Board Governance in Bank Foundations: The Italian Experience PDF
Preview Board Governance in Bank Foundations: The Italian Experience
Contributions to Management Science Chiara Leardini Gina Rossi Sara Moggi Board Governance in Bank Foundations The Italian Experience Contributions to Management Science For furthervolumes: http://www.springer.com/series/1505 ThiSisaFMBlankPage Chiara Leardini (cid:129) Gina Rossi (cid:129) Sara Moggi Board Governance in Bank Foundations The Italian Experience ChiaraLeardini GinaRossi SaraMoggi UniversityofUdine UniversityofVerona Udine Verona Italy Italy ISSN1431-1941 ISSN2197-716X(electronic) ISBN978-3-642-41305-6 ISBN978-3-642-41306-3(eBook) DOI10.1007/978-3-642-41306-3 SpringerHeidelbergNewYorkDordrechtLondon LibraryofCongressControlNumber:2013958238 ©Springer-VerlagBerlinHeidelberg2013 Thisworkissubjecttocopyright.AllrightsarereservedbythePublisher,whetherthewholeorpart of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation,broadcasting,reproductiononmicrofilmsorinanyotherphysicalway,andtransmissionor informationstorageandretrieval,electronicadaptation,computersoftware,orbysimilarordissimilar methodologynowknownorhereafterdeveloped.Exemptedfromthislegalreservationarebriefexcerpts inconnectionwithreviewsorscholarlyanalysisormaterialsuppliedspecificallyforthepurposeofbeing enteredandexecutedonacomputersystem,forexclusiveusebythepurchaserofthework.Duplication ofthispublicationorpartsthereofispermittedonlyundertheprovisionsoftheCopyrightLawofthe Publisher’s location, in its current version, and permission for use must always be obtained from Springer.PermissionsforusemaybeobtainedthroughRightsLinkattheCopyrightClearanceCenter. 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Printedonacid-freepaper PhysicaisabrandofSpringer SpringerispartofSpringerScience+BusinessMedia(www.springer.com) Foreword Thebeginningofthenewmillenniumhaswitnessedadramaticsurgeinawareness of both the international research community and the public opinion about the crucialroleplayedbygovernancestructuresininfluencingthewelfareimpactofa variety of institutions, such as national states, local governments, public institu- tions, industrial and financial corporations, and—last but not least—nonprofit organizations(NPOs). This general awareness of the prominent role of governance has been sadly boosted by a number of scandals that have plagued the US and Europe in the last decades.Inthecorporatearena,thelonglistofgiganticfraudulentfailuresincludes prominent companies, such as Enron (2001), Worldcom (2002), Adelphia (2002), TycoInternational(2002),Parmalat(2003),and,morerecently,BernardMadoff’s InvestmentFund(2008).Allofthosecorporatescandalshadanabysmalimpacton the trust granted by investors, regulators, and the society at large to modern corporations and their business and accounting practices. Similarly, the financial crisis of 2007–2008 has contributed to uncover a number of sub-optimal gover- nance structures and practices of mortgage originators (mortgage banks and bro- kers),hedgefunds,investmentbanks,andcreditratingagencies—arguably,thelist of institutions could be much longer. The general worry about systematic gover- nance problems in different kind of institutions has motivated researchers to describe, investigate, and sometimes challenge status-quo governance structures. Thisnewstrandofresearchhasproducedanenormousandveryvaluableamountof resultsintheintersectionoflaw,economics,andfinance. Contributing to this fundamental and growing research area, my colleagues, ChiaraLeardini,GinaRossi,andSaraMoggi,focusintheirbookonthegovernance ofItalianbankfoundations,animportantandfascinatingtypeofNPOsdedicatedto asset management for the purposeof grant-making. In view ofboth their peculiar governance characteristics and their social and economic relevance, Italian bank foundations are definitely institutions worthwhile being studied. For example, the authorsshowthat,inspiteoftheirnonprofitstatus,severalItalianbankfoundations manage—forthepurposeofgrant-making—netassetswellinexcessofonebillion Euros. v vi Foreword Besides providing an extensive description of the legal origin and general characteristics of Italian bank foundations, the book offers an in-depth treatment of foundations’ main organs with their respective roles and responsibilities. In particular, the book