Independent directors and governance rating: evidence from Italian listed companies

In last years, the role played by independent directors within the boards is increasing in studies on corporate governance. At the same time a new stream of research deals with the usefulness of commercial corporate governance ratings. FTSE International Limited (FTSE) created the FTSE ECPI Italia SRI Benchmark Index composed of ordinary stocks issued by Italian companies that demonstrate good environmental, social and governance practices. The aim of this paper is to test whether the corporate governance quality variables such as the board diversity and the role of independent directors have an impact on the judgment expressed by the ECPI in the FTSE Index. Based on the 2013 company’s Report on corporate governance, we consider more than 100 Italian listed companies belonging to different industries (financial and no financial sectors) and we collect several information on independent directors and board diversity refers to year-end 2012. The obtained results in this paper show that the board diversity has no impact on the FTSE judgment while the company size, the number of the main shareholders and the number of directors have a positive influence on the FTSE rating while the number of majority shareholders has a negative one. Besides, our paper confirms the important role of independents with reference to the judgment expressed by FTSE. In particular, our study expands the existing literature on the topic because it distinguishes between the independent directors “by code” and those independent “by law” and it reveals a surprising contradictory result: the first one seem to have a positive impact on the composition of the FTSE rating at year-end 2012 while the second one seem to have a negative one.