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Provide 2000 word report that evaluates the Agnellis and Fiat: Family Business Governance in a Crisis case study and analyse aspects of succession, strategy,

performance, governance, and structure. Use characteristics from your respective family businesses or those previously discussed in class to provide depth and context

to your analysis. Ensure you critique and make recommendations for change where necessary.

The Agnellis and Fiat: Family Business Governance
in a Crisis (A)
On Saturday evening, May 29, 2004, John Elkann left the funeral of Umberto Agnelli, which took place
at the family’s ornate private chapel in the Cimitero di Villar Perosa outside of Turin, saddened and
concerned about the challenges facing the Agnelli family he now led. The public outpouring of affection
during the day, as Umberto’s body lay in state at the Fiat museum archive in Turin, reassured him about
the loyalty of many people to the Agnelli family. But these were risky times. Umberto, the chairman of
Fiat Group, had died after a brief illness, only a year after the death of his older brother and family
patriarch, Giovanni Agnelli. John had been designated the future leader of the family in 1997, and now it
was his job to make important and difficult decisions for his family.
The Agnellis had a tradition of granting complete authority over their business holdings to the family
leader. That tradition had done much to give the family stability, direction, and unity. The stability was
enforced by the presence of Gianluigi Gabetti, who had served Giovanni and then Umberto for thirty
years as trusted advisor and chief executive of the family’s main holding company. With Umberto’s
death at 70 years old, John now had this authority, and he would likely draw heavily on advice from
But in this time of transition for the family, the family business was in trouble. Fiat Group, the
Agnellis’ prized investment and the largest industrial concern in Italy, was in bad shape. Its fourth CEO
in three years, 57-year-old Giuseppe Morchio, had just launched a major turnaround. As the family’s
designated (but not formally confirmed) leader, John’s priority was get the Group’s many stakeholders,
including the banks, to support Morchio’s plan. This would be harder now than when Gianni and then
Umberto clearly had been in charge. John left the funeral and went back to his office with Gabetti to think
about the challenges ahead.
John had been struck at seeing Morchio at center stage of the public condolences, actively shaking
hands. He was even more surprised to hear from Gabetti about a request passed on from Morchio’s
assistant. Morchio had asked that Fiat’s board of directors meet in special session the very next day, a
Sunday. The assistant explained the urgency of this request by citing the annual gathering of bankers
and industrialists at the Italian Central Bank on Monday. With Umberto’s passing, Morchio wanted to
send a strong message to the country’s economic leaders that Fiat was not rudderless, and that he was
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812-128 The Agnellis and Fiat: Family Business Governance in a Crisis (A)
firmly in charge, endorsed by the family. Morchio, John learned, was going to ask the board to make him
the chairman of Fiat.
The request alarmed John because it would rush the board, whose members would still be feeling the
sorrows of Umberto’s passing. More important, it would be the first time since the early years of Fiat,
aside from the rebuilding period after World War II, that the same person was both chairman and CEO of
Fiat. To John and his family the separation of these roles was a pillar of governance on which the family
business was built. The family was comfortable with delegating operational control of Fiat to a nonfamily
CEO. A combined chairman-CEO would be harder for the family to overrule.
Morchio’s demand had come at the worst possible time. Fiat Group desperately needed a strong
leader like Morchio. But giving him both CEO and chairman roles could fundamentally change the
family’s ties to the business. John faced a difficult first decision.
At such a dire time for the company and family, John wondered why Morchio would want both
responsibilities for himself alone. It didn’t help that Morchio hadn’t bothered to walk over himself to
discuss his proposal with John. Maybe Italian state television, which had covered Umberto’s funeral as a
national event, was right in saying that his passing was the end of an era for the Agnellis and for Fiat.
Governing the Agnelli Family Business
Governance had been simpler in earlier decades of “Fabbrica Italiana Automobili Torino,” or Fiat. The
first Giovanni Agnelli (1866-1945) was an ex-cavalry officer and son of a small landowner when he got
interested in the new horseless carriages. He and eight other gentry and aristocrats started the business in
1899 in Turin, close to his home in Villar Perosa. Initially all had equal shares in the limited public
company, with one of them, Ludovico Scarfiotti, serving as the chairman. A power struggle among the
owners ensued early on. Agnelli, who had some engineering training of his own, favored products
developed elsewhere, while chief engineer Aristide Faccioli preferred using his own product ideas.
Agnelli won that battle (Faccioli left the company) in 1902 and became CEO of Fiat, with Scarfiotti
continuing as Chairman. As the company expanded, Giovanni and two other partners invested heavily in
the business and sold shares to the public. The financial panic of 1907 forced the company to reorganize
under pressure from the banks, and the shareholders lost nearly all their equity. But with support from
the banks, Agnelli remained in operational control.
The company, which by then had developed an expertise in engineering, flourished during World
War I and the boom of the 1920s. Fiat was the first European carmaker to invest in the Ford model of
assembly line production, giving it a tremendous leg up on the competition. Soon it moved into
manufacturing trucks, airplanes and locomotives. As part of a strategy of vertical integration, it even
made its own steel and electricity and opened a financing subsidiary. By 1929 Fiat was the third largest
Italian industrial company.
To solidify ownership control over the rapidly expanding operation, Giovanni in 1927 set up a holding
company, the Industrial Financial Institute (IFI). IFI held a majority of the Fiat shares, and Giovanni and
his son, Edoardo, held nearly all the IFI shares. Two other Italian industrial families, the Pirellis (tires)
and Borlettis (department stores), held the remaining IFI shares. From this point on, the Agnelli family,
through IFI and other holding companies, always owned a controlling stake in Fiat.