presents and discusses an impressive number of empirical factsaboutthecompositionoftheBoardofTrustees,theBoardofDirectors,aswell as the local stakeholders that actually choose the Board of Trustees. Finally, an entire chapter of the book is dedicated to explaining the importance of strategic planning as a governance device for achieving the goals of NPOs in general and bankfoundationsinparticular. Therichsetofstatisticspresentedinthebookisveryinformativeandallmajor tables offer a brake-down of results by both geographic area and size. Besides showing and commenting key aggregate statistics in the two main areas of bank foundations’activities—assetmanagementandgrant-making—theauthorspresent anddiscussmini-casesandexamplesthatguidethereaderthroughanintriguingbut complexsetoftopicsaroundthegovernanceofsuchinstitutions.Inthisrespect,the book provides a very valuable and rigorous fact-based treatment of governance issues in Italian bank foundations that will likely attract the attention of an inter- national readership of academics, practitioners, and interested laymen. In fact, I expect this book to have a substantial impact on the related literature and to enable further studies on the specific causal links between governance structures andeconomicwelfaregeneratedbyItalianbankfoundations. Given the limited research attention dedicated so far to bank foundations, this book effectively fills an important research gap. It significantly contributes to the description and understanding of key elements in the governance of this specific typeofnonprofitinstitutions.However,totakefulladvantageoftheauthors’work, I encourage the attentive reader to think even beyond the rich set of legal and statutory rules, data, facts, and anecdotes presented in the book. For example, a comparison of governance structures of Italian bank foundations with analogous structures set in place by legislators in other countriesmay prove usefulin devel- oping new ideas about the causal relation between the governance of NPOs and theirsocio-economicoutput. Konstanz,November2013 Prof.,Dr.AxelKind ChairofCorporateFinance UniversityofKonstanz Contents 1 ItalianBankFoundationsandGovernance. . . . . . . . . . . . . . . . . . . . 1 1.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 AParticularKindofNonprofitOrganization. . . . . . . . . . . . . . . . . 2 1.3 GovernanceinBankFoundations. . . . . . . . . . . . . . . . . . . . . . . . . 4 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2 OutliningItalianBankFoundations. . . . . . . . . . . . . . . . . . . . . . . . . 9 2.1 WhentheOriginMakestheDifference. . . . . . . . . . . . . . . . . . . . . 9 2.1.1 TheOriginbyLaw. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.1.2 TheExclusivePurposeofPromotingSocialandEconomic Development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.1.3 AssetManagementforGrant-MakingActivity. . . . . . . . . . 11 2.2 SizeandGeographicDistribution. . . . . . . . . . . . . . . . . . . . . . . . . 14 2.3 Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 2.4 AreasandMannerofInterventioninGrant-MakingActivity. . . . . 19 2.4.1 SectorsofIntervention. . . . . . . . . . . . . . . . . . . . . . . . . . . 20 2.4.2 MannerofIntervention. . . . . . . . . . . . . . . . . . . . . . . . . . . 24 2.4.3 CollaborationwithOtherEntities. . . . . . . . . . . . . . . . . . . . 26 2.4.4 Beneficiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 3 GovernanceRolesandResponsibilities. . . . . . . . . . . . . . . . . . . . . . . 29 3.1 Participants,Roles,andResponsibilities. . . . . . . . . . . . . . . . . . . . 29 3.2 TheAssemblyoftheOriginalAssociates. . . . . . . . . . . . . . . . . . . 33 3.3 TheBoardofTrustees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 3.4 TheBoardofDirectors. . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . .. 38 3.5 TheAuditCommittee. . . . . . .. . . . . . . . .. . . . . . . .. . . . . . . .. . 40 3.6 GovernancePrinciplesWithintheCharteroftheFoundations. . . . 40 3.6.1 Autonomy,Independence,andCooperation. . . . . . . . . . . . 41 3.6.2 Responsibility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 3.6.3 RepresentativenessandIndependenceoftheBoards. . . . . . 44 vii viii Contents 3.6.4 AuthorityandCompetenceoftheBoards andTransparency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 3.6.5 TheOtherPrinciples. