1

Fumbling Foundations?

The case of the Fondazione di Origine Bancaria in Italy

Jacopo Crivellaro

The Fondazione di Origine Bancaria1 is a legal construct established by the Amato Law of 1990

2 in

the context of the privatization and de-specialisation of the Italian banking industry. The 1990 Law

modernized the structure of banking institutions introducing the joint stock model and vesting bank

shares in the fondazione. In essence, traditional state-controlled banking institutions were hived off

into a joint stock company which would assume responsibility for banking operations and a

fondazione which owned and managed the shares and pursued philanthropic goals.

In the subsequent twenty years numerous legislative amendments sought to recalibrate the role of the

fondazione within the Italian economy.3 However, a series of structural conflicts have hindered its

development as an innovative financial entity, or alternatively, as the primary non-profit actor within

the Italian society. Moreover, the recent financial crisis has heightened concerns for the fondazione’s

atypical role within the banking industry.

This article will survey the role of the fondazione as the primary institutional investor within the

Italian capital markets, as a stabilizing force counterbalancing the unprecedented expansion of the

Italian banks, and as an innovative model of corporate governance because of its dual purpose as a

significant shareholder and philanthropic investor.

The Development of the Fondazione

By the late 1980s Italian banks were still operating under predominant government control. 4 Banking

regulation hampered the geographic and sectorial expansion of banks and was premised on the 1936-

1 Literally in English: foundation of banking origin. The term “ente conferente” rather than fondazione is used in

the earlier statutes. 2 Law No. 218 of 30/07/1990 and Legislative Decrees No. 356 of 20/11/1990.

3 A list of the relevant amendments is provided in the judgment of the Corte Costituzionale N.300 of

29/09/2009. 4 S. La Francesca, Storia del sistema Bancario Italiano, (Il Mulino, 2004) 249 ff; Banca d’Italia, Relazione

annuale 1998 – Considerazioni finali del Governatore, (1999) 18.

2

38 Banking Laws promulgated under the Fascist notion of a corporativist state.5 It was the demand for

greater privatization from European and domestic actors which prompted the 1990 Law6 – and led to

the introduction of the fondazioni – almost, by ‘chance.’7

Legislative Framework and Development

The 1990 law split banking institutions into two separate legal entities: a societa’ per azioni

conferitarie (banking entity) and the ente conferente (the fondazione).8 An important bond was

created between the vesting bank and the vested fondazione as the latter was obligated to administer

the shares of the bank. Concurrently, the fondazione was endowed with a philanthropic mission –

embedded in a legal obligation to invest its assets for the pursuit of social welfare.9

While the fondazioni were vested with significant shareholdings, and despite having a duty to

adequately invest the generated profits for philanthropic purposes, fondazioni were prevented from

actively pursuing banking operations.10

A series of generous accounting policies which favoured the appraisal of shares held by the

fondazioni was introduced. While encouraging the formation of new fondazioni, this had the indirect

5 Legge Bancaria, 17/03/1936 N.375 and 07/04/1938 N.636. See generally, F. Gorgianni & C.M. Tardivo,

Diritto Bancario: Banche, Contratti e Titoli Bancari (Giuffre’, 2006); F. Belli, Legislazione bancaria italiana

(1861 - 2003), (Giappichelli, 2004) 183 ff. 6 Merusi, Trasformazioni della banca pubblica, (Bologna, 1985) 58; Banca d’Italia, Ordinamento degli Enti

Pubblici Creditizi. L’azione del modello societa’ per azioni, (Bollettino, Dec-Jan 1981) 416; R. Farina,

Dall’ente pubblico creditizio alla societa’ per azioni, (Jovene, 1993) 3. 7 It was by chance as there had been no particular legislative interest in the fondazioni prior to 1990. B.

Andreatta, La corporate governance per le fondazioni bancarie e per i soggetti che svolgono attivita’ con

finalita’ no profit, in Corporate Governance Forum 1999, (Arel ed., 2000). Once state-banks had been

transformed into joint-stock companies, fondazioni were identified as an ideal solution to avoid bank shares

being issued in the capital markets. M. Clarich & A. Pisaneschi, Le Fondazioni Bancarie: Dalla Holding

Creditizia all’ente non-profit, (Il Mulino, 2001), 39; G. Guzzetti, Speech at the X Giornata della Fondazione,

Fondazioni: Eredi di Comunita’, Figlie del Parlamento, (ACRI, 10.06.2010), 23; G. Amato, Fondazioni: Eredi

di Comunita’, 35. 8 According to Mr Ciampi, the Amato law rescinded the two “souls” of the banking institution, C.A. Ciampi,