Starting in the 1990s, Italian law forced anyone acquiring 30% or more of a listed company’s stock to
make an offer to buy all the remaining shares. IFI owned more than the 30% of Fiat before the law was
issued, and was exempted from the rule, but anyone else trying to amass shares to gain control would
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The Agnellis and Fiat: Family Business Governance in a Crisis (A) 812-128
have the burden of making a full bid. Since then, the Agnellis, through IFI, have kept their ownership of
Fiat above the 30% level.
IFI proved useful for controlling other investments as well. As Fiat’s expansion started generating
returns, Giovanni Agnelli went beyond automotive and invested in a variety of industries: beverages
(Cinzano), concrete (Unicem), coal (Vetrocoke), air transportation (Società Aviolinee Italiane),
hydroelectric energy (SIP), publishing (La Stampa), construction (Impresit), soccer (Turin’s Juventus
team) and ski resorts (Sestriere). Fiat itself owned all operations related to auto making, while IFI held the
controlling shares in other enterprises as well as Fiat itself. IFI was thus the nerve center for controlling
all of Agnelli’s investments.
As his holdings prospered, Giovanni Agnelli became a kind of industrial prince like the Borromeos,
Medicis and the Savoias during the Italian Renaissance. He was knighted and made senator for life in the
Italian Republic, an honorary position that gave him the nickname of Senatore. Akin to the feudal estates
of old, his autocratic role brought extraordinary loyalty from the management, who became a kind of
gentry themselves. Like many Italian family companies, Fiat developed a tradition of lifetime
employment and promotion through the ranks, cementing this loyalty. Added to that was the excitement
of working on world-class engineering in a modern industry.
Starting in 1920, Senatore delegated operating responsibilities of Fiat and the other companies to a
series of non-family CEOs. He remained in full control as chairman of Fiat, with a board of directors
consisting of his son Edoardo, company managers and other shareholder representatives.
Senatore’s concerns about control extended to his family. Himself an only child, he had a daughter,
Aniceta, as well as a son, Edoardo. Senatore groomed Edoardo as his successor by putting him in charge
of Juventus starting in 1922, when he was 30. Aniceta’s husband, Carlo Nasi, was fifteen years older than
Edoardo, but neither he nor Aniceta ever had a chance at leadership. It became a tradition that only direct
male descendants of Senatore could become the leader of the family. And only in later decades did
women take on executive responsibilities in Fiat or in other entities controlled by the family.
Tragically, in 1935, Edoardo died in a plane accident at the age of 43. (Indeed, Senatore and his wife
ended up outliving everyone in the second generation.) Senatore was already 66 by then, so he quickly
chose a successor from among his five grandsons. Only two had reached their teen years at that point,
both named Giovanni after him: Aniceta’s 17-year old and Edoardo’s 14-year old. He settled on the latter,
Gianni, as he was often called. (See Exhibit 1, the Agnelli family genogram; and Exhibit 2, identifying the
leadership of relevant companies.)
As for Aniceta’s son, Giovanni Nasi, he later became the Chairman of IFI and a director at Fiat. An
influential family member his entire life, he was a reference point for important family decisions.
Senatore had a firm policy, “One leader at a time,” and despite losing Edoardo, he continued that
policy. The family leader had the responsibility of choosing his successor from those in the younger
generation with the willingness and proven capability to lead. The family talent pool has thus been a
vital element of family success. Senatore chose Gianni after the premature death of his indicated
successor, and seventy years later Gianni chose John Elkann after the premature death of his indicated
According to family tradition, relatives other than the successor were neither encouraged nor
discouraged to join the family business. Anyone interested in joining a company owned by the family
was welcome to do so, but would have to meet the requirements of the business and win the approval of
the family leader. The family stressed the importance of having the family leader be chairman of IFI and
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812-128 The Agnellis and Fiat: Family Business Governance in a Crisis (A)
Fiat, though in special circumstances the leader could leave the chairmanship of either company to
another relative. Anyone, family or not, could be chairman of the other non-Fiat enterprises owned by
Why such a strict approach? Senatore was undoubtedly influenced by his experience in the military,
which relied on the core principle of unitary command. Fiat was always known to have a military style of
organization. Italy’s Piedmont, where Villar Perosa and Turin were situated, was the home of kings
during the Italian monarchy and favored an autocratic style. Painful memories of battles with his partners
early on may have driven Senatore as well. Whatever the reason, a quick and clear decision-making
structure in the early years of the automobile industry probably gave Fiat an advantage over rivals,
which had more complex ownership and governance.
Just as Gianni came of age, World War II ravaged Fiat and most of the country. When Germany finally
fell in May 1945 and the Allies liberated Italy, the newly emerging national government seized the
company. Accusing Senatore and CEO Vittorio Valletta of collaborating with the discredited Fascist
government, they dismissed the board and appointed outsiders to run the badly damaged operation.
They began talk of nationalizing Fiat, as France had already done with Renault. Shortly thereafter, in
December 1945, Senatore died at the age of 79.
Gianni Agnelli Takes Over
Although only 24, Gianni immediately took over as leader of the family. The family owners were
Gianni, his six siblings, and their five Nasi cousins. With the death of their grandmother, Senatore’s wife,
a few months after her husband at the age of 77, only the third generation survived. Gianni’s cousin Clara
Nasi was the oldest Agnelli at 33. For his part, since reaching adulthood, Gianni had spent his time
acquiring a law degree and serving as a lieutenant in the war.
Senatore’s will divided his assets equally among his twelve grandchildren, except that Gianni received
a double portion and the ownership of RIV, a ball bearing company. But Senatore’s blessing counted far
more than the voting shares. Other family members readily deferred to Gianni on Fiat and other
investments, continuing Senatore’s rule of only one leader at a time.
