Bank of Italy From the SelectedWorks of Paolo Santella
Spring May 11, 2007
WHO CARES ABOUT DIRECTOR INDEPENDENCE? PRESENTATION (PDF FORMAT) Paolo Santella Carlo Drago Giulia Paone
Available at: http://works.bepress.com/paolo_santella/42/
Seminar I-Com on Corporate Governance I-Com Istituto per la Competitività, Rome 11 May 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
“No” rates (red)
“Yes” rates (blue)
EC criteria: Companies that show higher Independent directors compliance are Fiat, Enel, Finmeccanica. and company disclosure Such in companies also show higher free floatP.Santella, C.Drago, G.Paone Italy
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 directorsfinancial 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 directorsfinancial 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
60 0
20
40
60 40 20 0
ec_yes ec_ns Independent directors and company disclosure in Italy
Graphs by fi nancial
1
80
1
80
0
ec_no
pr_yes pr_ns
pr_no
Graphs by fi nancial
P.Santella, C.Drago, G.Paone
9
EC Company global rankings: corporate profiles
Assicurazioni Generali
Autostrade
Autogrill
Alleanza Assicurazioni
Banca Antonveneta
Benetton Popolare di Verona e Novara
Bulgari
RAS
Banca Intesa
Capitalia
Seat Pagine Gialle San Paolo IMI
Enel
Fiat ENI
Mediaset Luxottica
Mediolanum Mediobanca
STMicroelectronics
SnamRete Gas
Banche Popolari Unite
Banca Popolare di Milano
Edison
Italcementi
Gruppo Editoriale l'Espresso
RCS Mediagroup
Banca Monte dei Paschi di Siena
E.Biscom(Fastweb)
BNL
Fondiaria SAI Finmeccanica
Banca Fideuram
Mondadori
TelecomItalia Mobile
TelecomItalia
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 C.Drago, G.Paone P.Santella, in Italy the 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 Popolare di Verona e Novara
Bulgari
RAS
Banca Intesa
Capitalia
Luxottica
Seat Pagine Gialle San Paolo IMI
Enel
Mediolanum Mediobanca
STMicroelectronics
SnamRete Gas
Pirelli & Co Mondadori
TelecomItalia Mobile
TelecomItalia 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(Fastweb)
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
Autostrade
Autogrill
Alleanza Assicurazioni
Banca Antonveneta
Benetton Popolare di Verona e Novara
Bulgari
RAS
Banca Intesa
Capitalia
Seat Pagine Gialle
Fiat ENI
Mediolanum
Pirelli & Co
Mediobanca
STMicroelectronics
SnamRete Gas
Mondatori
TelecomItalia 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(Fastweb)
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
0.63 (0.29)
Banca Fideuram
Credito Bergamasco
Crossdirectorships: financial companies form the centre of the network; not financial companies are the periphery.
Pirelli
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 Mediobanca
0.54
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
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
Alleanza Assicurazioni
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
Aut ogrill
Autost rade
BNL
BancaMonte dei PaschiBanca Popolare di MilanoBanchePopolari Unit eBancoPopolare 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 E.(higher incidence) ENI Capitalia Biscom (Fastweb)
Fondiaria SAI Gruppo Editorialel'Espresso
Mondadori
Pirel li & Co
Banca Antonveneta
Banca Fideuram
Benett on
Bulgari
Higher free float companies tend to have a very low incidence of crossdirectorships
Edison
Enel
Fiat
Finmeccanica
Ital cementi
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
0
Telecom Italia
Telecom It alia Mobile
.2 .4 .6 .8
0 .2 .4 . 6 . 8 1
Independent directors Graphs by Company and company disclosure in Italy
1
Tiscali
0 .2
.4 . 6
Unicredit o
.8
1
0
.2 .4 .6 .8
P.Santella, C.Drago, G.Paone
1
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
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