criteria
Assicurazioni Generali
Alleanza Assicurazioni
Autostrade
Autogrill
Banca Antonveneta
Benetton
nco Popolare di Verona e Novara
Bulgari
RAS
Banca Intesa
Capitalia
Seat Pagine Gialle
Fiat
ENI
Mediolanum
Pirelli & Co
Mediobanca
STMicroelectronics
Snam Rete Gas
Mondatori
Telecom Italia Mobile
Telecomfam
Italia
sha
pro
bus
Independent
oth
Star plot
of rankingdirectors
by criteria: Each star represents a
per
and company disclosure
ec.bus
company.
Every
rank
of
criteria
is
proportional
to
the
length
of
P.Santella, C.Drago, G.Paone
in Italy
add cro
the ray.
San Paolo IMI
Enel
Mediaset
Luxottica
Banche Popolari Unite
Banca Popolare di Milano
Edison
Italcementi
Gruppo Editoriale l'Espresso
RCS Mediagroup
Banca Monte dei Paschi di Siena
E.Biscom (Fastw eb)
BNL
Fondiaria SAI
Finmeccanica
Banca Fideuram
Unicredito
Tiscali
Cooperative banks:
lower performance on
12
EC criteria
0.60 (0.27)
Unicredito
Fineco
RCS
0.57 (0)
Telecom Italia
0.74 (0.20)
Milano
Assicurazioni
Capitalia
RAS
Mediobanca
0.61 (0.25)
E-Biscom
0.54 (0.20)
0.52 (0.17)
0.71 (0)
Fondiaria SAI
0.60 (0.30)
0.47 (0.21)
Cattolica Assicurazioni
BPVN
Meliorbanca
Crossdirectorships:
financial
companies
form the
centre of the
network; not
financial
companies are
the periphery.
Pirelli
0.63 (0.29)
Banca Fideuram
Credito Bergamasco
Camfin
0.57 (0)
San Paolo IMI
BNL
0.40 (0.25)
Tod's
0.51 (0.09)
Alleanza
Assicurazioni
Cassa di
Risparmio di
Firenze
Banca Intesa
0.65 (0)
0.48 (0.22)
MPS
Unipol
0.60 (0.19)
Banche popolari
Unite
Italcementi
0.45 (0.17)
0.48 (0.10)
Independent directors
Espresso
and company disclosure
in Italy
0.40 (0.17)
CIR
P.Santella, C.Drago, G.Paone
In the box the EC compliance rate
and in brackets the incidence of
cross-directorships on total number
of independent directors
13
1 (0.14)
Pirelli
2 (0.33)
1 (0.50)
Italcementi
E-Biscom
4 (0.33)
RAS
Eni
Banche Popolari Unite
Unicredito
4 (0.20)
5 (0.33)
Enel
1 (0.17)
3 (0.43)
Autogrill
Mediobanca
1 (0.25)
1 (0.20)
Luxottica
1 (0.33)
3 (1.00)
RCS
Telecom Italia
Autostrade
Assicurazioni Generali
2 (0.40)
4 (0.31)
Benetton
STML
2 (0.50)
Tim
Mondadori
1 (0.33)
Dual directorships:
1 (0.20)
1 (0.14)
1 (0.33)
Enlarged network size but
similar structure
Banca Intesa
1 (0.14)
Finmeccanica
Fondiaria SAI
1 (0.13)
Independent directors
and company disclosure
Alleanza
in Italy
Assicurazioni
Mediolanum
1 (0.10)
Banco Popolare Verona e
Novara
1 (0.11)
P.Santella, C.Drago,
G.Paone
1 (0.05)
Mediaset
1 (0.33)
1 (0.25)
In the box the number of
directors involved and in
brackets the incidence of dual
14
directorships on the total
0.60
Luxottica
0.61
Autogrilll
0.71
0.53
Italcementi
0.49
0.60
Unicredito
Telecom
Italia
RCS
Enel
0.76
Banche Popolari Unite
0.54
Mediobanca
0.60
E-Biscom
0.66
Fondiaria SAI
Fineco
0.46
Capitalia
0.60
RAS
0.47
Milano Assicurazioni
Meliorbanca
Pirelli
0.63
Assicurazioni Generali
Banco Popolare Verona e
Novara
0.62
Camfin
Autostrade
0.55
0.66
Benetton
0.41
STML
Cattolica Assicurazioni
Credito Bergamasco
0.47
0.72
Eni
Finmeccanica
Tim
0.72
0.66
Mondadori
Mediolanum
Mediaset
0.49
Alleanza Assicurazioni
0.62
0.44
Banca Intesa
Banca
Fideuram
Cassa di Risparmio di
Firenze
CIR
Independent directors
and company disclosure
in Italy
0.40
Espresso
San Paolo IMI
MPS
0.59
Unipol
0.66
0.59
0.63
0.41
In the box the average
company compliance for
EC and Preda
Dual and cross
directorships networks:
The position defines the
quality of compliance.