Immediately this young family had to respond to the threat of losing Fiat to the government. The leftleaning
government distrusted the Agnellis, and Gianni’s youth didn’t help to build their confidence. The
62-year-old Valletta, a manager of Fiat since 1921 and CEO since 1939, stepped into the breach and won
crucial support from the occupying Allied forces, which worried about the spread of communism. He
soon negotiated the return of the company to the shareholders, and by the end of 1946 also won back
management control.
At that point, as a loyal Fiat executive, Valletta offered the chairmanship to Gianni. Gianni knew he
was not ready to lead the business, so he made Valletta chairman as well as CEO while taking the vicechairmanship
for himself. Aside from representing the company at various events and receiving regular
updates, Gianni stayed away from operations and preferred to explore the world and build his network
of business contacts.
By that point the minority shareholders of IFI had sold their shares of IFI, giving the Agnellis complete
ownership of IFI and, in turn, 30% ownership of Fiat. Gianni became vice-chairman of IFI and left the
chairmanship of IFI to Giovanni Nasi, while Annibale Vola was the non-family CEO.
Meanwhile, the post-war reconstruction, aided by Marshall Plan loans and high import tariffs, greatly
favored established companies such as Fiat. The company just had to rebuild and grow as fast as possible,
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The Agnellis and Fiat: Family Business Governance in a Crisis (A) 812-128
and Valletta proved to be a strong operational leader to get this done. Fiat’s well-developed assembly
lines were ideal for the emerging era of middle class consumerism, and affordable Fiat automobiles were
soon all over Italy and Europe. At Valletta’s retirement in 1966 at age 83, Fiat was the largest industrial
company in Italy.
Gianni had already stepped up his involvement by then, starting by assuming the chairmanship of IFI
in 1959, taking over from Giovanni Nasi. With Valletta’s retirement Gianni also became chairman of Fiat.
Rising to CEO of Fiat was Valletta’s long-time deputy, Gaudenzio Bono, giving continuity to the
company management. Gianni convinced his 32-year-old younger brother Umberto to join him at Fiat,
first as the manager of the company’s new French operation and then as CEO five years later.
Fully intent on continuing his grandfather’s diversification, Gianni was eager to attract the outside
investment needed to pay for his ambitious designs. He also wanted to ensure Agnelli unity and control
over the businesses. To do that, he created a class of IFI nonvoting, preferred stock, and listed it on the
Italian Stock Exchange in 1968. The Agnellis continued to hold all the common voting stock, maintaining
their control of IFI and Fiat.
With Fiat’s maturing business starting to generate significant cash distributions, Gianni invested in
growth industries from banks to publishers. In 1957 he bought and transformed an additional holding
company, the Istituto Finanziario Italiano Laniero (IFIL), to be his vehicle for acquiring financial
institutions and other investments in Italy. A year later he created IFINT (IFI International), renamed
Exor Group in 1993, in order to pursue investments in promising geographical areas outside of Italy.
Along the way he bought up controlling interests in Italy’s remaining carmakers, the luxury brands
Lancia, Alfa Romeo, and Ferrari. Finally in 1978, in order to better deal with the complexity of Fiat itself,
he reorganized that company’s several different activities into wholly-owned separate legal entities under
the newly chartered Fiat Group.
IFI remained the center of the Agnelli system, owning the controlling shares in IFINT and IFIL as well
as more than 30% of the centerpiece Fiat Group. (See Exhibit 3.) All four of these companies (IFI, IFIL,
IFINT, and Fiat Group) had a different mix of directors, reflecting their different purposes. Gianni
chaired all but IFIL, where his brother Umberto led the board.
Operationally in Fiat, Gianni started off trying to do nearly as much as Valletta had. He eventually
realized he was better suited to strategic concerns, and he left day-to-day affairs to Umberto. Gianni
pushed Fiat far beyond Western Europe, opening factories and penetrating markets in Eastern Europe
and Latin America, especially in Brazil. His aggressive efforts, combined with a strong personality and
style, made him highly influential at home and abroad. For many proud Italians this “King of Italy”
signified their rebuilt country’s emergence as an economic power.
With such far-flung efforts Gianni greatly needed loyal advisors, and he found his main advisor in
Gianluigi Gabetti. Four years younger than Gianni and like him a lawyer by training, Gabetti rose to high
positions in the Banca Commerciale Italiana in the postwar years. In 1965, the Olivetti Corporation hired
him to run their American operation. Six years later, at the age of 46, Gabetti met Gianni in New York.
They hit it off so well that, after a series of meetings in New York in 1972, Gianni made him CEO of IFI.
Akin to the professorial Valletta, Gabetti said he worked “in the spirit of a civil servant,” with the needs
of the Agnelli family chiefly in mind.
While some of Gianni’s initiatives went well, Fiat as a whole began to suffer in the 1970s. Oil-price
shocks, macroeconomic difficulties, foreign competition, and labor unrest all cut deeply into sales and
profits. Meanwhile, Fiat Auto was also investing heavily in automating its production process.
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812-128 The Agnellis and Fiat: Family Business Governance in a Crisis (A)
These were also years of great political instability in Italy. The Communist Party began attracting a
large number of votes, raising fears of nationalization if they controlled the government. The Red
Brigade, terrorists who aimed at overthrowing Italian capitalism, saw Fiat as the prime target. From 1975
to 1980, they killed four Fiat managers and wounded 27 others. Gianni and Umberto’s continuing
personal involvement in the company showed the family’s commitment to the enterprise during that
time of crisis.