Fondazioni: Eredi di Comunita’, 12. The former Governor of the Banca d’Italia and President of Italy was

referring to the Casse di Risparmio, Banche del Monte and Istituti di Credito di Diritto Pubblico which prior to

the 1990 Amato Law had operated both the philanthropic and banking functions of the modern fondazione. 9 Ideally, this would have ensured that the privatization of the banking sector would not overlook the traditional

societal function performed by the Casse di Risparmio. Cesarini, Osservazioni in merito alla dimissione del

controllo della banca conferitaria, in Banca impresa societa’, 1999, p.480. The legislature was also intending to

de-politicize the banking structure. Thus, the fondazioni were meant to become a buffer between the privatized

banks and the political parties. G. Amato, Fondazioni: Eredi di Comunita’, 34. 10

Article 12, Leg. Dec. N. 356. The law determined that a fondazione could not “undertake banking activities”

(esercizio dell’attivita’ bancaria), but could only administer its shareholdings in the joint stock company

(amministrare la partecipazione nella societa’ per azioni). Clarich & Pisanesi, 47; Gentili, Enti conferenti e

gestione della partecipazione bancaria, in Diritto della banca e del Mercato Finanziario, (1994) 2; P. Ferrari,

La Gestione del Patrimonio delle Fondazioni Bancarie Italiane, Studi e Note di Economie (4, 2000) 6.Given

that bank dividends constituted the larger part of a fondazione’s revenue, how could the fondazioni assume a

passive role with regards to their most important investment?

3

effect of limiting the appeal for minority shareholders in banks.11

Consequently, these initial reforms

made the fondazioni “rich” (at least in book value) but left the banks both poorly financed and

underpriced.12

On its face, the 1990 Law substantially reassembled the Italian banking system. In practice, political

opposition impeded a complete privatization and this was conveniently done by requiring the

fondazioni to retain the majority ownership of their respective vesting Bank. 13

The September 1992

currency crisis prompted calls for a stronger privatization 14

and denounced the banking reform as a

false privatization (falsa privatizzazione).15

Moreover, competition and pressure from the European

Union through the Second Banking Directive16

induced even the Banca d’Italia to advocate further

reform.17

The Dini Law was passed in 199418

eliminating the majority ownership requirement and incentivizing

divestiture of bank shareholdings through substantial fiscal benefits.19

Without expressly compelling

divestiture (which would have raised constitutional concerns)20

a Directive of the Minister of

Economy and Finance was issued requiring greater portfolio diversification for fondazioni. This was

intended to indirectly compel fondazioni to divest themselves of controlling stakes.21

11

P. Mottura, Assetti proprietari del sistema creditizio, fondazioni bancarie e privtaizzazione in Le Fondazioni

casse di risparmio, F. Roversi Monaco, (Maggioli, 1998). 12

Clarich & Pisaneschi, 44. This structural imbalance ceased with the significant sales of shareholdings in 1997-

1998. P. Ferrari, 17-20. 13

In fact, before a fondazione could relinquish majority control of a bank, an express waiver from the Council

of Ministers was necessary. Thus, the initial 1990 phase was dubbed the “privatizzazione fredda” as the changes

affected the legal form rather than the inherent power struggles. Clarich & Pisanesi, 37; Schlesinger, Fondazioni

bancarie, in Banca, borsa e titoli di credito, (1995, I) 421; Porzio, Appunti sulla legge Amato, in Rivista delle

Societa’, (1991) 805. Moreover, the majority of the directors of a fondazione had to be nominated by the local

institutions defined in Section 114 of the Constitution (these were municipalities, provincial and regional

authorities.) This had the effect of merely shifting political control over the fondazione from a national to a

peripheral level. L. Giani, Ownership and Control of Italian Banks: A Short Inquiry into the Roots of the

Current Context, in Corporate Ownership and Control, (2008) 95. 14

For a comment on the wider privatizations of the earlier 1990s, see S. Cassese, Le privatizzazioni:

arretramento o riorganizzazione dello stato? in Rivista Italiana di diritto pubblico comunitario, (1996) 579. 15

Clarich & Pisaneschi, 50. 16

EEC Directive N.646 of 15/12/1989. 17

Banca d’Italia, Relazione Annuale 1995 – Considerazioni finali del Governatore, (1996) 26. 18

Law No. 474/94 of 31/05/1994; Leg. Dec. 30/07/1994. 19

S. Cassese, Da Fondazioni bancarie ad enti non-profit;in Giornale di diritto amministrativo, (1995) 480;

Capriglione, Le fondazioni bancarie e la nuova legge sulle privatizzazioni, in La Nuova Giurisprudenza civile

commentata, (1995, II) 80. 20

For a comment on the constitutional issue, B. Alemanni, C. Dematte, R. Ruozi & A. Sironi, Le Fondazioni di

origine bancaria. Evoluzione recente e prospettive future alla luce della direttiva Dini 1994, 1995; G. Giorgetti

& S. Marmorata, Organizzazione e privatizzazione, il caso delle casse di risparmio, Prospettive dell’economia,

1996; P. Mottura, Le fondazioni bancarie e le casse di risparmio, profili economici, 1996; S. Preda, Le

Prospettive delle fondazioni bancarie e gli assetti proprietari nel sistema creditizio, 1996. 21

Direttiva del Ministro del Tesoro 18/11/1994. Belli & Brozzetti, La Direttiva del Ministro del Tesoro sulle

dismissioni delle fondazioni bancarie in Diritto della banca e del mercato finanziario (1994, II) 291.

