Corporate governance

Definition of corporate governance

According to Cadbury Code of 1992, the first Corporate Governance Code, “Corporate governance is the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place. The responsibilities of the board include setting the company’s strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship. The board’s actions are subject to laws, regulations, and the shareholders in general meeting”.

In general, the term, a U.S.-derived expression, refers, literally, to the governance of companies and, even more precisely, to companies in the form of corporations. These companies are characterized, in Italian law but indeed also in most legal systems, by the presence of different bodies having different functions. There tends to be a body that deals with the management of the company's business (the directors or board of directors), the shareholders' meeting, which is composed by the owners of the shares issued by the company, and a control body.

It is often believed that corporate governance concerns mainly large companies, but this is not the case.

The expression indicates, on the one hand, the set of rules, laws, and processes on the basis of which the proper management of the enterprise is ensured, on the other hand, the activity itself of administration and control of the corporation.

More precisely, therefore, the phenomenon is directed to regulate, on the one hand, the balance of power between the functions (and the bodies in charge) of administration and control, and on the other, the relations between shareholders. In this sense, the aim of corporate governance is to achieve a high degree of systematicity.

Again, corporate governance can be understood as an element of risk for investors, whose interests may not be protected in case of ineffectual or corrupt managers, and for employees, communities, lenders, suppliers, and costumers as well. And indeed, it is precisely corporate governance, with its rules and procedures, that must respond effectively and efficiently to a decisive challenge: "how to grant managers enormous discretionary power over the conduct of the business while holding them accountable for the use of that power".

It seems clear, at this point, the difficulty of identifying a unified definition of corporate governance, a concept that has indeed attracted the interest of multiple academics, even more so where its complexity is intended to be fully grasped by such a definition. Therefore, it seems useful to propose, briefly, several possible externalizations of it, which in turn are the manifestation of different points of view and interests.

• From an operational perspective: corporate governance concerns the actions of shareholders, the board of directors and management, and the control body.

• From a relational perspective: the governance structure implies a precise distribution of powers, duties and responsibilities among the different corporate bodies, identifies the rules underlying the decision-making processes and, consequently, the relationship between the parties involved.

• From financial and economic perspective: corporate governance concerns, also, the way in which shareholders obtain a return for their investment.

• From a societal perspective: governance also aimed at balancing economic and social goals, individual and collective interests.

The governance arrangement, in other words, must be functional in ensuring the efficient use of resources. In this sense, beyond, albeit important, ethical and philosophical reflections around the relationship between the individual, the state and the enterprise, there is to be noted an increasingly strong attempt to involve the instances of subjects outside the corporate apparatus and who are also bearers of interests related to business activity (so-called stakeholders), such as employees, consumers, suppliers and banks.

Lastly, it is possible to look at how “Corporate governance” is differently defined by the Corporate governance codes of different nations, as can be found on Global Corporate Governance Forum, Vol. I, Rationale.

Corporate governance in Italian legislation

A fundamental role, in the definition of such a vision, is to be found in the Reform of Company Law set forth in Italian Legislative Decree No. 6 of 2003, whose most salient features, with reference to the company's system of administration and control, can be described as follows.

• Strengthening of the powers of the directors, who are entrusted exclusively with the management of the company.

• Central role attributed to information and transparency, as the basis for the proper actions of the directors, also so as to trace their behavior and the decisions taken by them and assess their possible liability.

• Punctualization of the specific powers and duties in charge of the directors of the joint-stock company, regulating their management role in an innovative way, through a systematic articulation of its content and proceduralization of the techniques adopted.
• Attenuation of the dependence of the directors with respect to the majority in the shareholders' meeting, i.e., with respect to those shareholders who participate the company to a greater extent, who have appointed them and who retain the power to revoke them, or to bring a liability action against them.
• Elevation of the principles of proper administration as a general clause of conduct for directors.
• Importance of the system of internal controls as the essential core of corporate governance.
• Possibility of choosing among three different models of administration and control: the traditional, dualistic, and one-tier models.

From corporate governance to platform governance

So far, reference has been made to companies in a hierarchically structured corporate form, oriented toward achieving the corporate purpose stated by the shareholders and maximizing their profit, through the distribution of profits and the increase in the value of the shares.

However, it is interesting to draw attention to the ongoing development of new organizational forms, characterized by a horizontal and more democratic dimension, notably through the use, in the most diverse corporate functions, of new technologies (artificial intelligence and distributed ledgers).

The phenomenon, known as CorpTech (from a crasis, precisely, of the terms "corporate" and "technology"), is allegedly bringing about a deconstruction of the typical architectures of corporate governance, leading first to phenomena of so-called platform governance, and finally to community-driven governance. These organizations are managed through digital platforms, open to the community and marked by a decentralization of decision-making hubs.

For further details see "Platform governance".

References

• D. Corapi, Corporate governance, in Riv. dir. comm., 2019, pp. 1 ss.
• L. Enriques, D. Zetzsche, Corporate Technologies and the Tech Nirvana Fallacy, in Hastings Law Journal, 2020, p. 72.
• M. Fenwick, J. A. McCahery, E. P. M. Vermeulen, The End of “Corporate” Governance: Hello “Platform” Governance, in European Business Org. Law Review, 2019, pp. 171 ss., available at https://link.springer.com/article/10.1007/s40804-019-00137-z
• P. De Filippi, B. Loveluck, The invisible politics of Bitcoin: governance crisis of a decentralized infrastructure, in Journal of Internet Regulation, 2016, p. 2.
• R. A. G. Monks, N. Minow, Corporate governance, John Wiley & Sons, Ltd, England, 2008, pp. 3, 225.
• P. Montalenti, Amministrazione e controllo nella società per azioni: riflessioni sistematiche e proposte di riforma, in Rivista delle società., 2013, pp. 42 ss.
• B. Tricker, Corporate governance. Principles, Policies, and Practices, Second Edition, Oxford, 2012, pp. 29-31.