The pyramidal construction, created by the group of companies, is one of the most popular control theoretical account adopted by little and moderate-sized endeavors in the Italian industrial scenario.
The undermentioned essay is divide in four parts: an general overview on the two common ownership constructions theoretical accounts in Italy holds the first portion, 2nd chapter focal point on the pyramidal group, how it works ( practical illustrations will be delivered ) and its comparative characteristics. Third portion is entirely concentrated on analyses of instance of Telecom Italia. Fourth chapter considers the struggle of involvements that come up with the acceptance of the pyramidic theoretical account, concentrating on the place of minority stockholders. The last portion is left for some decisions.
1. Ownership structures in Italy: group of companies
In Italy a group of companies is composed by the collection of several houses which are in the fact independent legal entities units, but controlled by a single 1. Where they are subjected to a 1 and merely corporate direction the group can be considered as an “ economic endeavor ” . From an organisational position, the construction by group offers an effectual operating inducement to the legal individual who has to command and where the directors of subordinates enjoy greater liberty and duty comparing direction of big multi-divisional companies, as they feel more motivated to prosecute an efficient behaviour. Furthermore, the decentralised construction involves more the several corporate organic structures in a competitory procedure which involve the single units, exciting the ability of acquisition and invention[ 1 ].
In general there are two different classs of private groups, based on the type of ownership construction:
1 ) Group with concentrated capital stock, formed by several companies where the bulk of their capital is hold by few or parent entities ( a family-based enterpriser largely ) and the assets focus on certain nucleus concern. Particularly for this class, the position of the group as a economic endeavor is free from ambiguity.
2 ) Group with fractionated capital stock formed by a pyramid of companies that hold the capital of others houses ( which are on the underside of the pyramid ) by agencies of a “ waterfall ” ( cascade ) system. This construction allows a high fractional process of the capital stock for the group, merely at the top of the pyramid the capital is concentrated in the custodies of a few or a external stockholder which possess the control of the group as a whole. Within this group frequently has a high grade of variegation of assets. The largest companies in Italy are organized in the signifier of pyramidic group, therefore it is of import to be precise and to do a differentiation between mere pyramidal groups and “ Scatole cinesi “ ( Chinese boxes ) . In the first instance, a company naming its operating subordinate at Stock Exchange, while the 2nd is a concatenation of companies, whose upstream is formed merely by strictly fiscal companies. This organisation has a double motive: one is virtuous ( naming a company to enable it to raise fiscal resource to growing ) or timeserving one ( to command a company with small capital ) . This 2nd subdivision is typical of Chinese boxes instead than pyramidal groups[ 2 ]. With the control by Chinese boxes, is besides easier the occur of struggles of involvement.
2. The pyramidal group
The construction of the pyramidal group is rather common among the listed Italian companies since this ownership construction was introduce and recognized by Italian regulator in 1940s. The acceptance of pyramidic group ‘s construction were favored by a impersonal revenue enhancement policy and lake of any legal limitation to avoid struggle of involvements between the parent entity and the minority stockholders in subordinates[ 3 ].
History teach us that even State took advantages of the pyramidic constructions utilizing pyramiding for the governmental concern in the yesteryear. The Stock Exchange ( which was public boulder clay 1997 ) allowed the hearing of alleged scatole cinesi, houses which through their assets maintain control on others listed companies. Linkss among State ownership, dealingss based on assurance ( frequently in a household environment ) among enterprisers and investors, statutory solutions and preemption clauses make the pyramidal group have manage to accomplish in Italy that grade of separation between who anticipate the capitals and who is in charge to pull off those, what is necessary for an industrialisation procedure. As all those tools which have substitute the 1s used and common abroad and which were deficient or absent in Italy, the pyramidal group met on long-run several jobs refering the low grade of protection of external investors. What is more, today there are still no legal steps for meshing board of directorss and Anti-trust Authority[ 4 ]do n’t judge them as forbidden or relevant under the legal profile.
