Board Evaluation

As of the CODE OF CORPORATE GOVERNANCE OF THE ITALIAN STOCK EXCHANGE

The Code is directly applicable only to listed companies but provides a best practice for all companies that want to have effective governance and want to create value within their organization.

Article 4 of the Code provides for the self-evaluation of the governing body by establishing as a principle that of periodic evaluation of the effectiveness of its activities and the contribution made by its individual components, through formalized procedures whose implementation it oversees.

Recommendations (19 - 23) of the Corporate Governance Code highlight the need to:

• Define and evaluate the size, composition, and actual functioning of the Board of Directors and its committees, also considering its role in defining strategies and monitoring management performance and the adequacy of the internal control and risk management system;
• Carry out the self-assessment at least every three years, in view of the renewal of the Board of Directors and in large companies, other than those with concentrated ownership, every year, considering the advisability of using an independent consultant;
• Prepare, at the time of renewal, guidance on the quantitative and qualitative composition deemed optimal, taking into account the outcomes of the self-assessment;
• Identify candidates in case of co-option;
• Submit a possible slate of candidates from the outgoing Board of Directors;
• Prepare, update and implement any succession plans for the CEO and executive directors.

The quantitative and qualitative composition of the board of directors in addition to its effective functioning and ability to define strategies as well as monitoring the management and adequacy of the internal control and risk management system turns out to be crucial for corporate governance to be considered the basis for the success of any type of corporate organization.

BANK OF ITALY GUIDELINES OF NOVEMBER 13, 2023

On November 13, Bank of Italy, published the "Guidelines" on the assessment of requirements and eligibility criteria for LSI bank officers and other financial intermediaries.

After three years since the issuance of Ministerial Decree No. 169/2020 (hereafter DM) and the subsequent Provision aimed at regulating the procedural aspects of audits of exponents, the Bank of Italy has paid constant attention to the adequacy of the assessment of the suitability of exponents carried out by supervised institutions. This collection of evidence and information has made it possible to outline a benchmarking framework that has uncovered some profiles for improvement.

The paper, in addition to highlighting the main critical issues found, identified 3 procedural practices and 5 guidelines related to the evaluation criteria of corporate officers that may represent good practices in application and in line with the expectations of the Supervision.

Supervised entities must take the necessary steps to overcome the findings and must adopt a specific internal policy, in support of the evaluation procedures, aimed at encouraging the alignment of guidelines in time for the identification of candidates to be proposed to the Assemblies, as early as 2024.

The Board Evaluation is a structured analysis regarding the functioning, size and composition of the Board of Directors (BOD) and the committees that comprise it and depend on it.

The Board Evaluation also considers the competencies, seniority of its members as well as its composition in terms of gender parity.

If carried out by an independent consultant, it allows for a better assessment of the Board's operations and decision-making process so as to provide useful elements for strategic interventions.

In addition to assessing the regulatory framework within which companies and corporate bodies operate, we consider:

• Skills and expertise: whether there is a depth and variety of skills and experience in the corporate body;
• Risk: whether the board has adequate risk management processes in place and complies with applicable regulations;
• Strategy: whether the strategic goal and direction of the board of directors are in line with the vision and culture of the company;
• Communication: the way the board communicates, both in terms of critical messages and in relation to business-as-usual issues;
• Processes: the effectiveness of various internal processes, including decision making and the conduct of meetings.

Our customized approach is based on a rigorous and independent assessment that consists of three steps:

Step one: document analysis to understand roles and responsibilities as well as organizational rules and modes;

Second phase: triangulation:
 

• Distribution of a questionnaire appropriately tailored to the relevant business reality to each board member to obtain information about their assessment on various topics of interest;
• Audit of council members' skills to determine areas of strength and development as well as training suggestions;
• Interviews with board members based on the questionnaire completed by each of them.

Third phase: reporting:

At the end of the process, we provide a summary of the assessments made in order to jointly develop an improvement plan for both the short and the medium to long-term.

Thanks to Board Evaluation, it is possible to:

• Assess the right size and skill mix;
• Constantly evaluate and improve the performance of corporate governance, the foundation of any organization's success;
• Demonstrate the organization's commitment to transparency, accountability and continuous improvement;
• Identify strengths and address challenges within the board;
• Improve decision making, for more informed strategic planning and better communication;
• Benchmark against best practices in corporate governance.