Higher compliance for
peripherical
(and higher
P.Santella, C.Drago,
G.Paone
free float) companies
BNL
0.44
15
Tod’s
Alleanza Assicurazioni Assicurazioni Generali
Banca Intesa
Autogrill
BNL
Fondiaria SAI Gruppo Editoriale l'Espresso
Pirelli & Co
Banca Antonveneta
Banca Fideuram
Benetton
Bulgari
Higher free float companies tend to have
a very low incidence of crossdirectorships
Banca Monte dei Paschi
Banca Popolare di MilanoBanche Popolari UniteBanco Popolare di V.e N.
Cross-directorship links tend to be
associated also with other links and the
number of independent directors in these
cases
is lower (higher
incidence) ENI
Capitalia
E.Biscom (Fastweb)
Mondadori
Autostrade
Edison
Enel
Fiat
Finmeccanica
Italcementi
Luxottica
Mediaset
Mediobanca
Mediolanum
RAS
RCS Mediagroup
STMicroelectronics
San Paolo IMI
Seat Pagine Gialle
0 .2 .4 .6 .8 1
Snam Rete Gas
0 .2 .4 .6 .8 1
Telecom Italia
0 .2 .4 .6 .8 1
Independent directors
Graphs
by Company
and company
disclosure
in Italy
Telecom Italia Mobile
0 .2 .4 .6 .8 1
Tiscali
0 .2 .4 .6 .8 1
Unicredito
0 .2 .4 .6 .8 1
P.Santella, C.Drago, G.Paone
0 .2 .4 .6 .8 1
Cross-directorships
incidence (red) Dualdirectorships incidence
(blue) Cross and Dual
incidence considered
together (green)
16
Similar data structure for the
two sets of criteria (companies
that perform better in EC tend
to perform better also in Preda)
Independent directors
and company disclosure
in Italy
Positive linear association
between free float and
compliance for not financial
companies. The same data
structure does not hold for
financial companies
Horizontal and vertical red lines
indicate the median for
compliance rates (y axis) and
free float (x axis). The 1- labels
represent the partecipation to a
cross-directorship network.
P.Santella, C.Drago, G.Paone
17
Independent directors
and company disclosure
in Italy
Higher disclosure for not
financial companies (only those
characterised by higher free
float); lower disclosure for not
financial C.Drago,
companies
part of the
P.Santella,
G.Paone
networks.
18
Conclusion
A) General low level of compliance for both financial and not-financial
companies.
B) In particular, not-financial companies with more fragmented shareholder
base show higher compliance rates (responsiveness to market pressure).
C) Financial companies:
- show an even lower level of compliance;
- are connected through cross-directorship networks;
- tend not to show higher compliance the more fragmented their
shareholder base (poor responsiveness to market pressure)
D) Financial and not-financial companies are connected through dualdirectorship networks.
Independent directors
and company disclosure
in Italy
P.Santella, C.Drago, G.Paone
19