2.2 The pyramidal theoretical account
The group is seen as a tool separation between ownership and control, which let command a broad scope of assets with a minimal investing of capital7. The control mechanism by cascade enables the stockholder who hold the bulk interest of the company which is put at the top of pyramid to happen new fiscal resources in the signifier of venture capital maintaining ever the same decision-making power, because the external stockholders ( although they constitute the bulk on the group as a whole ) represent a minority in the single units controlled straight and indirectly ( Berle and Means considered the pyramidic construction as “ the most common developed legal tool in order to hold control of a company without having a bulk of its portions[ 5 ]“ ) . Each company unit hold bets in other companies of the group and in the other manner around are owned by other companies largely.This does non use a ) to the company placed at the top of the pyramidal group, entirely owned by external stockholders to the group ( among which there is the stockholder with bulk interest who hold the control, absolute or relation ) , and alternatively of other group companies, and B ) for companies at the underside of the pyramid, which does non keep any interest. These are the alleged “ operating unit ” or “ back-end ” companies[ 6 ]. An external stockholder keep a direct or/and indirect portion in companies of the group, what is derived from portion of company owned itself straight or indirectly.
In order to do it more clear Lashkar-e-Taiba ‘s see, for illustration, company A and company B which 50 % owned by A. The stockholder who owns 20 % of A indirectly owns 10 % of B. If he straight owns 3 % of B, he holds 13 % overall. The indirect portion owned is the merchandise of the portion owned held from intermediate parent companies to the top of the pyramid. The amount of portions held straight and indirectly measures the grade of planetary or incorporate ownership[ 7 ]of an external stockholder on a certain group companies. Control of a company is called “ controllo certo ” ( certain ) when a exclusive stockholder or a group of stockholders ( which act through a alliance ) hold the bulk of voting portions and it is called “ controllo di fatto ” ( de facto ) when it non occurs. In this 2nd instance the bulk in the stockholders ‘ meetings may be obtained in following ways: 1 ) roll uping the deputation of other stockholders, 2 ) taking advantage of nonattendance of minority stockholders at general meetings, 3 ) due to the being of portions without voting rights. In the latter instance, it ‘s possible to derive certain control of voting portions, without the certain control of the full capital. In pyramidic groups the control on a company ( placed on the underside of the pyramid ) by external stockholder who control the top of the pyramid, is based on the portions with voting rights held personally by himself every bit good as the vote portions held straight by other companies of the group placed at the intermediate degree in the pyramid and in bend themselves controlled by other companies of the group. The amount of these bets measures the grade of controllo certo. In a single endeavor the spread between ownership and control is greater every bit much as the lower is the interest held by the parent company. The instance of public companies is one which controllo di fatto group ( formed by the top director ) does non hold any stake.In this instance the spread between ownership and control is maximized. In the pyramidal group what counts is the planetary ownership. For each company at every degree of the pyramid it is possible to cipher the difference between the grade of ownership and the grade of control, measured as mentioned above. Give a practical illustration: in the undermentioned Figure1 the grade of control by the stockholders group ( formed by alliance ) in the operating company B is measured by the amount of bets held by the sub-sub-holding A and B. Taking a expression now on operating company A, control is measured with the interest held by the sub-sub keeping company A, while the grade of ownership is measured by the merchandise of interest held by of sub-sub H A, the interest of the latter owned by the bomber keeping A and the portion of bomber h A owned by the keeping at the top.
2.3 Features of the pyramidal group
Basically there are merely four possible and non-exclusive maps of pyramidic group:
1. Separation between ownership and control. By distributing equity capital of external investors on the several companies and concentrating the interest of legal individual who has the control on the company at the top of the pyramid, the group let the latter to set about investings for growing by utilizing capital of tierces without loose the control. In a word the group can move as lever for growing and the length of the control-chain is the lever injury.
2. The board of managers can take advantage from the construction of the group. By and large talking the enterprisers have the chance to utilize tool what is a intermediate solution between the direction of the concern which he control in one sole company ( through his internal disposal organic structures ) and the spreading of the concern activities among independent legal company units that exchange merchandises go throughing by the market ( or even non in some instances ) . That tool can excite the direction and ease the entryway of new external stockholders: the high grade of hierarchal construction which come from the direction of different countries of the independent units reduces the capacity of the degrees at underside to blow resources which wants to act upon the general strategic determination in order to take advantage for their ain country. The external investors, who have human capital and fiscal resources, can be stimulated to go associate for the chance to purchase a relevant interest in one sole company ( alternatively of distributing their ain capital in a company which embrace all concern of the group )
3. The dependable fiscal guarantees for creditors. Creditors of each company ( what are lawfully independent ) of the group are guarantee by the assets of therelative company without that the possibility that their warrant can interfere with the 1s of any other creditors of other assets of the group
4. Low grade of Transparency. The construction and the complexness of the group cut down the transparence of the concern: in correlativity with the State ( acceptance of pyramidic construction makes easy to hold entree to revenue enhancement alleviation while the occur of signifiers of revenue enhancement equivocations and revenue enhancement turning away are facilitate ) , trade brotherhoods ( distinction of employment contracts ) , Bankss ( to variegation and increased entree to bank recognition: this chance is provided by the generation of net assets which occurs whit the creative activity of cross-shareholdings among the companies of the group, the break-up by a company of the group on its subordinate determine automatically the addition of the assets of the group for the sum of capital stock that the former clasp on the latter ) .