Fiat Group, whose reserves had ballooned in the 1960s because of large profits, now took on a heavy
load of expensive short-term debt. The Group desperately needed a new infusion of capital, but the
Agnelli family wasn’t able to produce the large sums needed.
Gianni’s pragmatism saved the day in 1977, when he increased Fiat’s capital by $600 million. The
Agnellis contributed enough to maintain their 30% share, mostly by shifting some assets in IFI directly to
Fiat. But nearly all the rest of the amount came from a $415 million investment by the Libyan National
Bank, which was flush with cash from the oil shocks. The Libyans acquired a 9.7% equity position (later
increased to 14%), second only to IFI’s, and gained two seats on the board. In exchange they promised
not to interfere in decisions.
Gianni was naturally concerned about the United States’ reaction to dealing with a country suspected
of supporting terrorists, especially since IFI’s holdings included a weapons manufacturer. He met with
George H.W. Bush, then the head of the Central Intelligence Agency, and with officials at the Pentagon.
Since Gadhafi was not yet seen as a mastermind of international terrorism, Gianni decided that the
reputational damage caused by the deal could be contained. By the time the Libyans cashed out at a good
profit in 1986, Fiat had used the Libyan investment to grow out of the crisis.
During this period, Fiat needed to overhaul its operations. Gianni and Umberto gradually realized
the need for fresh thinking and professional management at the top, not to mention a major downsizing
of what had become bloated operations. In 1976 Gianni went outside the company and hired Carlo De
Benedetti, then a rising industrialist and later the leader of the Olivetti conglomerate. He was to be co-
CEO with Umberto. De Benedetti quit three months later, partly because Gianni thought his turnaround
plan was too tough, but mainly because Gianni thought his management style wasn’t compatible with the
company culture. As Gianni later explained, “He is the sort of person who could run a thing only if he
could run it totally…He would have run the whole thing on his own, probably well, but that was not my
While realizing that he needed outside management help, Gianni insisted on keeping the biggest
decisions in the hands of the major stockholder. He believed strongly in the family’s continuing influence
in the company. As he told an interviewer, “The presence of a major shareholder is important because he
best represents the shareholders as a whole. In the Fiat case the shareholder is Agnelli, which holds one
third of the company and has the relative majority. This shareholder is responsible toward the thousand
shareholders who trust him. The CEO needs a reference point and someone to be accountable to, and the
shareholders need someone to function as a guide for shareholder interests.”3
To replace De Benedetti, Gianni and Umberto promoted the 53-year-old Cesare Romiti, a hard-nosed
finance expert and outsider hired in 1974 from the state airline Alitalia. Umberto gradually handed him
operational power until 1980, when he resigned completely and Romiti became the sole CEO of Fiat.
Over the next three years the company dismissed 100,000 workers and greatly reduced the number of
strikes. Productivity doubled, and the company was again strong in most markets.
Despite these improvements, Fiat began discussions with Ford Motor Company about a merger of
automobile operations. International competition was putting pressure on all car companies to improve
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The Agnellis and Fiat: Family Business Governance in a Crisis (A) 812-128
operations, and both companies aimed to combine technologies and manufacturing scale to create new
efficiencies and markets. The plan was for Fiat Auto to merge Ford’s European subsidiary into its
operations for five years, until 1988, and then for Fiat Auto in turn to merge with Ford as a whole.
Fiat Auto CEO Vittorio Ghidella favored the deal, along with many Agnelli family members who
expected it to boost the value of their shares. Gianni, however, ultimately vetoed the deal, perhaps
because he was not yet ready to lose control of the centerpiece of his investments.
The deliberations with Ford did convince Gianni and Romiti to tighten the company’s accounting and
relax its autocratic management style. They also tried to boost Fiat Auto with reinvestment and new
models, and these brought some improvement. Gianni, on the other side, continued his diversification
strategy, mostly within Fiat Group but also in IFI. The latter included food & beverage (Danone),
chemicals (Snia-Viscosa-Bpd), insurance (Toro Assicurazioni) and publishing (RCS Rizzoli). (See Exhibit
3 for a description of the Fiat Group’s operations in 2004.)
Succession and Structural Challenges
Senatore’s direct descendants now numbered over fifty as the fifth generation began to come of age.
Each time IFI shares traded hands among the relatives, Gabetti and the family had to prepare a new
shareholders agreement. This was now becoming more frequent. To avoid the trouble, Gianni in 1987
created a new holding company, Giovanni Agnelli & Co. Societa in Accomandita per Azioni. As a limited
partnership, this new entity gave the family greater flexibility in transferring shares. “The Accomandita”
consisted solely of the family’s shares of IFI common stock. Whoever controlled the Accomandita
controlled all the family’s investments.
A large majority (88%) of Senatore’s descendants submitted their shares in IFI and received the
corresponding shares in the Accomandita. When all the remaining shareholders did the same few years
later, Gianni held 33.4%, Giovanni Nasi had 10.6%, Umberto had 9.7%, and the other members of the
third generation or their successors divided the remaining 46.3%. Only direct descendants of Senatore
could hold the shares, and they could sell only to other descendants. The various branches of the family
held their Accomandita shares individually or through family trusts.
The limited partners elected five of them to the role of managing partners: a mix of senior members of
the family, chosen for life, and trusted outsiders who served at the will of the other partners. In 1987, the
managing partners were Gianni, Giovanni Nasi, and Umberto from the family, along with Gabetti and
Romiti as CEOs of IFI and Fiat Group respectively. The latter two were given a token single share in the
Accomandita for legal reasons.
