We interviewed Michele Casò a Dottore Commercialista, Revisore Legale and Certified Fraud Examiner at Studio Casò on the collegio sindacale and how accountants contribute to corporate governance in Italy.
Can you tell us about corporate governance in Italy?
Michele Casò (MC): In Italy, the traditional corporate governance set up is a unique horizontal system, in which a second board, the collegio sindacale, operates next to the board of directors. It checks that company decisions comply with the general law and the company’s bylaws, oversees the company’s internal control systems and the external audit. It is independent from the company’s board and works in the interest of the company and its creditors, including employees and suppliers. The collegio sindacale has broad powers, including to: convene the board of directors, run investigations or perform inspections.
How are accountants and auditors involved in the collegio sindacale?
MC: The collegio sindacale can only be made up of qualified auditors, chartered accountants, lawyers and employment-law experts. Accountants and auditors are essential because of their expert knowledge of internal controls and external audit. They come from a profession that respects due process and adheres to the legal obligations of the role. They also have a skill set that balances well with lawyers and legal experts.
What are your own experiences with a collegio sindacale?
MC: I have been appointed to the collegio sindacale of more than a dozen companies over the years. These have been in a variety of industries, from retail, advertising and publishing, to chemical, pharmaceutical and real estate. I have concluded that the board of directors was functioning properly, and the company was well managed. In fact, I found myself wondering more than once why the collegio sindacale needed such extensive oversight powers.
What made you change your mind?
MC: One experience, in particular, helped me understand why the collegio sindacale is so essential. I was a member of the collegio sindacale of a company that had just been taken over by an institutional investor. After two years of tensions, the director appointed by the minority shareholders became both Chairman and CEO of the company and pursued his own interests. Meanwhile, the financial situation of the company was rapidly deteriorating.
How did you react?
MC: At first, we decided to closely monitor the situation. We discovered that important decisions were being taken without due process and, in one instance, not in the interest of the company and its creditors.
The situation escalated. We decided to start using the ’special’ powers that the law gives the collegio sindacale. We convened a board of directors meeting, setting the agenda, which included an update of the current affairs of the company, forecasted results and expected cash-flow for the coming months.
We also explained to the directors that if they did not attend the meeting, we would ask the court for an independently appointed director to replace the Chairman-CEO. A semblance of normality returned.
Soon we heard about possible asset appropriations by the then Chairman-CEO. We started an independent investigation and convened a shareholders’ meeting to report on the preliminary outcome of the investigation.
We also asked for weekly reports to see if the company was still generating cash and was not insolvent. We held regular meetings and exchanged information with the external auditors. It was clear that the company was being run into the ground.
Our three-year term on the collegio sindacale expired and we could not see our role through. Although we had used the full extent of our powers to hold management accountable, the subsequent collegio sindacale was not as rigorous in its oversight. The mismanagement eventually led to bankruptcy.
What were your conclusions?
MC: The whole experience taught me the importance of corporate governance and its design. No model is perfect, but the traditional model of corporate governance in Italy has its merits as the collegio sindacale is a truly independent body, with very broad powers.
I also learnt the most important lesson that anyone, in any capacity, must always bear in mind: the tone-at-the-top is key to the proper functioning of any institution.