3. Case: Telecom Italia
How is it possible that company group which capitalize 45 billion of euro at Stock Exchange can be controlled by keeping merely the 18 % of the stock capital? How come that the transportation of belongings of a company are made without go throughing through market. How a company with 34 billion of debts keep continue administering dividends to the stockholders every twelvemonth? ( it ‘s like if the house is on fire and the staying H2O is used to take a shower! ) . To reply those inquiries it is necessary to see the instance of Telecom Italia and its coup d’etat by Olivetti on 1999. Probably those are the same inquiry which the minority stockholders are doing to themselves, sing they were seeing the value of their portions to cut down from 8 euro of 2003 to a spot more so 1 euro in 2010. The pyramidic construction by Chinese boxes of Telecom Italia created the optimum conditions to sell the company with a higher monetary value than the normal value at the Stock exchange, without any duty of stamp offer Opa[ 8 ]in behalf of the minority stockholders, although they represent the bulk of the stock capital ( Opa is obligated merely when the coup d’etat reach the 30 % of the stock capital of the company ) . All starts during 1998-99 when two of import minutess have been made contextually: the Luxembourgian house “ Bell ” collects on the market the 23 % of Olivetti ‘s portions taking the control of this Italian company while ever Olivetti through the house “ Tecnost ” launch an Opa over Telecom Italia which is obtained with the 51 % . Consequences: Bell with the portions over Olivetti control indirectly Telecom, stockholders ( little and large 1s ) who had joined the offer see a higher monetary value than the one from Stock exchange, but since now with Chinese boxes placed on upstream of Telecom there are the above-named conditions to reassign the control of the group without OPA. In fact it ‘s what will go on: in 2001 Bell sell with a monetary value what is more than dual value at Stock exchange at that clip, its Olivetti-Telecom portions to “ Olimpia ” without duty of OPA ( those are the 27 % ) . Bell ‘s associates which hold Olivetti ‘s portions get billionaire premium due to stock options while the minority stockholders of Telecom did non see even one euro for this dealing[ 9 ]. With the transportation out of the market in 1999 of Olivetti ‘s portions below 30 % was fundamentally making in conformity with the fiscal markets ordinance, a mechanism elusive for Opa which Telecom minority stockholders are paying the monetary value still today. The president of Olimpia ( Marco Tronchetti Provera ) is the perfect illustration to depict how a director could take command an immense company as Telecom with a lower limit invested capital due to the Chinese boxes theoretical account. Tronchetti Provera & A ; C. Sapa is a non-listed little company ( so foremost, it is non particullary controlled by Stock Exchange ) that holds the 61 % of GPI, which has the 51 % of Camfim, which control with 25 % Pirelli & A ; C, which has control on Olimpia with 57 % to get in the terminal at Telecom which is controlled by Olimpia with 18 % . Calculating the per centum the ownership of Tronchetti Provera ( besides former president and president of Telecom boulder clay 2006 ) is the 0.8 % of Telecom Italia! Another presentation that with Chinese boxes a stockholder with such little portion can command a company which capitalizes 43 billion of euro: we arrive at the paradox that 1 euro of Tronchetti Provera moves 5,000 of its members! During the last decennary the Telecom Management by Tronchetti Provera has sold about all its portions, its belongingss, reduced staff by 50 % , reduced investing programs, and despite all this, the debt remained the same as 34 billion of euro. The inquiry is: where did the money travel? The money ended up in billionaire stock options for director on the board, in dividends to stockholders of the “ Salotto Buono ”[ 10 ]. Keeping the direction following the single involvements of the companies of group at different subordinate degrees and of their bulk stockholders, Tronchetti-Provera ( who holds merely the 0.8 % ) destroyed the value of most of import Italian company in the invention industry built with revenue enhancements for coevalss of Italians ( Telecom was public boulder clay 1997 ) and conveying serious harm to both minority stockholders and employees of the company.
