The Agnellis and Fiat: Family Business Governance in a Crisis Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

The Agnellis and Fiat: Family Business Governance in a Crisis

Introduction:

Fiat is an automotive company based in Italy and it consists of many brands that include: Fiat, Alpha Romeo, Ferrari, Lancia and many more. The company comprises of 190,000 employees and 46 billion euro revenues. For a automotive company like Fiat, the year of 2002 has brought several changes in the automotive industry. Most of the companies had implemented new organizational structures. Further, they were initiating new styles of management in their respective departments. In addition to that, measures had been taken to improve sales and reduce costs.

The case represents a 2004 scenario when the death of Umberto Agnelli placed the whole organization in grief and potential issues that arose as a result. After the death of Umberto, the CEO of the company Morchio requested John Elkann to make him the CEO and the Chairman of Fiat Company. Smyrnios & Klein (2002) defined a family business as an organization where all the major leadership positions are designated to the family members. In a family business, the members in the family have the power to make all strategic decisions for the business. The family in turn gets benefits and advantages from the business and enjoys a wealth that is coming from the business. The trend for a family business is famous and it is widely implied in US and Europe as well, but the business failed to go further than 4th or even 3rd generation. Many of the researches indicate that hardly 12% of the businesses owned by families survive till the 3rd generation, and hardly 3% of the business survives to continue till the 4th generation. The trend of family business is especially famous in the automotive industry, and the best example in an automotive company is the Fiat Group Automobiles.

Morchio’s request to be the Chairman:

The company’s tradition was to choose leader from the family members; however, non-family members were never discouraged to join the business. After the sudden death of Umberto Agnelli, the company has encountered several challenges. After the death of Umberto, the company has made John Elkann the future leader of the company. After the death of Umberto, the family business was in deep trouble, and the financial position of the business was in a severely bad position. In addition to that, the company has changed four CEOs in three years and now it’s high time for the Fiat Group so as to stabilize itself. After the death of Umberto, John Elkann has made Giuseppe Morchio, the new CEO of the company.

In order to analyze Morchio’s request to be the Chairman, the board of directors needs to evaluate the impact of giving two positions to one person on the profitability of the business. The company needs to decide whether the corporate governance should unify the two positions or not. Fiat’s board of directors needs to evaluate the pros and cons of making Morchio, the CEO and Chairman of the company.

Pros and cons:

The board of directors has no doubts regarding the contributions made by Morchio in Fiat’s business. He did aggressive planning to make reinvestments in automobiles. The purpose of aggressive planning made by Morchio was to improve the exchange price with General Motors and to regain its flagship position. A person can take charge of the situation and the ability to take the business out of the problems. He realized and made other members in the board realize that the automobile industry still had a lot of potential and the company just needed more interest and attention. He believed that the company needed to take some measures so as to improve the value of the GM put option.

After taking charge of the CEO’s position, he convinced the board of directors to raise capital of 1.8million Euros. In addition to that, he intensified the sales of non-automotive assets and used the cash that has been generated from this in research and development. He did research in automobiles especially in smaller models that had potential in the long-run.

Furthermore, Morchio along with Umberto negotiated for an extension of the General Motors put option to 2005 so that the company could get some time to cover the losses and start generating profits. In order to do that, the CEO sold several Agnelli holdings outside of the Fiat group and shifted all the remaining companies to IFIL. Initiatives taken by Morchio resulted in growth in sales for the first time in ten years.

Moreover, he thought of appointing Mr. Montezemolo as the Chairman of the company as he will support Mr. Morchio to help in the governance of the company. If the company selects another person as the company’s chairman then there will be a risk of losing the best CEO that the company has and that is something ......................

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