The managing partners in turn elected a chairman who would hold that position as long as he or she
had the support of the majority of the partners and 2/3 of shareholder votes, and it was a foregone
conclusion that they would elect the family leader as the chairman. The managing partners also
appointed a vice-chairman who would serve as chairman in the latter’s absence, and this was Giovanni
Nasi and later Umberto. As chairman, Gianni consulted with the partners but made all the decisions
himself. The Accomandita structure thus gave the family leader full control over IFI who assured an
acceptable dividend stream for the rest of the family. Gianni could appoint the next family leader from
any branch of the family, no matter how few its shares, and he or she would have as much authority as
Gianni did assuming support from the managing partners and the Accomandita shareholders.
Indeed, in 1995 Gianni designated one of his nephews to succeed him: Umberto’s son Giovanni
Alberto Agnelli. The 32-year-old Giovanni Alberto had joined his mother’s family firm, Piaggio, and
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812-128 The Agnellis and Fiat: Family Business Governance in a Crisis (A)
helped turn around the struggling Vespa scooter business. That experience won over Gianni, who once
said, “The important thing is that there is someone in each family generation who takes responsibility
and has the right talents.”
Years before, Gianni had set 75 as the age limit for Fiat Group board members, and when he hit the
milestone in 1996 he followed through on the commitment. He didn’t think Giovanni Alberto was quite
ready to take over, so he had the trusted Romiti move up to the chairmanship of Fiat Group for two
years. The head of Fiat Auto, Paolo Cantarella, succeeded him as CEO for the overall Group. With affairs
now seemingly in order, the 71-year-old Gianluigi Gabetti also retired and moved to Switzerland.
Unfortunately, Giovanni Alberto died of cancer soon after these promotions. Like his grandfather,
Gianni then skipped to the next generation for a successor. He chose his daughter’s son, John Elkann,
who was finishing an engineering degree and had worked at Fiat plants during school breaks. Elkann
was only 21, but upon Giovanni Alberto’s death, he promptly received a seat on the Group and IFI
boards, and later became a partner in the Accomandita.
In 1996 the Fiat Group had consolidated revenues of more than €45 billion and profits of around €2
billion. Although half of profits came from Fiat Auto, the automobile company still struggled in this fastchanging
industry. Competition had emboldened customers to demand more features, and automotive
technology was becoming a great deal more sophisticated. Even though Brazil and a few other markets
were still growing strongly for Fiat, Fiat was falling behind its competitors.
Despite losing Alberto, Gianni had Romiti retire on schedule in 1998. To replace him as chairman he
brought in Paolo Fresco, a high-ranking executive in General Electric. Fresco himself attracted GE
chairman Jack Welch to the Fiat board. Fresco’s international background made him a good fit for his
main responsibility–seeking a partner for Fiat Auto. Realizing that the car company was too small to
afford the huge R&D investment to be fully competitive worldwide, Gianni was now ready to consider a
joint arrangement for his flagship enterprise.
Fresco approached a number of large automobile companies about combining operations, and both
General Motors and Daimler made offers. Daimler’s bid was a cash-only purchase while General Motors
offered stock, which Gianni strongly preferred. The ensuing deal between Fiat and GM in 2000 provided
for some initial operational ties and a minority exchange of shares. Four years into the deal, Fiat Group
would have a “put” option of exchanging the remaining shares of Fiat Auto with GM’s according to
current stock market valuations.
The family supported the move as a way to protect their wealth. Fiat Auto was also less important to
the family financially, having gone from 40% of their assets in 1991 to only 20% in 2001. Even the entire
Fiat Group had become less than half of the family’s wealth. For his part, Gianni probably believed that
the Agnellis could play a major role at GM, because they would be the largest single owners of GM stock
and they would bring stability and focus to the company. Twenty years earlier, when he was considering
the merger with Ford, he told an interviewer that “GM is so big that I don’t know how much weight the
shareholders can have. But we have to consider that at GM the leaders change every three or four years,
whereas at Fiat we had my grandfather for 50 years, Valletta for 25, and now myself for 17.”4
The put option offered little help in the short term. Fiat Auto had last reported a profit in 1997, and
the situation soon grew much worse. The company’s biggest model launch in years had the misfortune
of taking place a week before the 9/11 terrorists attacks. Automobile sales fell further instead of
improving. For Gianni and Fresco, the responsibility for turning around Fiat Auto lay with Group CEO
Cantarella, and they fired him in early 2002. When his replacement, Galateri di Genola, did no better,
they let him go after only a few months.
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The Agnellis and Fiat: Family Business Governance in a Crisis (A) 812-128
Heavy losses and the need for new capital put Fiat Group in a difficult position. To shore up their
weak finances, Fresco raised nearly €7 billion during 2002. A billion Euros came from an assessment of all
stockholders, which meant that the Agnelli family and other IFI shareholders had to put forth €300
million at their 30% share of the Group. A sale of non-strategic companies in the Group raised almost €3
billion. The final €3 billion came from a special mandatory convertible loan from the banks. If the Group
failed to meet payment deadlines, the loan would automatically become equity in the Group. In that case
the banks would become the largest shareholders in the Group, jeopardizing Agnelli control.
Even with the infusion of cash, Fiat remained in desperate straits. 2002 ended with the Group losing
€3.9 billion, raising questions about how much GM would actually have to pay for Fiat Auto. Fiat Group
stock, which had been in the high €20s before 9/11, plateaued at €7. (See Exhibit 4, describing Fiat Group
stock.) And then in January 2003, Gianni died of prostate cancer after a yearlong struggle.
Enter Giuseppe Morchio
As Gianni had designated, Umberto, vice-chairman of the Accomandita, assumed the leadership of
the family and became chairman of the Accomandita as well as of IFI and Fiat Group. He asked Gabetti,
now 77, to come out of retirement to advise him, making him vice-chairman of the Accomandita,
chairman of IFIL as well as a director of IFI.
