Commentary: Carlo De Benedetti's Failings Were Italy's, Tooby
The ouster of Carlo De Benedetti from the chairman's spot at Olivetti is the saddest chapter in one of the most remarkable business stories in postwar Italy. Looking for an explanation for his dramatic fall, many European commentators have focused on De Benedetti's stubborn refusal to pull out of the PC business, where Olivetti has been hammered. That's true, as far as it goes. But a strategic error, combined with a dose of corporate chieftain's hubris, does not explain everything in this saga. It's also important to consider how much De Benedetti's failures stemmed from Italy's Machiavellian and narrow-minded business culture.
At first glance, it's hard to see how De Benedetti, 61, reflects Italy's entrenched business practices. Judging by much of his spectacular quarter-century career, he has been as internationally minded a tycoon as they come. A splashy debut in big business as Managing Director of Fiat lasted just three months, but De Benedetti soon took over typewriter manufacturer Olivetti and transformed it into Europe's computer giant. That was the start of a whirlwind spate of dealmaking across a still-fragmented Europe, culminating in 1988 with his unsuccessful grab for Societe Generale de Belgique, the Brussels conglomerate.
But while the SGB bid failed, plenty of others succeeded for De Benedetti, from Valeo, the huge French auto components group, to fashion house Yves Saint Laurent. Combining Old World charm and U.S.-style financial pyrotechnics, De Benedetti appeared to be an utterly new breed of businessman. And utterly formidable.
Yet the messy, slow-motion crisis at his flagship Olivetti demonstrates that this Turin-born magnate stumbled because of some very Italian shortcomings. One of these weaknesses is the deep reverence in Italy for appearances, a reverence that sustained De Benedetti until the end. From his 15 years on J.P. Morgan & Co.'s International Advisory Council to the Op-Ed think pieces he penned for London's Financial Times, De Benedetti worked overtime to burnish his image.
As late as last July, De Benedetti wangled the chairman's job for the group charged with setting up a pan-European telecom authority. Olivetti was clearly floundering by then. Even odder, he landed this prestigious post just one month after an Italian appeals court had confirmed a 4 1/2-year prison sentence for fraud charges. He probably will not serve time. But in the U.S., shareholders would have attacked a CEO who eagerly sought outside distractions at such a perilous moment. In Italy, hardly anyone objected: It was foreign investors who started asking questions.
One reason few in Italy challenged De Benedetti's methods was that many of his habits reflected accepted practices in Italian business. For all of De Benedetti's utterances about the importance of market forces, few were more skilled at milking the system. His use of Chinese boxes--chains of shell companies that allowed him control of quoted companies with minimum capital--made a mockery of shareholder rights.
PAYOFFS. Even De Benedetti's approach to building sales showed his love of the insider's game. His contacts with the Establishment Left secured Olivetti government contracts and financing that sustained the computer business. As De Benedetti admitted after his November, 1993, arrest on corruption charges, the company even resorted to payoffs to get government business. "Within the fault lines of the Italian system, you can exploit certain situations," says Riccardo Barbieri, an economist at Morgan Stanley. "People who might be entrepreneurs instead become adventurers."
De Benedetti's flawed stewardship of Olivetti mirrors present-day Italy itself. No country is more pro-European at heart or as eager to support monetary union. Yet almost no other European nation is as unprepared to make the hard choices needed to modernize its economy. Italian governments have reined in spending since 1992, but Rome is still dragging its feet on rolling back the state's huge holdings in banking and industry. And the 1997 budget looks as if it will sidestep such key issues as pension reform.
De Benedetti avoided the tough decisions, too, hoping somehow that his own gorgeous rhetoric would save him and his company. Yet if he had ruthlessly shut down the PC division, De Benedetti might well be triumphing once more. Olivetti would then be free to complete a successful transition into telecommunications. Instead the company's fate remains in doubt, and Italy's business community is left pondering the bitter lessons of a hero's undoing.