Independent directors and governance ratings: evidence from Italian listed companies

policymakers in several countries have turned their attention to independent directors and board diversity as important elements of legal and policy reform in the field of corporate governance. for example, in the united states, the new York stock exchange (nYse) listing standards require that independent directors constitute a board majority in domestic companies. in italy, the importance of independent directors, and of independent statutory auditors, has been established by law (article 147-terand article 148 of the legislative degree no. 58 of 24 february 1998) and by the corporate governance code (the “code”) for listed companies. according to the consob annual report on corporate governance, independent directors are quite widespread across companies (42.6% of total board members). as a consequence, italian listed companies’ boards are now much more diverse than they used to be (consob, 2013). furthermore, in recent years institutional investors have increasingly engaged in corporate governance activities and attached great importance to the role and quality of independent directors on the board. for all of these reasons, focus on the role played by independent directors within boards is increasing in studies on corporate governance. more recently studies on corporate governance also consider board diversity, i.e.the differences in board composition due to nationality, education, age and gender. simultaneously, a new stream of research deals with the usefulness of commercial corporate governance ratings. the corporate governance industry has been expanding rapidly during recent years, and according to rose (2007), in the Usmarket it influences the votes of trillions of dollars’ worth of equity and affects the governance policies and fortunes of thousands of companies through proxy voting recommendations and governance ratings. for this reason, firms such as governance metrics international (Gmi), institutional shareholder services (iss), and standard & poor’s (s&p) have created some corporate governance evaluation models. unfortunately, the italian listed companies covered by these ratings are very few. the Ftse ecpi italia sri index series is a specific index designed for the italian market by Ftse international limited (Ftse), wholly owned by the london stock exchange group. it was designed to create a family of benchmark and tradable sustainable and responsible indices (sri) for the italian market, tracking the performance of companies following leading environmental, social and governance (esG) practices. the aim of this paper is to test whether having independent directors and board diversity, which are variables attributable to corporate governance quality, though not considered in the Ftse ecpijudgment, (indirectly) have an impact on the judgment expressed by the ecpiin the Ftse ecpi italia sriBenchmark index. Based on the 2013 company’s report on corporate governance, we created a database which includes more than 100 italian listed companies belonging to different industries (financial and non-financial sectors), collecting several items of information on independent directors and board diversity referring to year-end 2012. the paper is organized as follows: section 2 presents a brief review of the main literature on the role of independent directors in corporate governance and board diversity; section 3 illustrates our data and methodology; section 4 shows the main results and section 5 concludes.