Umberto also replaced the latest CEO of Fiat Group, Alessandro Barberis. He had learned his lesson
with Romiti, and he hired another hard-driving change agent from outside the industry, Giuseppe
Morchio. Unlike Fresco and Barberis, who had used the put option to justify diversifying away from Fiat
Auto, the 56-year-old Morchio had an aggressive plan to reinvest in automobiles – either to improve the
exchange price with GM or to retain the flagship.
Morchio had spent his career in the rubber industry, eventually joining the big tire maker Pirelli.
Assigned to the sleepy cable division, he had recognized the potential for fiber optics just as the Internet
was taking off. He shifted the division heavily toward optics, and eventually sold most of the operation
to Corning and Cisco for a huge gain – some of which he realized through stock options that made him
personally wealthy. He left Pirelli in 2001, at age 54. Umberto lured him from semi-retirement with the
challenge of a much greater turnaround situation.
Morchio, whose take-charge nature had only increased with his extraordinary success at Pirelli,
quickly got to business at Fiat. He believed that the automobile business still had a great deal of potential
and just needed more attention, at least to improve the value of the GM put option.
Morchio and Umberto convinced the Agnellis and other shareholders, still caught up in the emotions
of Gianni’s passing, to agree to a second capital increase of 1.8 billion euros in the foundering Group. This
time the family’s assessment was €250 million. Morchio also intensified the sale of non-automotive assets
and used the cash to pay for extensive R&D in automobiles, especially in the smaller models that he saw
expanding in the future. He topped off the investments by luring experienced automobile executives
from elsewhere in Europe to take charge of the car company. Separately, he and Umberto negotiated an
extension of the GM put option to 2005, to give Fiat Auto time to regain value. For his part, Umberto sold
off several Agnelli holdings outside of Fiat Group and shifted all the remaining companies to IFIL,
leaving IFI as a shell company.
A year later, Fiat Auto’s sales growth was running ahead of the overall industry for the first time in
many years. Morchio was working hard to win confidence from shareholders and analysts. (See Exhibit
5, describing Fiat Group Financial Highlights.) Yet sales were not increasing fast enough for the company
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812-128 The Agnellis and Fiat: Family Business Governance in a Crisis (A)
to be confident of meeting the payment deadlines for the convertible debt. Morchio asked for more time
to pay off the debt, but the banks refused. If he couldn’t find additional cash, the banks would gain the
leading equity position at Fiat Group in September 2005.
2004 was very different from 1907, when the banks had forced the reorganization of an overextended
Fiat. Back then an Agnelli was the clear choice for management, but now the banks would likely look
elsewhere for guidance. Every month seemed to bring forth a new rescue plan from one industrialist or
another, most of which involved breaking the Group into various pieces and selling them.
It was then in May 2004 that Umberto suddenly fell ill and died. The Fiat chairmanship was vacant
and Morchio was using the central bank event to press for complete authority over the Group.
Traditionally the Central Bank had invited only the chairman of Fiat Group, not the CEO. Morchio
believed that his presence at the prominent meeting would reassure financial and political leaders about
Fiat’s stability and commitment to restructuring. He also believed that combining the two positions
would strengthen his hand in tough negotiations with the banks, which were still inclined to dismiss
Morchio as yet another weak captain of a floundering ship.
The Family Meeting
John Elkann was disappointed as well as alarmed by Morchio’s request. As Group chairman Umberto
had never interfered with Morchio’s efforts, and there was nothing to make Morchio assume that his
successor would do so either. John had been a Group board member since 1997 and he and the board
had fully supported Morchio’s turnaround. Surely at such a dire time, John thought, Morchio would
welcome the help of a leader who might manage the shareholders and other stakeholders. By respecting
the company’s traditions Morchio would also improve his standing with nervous family members.
In their meeting that Saturday evening, Gabetti told John he didn’t think Morchio was trying to usurp
Agnelli control over its investments, as he showed no interest in running IFIL. But it did seem that he was
using the leadership transition to carve a new kind of role with the family – and perhaps also benefit from
selling Fiat Auto as he did with the sale of Pirelli’s cable division. At the same time, John was reluctant to
oppose Morchio’s wishes when so much depended on his efforts. Much of the Agnelli wealth was at
Rather than passively let an outsider to the family, Morchio, fill the leadership vacuum, John
consulted with Gabetti and decided to act. The family tradition was to take important decisions with the
support of the entire family, and he had no time to lose. He first conferred with Gabetti and with Franzo
Grande Stevens, the secretary of the Fiat Group board. Together they outlined the plan. They then called
two meetings: first the family for 10:30am the next morning, and then the Group Board at 3pm that
afternoon. John, Gabetti and Grande Stevens personally called all the members of both bodies. The short
notice was possible only because most family members were already in the area for the funeral. The few
that couldn’t come would participate through teleconference.
With the family convened at its office the next morning, John, Gabetti and Grande Stevens briefed
them on the situation.5 Gabetti told them, “We are here to collect your views on Mr. Morchio’s proposal
that he become both chairman and CEO of the Group. We would like to have you share ideas and
comments before the decision of the Group board. Please note that you are not called here to evaluate the
man and his performance. You have to decide on a question of corporate governance: whether to unify
the two positions, and nothing else.”
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Never had the family been asked to deliberate in this way. Even assembling the far-flung Agnellis at
all was a rarity. Many of the shareholders participated, not just the Accomandita managing partners.