4

Four years later the Ciampi Law was enacted formalizing the institution as an independent, juridical

entity and confirming its duty to invest in fields of social utility or in the promotion of economic

development as set out in the fondazione’s constituent documents. 22

The law enumerated the

admissible fields of social investment as the promotion of art, cultural activities and heritage;23

social

assistance; research; education; learning and training; voluntary activities, philanthropy and charity;

local development; public health; environmental protection and quality; family and associated values;

sport and recreation. 24

The Ciampi law emphasised the limits on exercising banking operations and extended the prohibition

to any form of financing or lending to profit-making institutions except for those specialized firms

(imprese strumentali) which operate within the field of philanthropic specialization of the

fondazione.25

Majority ownership stakes – including positions of control held in the respective vesting

banks - had to be disposed within four years.26

This form of privatizzazione calda – was incentivized through significant fiscal advantages.

Fondazioni which disposed of bank shareholdings within the first four years would not be taxed on

capital gains.27

This was ultimately challenged at the European Court of Justice as unlawful state aid

in contravention of Article 87 of the Maastricht (“EC”) Treaty.28

The forced divestiture of majority shareholdings mitigated the clear tension between ethical

investment and zealous corporate administration but left the fondazioni with the dilemma of investing

significant amounts of capital (accumulated from the sale of control stakes) in non-profit activities.29

22

Law No. 461/98 of 23/12/1998 and Leg. Dec. 17/05/1999 N.153. Article 2, of the Leg. Dec. defines a

fondazione as a “non profit juridical person with complete statutory autonomy.” 23

In particular, with Leg. Dec. 23/02/1995 N.451, fondazioni can now assist in the administration of museums.

Nigro, Fondazioni bancarie: quale futuro? in Banca Impresa Societa’, (1995) 431. 24

However, specialization within these sectors is still at its early phases. Clarich & Pisaneschi, 15. 25

Article 3, Paragraph 2. For an economic critique of how this restriction hinders economic development, C.

Pace, Alcune proposte per la disciplina delle fondazioni bancarie in CNEL: La riforma delle fondazioni

bancarie (1999) 110. 26

Article 6, Paragraphs 1, 4. The law adopted an expansive interpretation of what it means to retain control

focusing on the right to appoint bank executives as well as targeting joint control agreements between several

foundations. E. Catelani, An Italian reality: from nineteenth-century Savings Banks to Foundations, on

condition that bank shareholdings are divested, European Savings Bank Nominee 2005, 8. Fondazioni with net

assets having a book value of less than €200 million or located in special statute regions are exempt from the

divestiture requirements, Leg. Dec. 143/2003. 27

Article 25, provided a grace period of 4+2 years for divestiture of shares in banking institutions, but denied

fiscal benefits (and categorization as a non-tax entity) for dispositions occurring in the final 2 years. 28

Commission Decision 2002/581/EC of 11/12/2001 and confirmed by the European Court of Justice in

15/12/2005 Cases C-148/04 and C-66/02. 29

Article 5, Paragraph 1 of the Ciampi Law requires capital to be invested with sufficient caution to ensure

adequate profitability. With an exception for certain minimum amounts which fondazioni must disburse in their

sectors of competence, financial monitoring of fondazioni adopts the prudent investor standard rather than

mandating qualitative or quantitative asset standards. P. Ferrari, 29-30. Empirical data for bank share

divestitures is outlined in P. Ferrari. See also, A Fazio, Disegno di Legge sulle fondazione bancarie, Audizione

del Governatore della Banca d’Italia, Senato della Repubblica, (1998). Cf. T. Boeri & L. Guiso, Quell’abbraccio

mortale fra fondazioni e banche, in Lavoce, 13/01/2012 (suggesting that divestiture of the fondazioni’s shares in

5

Moreover, relinquishing bank shareholdings meant rebalancing assets on the market after having lost

a reliable source of revenue (paid regularly through bank dividends).

Subsequent proposals for reform sought to further rescind ties between the fondazioni and their

respective originating banks,30

or increase municipal representation in the fondazione’s board31

but

neither proposal was successful.

To a certain extent, the fondazione was both created and subsequently revised with the notion that the

market rather than the regulator would determine its success and evolution.32

Consequently, it is not

surprising that the financial repercussions of the past decade have shaped the role of the fondazione in

ways which were unexpected at the time of its formation.