4. Conflict of involvements: what protection for minority stockholders?
The fiscal dirts that have hit many little stockholders in Italy ( Telecom is one little illustration ) have opened argument on corporate administration maintaining focal point on the protection for minority stockholders. The urgency is to happen appropriate control and ownership constructions to guarantee efficient allotment of resources, and to take into history the different constituents of stockholders ‘ involvements. The legal individual at the top of the pyramid has the control over figure of assets much more higher that could command whether the same assets belong to a single legal endeavor. Although each company is capable, straight or indirectly, under control it ‘s independent under the legal profile and responds to one corporate administration. But in such theoretical accounts of control, it is inevitable that struggle of involvements come up between the top and the “ underside ” . In fact, the involvements of the parent company may differ from those of single participants are non commanding, because the former are interested in efficiency of the group as a whole, while others are linked to economic public presentation of single companies. Analyzing the pyramid group, it is interesting to see how the penchant portions, securities without the right to vote, but with preferable plus allotment, magnify the separation between ownership and control, doing easier to a struggle of involvement among the bulk stockholders and minority 1s. In other words, the pyramidal group has the same struggles that are emerging in a public company with the difference that in the latter there is struggle between corporate direction and ownership instead than between the bulk stockholders and minority stockholders. The ultimate end of any administration theoretical account should hence be to be able to happen the right balance of power between bulk and minority stockholders, in the instance of pyramidal group, and between stockholders and direction, in the instance of public company.
The presence in Italy of a pyramid signifier of control allows to hold control over big companies with a comparatively little part of private capital. This factor, together with the struggle of involvements among the different company-units of group, the breakability of the regulations for the protection of minority stockholders, the low degree or absence of surveillance by the organic structures of companies ( due frequently to meshing directories of those ) and about entire absence of institutional investors, affect the operation of the Italian market and the development of medium-large houses.
5. Last events
The instance of Telecom has launched an intense argument on the administration of Italian listed companies and the attending has focused around the presence of Chinese boxes ( pure financial-base companies ) and pyramidic groups. In 2007 The Parliament ( with a jurisprudence measure proposed in the Senate which still need to go through ) every bit good as the president of Consob in 2010 are chief histrions of that argument. Although with different tones, both Acts of the Apostless recognize that the group construction creates jobs both on the contestability of the company and on the protection of minorities: the market entirely ( undervaluing the Chinese boxes and stockholders ‘ understandings ) and the current instruments for the protection of minorities are non plenty. The two above-named histrions proposals differ in their proposals. About the pyramidal groups, the jurisprudence measure of Parlament proposes in order to deter those the sterilizing of voting rights of stockholder who hold the control at per centum of the dividends of the up-stream parent company, while the Consob[ 11 ]recommends to beef up the protection of stockholders in regard of related party minutess ( groups and stockholders ‘ understandings ) raising the degree of transparence and their independency demands. It has been observed that the Numberss of pyramidal groups and Chinese boxes has been increasingly reduced during last decennary: however they place their the control over the most of import pieces of Italian capitalist economy ( Fiat, Pirelli etc. ) and turn back when necessary ( such as Telecom instance ) . Even the statement that the stock market would hold closed the valves non leting their listing is doubtful: Chinese boxes become after the listing and non after born, as was the instance with Olivetti Telecom.
The presence in Italy of a pyramid signifier of control allows to hold control over big companies with a comparatively little part of private capital. This factor, together with the struggle of involvements among the different company-units of group, the breakability of the regulations for the protection of minority stockholders, the low degree or absence of surveillance by the organic structures of companies ( due frequently to meshing directories of those ) and about entire absence of institutional investors, affect the operation of the Italian market and the development of medium-large houses. It is argued that the Chinese boxes are one manner – such as stockholders ‘ understanding and penchant portions – to divide ownership and control. True, but compared to these tools, their range in footings of purchase between voting rights and control is destructive. It should seek to deter the usage of Chinese boxes, and non to pyramidal groups dimly. The deterrences can be done either with the menace of sterilisation of the vote rights or increasing transparence on minutess with struggles of involvement. The 2nd manner is preferred because it is hard to separate a Chinese box of a pyramidic group. However the action proposed by Consob must be invasive and significant and non simply formal, as frequently were the proposals for the protection of minorities.
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hypertext transfer protocol: //www.beppegrillo.it/immagini/immagini/Tronchetti_conti_Telecom.pdf