ROME (Reuters) - Prime Minister Giorgia Meloni is facing growing criticism over the bill that aims to reform the capital market, after amendments to include measures to strengthen the influence of major investors in listed companies.

HOW BIG IS THE ITALIAN STOCK MARKET?

With a total capitalization of 762 billion euros, Piazza Affari compares to the 3.6 trillion euros of the Paris stock exchange and to the 1.4 trillion euros of the Amsterdam stock exchange, according to year-end 2023 data from Euronext, which manages the three stock markets

Announced in April 2023, the bill aims to increase the attractiveness of the Italian stock exchange, which in recent years has seen several large companies leave the Milanese list to migrate to other markets.

The new provisions include measures to simplify listing procedures and expand the pool of companies eligible for listing incentives reserved for small and medium-sized companies.

HOW WOULD VOTING RIGHTS CHANGE?

Under an amendment to the Ddl, listed companies would be allowed to issue multiple-vote shares with the possibility of up to a maximum of ten votes per share, thus giving more power to stable shareholders in an effort to stem relocations to the Netherlands, where corporate governance rules help long-term shareholders maintain tight control over companies.

The proposal has been opposed by asset managers, including large foreign funds, who favor the "one share, one vote" rule that prevents the concentration of power in the hands of a few.

THE KNOT OVER THE BOARD OF DIRECTORS LIST

The bill also aims to give investors more say over the BoD list mechanism, which gives the outgoing board of directors the right to present a list of new directors for election at the shareholders' meeting. This practice, common abroad, has only recently been adopted by major Italian companies, including Generali, UniCredit, and Mediobanca. In Italy, it is more common for shareholders to propose board candidates.

Under the bill, the slate of the outgoing board will have to be approved by at least two-thirds of the directors, which critics say could give minority shareholders veto power.

The bill also introduces a second vote on individual candidates, which professional investors believe is unnecessary.

In addition, according to headhunters, a new provision requiring BoD lists to include 30 percent more candidates than will be elected is a major hurdle, as candidates must agree to be placed on a list while knowing that not all will be elected.

HOW DOES GENERALI COME INTO PLAY?

The amendment was supported by businessman Francesco Gaetano Caltagirone, an investor in Generali, who has been arguing against Mediobanca's influence over the insurance company.

However, Generali CEO Philippe Donnet said in November that the legislation could make large listed groups unmanageable.

If approved by Parliament, as expected, the new legislation will come into effect in 2025 and companies will have to change their bylaws to comply.

WHAT ROLE DID THE GOVERNMENT PLAY?

In announcing the bill last year, the Treasury Department proposed that the strengthening of voting rights apply only to companies planning to list on the stock exchange, since the goal was to spur business owners to list without fear of losing control.

Instead, the Council of Ministers and the governing parties opted for a more aggressive approach, extending the possibility of issuing shares with increased voting rights up to 10 times to listed companies.

Meloni also defended the measure on the board of directors list, arguing that it would curb the practice on the continuous reappointment of CEOs at the expense of shareholders' wishes.

WHAT WILL HAPPEN?

The government has said it will not backtrack on any of the challenged measures.

However, according to political sources, Meloni's executive may revisit the rule on the BoD list later this year as part of a new set of measures to revive Italy's financial markets.

Such a reversal has a precedent: last year, in fact, the tax on banks' extra-profits that was introduced by the government as a surprise and that shocked the market was then effectively neutralized.

(Giuseppe Fonte, Valentina Za, translated by Camilla Borri, editing Andrea Mandalà)