Prior to the sovereign debt crisis the fondazioni were commended for assisting the restructuring of the

banking system, for supporting the unprecedented geographical expansion of domestic financial

institutions and contributing to the development of the Italian capital markets.33

By focusing

exclusively on profitable banking activities and by reaping the advantages of a globalized financial

market, banking groups such as Banca Intesa San Paolo and UniCredit Group were able to

vertiginously expand their scope of operations.34

Yet, expansion and consolidation was possible

through recapitalization and bank mergers, both of which were secured through the approval and

support of the fondazioni.

a bank will improve the bank’s corporate governance); M. Arnese, Care Fondazioni, lasciate le banche al

mercato. Consigli di Amato (interviewing G. Amato), in Il Foglio 28/10/2010. 30

The proposal advanced by Senator F. Debenedetti would have capped shareholdings at 15%, Disegno di

Legge, 07/09/1995 N.2080; F. Debenedetti, Sappia La Destra, (2001) 167. 31

This was strongly rejected by the Constitutional Court in judgments No.300, 301. Dir. Banc. (2004, I) 91. The

proposal had been advanced as part of the Tremonti Reform in the 2002 Budget Act, (Article 11, Paragraph 1 of

Law 448 of 28/12/2001). By increasing municipal representation the legislature attempted to reabsorb the

fondazioni into the public sector. The Constitutional Court was criticized for failing to adequately emphasize the

fondazione’s juridical autonomy. M. Clarich & A. Pisaneschi – Dalla Legge c.d. Ciampi-Pinza alla riforma c.d.

Bossi-Tremonti, in Le Fondazioni Bancarie, (G. Ponzanelli, ed. 2005) 37-38; G. Guzzetti, Prefazione all’Ottavo

rapporto sulle Fondazioni bancarie, (ACRI, 2004) 9; G. Guzzetti, Prefazione al Sesto rapporto sulle

Fondazioni bancarie, (ACRI, 2002) 13; G. Consoli, I profili di illegittimita’ costituzionale della nuova riforma

delle fondazioni bancarie, in Mondo Bancario (2003) 54. 32

Yet, can the market truly regulate a hybrid instrument like the fondazioni which operates with significant

competitive advantages in fields without intensive private competition? G. Seravalli, CNEL: La riforma delle

fondazioni bancarie, 54. 33

G. Guzzetti, Fondazioni: Eredi di Comunita’, 25; A. Crociata & P. Sacco, Fondazioni bancarie e sviluppo

economico, in Aedon (2008) 2. 34

On changes in the Italian banking industry, see: F. Panetta, Il sistema bancario italiano negli anni Novanta –

Gli effeti di una trasformazione (Il Mulino, 2004); M. Messori, Consolidation, Ownership Structure and

Efficiency in the Italian Banking System, in The Banks and the Italian Economy (Verlag, 2009); C. Lamanda,

The financial crisis: less internationalization or better supervision? UniCredit Reviews, (2009) 104. Ideally, the

fondazione model could have permitted the best of both worlds. On the one hand, a supporting, passive long-

term investor eager to assist the expansion of a globalized bank, on the other, a conscientious shareholder with

an awareness of the interests and needs of the local client base. V. Grilli, Fondazioni: Eredi di Comunita’, 66.

6

Moreover, the significant shareholdings retained by most fondazioni in their original vesting banks (in

most cases inferior to 50% but still ranging from 10-30%)35

provided an effective buffer against short-

term speculation.36

Fondazioni acted as long-termist institutional investors in a capital market which is

still suffering from the absence of shareholder diversification.37

Furthermore, unlike other forms of

corporate social responsibility, the territorial grass-roots commitment of the fondazioni was

safeguarded and continued during the subprime mortgage crisis of 2007-2009. 38

The sovereign debt crisis with its dire impact on the Italian banking and financial system has radically

altered this scenario and exposed the weaknesses of an underdeveloped capital market, an over-

exposed banking sector and a worrying economic policy.39

To place matters into perspective before

considering the fondazione’s new role in the modern economy, it is worth noting that there are

currently 88 fondazioni operating in Italy with assets totalling 50 billion Euros, and annual

investments in philanthropic projects of 1.37 million Euros.40

Non-Profit or/and Corporate Shareholder?

