Can an Italian conglomerate compete, make money, and get respect in today’s increasingly global marketplace?
“I often joke, saying that I run a company that is a combination of the worst: we’re Italian-based, we’re family-controlled, and we’re a holding company.”
Rodolfo De Benedetti can afford the self-effacing humour: since taking the CEO role at CIR (Compagnie Industriali Riunite) in 1993 from his father Carlo (who founded the company in 1976 by buying a small tanning company and turning it into a major conglomerate) he has streamlined the corporate structure, consolidated an overly-diversified portfolio and modernised the share structure. Analysts today give it a “buy-hold” rating, despite Italy’s waffling economy.
Rodolfo De Benedetti spoke with INSEAD Knowledge in an exclusive interview in his offices in Milan recently.
Rodolfo’s efforts began when he was called back to Italy by his father, Carlo, in 1988 to join the family firm. He had been working in Geneva for Lombard Odier and in New York at then-Shearson-Lehman Brothers, after receiving degrees in political economy and law from Université de Genève. It was a move he made somewhat reluctantly, out of filial duty.
“When I joined the company back in 1988, it was a difficult period for us. We’d been through some issues in terms of investments that didn’t turn out as expected: we had an overly-diversified portfolio and were over-stretched financially,” he acknowledges. “What I did in the first few years was to streamline the corporate structure to try to make it more simple, to get rid of a number of intermediate holding companies. If you think the structure is complicated today, it was much more so in the past and I think we’ve done a great deal in terms of simplifying it.”
Simplifying The Business Model
Today, CIR is listed on the Milan Stock Exchange and the FTSE ST Mid Cap Index. It is controlled by the holding company COFIDE-Gruppo De Benedetti of which the founder and his three sons own a 54 percent stake. In 2011, CIR had consolidated revenues of €4.5 billion and net income of more than €10 million, with more than 14,000 employees in its four businesses: media, automotive components, energy, and healthcare. The first two have been part of CIR for more than 20 years, the latter came into being under Rodolfo’s watch. All were founded in Italy and are now becoming major sector players.
“The healthcare business is riding on the wave of an ageing population, which isn’t always an advantage but at least it creates a growing demand for quality healthcare services like those that we provide in our structures,” he points out. Rodolfo created the healthcare company, KOS, in 2003. It operates some 65 nursing homes and rehabilitation centers throughout Italy and provides high-tech medical services such as diagnostic imaging, nuclear medicine and radio therapy. “Today we are the leading player in the long-term care part of the (Italian) market and we believe this is a growth market even if the Italian economy is not doing very well right now,” he opines.
CIR’s Sorgenia, set up by Rodolfo in 1999 as a joint venure between majority-holder CIR and Austria’s Verbund, is today one of Italy’s main energy operators, active in electrical power generation and natural gas distribution – one of the few private operators with its own generating plant. Entry into this sector was made easy by EU energy/utlity deregulations. “When the EU imposed on member countries the liberalisation of the gas and power markets, we thought this would create an opportunity for an entrepreneur to create new businesses and become a successful player in this industry, and we have done that over the last 13 years,” he adds. Sorgenia is today active in France and Romania (renewables) and in Poland and the U.K. (exploration and production).
On the media business front, CIR’s Gruppo Editoriale L’Espresso is one of Italy’s most important publishing groups encompassing radio, TV, publishing and Internet portals. Rodolfo started the digital transformation some 15 years ago to offset the decline in the traditional side of the media business. “We are seeing opportunities even in mature businesses like our media business because of the change that technology is bringing about,” he says. “I think media is a very interesting and difficult sector because of the evolution of technology and the change in which people consume media products around the world. Italy is probably lagging a bit compared to some other European markets like the U.K., but what is happening in those markets will happen here.”
The automotive components sector, Sogefi, began as an Italian business in 1980 shortly after CIR was founded but today more than 90 percent of sales are foreign-based, mostly in Western Europe with a growing emphasis on Latin America where its filters and suspension components make it the market leader in Brazil. “We have a growing important presence in Latin America, we have a growth presence in the U.S., and obviously Asia is becoming the market to be in concerning auto components and auto production, so this is a big change for us.”