One family member opened the discussion by saying that he liked Morchio and the work he had
accomplished. The family had been asked to contribute a burdensome capital increase to sustain the
floundering Fiat business, and after huge losses and four CEOs, the company had finally started an
effective turnaround plan. Appointing him chairman of Fiat Group as well as CEO was a clear way to
empower him and guarantee the plan’s execution. This decision would be seen as a strong message from
the Agnellis to the Italian industrial and political system. “Even in a critical situation we believe he can
get Fiat back on track. He is the man for the job.”
Another participant pointed out that Morchio was asking them to give full power to a single person.
“This is not in accordance with our tradition. Why should we change? What is different now?”
“The situation is extremely difficult this time,” someone else responded. “In a few months we have
lost our family leaders who, for forty years, had led the family and the business. The nominated successor
is in place, but he is too young. John cannot face this terrible situation alone, so he cannot be the chairman
now. Extreme situations justify extreme decisions.”
Another suggested that they propose that Morchio remain CEO but allow him to nominate a chairman
that he deems worthy. “Who can be a chairman and satisfy both Mr. Morchio and ourselves? What kind
of chairman do we need now? The chairman’s role is to represent Fiat to the shareholders and
stakeholders, especially unions, banks and government. Particularly in this very difficult moment, he
must not have any operational power and he must not create any conflict with Mr. Morchio.”
Another participant disagreed: “This role could be held by Mr. Morchio himself, as he now has a great
deal of credibility among the shareholders and stakeholders. Besides that, appointing him as chairman
and CEO would discourage outsiders from sensing a power vacuum and acquiring a significant share of
Fiat in order to influence the management. We have to consider how much the General Motors put option
and the convertible bond could affect the future ownership structure.”
“We should also consider,” yet another family member said, “that we will have to share and support
our decision with the other shareholders and then with the bank system. By proposing Mr. Morchio we
will have a strong consensus and we will avoid the risk of a counter-proposal from the other shareholders
or stakeholders.”
Gabetti then asked the family for their opinion regarding Luca di Montezemolo as a potential
chairman. The son of an aristocratic Piedmont family, the 57-year-old Montezemolo had entered Fiat
Group by driving for one of its rally teams. In the 1980s he ran the beverage and then the publishing
division, and went on to turn around the debt-ridden Ferrari road car business in the 1990s. Umberto had
named him to the Group board only a year earlier, but the family knew him well and had applauded his
achievements as well as his efforts in putting on the 1990 Soccer World Cup in Italy. He had been close to
both Gianni and Umberto, and his management approach was to team up with talented executives,
making him a good partner for Morchio.
“Mr. Montezemolo has just been nominated president of the Italian Employers’ Association, a very
high profile and demanding role,” someone intervened “Why he should accept such a high position at
Fiat as well?” “How he can take on the two roles?” “Gianni did it in the 1970s,” another family member
reminded him, “and to hold both offices is to give credibility and the moral power of persuasion to the
chairman. It would be very demanding, but the two roles would have a lot of synergies.”
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812-128 The Agnellis and Fiat: Family Business Governance in a Crisis (A)
“Before carrying on with this discussion, we should ask Mr. Montezemolo for his availability,” John
said. “If you all agree, I will call him.”
Montezemolo gave his availability over the phone with John.
“How risky would it be in these hard times to change our board’s organization?” someone asked. “If
we propose a new chairman with the high profile of Mr. Montezemolo, this could be interpreted as a lack
of support to Mr. Morchio. If he loses the support of the major shareholders, nobody will support him
anymore. Fiat Group has hundreds of thousands of employees, millions of customers and a huge and
barely sustainable bank debt; our CEO must be absolutely reliable and needs the maximum support of
the shareholders, especially now. Moreover, do not forget that the Group has had four CEOs in the last
four years. We must stabilize the situation and execute the turnaround once the management is stable.
“We are not destabilizing the management or diminishing support to the CEO,” another participant
said. “We are giving the proper support to Mr. Morchio in accordance with our tradition. In such a
difficult situation why shouldn’t Mr. Morchio accept this proposal? He will continue to have our support
and he will also be helped by an outstanding chairman in Mr. Montezemolo. Why should he prefer to be
alone in a tough moment like this?”
That led to a new objection: “We have to consider another scenario: we are trying to find the best
chairman, but if Mr. Morchio doesn’t agree to the proposal, we risk losing the best CEO we have. Mr.
Morchio could leave the company without a leader; that is something we cannot afford. By trying to
salvage tradition, we could find ourselves with a company in distress in the middle of a turnaround with
nobody in charge. Finding a CEO is at least as difficult as finding a chairman, and without an option for
this role we cannot even consider taking the risk of losing Mr. Morchio.”
This last opinion was widely shared. A number of attendees asked John and Gabetti if they had
another option for the role of CEO. They answered that they had a candidate but declined to reveal the
person. If Morchio agreed to stay as CEO, they said, this other person would be in a difficult position as
he would remain a possible option, weakening Morchio in the future. If Mr. Morchio refuses to accept
Mr. Montezemolo, they will propose this candidate to the board as CEO.
Time was running out and the board meeting was approaching. A decision had to be made. How
should John and the family answer Morchio’s proposal?
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The Agnellis and Fiat: Family Business Governance in a Crisis (A) 812-128
Exhibit 1 The Agnelli Family, 2004
Source: “Gli Agnelli”, Giancarlo Galli 1997 and “La Stampa”, accessed March 2012.
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812-128 The Agnellis and Fiat: Family Business Governance in a Crisis (A)
Exhibit 2 Leadership of the key Agnelli companies 1899-2004
Source: “Fiat 1899 – 1999. Un secolo di storia italiana” Castronovo, Rizzoli 1997 and “Fiat: le fasi della crescita. Tempi e cifre dello
sviluppo aziendale”, Musso/Nardi , Scriptorium, 1996.