The conflict which bedevils the debate on the fondazioni’s role led Mr Giuliano Amato – former

Prime Minister and principal drafter of the Amato Law – to admit feeling like Frankenstein as he

unleashed a ‘legal’ monster.41

Mr. Amato was troubled by the fondazione’s uncertain existence as

either or both a corporate investor and a non-profit organization At a recent summit of the

Associazione di Fondazioni & Casse di Risparmio (“ACRI”) Mr. Amato confessed feeling relieved

now that the fondazioni had found their soul as pure non-profit enterprises.42

35

According to the financial data provided by ACRI in Sedicesimo Rapporto sulle Fondazioni di Origine

Bancaria, (ACRI, 2010) 26-27. 36

N. Saldutti, Le Fondazioni? Un presidio per le banche Italiane (interviewing G. Guzzetti), in Corriere della

Sera, 08/03/2012; G. Rossi, Capitalismo Familiare e Fondazioni bancarie, in Il Sole 24 Ore, 05/06/2011. 37

M. Bianchi & M. Bianco, Italian Corporate Governance in the last 15 years: from pyramids to coalitions,

ECGI Working Paper N. 144/2006, (2006). 38

According to the financial data provided by ACRI in Sedicesimo Rapporto sulle Fondazioni di Origine

Bancaria, (ACRI, 2010). In part, this can be explained by the fact that fondazioni have both a “right and a duty”

to invest these funds in the local community given their origin as purely private funds. On the role of corporate

social responsibility in the crisis, see A. Kemper & R. Martin, After the Fall: The Global Financial Crisis as a

Test of Corporate Social Responsibility Theories, in European Management Review, 229-239 (2010). 39

In the recent crisis fondazioni have been exposed to significant losses from their bank shareholdings. M.

Mucchetti, La crisi e le fondazioni bancarie, in Corriere della Sera, 26/11/2011. 40

According to the financial data provided by ACRI in Sedicesimo Rapporto sulle Fondazioni di Origine

Bancaria, (ACRI, 2010) 7. 41

Calderoni & Sabbatini, Le Fondazioni bancarie un autentico mostro. Amato: lo confesso, mi sento

Frankestein, Il Sole 24 Ore, 21/11/1996. Capriglione, Le Fondazioni bancarie e la legge sulle privatizzazione,

in La nuova giurisprudenza civile commentata, (1995) 91. 42

G. Amato, Fondazioni: Eredi di Comunita’, 34.

7

Thus, at least institutionally, the commitment of the fondazioni to the voluntary sector appears

unambiguous. Yet how to align this noble ideal with the reality that fondazioni still retain significant

shareholdings in their original vesting banks? For example, the Fondazione Monte dei Paschi di Siena

controls just less than 50% of the shares in the corresponding Sienese bank, Intesa San Paolo has 5

fondazioni administering 25% of its shareholding and even the international UniCredit Group has

more than 7% of its shareholdings vested in local fondazioni.43

The Fondazione Monte dei Paschi di Siena is a worrying example of the ailing rapport between the

fondazioni and their respective originating banks. Despite its quincentennial roots, the acquisition of

Banca AntonVeneta in 2007 and the recent credit crisis exposed the Sienese bank to an urgent need

for capital.44

Unwilling to dilute its share ownership but confronted with the need to replenish the

bank’s empty coffers, the Fondazione incurred significant debts to improve the bank’s capital

adequacy requirements.45

Despite the contribution, Monte dei Paschi di Siena faces unpromising

financial perspectives while the Fondazione may be forced to sell as much as 15% of its stake.46

Had

the Fondazione invested more substantially, according to some commentators, the bank could have

been spared its current woes. 47

Yet, this would have been at the expense of the many grantees of the

Sienese foundation and would probably have violated the Fondazione’s managerial requirements to

diversify investments and disburse primarily for philanthropic purposes.

Confronting the matter doctrinally, can it be said that ethical and profitable investment are compatible

attributes of a substantial shareholder – especially in a time of crisis?48

The legislature has evidently

thought not and chose to strongly encourage the former function (ethical investment and sustainable

assistance to communities) at the expense of the latter (profitable investment in the banking

industry).49

43

For a holistic perspective of the issue, see F. Trivieri, Proprieta’ e contorllo delle banche italiane, (Rubettino,

2005) 158. According to the financial data provided by ACRI in Sedicesimo Rapporto sulle Fondazioni di

Origine Bancaria, (ACRI, 2010) 7. 44

R. Sanderson, Monte dei Paschi stake set to be sold, in Financial Times, 11/03/2012; R. Sanderson, Venerable

but vulnerable, in Financial Times, 19/02/2012. 45

R. Sanderson, Monte dei Paschi to raise €2.5bn in fresh capital, in Financial Times, 12/04/2011; Fondazione

Mps ottiene piu’ tempo dalle banche, in Il Sole 24 Ore, 27/11/2011. 46

R. Sanderson, Monte dei Paschi stake set to be sold. 47

T. Boeri & L. Guiso suggest that the current value of MPS would be five times greater if the Fondazione

could have invested its substantial assets in restoring the bank’s finances. 48

A. Benessia, Le fondazioni bancarie di fronte alla crisi finanziaria: prime riflessioni, Seconda Conferenza

“Angelo Colocci” di diritto, economia, banca e finanza, Jesi, 17/10/2009. 49

See for example, Legge sul Risparmio of 18/12/2005, N. 262 Article 7 which limits voting power for

fondazioni with bank shareholdings of more than 30%. With the exclusion of the smaller-net-worth fondazioni

which are exempted from the divestiture requirements, this law affects the voting powers for the Cassa di