Corporate Governance Overhaul
CIR has also modernized its corporate governance, making it more transparent and adaptive to EU regulations. “The majority of the directors in every one of our listed companies are non-executive directors, and are independent members so they are totally unrelated to the company or the family,” Rodolfo points out. “We typically try to pick members who are as diverse as possible in terms of experience – both from academia and from the corporate world.” That includes women - before the EU directive mandated a quota. “We have added a number of women directors in the last few years and here we try to anticipate what is now a legal obligation for Italian and publically-listed companies to have a certain percentage of female board members. We are very happy with that: it has added the right type of diversity and the right type of complimentary experience to our boards and it has been appreciated by investors and by the capital markets.”
Having said that, of 17 board members listed for the holding company COFIDE Gruppo De Benedetti SpA, two are women: independent director Paola Dubini of Bocconi University who joined in 2011, and Francesca Cornelli, a non-executive independent director from the financial-economic sector, who joined in 2010.
Rodolfo is bringing CIR onto the world stage at a time when things are particularly tough for Italy. “The Italian market is right now facing a pretty severe recession,” he says. “Our GDP is going to decline this year (2012) between 2.5 to 3 percent. Projections for next year (2013) are either a continued negative GDP or flat at best, so I think we are going through a significant downturn – worse than most other European countries and I think this is due to a series of structural reasons that this government has started to address but which will require much more time. I hope that whatever government we will have after next year’s elections there will be a growth agenda which will be at the centre of the government’s agenda.”
These are subjects Rodolfo discusses with other corporate leaders twice a year at the European Roundtable, to create a sounding board for policy-makers. Competitiveness today tops their agenda. “Increasing Europe’s competitiveness is one of the core issues that Europe has today,” he explains. This goes from energy policy to labour market reforms to a true European market for goods and services... this has partly been achieved and it has changed the lives of a lot of European citizens but it’s still an incomplete process.”
Europe And The Future
The last five years of recession have thrown a monkey-wrench into the process, he believes. “The problem is those concerns which have surfaced in the capital markets about sovereign risks and about countries which are going through difficult patches, so “convergence” becomes “divergence”, We have differences in competitiveness that develop in different countries and this is the real issue we have to address. It is my conviction we need MORE Europe, not less. Having more of those structural issues addressed at the European level would be good for our economies.”
How does he, as a European CEO with international aspirations, view the future, based on five years of the “great recession?” “I don’t think we are out of the woods yet,” he opines. “The challenge is to run companies through an extended downturn because you cannot only cut; you have to be able to at the same time look for the opportunities that this downturn creates and invest in those opportunities and be selective in both cutting and investing. The challenge is managing complexity while the pace of change is actually increasing. “
So is the array of considerations and responsibilities on the CEO’s plate. There is more at stake – and at risk - than just managing the profit and loss statement. “You have to look after the inclusion of minorities, you have to look out for female participation – not just on the board of directors but in the whole of the company. And you have environmental concerns,” he says. Then there’s visibility. “The spread of communications and social media make you much more visible whether you want it or not... this creates a more complex environment for whoever runs a business.”
Rodolfo himself sits on a number of corporate boards and is active as a member of the European Advisory Board for the Harvard Business School and, with his family, has set up a foundation based in Milan to provide rehabilitation structures for children born with mental and physical diseases.
The transfer of power at CIR from father to sons announced in October 2012 is considered a succession success story. From April of this year, Rodolfo is scheduled to become executive chairman of both COFIDE and the CIR Group – a meteoric rise which he views with customary humility. “This was my third job,” he says referring to his work experience in Geneva and New York. “I have learned a lot in the past 25 years working alongside my father. I didn’t know a lot when I started.”
Running The Family Firm
Any advice to other family business operators? “Gain professional experience outside the family business to start. This is paramount. I would really insist on that,” he advises. “And when you run a business which becomes sufficiently complex, you cannot just rely on the skills of family members. You need to combine that with external professional management. It is very important to create a context which is based on meritocracy and not based on family if you want to be able to attract, retain and motivate external professional management, which I think is essential.”
Rodolfo is married to the writer Emmanuelle de Villepin with whom he has three daughters. Are any of them in the running to succeed HIM at the helm? “They are still too young to talk about that.”