Conflicts of Interest and Governance Mechanisms in Italian Local Public Utilities

Abstract

Stemming from different theoretical perspectives the article examines the conflicts of interest arising among the actors (citizens, local governments, private shareholders, service providers) that at various levels are involved in local public utilities governance systems. The main results of a multiple case study analysis on 10 Italian listed local public utilities are summarized. Different and coexisting situations of conflicts of interest among multiple principals and agents are identified. In this context, governance mechanisms (e.g., the board of directors) have different roles and functions and may prevent and mitigate such conflicts. However, our findings suggest that the ownership structure influences board composition and functioning and that higher numbers of independent directors do not necessarily mean “actual” board independence. The article contributes to the debate on conflicts of interest and governance mechanisms in local public utilities.

Keywords:

• local public utilities
• conflicts of interest
• governance mechanisms
• board of directors
• independence

Notes

¹The Legislative Decree No. 267 of August 18, 2000, defines local public services having the aims to produce goods and activities in order to achieve social purposes and to promote the economic and social development of local communities.

²To solve this methodological problem we use information from the website to complement CVs information according to previous research.

³In some cases the participation in equity is held indirectly, through corporations controlled by local governments.

⁴In 2008 the Italian Legislator issued a Law (34/2008) in order to solve this problem and to limit the power of direct nomination by the public shareholder. However, this law is actually subject to various criticisms and the article does not catch its effects because the analysis is on 2008 data.

TABLE 3 The Board Composition

⁵Only those shareholders who, alone or together with other shareholders, represent at least 1.0 percent of the shares with voting rights at ordinary shareholders' meetings shall be entitled to present lists. Within each list, candidates must be ranked progressively. The list obtaining a majority of votes will elect a certain percentage of directors. The remaining directors will be drawn from the other lists.