Risparmio di Firenze, Cassa di Risparmio di Genova and Monte dei Paschi di Siena. However, a consequence of

the 30% non-voting restriction amendment is that banks which have maintained a shareholding greater than

30% but smaller than 50% can effectively “keep their banks out of the market.” L. Giani, Ownership and

8

Moreover, if one considers the worrying interconnectedness of the Italian banking world, preserving

the fondazioni as controlling shareholders would have further exacerbated the issue preventing the

rise of truly independent shareholders. In fact, while de-politicization was at the core of the Amato

reform and notwithstanding the numerous legislative decrees which prohibit joint and multiple

directorships,50

concerns for political interference, oligarchic control and nepotism are still loudly

voiced.51

Consequently, the compelled disposition of shares has been helpful at least in liberalizing

the banking industry and providing novel opportunities for foreign investors.52

However, the community-focused dimension of the commitment of a fondazione in the originating

bank means that the investment of a fondazione provides that long-termist mentality which was so

worryingly absent in the recent financial crisis.53

The larger fondazioni would have the resources to

play the role of effective market stabilizers reassuring the financial markets and pledging for the

solidity of the bank’s capital.54

Yet, even assuming that the fondazioni have the potential to play such

an important role for the recovery and resilience of banking institutions, should they really undergo

such gargantuan an enterprise?55

Control, 97; L. Giani, Profili di efficienza nel completamento della privatizzazione del sistema bancario

italiano: il caso delle fondazioni bancarie, Studi e Note di Economia, (2009);Gorgianni & Tardivo, 175. 50

Decreto del Ministro del Tesoro, D.M. 26/11/2003; Ciampi Law, Article 4, Paragraphs 1(g), 3; D.M.

18/05/2004; Gorgianni & Tardivo, 174. 51

De Rita, Prefazione al Quinto Rapporto sulle fondazioni bancarie, (ACRI, 2004) 12; Ristuccia, Il Capitale

Altruistico. Fondazioni di Origine Bancarie e Cultura delle Fondazioni, (2000) 83. 52

Clearly, internationalizing the shareholder base of the leading Italian banks has erased that territorial link and

support for local SMEs which the banking industry had traditionally played. C. Pace, Alcune proposte per la

disciplina delle fondazioni bancarie, in CNEL – La riforma delle fondazioni bancarie, 112. La Repubblica,

Affari & Finanza, 13/02/2006 (commenting on how foreign banks now owned a stake larger than that of the

fondazioni in the Italian banking industry). The dilution of the fondazioni’s shareholdings has been aggravated

by the recent recapitalizations. As smaller fondazioni could not keep up with the substantial sums of capital

required, their position was often diluted. See generally, F. Corsico & P. Messa, Da Frankenstein a principe

azzurro: Le fondazioni bancarie fra passato e futuro, (Marsilio, 2011). See also the significant stakes acquired

by UAE investment fund Al Aabar and other US institutional investors in the recapitalization of UniCredit

Group in January 2012. M. Mangano, Gli Emirati primi soci di UniCredit, in Il Sole 24 Ore, 18/01/2012; 53

L. Dallas, Short-Termism, the Financial Crisis, and Corporate Governance, in Journal of Corporation Law,

37 (2011) 264; Andrea R. Keay, The Global Financial Crisis: Risk, Shareholder Pressure, and Short-Termism

in Financial Institutions - Does Enlightened Shareholder Value Offer a Panacea?(May 20, 2011) accessible at

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1839305. 54

G. Guzzetti, Fondazioni: Eredi di Comunita’, 24. According to Mario Draghi, former Governor of the Banca

d’Italia, the fondazioni were an anchor for Italian banks, assisting them in the roughest storms of the financial

crisis, Banca d’Italia, Rapporto del Governatore, (2009); M. Draghi, Intervento alla 85ma Giornata Mondale

del Risparmio, in Il Risparmio, (Oct-Dec. 2009) 48; A. Olivieri, La Politica stia fuori dalle banche, Il Sole 24

Ore, 01/06/2010. 55

Once again the conflict is evident. Are fondazioni interested primarily in safeguarding their funds to ensure

prompt investment in social welfare programs or are they concerned with the wider financial stability of their

originating bank? S. Restuccia, Fondazioni, dialogo sui nuovi indirizzi, Il Sole 24 Ore, 14/10/2003. Even

according to the President of ACRI, Mr. Guzzetti, philanthropic disbursements are the primary function of

fondazioni and holding large shareholdings in banks remains solely a profitable means of investment. G.

Guzzetti, Fondazioni: Eredi di Comunita’, 26.