FIAT Group FIAT Group FIAT Auto
Years Chairman Years CEO Years CEO
1920-1945 Giovanni Agnelli Sr 1920-1928 Guido Fornaca 1976-1988 Vittorio Ghidella
1945-1966 Vittorio Valletta 1928-1966 Vittorio Valletta 1988-1990 Cesare Romiti
1966-1996 Gianni Agnelli 1966-1971 Gaudenzio Bono 1990-1996 Paolo Cantarella
1996-1998 Cesare Romiti 1971-1976 Umberto Agnelli 1996-2001 Roberto Testore
1998-2003 Paolo Fresco 1976-1996 Cesare Romiti 2001-2003 Giancarlo Boschetti
2003-2004 Umberto Agnelli 1996-2002 Paolo Cantarella 2003-2004 Herbert Demel
2002 Galateri di Genola
2002-2003 Alessandro Barberis
from 2003 Giuseppe Morchio
Giovanni Agnelli e C. S.A.p.A. IFI (now Exor Group)
Years Chairman Years Chairman
1986-2003 Giovanni Agnelli 1927-1946 Giovanni Agnelli Sr
2003-2004 Umberto Agnelli 1946-1959 Annibale Vola
1959-2003 Giovanni Agnelli
2003-2004 Umberto Agnelli
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The Agnellis and Fiat: Family Business Governance in a Crisis (A) 812-128
Exhibit 3 The Agnelli holding company structure in May 2004
Source: Financial statements of IFI/IFIl.
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812-128 The Agnellis and Fiat: Family Business Governance in a Crisis (A)
Exhibit 4 Fiat stock 1994 to May 2004
Source: “Borsa Italiana S.p.A.” – Italian Stock Exchange
Exhibit 5 Fiat Group Financial Highlights (1993-2004)
(€ millions) 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Consolidated revenues 28,176 34,005 39,092 40,244 46,257 45,769 48,123 57,555 58,006 55,649 47,271 46,703
Operating results -433 1,382 1,717 932 1,791 746 788 855 318 -762 -510 22
EBIT -20 1,276 1,878 1,876 2,103 1,321 1,482 2,073 528 -3,955 -319 -833
Cash flow (1) 865 2,624 3,501 3,867 4,184 3,226 2,86 3,63 2,089 -1,649 321 620
ROI (2) -2.7% 10.2% 12.3% 6.3% 12.2% 5.4% 4.8% 4.2% 1.5% -4.7% -4.4% 0.2%
ROE (3) -10.1% 5.4% 10.3% 10.5% 9.9% 4.7% 2.7% 5.1% -3.5% -39.9% -26.3% -26.7%
(1) Net results before minority interest plus depreciation and amortization
(2) Operating results/average net invested capital
(3) Net results/group interests in average stockholders’equity
Sources: Fiat Group’s financial statements
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The Agnellis and Fiat: Family Business Governance in a Crisis (A) 812-128
Authors’ interview with Gianluigi Gabetti, February 19, 2010.
Giuseppe Volpato “Corporate Governance at Fiat SpA,” working paper for EU research project, 2001
Alan Friedman, Agnelli: Fiat and the Network of Italian Power, Harrap General Books, 1988.
Giuseppe Turani, L’Avvocato, Sperlin & Kupfer Editori, 2002.
Giorgio Garuzzo, FIAT- i segreti di un’epoca, by Fazi Editore, 2006.
V. Castronovo e P. Grifone, Capitalismo di Stato e imperialismo fascista, La Città del Sole, 2002.
Prof. Pierre di Toro, “IFI-IFIL-EXOR-FIAT,“
“Agnelli, via all’aumento della Sapa,” 25 March 2003, www.Il Sole 24
Ugo Bertone,“Scelta forte gestita male tra famiglia e banche”, 31 May 2004 [Source?]
Ugo Bertone, Gli Ultimi Agnelli, Milan: Perla Finanza Edizioni Vittoriane, 2004,
Enzo Biagi, Il signor Fiat. Una biografia, Milan: Rizzoli, 1976.
Piero Bairati, Vittorio Valletta, Utet-Torino, 1983.
Valerio Castronovo, Fiat 1899-1999. Un secolo di storia italiana, Rizzoli: Milan, 1999.
“Exor Group History”, 2010, from
“Fiat (U): Another year, another restructuring plan”, Goldman Sachs, 30 June 2003.
“Fiat-Challenge Remains,” Deutsche Bank, 01 March 2004.
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812-128 The Agnellis and Fiat: Family Business Governance in a Crisis (A)
1 As of 2011, out of 200 living descendants of Senatore, only six are currently involved with companies owned by
the family, and only two are operating managers: John Elkann, chairman of Accomandita, EXOR and Fiat; Tiberto
Brandolini-D’Adda, chairman of the Sequana paper company; Andrea Agnelli, chairman of Juventus; Lupo Rattazzi,
chairman of the aviation company Neos; Alessandro Nasi, head of US activities at Exor and manager at CNH and
FIAT, Eduardo Teodorani-Fabbri, manager at CNH. The first three also sit on the board of Exor, which replaced IFI
as the main holding company.
2 “What Mr. Fiat Learnt: Agnelli and Fiat,” The Economist, August 30, 1986.
3 Arrigo Levi, ed., Agnelli: Intervista sul Capitalismo moderno, Laterza, 1983.
4 Arrigo Levi, ed., Agnelli: Intervista sul Capitalismo moderno, Laterza, 1983.
5 The source for the meeting is our interviews with John Elkann and Gianluigi Gabetti on February 19, 2010.
Since a detailed formal report of the meeting does not exist, we reenacted the situation illustrating opinions and
comments of different participants.
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