The Wall Street Journal-20080205-Italy-s Generali Rejects Shareholder Criticism- Franklin Resources Unit Calls for an Overhaul On Governance Issues
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MILAN -- Italian insurance company Assicurazioni Generali SpA, which has defended its interest in acquisitions in the U.S. and its corporate-governance structure after complaints from small shareholders, could face mounting criticism in the run-up to its annual general meeting in April, though it won't be enough to force changes, observers said.
Generali yesterday rebuffed complaints from shareholder Franklin Mutual Advisers, a unit of U.S. mutual-fund group Franklin Resources Inc., which had said the company should overhaul its corporate- governance structure. Franklin didn't name specific issues but cited "well-documented deficiencies in corporate governance and management compensation matters."
Franklin, which holds a 0.3% stake, wrote a letter to Generali last month, criticizing its planned U.S. acquisition strategy.
The move was the second motion for change at Generali management in recent months. In October, U.K.-based hedge fund Algebris Investments LLP, which also holds a 0.3% Generali stake and an option to buy a further 1%, criticized the Italian insurance company's corporate governance.
Algebris pointed to top-management pay structures -- which it said were too high compared with European peers -- and to a corporate structure that featured a chairman and two co-chief executives.
Algebris yesterday said it supports Franklin's challenge to Generali, reiterating its criticism of the insurer's corporate governance and possible expansion plan.
The U.K.-based hedge fund has said that pay should be tied to achievement of targets and that Generali's top management should consist of a nonexecutive chairman, one group CEO, one group finance chief, one group chief operating officer and one chief investment officer as well as a managing director for each geographic area.
Franklin said it "generally agrees with the sentiments expressed by Algebris and other shareholders," without naming them.
Generali Co-CEO Giovanni Perissinotto responded to Franklin in a letter: "While our governance structure remains somewhat different from other organizations, we believe there is no magic formula for the perfect governance, and looking at our record of consistently outperforming our financial targets we think it provides us with an effective way to manage our organization."
Last week, Generali co-CEOs Sergio Balbinot and Mr. Perissinotto reiterated the company's aim to expand operations abroad. "Generali is following the U.S. market with a selective approach to specialized segments," Mr. Balbinot said, adding that the insurer is looking at companies that provide investment products for senior citizens, a fast-growing and lucrative niche in the life- and pension-fund markets.
Traders in Milan and London said yesterday that some other shareholders will likely follow the lead of Algebris and Franklin and send letters of complaint but won't muster enough support to push through changes at the annual meeting.
One major obstacle faced by disgruntled investment funds is Generali's strong core shareholder group, led by Italian merchant bank Mediobanca SpA, Generali's largest shareholder with a 15.6% stake.
According to Generali statutes, investors need the support of 2.5% of the capital in order to change the agenda at April's annual general meeting, but would need far larger percentages to change governance rules.
Mediobanca declined to comment yesterday. Franklin didn't respond to calls and emails seeking comment.