9

The tension between the fondazioni as an ethical disburser and a corporate shareholder introduces an

interminable list of conflicts of interest in the operation of the fondazione and the bank. As an

ethically-minded investor, the fondazione will be conscious that the collapse of the originating bank

will gravely affect the economy with disastrous consequences for the local communities it is

empowered to assist. Yet, as a rational shareholder abandoning the sinking ship might appear to be the

best course. Besides from the dramatic bank-failure scenario, from a simple asset management

perspective, it is inevitable that resources committed to a bank (whether it be through recapitalization

plans or recovery funds) will come at the expense of limiting other philanthropic disbursements.56

Moreover, fondazioni and the other corporate shareholders will often have fundamentally divergent

objectives. Fondazioni seek long-term stable revenues, while shareholders (consonant with the Berle-

Means model of dispersed shareholder ownership) may often prefer riskier investments promising

higher returns.57

As such, will the fondazione not use its managerial powers (acquired through its

overbearing influence as a significant shareholder) to dissuade bank’s management from hazardous

opportunities if it will compromise the expectance of a reliable, fixed source of future income?58

An Institutional Investor?

Regardless of the many structural conflicts which hinder the simple alignment of the fondazione as a

passive investor in the capital markets, the fondazione remains a relatively novel financial player with

significant capital assets and the flexibility to evolve into a different investment vehicle. In fact,

assuming that the fondazioni’s 7-15% shareholding in banking institutions provides that desirable

equilibrium between corporate presence and portfolio diversification, the fondazione could then

develop as a model for a new species of institutional investors.59

Unlike other institutional investors,

the fondazione is statutorily required to discard the notion of shareholder value insofar as it

undermines its pursuit of ethical and philanthropic disbursements to the community. 60

Similarly, the fondazione’s knowledge of the local credit and client base within a territory has

strengthened the institution’s expertise in determining reliable, credit-worthy investments. Investing

56

Only with the significant disposals of bank shareholdings after the Dini and Ciampi Laws were fondazioni

free to invest substantial capitals in philanthropic activities. P. Ferrari, 15-16; P. Ferrari & E. Magnani, Il futuro

ruolo delle fondazioni bancarie, nuovi investitori instituzionali, pure “grant maker”, “community foundation” o

che altro? in Il Risparmio, 1998. 57

A. Berle & G. Means, The Modern Corporation and Private Property (CCH, 1932). 58

T. Bianchi, L’ottica Bancaria, in CNEL – La Riforma delle Fondazioni Bancarie, 65. 59

Nota Bene, for CONSOB (the Italian Securities Commission), fondazioni are not characterized as institutional

investors as they do not pay dividends to shareholders (beneficiaries). 60

P. Ferrari, 17.

10

in this attribute could allow the fondazione to re-imagine its role as a major player in assisting local

start-ups, operating as a venture capital fund but without losing the lustre of non-profit.61

Corporate Governance – Banking on Alternatives

When considering the topic from a wider perspective, the fondazione also provides an innovative

model of corporate governance. Focusing on the 1990-1994 period when the wealth of the Italian

banking system was effectively administered through the fondazione’s majority (or complete)

shareholding of the respective banking institution, this presented a rare instance of profitable banking

entities administered by a non-profitable, philanthropic institution.

In line with current debates on the need to privilege long-termist shareholders while isolating the

board of directors from the pressure of stakeholders seeking short-term profits, the fondazione

provides an insightful example of de-financialised shareholding a compromise capable of fulfilling

both objectives. Moreover, the fondazione’s focus on philanthropic values and the economic

development of the local community provides a (theoretically) compelling alternative to the bilateral

world of dispersed shareholders or family-controlled firms which monopolizes corporate governance

in the Western world and emerging markets.

The Quest for Identity? A Private or Public Entity

The Italian experience of the fondazione underscores an important source of friction in their

regulation. Despite operating as autonomous private law bodies, the fondazione is subject to extensive

regulatory supervision to ensure and monitor compliance with its non-profit objectives.62

There is

scepticism to permit self-regulation for entities which are, albeit indirectly, administering the private

funds originally deposited in the Casse di Risparmio.63

Thus, fondazioni are perceived to operate for a

distinctively public purpose, administering quasi-public funds and therefore requiring supervision to

ensure that the assets are adequately spent for the benefit of the community. This is the case despite

the numerous proclamations of the entity’s private and autonomous nature by both the legislative and

judicial branches.64

Consequently, the fondazioni are legally characterized as private non-profit

61

A. Sarti, Le Fondazioni bancarie come autonomie funzionali, in CNEL – La riforma delle fondazioni

bancarie, 14. 62

Clarich & Pisaneschi, 90-92. In particular, the Ministry of Economy and Finance has the authority to regulate

outlays and budgets, supervise appointments and amendments to the constituent statute and bylaws. 63

F. Luzzi, Fondazioni bancarie: che fare? in Diritto della banaca e del mercato finanziario, (1999) 456. 64

Judgment of the Constitutional Court, N.300, 2003. C. Bottari, Il quadro normativo di riferimento, in

Fondazioni di origine bancaria e Fondazioni di comunita’ locale, (2005) 23; M. Clarich & A. Pisaneschi, Dalla

Legge c.d. Ciampi-Pinza alla riforma c.d. Bossi-Tremonti, 32; G. di Fiore, La fondazione di Origine Bancaria,

in Fondazioni – tra problematiche pubblicistiche e tematiche privatistiche (eds. G. Palma & P. Forte,

Giappichelli, 2008) 30.

