Board Governance in Bank Foundations: The Italian Experience

130 Pages·2013·1.133 MB·English

by  Chiara Leardini, Gina Rossi, Sara Moggi (auth.)

Contributions to Management Science
Chiara Leardini
Gina Rossi
Sara Moggi
Board
Governance
in Bank
Foundations
The Italian Experience
Contributions to Management Science
For furthervolumes:
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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
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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