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 4 CompositionoftheBoards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 4.1 DefiningCompositionforGoodGovernance. . . . . . . . . . . . . . . . . 51 4.2 MultistakeholderGovernance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 4.2.1 WhoChoosesMembersoftheBoardofTrustees?. . . . . . . 55 4.2.2 ChoosingMechanismsoftheBoards. . . . . . . . . . . . . . . . . 60 4.3 MappingStakeholdersinGovernanceFoundations. . . . . . . . . . . . 61 4.3.1 LocalStakeholders’PowerofDesignationinBank FoundationsWithoutanAssembly. . . . . . . . . . . . . . . . . . . 62 4.3.2 LocalStakeholders’PowerofDesignationinBank FoundationwithanAssembly. . . . . . . . . . . . . . . . . . . . . . 63 4.4 IncompatibilityandConflictsofInterest. . . . . . . . . . . . . . . . . . . . 67 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 5 GovernanceandStrategicPlanning. . . . . . . . . . . . . . . . . . . . . . . . . 71 5.1 TheKeyRoleofStrategicPlanning. . . . . . . . . . . . . . . . . . . . . . . 71 5.2 WhatIsStrategicPlanning?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 5.3 WhoIsinChargeofStrategicPlanning?. . . . . . . . . . . . . . . . . . . . 75 5.4 HowIsStrategicPlanningFormalized?. . . . . . . . . . . . . . . . . . . . . 78 5.4.1 TheMultiannualPlanningDocument. . . . . . . . . . . . . . . . . 79 5.4.2 TheAnnualPlanningDocument. . . . . . . . . . . . . . . . . . . . 88 5.4.3 TheAnalyticalPlanforDeliberations. . .. . . . . . . . . . . .. . 92 5.5 StrategicPlanningandBoards’Responsibilities. . . . . . . . . . . . . . . 93 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 A.1 RelevantFinancialStatementItems(2012). . . . . . . . . . . . . . . . . . 97 A.2 RelevantFinancialStatementItems(2011). . . . . . . . . . . . . . . . . . 103 A.3 LocalStakeholderGroups. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 A.4 LocalStakeholdersCalledtoDefineMembersoftheBoard ofTrustees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 Chapter 1 Italian Bank Foundations and Governance 1.1 Introduction In the broader field of Italian nonprofit organizations, bank foundations have assumedsignificanceintermsofthesizesofboththeirassets(€42,183millionas ofDecember31,2012)andtheirgrants(€965.8millionasofthesamedate)(ACRI 2013).Theirnatureasnonprofitorganizationsderivesfromthelaw.Underthelaw, bankfoundationshavebeenchargedwiththeexclusivepurposeofpromotingsocial andeconomicdevelopmentinaterritory,beyondaprofit-makingintent. Their emergence implies the need to better understand the identity of these organizations that implement a principle of horizontal subsidiarity, cooperating with public and private entities especially in the fields of art, culture, health, and social assistance. The study of Italian bank foundations can contribute to the resolutionofsomeofthemainchallengesfacingnonprofitorganizations. Bank foundations belong to the broader typology of foundations, defined as nonprofit groups with their own income and governing boards that use their financialresourcesforpublicbenefit(EuropeanFoundationCentre2003,2005). Withinthenonprofitsector,foundationshavesomefunctionsthataretypicalof nonprofit organizations, such as a serving as a substitute for the state’s functions andredistributingprimarilyeconomicresources.Alongwiththesemoretraditional aspects,theuniquepresenceofincomethatisself-supportedbyassets,asystemof self-governance, and donor control allows foundations to play a key role in pro- motinginnovationandsocialdevelopment(Andrews1956;Anheier2005). Although foundations are important to the nonprofit sector, few studies specif- ically consider their governance (De Andre´s-Alonso et al. 2009). So that founda- tions do not remain “black boxes” (Diaz 1996), a thorough examination of their governancemechanismsisnecessary.Someauthors(Drucker1990;Anheier2005) havehighlightedthenotionthatfoundations,likeanyothernonprofitorganization, haveagreaterneedforgoodgovernancethandofor-profitorganizations. The presence of different components (Handy 1990), practices, objectives, motivations,andpreferencesthatmustbebroughttogetherthroughthegovernance C.Leardinietal.,BoardGovernanceinBankFoundations,Contributions 1 toManagementScience,DOI10.1007/978-3-642-41306-3_1, ©Springer-VerlagBerlinHeidelberg2013
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