The term “Corporate Governance” includes a set of rules and relationships, tools, processes and systems that aim to manage an organization correctly.
Corporate Governance was created to express the rules according to which corporate decisions are made, both in terms of processes and the definition of the means to achieve goals. It also includes all the tools necessary to measure the results.
Corporate Governance is typically adopted by joint-stock companies and can refer to three different models, which the organization will choose according to its characteristics and needs.
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The three Corporate Governance models for joint-stock companies
Before going into the specifics, it’s crucial to remember that joint-stock companies are legal forms taken by medium/large-sized organizations to operate a productive business jointly.
They are characterized by complete patrimonial autonomy, which means that only the company responds to the corporate obligations with its assets. At the same time, the responsibility of the individual shareholders is only limited to the capital conferred and does not intrude on the personal sphere (except for some specific cases).
Joint-stock companies fall into the following types:
- Joint-stock company: SpA
- Partnership limited by shares: Sapa
- Limited Liability Company: Srl
- Simplified Limited Liability Company: Srls
The three Corporate Governance models to which these organizations may refer are explained in the next section of the article.
The ordinary model/system
The ordinary system is a typically Italian model applied in the absence of a different statutory choice. This Corporate Governance system involves the presence of a Board of Directors, be it a Board or a Sole Director, and a Control Body (called the Board of Statutory Auditors).
The latter may exercise management control and accounting control if the bylaws expressly provide for this task – and only if the auditors are part of the Register of the Auditors.
On the other hand, if the bylaws do not explicitly attribute this function to the Board of Statutory Auditors or the conditions under which the function can be exercised do not occur, the board will only exercise the control of legality. In this case, an external auditor will be entrusted with the accounting control.
The dualistic model/system
The dualistic system (two-tiered) is a traditionally German model that divides the company’s administration between a Management Board and a Supervisory Board. It can be adopted with a specific statutory indication as an alternative to the other two Corporate Governance systems.
In this system, the Supervisory Board will be entrusted with specific tasks which, in the ordinary model, would instead be the exclusive prerogative of the assembly. The best-known example is the approval of the financial statements.
At the same time, the Supervisory Board must also appoint the Management Board, which is responsible for the company’s management. The accounting control will always be entrusted to an external body (as it happens within the ordinary system), such as an auditor or a company assigned to this specific task.
The monistic model/system
The monistic model (one-tiered) is an Anglo-Saxon-style Corporate Governance system that involves the company’s management delegated to a unitary body (the Board of Directors), within which a special Control Committee is designated.
Like the dualistic system, this model is an alternative to the other two and can be adopted by all companies through a specific statutory provision.
Again, the audit will be mandatorily entrusted to an external body, such as an auditor or an auditing firm.
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How to choose the most suitable Corporate Governance model
As previously mentioned, the company can choose between these three Corporate Governance models according to what best suits its corporate structure or is considered more easily applicable in a particular context.
The choice will be entrusted to the extraordinary assembly and must be included in the deed of incorporation. On the other hand, there will be no possibility of delegating this matter to the administrative body.
The possible “in progress” changes in the management model may also occur subsequent to the organization’s establishment. However, they will only take effect from the date of the meeting related to the approval of the following financial statement after the one related to the modification’s approval.
The main differences between the Corporate Governance systems
In general terms, the ordinary Corporate Governance model is considered the most geared toward defending civil liberties. That is because it provides a clear separation between control and administration, whose appointed bodies are elected separately by the shareholders’ assembly.
On the other hand, the dualistic system requires the shareholders only to establish the guidelines of the company’s financial program and to take charge of the most critical decisions, such as extraordinary and capital transactions and the appointment of the supervisory board. These peculiarities make this model ideal for organizations whose management is entrusted to self-employed managers and whose shareholders’ interference is limited.
Finally, the monistic model has a flexible and simplified structure compared to the other two Corporate Governance systems and tends to favor the circulation of data and information between the control and administrative bodies. This makes this system suitable for companies that need significant savings of time and financial resources.
Stella Law Firm is at your disposal to help you identify the most suitable Corporate Governance model for your joint-stock company: get in touch with our specialists to book an appointment.