1. Privatization, Employment and Employees Session V: Employee Participation in Privatization Transactions Policies and Performance: The Italian Experience Olimpia Cuomo Council of Experts, Italian Ministry of Economy Istanbul, 11th October 2002

2. Concerns and Objectives of Privatisations Results Debt /GDP ratio reduced from 123% in ’94 to 109.8% in 2001 Transformation of SOE into joint stock companies Establishment of legislative frame work to promote efficiency and competition Development of the Italian market; role of retail investors and employees Debt /GDP ratio reduced from 123% in ’94 to 109.8% in 2001 Transformation of SOE into joint stock companies Establishment of legislative frame work to promote efficiency and competition Development of the Italian market; role of retail investors and employees Budget deficit and public debt high and rising Inefficient structure of many publicly-owned Italian companies Absence of clear regulatory framework over public utility sectors Lack of a developed Italian capital market Budget deficit and public debt high and rising Inefficient structure of many publicly-owned Italian companies Absence of clear regulatory framework over public utility sectors Lack of a developed Italian capital market Concerns

3. Sellers PeriodGross Amount (Euro bn) Italian Treasury1994-May 200267 IRI GroupJuly 1992-Dec 200030 ENI groupJuly1992-Dec 19984.1 TotalJuly 1992 – May 2002101.1 The Privatisation Programme - Key Accomplishments

4. Structural Changes in the Italian Equity Market Privatisations directly managed by the Treasury 375,000 500,0001,000,0001,500,0002,000,0002,500,0003,000,0003,500,0004,000,000 IMI Feb '94 1,000,000 420,000 190,000 383,000 830,450 2,100,000 1,700,000 438,000 1,600,000 2,120,000 1,250,000 3,800,000 1,500,000 BCI Mar '94 INA June '94 ENI 1 Nov '95 ENI 2 Oct '96 ENI 3 June 97 Telecom Italia Oct '97 ENI 4 June '98 AEM July '98 BNL Nov '98 BMPS June '99 Acea July '99 Enel Oct '99 Autostrade Dec '99 292,000 Credito Italiano Dec '93 Retail participation has consistently increased through privatization programme NUMBER OF RETAIL INVESTORS IN PRIVATISATION OFFERINGS 1,158,000 Finmeccanica June ‘00

5. Employee Participation was Incentivised Employee Participation was Incentivised Treasury Objectives Incentives Reinforce employee support to Privatization process Improve labor relations Reinforce employee’s sense of belonging and goodwill towards privatized company Encourage employee’s board representation Achieve additional reliable demand of shares Guaranteed minimum number of shares Price discount Bonus shares Use of the TFR; Grant financing

6. Incentives to Employees * On the official price on the day before the set of OPV price ** Methodology for calculating underpricing also accounts for bonus share benefits and additional discounts vs. retail. Additional Discountvs retail Additional Discount * vs retail Bonus Shares Delivery B. Shares Banca ROMA ENI 4BNLENEL NO 1/101,1/10 12 months YES 12 months YES ENI 3 1% 12 months NO 1/10 70% TELECOM 1% 1/10 12 months YES 70% 1% 70% YES 75% YES 100% 1,1/20 100% Grant Financing Using TFR 6,5%NA14,34%17,32%4,04% Underpricing ** 13,65

7. On Average 73% of Employees Applied for Shares… 10 20 30 40 50 60 70 80 90 100 S.Paolo ImiTIBDRBNLENI4ENEL 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Number of Employees applying for shares Applying Employees/Potential Employees th

8. …With a High Retention Rate Over Time

9. Case Study: Alitalia The Combined Global Offering In 1996 Alitalia started a restructuring plan which provided for significant cost reductions and strategic reorganisation Within the implementation of Alitalia’s plan, in 1998 the Italian Government (which owned 85% of Alitalia’s share capital through its subsidiary IRI) decided to undertake a capital restructuring of the Company and start the privatisation process The transaction (the “Global Offering”) involved three different share offerings: Capital Increase via a rights offering Employee Offering Secondary Share Offering

10. Case Study: Alitalia (cont.) IRI 85.1% Market 14.9% IRI 53.0% Market 26.5% Employees 20.5% Following the completion of the Global Offering in June 1998, the Italian Government decreased its holding in Alitalia from 85% to 53% Market free float increased from approximately 15% to 27% while 20.5% of the company was controlled by Alitalia’s employees

11. Case Study: Alitalia Employee Share Ownership Scheme: First ever in Italy of such large scale 317 mn Shares (20.5% of Company’s share capital) attributed to Alitalia’s full time employees The Company paid the purchase of such shares (offered to employees at nominal value as additional remuneration) through existing capital reserves accrued overtime 3 years lock-up 3 employee representatives on Board of Directors (out of a total of 17 representatives) The Employee Offering The Offering to employee was the result of the agreement (the “Labor Agreement”) with the unions and provided that employees accept a reduction in salary and higher productivity standard

12. Case Study: Alitalia Rationale of the Employees Participation History of high strikes level and work stoppages with significant impact on Alitalia’s financials. In 1995 an aggregate of 33 labor actions grounded over 2,000 flights Restructuring process in order to reduce the cost of personnel and restore profitability Labor Agreement signed with eight employees unions provided for labor cost savings, improvements in employees productivity and equity ownership of between 20% and 30% Employees participation to Alitalia’s Board of Directors has assured a more active role to personnel’s Representatives in the Company’s strategic decisions

13. Case Study: Alitalia (cont.) Reduction of conflict between unions and management Shared objectives and decisions Reduction of labour cost Negative impact on stock liquidity Potential impact on stock price upon monetisation Potential conflicting role at representatives level; Unions representative or Shareholders representative? Positives Issues Alitalia’s Experience The participation of the employees was a significant event in the history of the Company Alitalia as well as many national carriers has suffered from difficult market conditions mainly due to an overall strategic industry repositioning and external events which have been affecting air transport over recent years

14. Conclusions Development of employee share participation evident, but: participation to financial results and in decision making processes still small no direct impact on share price performance EU Member States acknowledge importance of wider employee participation to enterprise results through: profit sharing share ownership tax break

15. Conclusions How to cope with a widespread employee share ownership? The role of the European Union A new framework to encourage employee equity participation Necessity of linking decision-making and incentives, with value creation as the ultimate objective Towards an “employee capitalism”?