Contributed By CMS Adonnino Ascoli & Cavasola Scamoni
The board of directors must be composed at least of two directors.
The board of directors must elect a chairman among its members, if the same has not been appointed by the shareholders/quotaholders upon the appointment of the board, and may also appoint a deputy chairman authorised to act in place of the chairman.
The bylaws contain specific rules on the power of legal representation of the company, establishing the individuals who may represent the company to third parties and the extent to which they may do so.
Usually, unless otherwise provided in the bylaws, the chairman of the board of directors (and the deputy chairman, if appointed) is the legal representative pro tempore of the company, while the other directors have the power to represent the company in respect of powers specifically delegated to them.
Under Italian law, there are no specific statutory requirements for the composition of the board of directors. For example, the directors may or may not be quotaholders/shareholders and there is no residency requirement.
That said, it is worth noting that the following individuals cannot be appointed as directors:
Under Italian law, in the case of SRLs, entities can also be appointed as directors provided that their legal representative(s) complies with all the requirements mentioned above. If so, the legal representatives are jointly liable with the entities for the violation of directors’ duties and obligations.
Specific requirements for the appointment of the directors may be set forth in the bylaws.
In the case of companies with publicly traded shares, there are a number of further requirements/rules that the company must take into account in the appointment of the directors, (including, for instance, gender quotas).
As a general rule, directors are appointed by the shareholders/quotaholders while the attorneys-in-fact (who are usually employees of the company) are appointed by directors.
In the case of SPAs (and also in the case of SRLs, if so provided in their bylaws), if one or more directors cease to hold office, then the other directors shall appoint a new director by way of co-optation (cooptazione), provided that the majority of the members of the board of directors is composed by members appointed by the shareholders/quotaholders. The directors so appointed shall stay in office until the next shareholders'/quotaholders' meeting.
In SPAs, the maximum term of the mandate for directors is three years. In SRLs directors can also appointed for either a fixed term or an indefinite term. In both cases (SPAs and SRLs), directors can be re-appointed at the expiry of their mandate.
The mandate to the directors might cease upon one of the following events:
With reference to resignation, directors may resign at any time with immediate effect upon informing the board (and the statutory auditors), as long as the majority of the members of the board of directors remain in office. Otherwise, such resignation shall be effective upon the reconstitution of the majority of the board.
Specific requirements for the independence of the directors may be set forth in the bylaws. In the case of companies with publicly traded shares, there are statutory requirements concerning the independence of directors.
As a general rule, the directors are responsible for damages arising from their breach of conflict of interest rules. In such a case, statutory auditors, external auditors and abstaining and absent directors can challenge any resolution taken by the board with a vote of directors in conflict, to the extent that the vote in conflict was essential to reach the needed quorum, and the company suffered damage as a result of the decision.
Pursuant to Article 2391 ICC, the directors are under the duty to disclose any interest they may have, personally or on behalf of third parties, in a specific transaction, specifying the nature, terms, origin and relevance thereof to the board of directors and to the board of statutory auditors and abstaining from taking any action in conflict (or, in case of a sole director, referring the decision to the board of statutory auditors).
If such action is taken, the board of directors must expressly state the reason and the benefit to the company of the transaction.
Directors of listed companies who fail to disclose conflict of interests may incur criminal liability in accordance with Article 2629-bis ICC.
In the case of SRLs, a court can be asked to declare contracts entered into by a director invalid to the extent that, in respect of such contracts:
In order to ensure that directors undertake their role appropriately, there are a number of duties that they must comply with. A failure to comply with these duties could demonstrate a breach of their responsibility for the management of the company.
Duty of care
Directors must perform their activities with a high standard of care and diligence, which depends on the nature of the office, their competence and the unique circumstances of each case, such as the kind of company, its size, the field of activity, the importance and conditions of the discussed operation and the timeframe available to make a decision.
Duty to pursue the company’s purpose
Directors must act in a way which they think is most likely to pursue the company’s purpose and promote the success of the company. This aim is deemed as pursued once the company has accomplished the corporate purpose as laid down in the bylaws.
Duty to inform and be informed
All directors are required to be informed about the day-to-day activities of the company and each director has the duty and the power to receive all relevant information of the company.
If appointed, managing directors must periodically inform the other directors and statutory auditors of the general development of the management, of its foreseeable evolution and of the most relevant operations (in terms of value or quality) including the company subsidiaries.
Duty to monitor
Even when some of these duties have been delegated to individual directors (or to an executive committee or to third parties), directors are jointly liable if they fail to supervise the general conduct of company affairs provided that, being aware of acts which could prejudice the company, they did not do what they could have to prevent their performance or to prevent or mitigate their harmful consequences.
Duty of confidentiality
Directors may be held responsible to the shareholders/quotaholders for damages arising from using and/or sharing business information learned during their time in office.
A very broad list of the duties of the directors specifically mentioned in the ICC would include compliance with:
Directors may incur in civil liability if they breach their own duties and obligations.
In particular, from a civil law perspective, each director is jointly and severally liable towards the company, the shareholders/quotaholders and third parties in general for damages resulting from directors’ breach of their statutory duties and obligations, unless such duties have been validly delegated to either a managing director, an executive committee or an attorney-in-fact.
In such circumstances (ie, valid delegation of authority), the directors might in any case be held jointly liable with the delegate if they have failed to supervise the general conduct of company affairs or if, being aware of acts which could prejudice the company, they did not do what they could have done to prevent their performance or to eliminate or reduce their harmful consequences.
As mentioned in 4.7 Responsibility/Accountability of Directors, above, the company, the shareholders/quotaholders and third parties can enforce a breach of directors’ duties and obligations and claim damages arising out of such breaches.
Directors may also incur criminal and administrative liability.
Specifically, administrative fines may be imposed on directors for several omissions, including, for instance:
In addition, directors may also be considered personally criminally liable for specific offences, eg, false company communications, corruption, unlawful transactions on quotas, unlawful distribution of profits and reserves, fraudulent bankruptcy, death or personal injury in lack of adoption of measures to protect safety at workplace, unlawful treatment of data or environmental pollution.
Criminal liability is assessed on a case-by-case basis by the Public Prosecutor, who relies on the company’s excerpts, organisational chart, board of directors’ minutes, legal documents and actual conduct of the parties involved.
As a general rule, the directors must be compensated for their office as directors. They can expressly or tacitly waive such right.
The remuneration payable to the directors can be fixed or variable (depending for example on the profit of the company) or mixed (partially fixed and partially variable). In addition, the directors must be reimbursed of the costs borne during the performance of their office.
The rules applicable to the remuneration, fees and benefits payable to officers are subject to HR regulation.
Specific rules are envisaged by the TUF concerning for instance stock option plans as well as the obligation for the company to disclose a report on the remuneration of the directors, pursuant to Article 123-ter TUF.
In this regard, the Corporate Governance Code issued by the Italian Stock Exchange states that the board of directors shall appoint a remuneration committee composed of (at least a majority of) independent directors, which shall periodically assess the adequacy of the policies for the remuneration of directors and statutory auditors and submit proposals and opinions to the board of directors.
There is no obligation to make any public disclosure of the remuneration payable to directors for their office.
As mentioned, the rules applicable to the remuneration, fees and benefits payable to officers are subject to HR regulation.