11

entities but lack the flexibility of the Anglo-American charitable institution and are regulated as

quasi-public bodies but lack the support which traditionally characterizes public investments.65

Categorization of the fondazione as a public or quasi-public body should affect their financial

regulation and determine whether the funds should be administered exclusively for public interests

regardless of the otherwise charitable nature. If fondazioni are to be seen as de facto public law

entities, greater transparency and accountability would be desirable. 66

If fondazioni are legitimated as

private law entities, then they should enjoy greater freedoms of investment and are not to be expected

to supplement deficient public services.67

An important distinction with the Anglo-American non-profit counterpart and perhaps the most

significant impediment for the deregulation of the fondazioni is the absence of beneficiaries or

grantees. Unlike a beneficiary in a trust or a shareholder in a corporation, the ultimate grantees of the

funds of a fondazione do not have proprietary title to the dispositions. 68

Consequently, concerns for

the unaccountability of these institutions to any single stakeholder, are persuasive reasons to retain the

current framework of regulations despite its inevitable economic inefficiencies.

Conclusion

The financial crisis of 2008-201? has exposed many of the deficiencies of the Western capital markets

and the regulation of banking and financial institutions. The bail-out of banking institutions has

outraged the taxpayer and upset the regulating authorities which have responded with unprecedented

vengeance. The stringent capital adequacy requirements of Basel III will either shrink bank size or

force banks to accept undue compromises. Shrinking will affect lending capabilities, and despite the

65

These concerns were raised by the Parliamentary Report on the State of the Welfare Crisis, Deputato L.

Volonte’, 14/3/2003; G. P. Barbetta, Foundations in Italy, in Private Funds, Public Purpose – Philanthropic

Foundations in International Perspective (H. K. Anheier & S. Toepler, Kluwer 1999) 199 ff. 66

F. Roversi Monaco, Poteri Regionali e Fondazioni Bancarie, in Riforma Costituzionale e nuova disciplina

delle Fondazioni di origine bancaria, (C. Bottari, ed. Dogana, 2003) 33; L. Torchia, I limiti del controllo

pubblico sull’autonomia privata, in Il Ponte, (2003) 68; G. Napolitano, Le Fondazioni di origine bancaria e la

“promessa dimenticata” della vigilanza, in Italianieuropei (2010) 3. 67

G. Baratti, Il Nuovo quadro normative di riferimento per la ricerca di identita’ delle Fondazioni di origine

bancaria, in Fondazioni di origine bancaria e fondazioni di comunita’ locali, (C. Bottari ed. 2005) 100-101; V.

Grilli, Fondazioni: Eredi di Comunita’, 69 suggests the support of the fondazioni should be complementary and

not supplemental. Perhaps, categorization of the fondazione as a private or public law entity could depend upon

the size and role which the fondazione plays within the local society – whether it is effectively operating as a

large institutional investor or as a para-municipal authority. 68

Despite the words of the President of ACRI - transparency of operations is not the same as accountability. G.

Guzzetti, Fondazioni: Eredi di Comunita’, 27. Concerns that grantees of the fondazione should be awarded

managerial authorities have been voiced for the past decade. F. Cafaggi, R. Costi, L. Barca CNEL – La riforma

delle fondazioni bancarie, 37-39, 45, 77-82. Unlike common law investment protection, managers of a

fondazione are not subject to the rigorous fiduciary duty standards.

12

substantial liquidity inputs of the European Central Bank – the responses adopted by banks are likely

to impact funding to the backbone of the real economy – the Small Medium Enterprises.

It is in this light, and in the wider debate on the need to devise more humanized corporate structures

that the Fondazioni may appear as a valuable lesson for other jurisdictions. In fact, the model of the

fondazione is not necessarily an historical product of the peculiarities of the banking system. The

fondazione model was adopted to restructure the Austrian banking system with over 30 banking

stiftungs created from the ashes of the Sparkasse – the Austrian equivalent of the Cassa di

Risparmio.69

Similarly, in the common law world, the privatization and liberalisation of the banking

industry in New Zealand was accompanied with the introduction of the community trust to administer

the shares of the new banks which were created.

69

See for example the case of the Erste Foundation and Erste Banking Group.