MILAN (Reuters) - Italy has a lot more to do to make the country more attractive to foreign investors who have been put off by its "relationship capitalism," Giuseppe Vegas, president of financial watchdog Consob said on Monday.
Vegas said things were changing but more needed to be done to make it easier for professional investors to put money into Italian businesses.
"'The little world of the past' of our relationship capitalism is slowly disintegrating but for now institutional investors prefer to remain on the sidelines," Vegas said in his annual speech to the finance industry.
Italy's big companies have relied for decades on a system based on personal influence and connections, while a web of cross-shareholdings protected them from foreign predators.
At the other end of the spectrum, small businesses with less than 10 employees - which account for 95 percent of the total - have been heavily reliant on bank loans, often secured through personal relationships.
This has begun to change since the global financial crisis and Italy's economic slump when bank loans dried up and tens of thousands of companies defaulted on their debts.
"But we're only halfway through," Vegas said. "A significant distance separates us from countries with more advanced capital markets."
Vegas said a market-based model made it easier for companies to be taken over, senior management can have a bigger role on company boards and institutional investors are more active in shaping corporate governance.
In Italy, 58 percent of the around 7,000 companies with revenues exceeding 50 million euros are family businesses - and the owners are often reluctant to cede control to outside investors.
But foreign investment is increasing. A study by industry body Unimpresa showed the value of foreign investments in listed companies in Italy rose to 279 billion euros (208 billion pounds) in June 2015, or 51 percent of the total, up from 44 percent a year earlier.
This was the first time that foreign ownership topped the 50 percent mark in the euro zone's third-biggest economy.
And last year, foreign companies took over some of Italy's big corporate names such as the world's fifth-largest tyremaker Pirelli and automotive designer Pininfarina (MI:PNNI).
Swiss company Dufry bought World Duty Free from the Benetton family and U.S. conglomerate United Technologies (N:UTX) purchased a 70 percent stake in family-owned heating systems group Riello.