Board Governance in Bank Foundations. The Italian Experience

The work is about the Governance in bank foundations. Italian bank foundations are a particular kind of nonprofit organization, operating in the exclusive interest of a territory, especially in the fields of art, culture, health, and social assistance. Although they share in substance the common idea of foundations, their governance structure presents some peculiarities that distinguish them from typical nonprofit organizations. Bank foundations’ governance structures comprise two different boards with different but complementary functions. The Board of Trustees is in charge of the foundation’s direction; it defines objectives, strategies, and long-term programs. The Board of Directors has more of an administrative function, translating long-term plans into short-term programs of action. Defined as such, this board structure allows the foundation to overcome the rigidity that typically characterizes the dual governance model. It acknowledges a deeper connection between the policy-making body and management and thereby ensures a closer link between strategy formulation and strategy implementation.In Italy, there are 88 bank foundations that vary widely in terms of their size. Their appearance in the Italian economic landscape has been the result of a deep legislative process of reform involving the banking system during the 1990s. As a result of this process, Italian bank foundations were set up as private legal organizations with statutory and management autonomy, charged with the pursuit of only philanthropic purposes in the interest of the territory. They are allowed neither the exercise of business activities nor the performance of credit functions and are also excluded from any form of financing, disbursement, or subsidy involving entities with a profit intent. Their business comprises two major areas of activity: asset management activity, aimed at maximizing the return on investment of the assets, and grant-making activity, focused on the maximization of value for the territory. Asset management and grant-making activity are closely linked. With regard to the former, net assets are invested to obtain the funds needed to finance interventions in favor of the local community. With regard to the latter, those funds are then used within the foundation’s chosen areas of intervention. Amounts disbursed, sectors of intervention, manner of action, and beneficiaries vary depending on size and geographic area.In specific, bank foundations’ governance structure is established by law, focused on participants, roles, and responsibilities. The law provides for separate collective bodies for direction, administration, and control and establishes a clear distinction regarding which bodies carry out which functions. Such functional separation creates a dialectic based on the distinction of roles, tasks, and responsibilities. The basic structure of governance within bank foundations identifies the Board of Trustees as the body in charge of multiannual strategic planning. Its duty is to determine long-term plans, priorities, and objectives of the foundation for both asset management and grant-making activity. The Board of Directors is the administrative body, with the task of translating the multiannual strategic plans set by the Board of Trustees into short-term programs and to communicate them to management for implementation. The basic governance provides for a control body that has the task of monitoring the proper functioning of the foundation. The importance of good governance in bank foundations is emphasized by the guidelines drawn up by the Charter of the Foundations, a voluntary but binding code of conduct common to all foundations.In chapter four we focus on the composition of bank foundations, a key element for good governance in nonprofit organizations. We consider some main aspects regarding the number and gender diversity of members belonging to the policy-making and administrative bodies, the people who select them, and the process of designation. Then, in line with a multistakeholder approach, we propose a map of the main bank foundations’ stakeholders and explain how they are involved with governance, underscoring the importantrelationship among local stakeholders, governance stakeholders, mission stakeholders, and the bank foundations. In particular, we focus on the local stakeholder groups directly engaged in selecting members of the Board of Trustees.We confirm that a good governance depends on adequate governance tools. Strategic planning is a critical component of good governance in nonprofit organizations because it helps formalize strategy through action plans, identify long-term goals, and identify the polices needed to achieve them. Strategic planning in bank foundations is affected by the particular nature of their business, which comprises both asset management and grant-making activities. In Italian bank foundations, every three years, the Board of Trustees identifies within the multiannual planning document the areas of intervention, describes the strategic objectives to pursue within them, and estimates the expected funds to realize such objectives. Every year, the Board of Directors prepares an annual planning document that describes for each sector of intervention the objectives to pursue during the next year and the funds that predictably will be allocated to them. Finally, the Board of Directors identifies an analytical plan for deliberations pertaining to the annual articulation of the activities planned for the next year. Favouring the proper allocation of responsibilities to the different organs that contribute to pursuing the mission, strategic planning can support the good governance of bank foundations.The last chapter shows the relevant financial statement items of 88 Italian bank foundations, focusing on 2012 and 2011, and the analytical composition of the Board of each foundations