December 8, 2023

Scandal at Finmeccanica Revives Questions in Italy

ROME — For weeks now, the influential chairman of Finmeccanica, the state-backed Italian military equipment group, has been resisting calls to resign, even as the company sinks ever deeper into a widening kickbacks scandal and posts disappointing returns.

At least four investigations, at times overlapping, are under way involving Finmeccanica and its subsidiaries, laying bare what prosecutors depict as a system of patronage, slush funds and bribery that has already felled some executives at the group and contributed to a big slide in the company’s shares.

Italian media reports are comparing the cases with the so-called Clean Hands investigation of the 1990s, which uncovered kickbacks at dozens of Italian companies and swept away an entire political class.

The day of reckoning for Pier Francesco Guarguaglini, the chairman and former chief executive, could come Thursday, when the board of directors was to review what it last week cryptically called “delegated powers and granting of powers.”

Last week, Mario Monti, the new Italian prime minister, said he was keeping an eye on the case and expected a “rapid and responsible” solution. On Wednesday, he said his government would respect the board’s “procedures and the eventual deliberations.”

While it is likely that a shakeup of some kind in Finmeccanica’s corporate governance could emerge, the outcome of the meeting is anything but a foregone conclusion, although Italian newspapers have been abuzz about possible successors to Mr. Guarguaglini in recent days.

As evidenced by the tenaciousness of Mr. Monti’s predecessor, Silvio Berlusconi, and other beleaguered public figures, “Italians aren’t used to giving up their seats,” said Luca Giustiniano, an associate professor in management at Luiss University in Rome.

“It’s not in our culture to leave when we’re invited to leave,” he said.

Tension within the company have also been fueled by an open conflict between Mr. Guarguaglini, who was chief executive from 2002 until May, and his successor in the post, Giuseppe Orsi, over their differing visions for the group, which has lost two-thirds of its market value since January.

In many ways, the turbulence that has engulfed the company, Italy’s second-largest industrial group, after Fiat, has laid bare both the dynamic potential of Italian industry as well as the ingrained mechanisms in the national way of doing business that deter such growth.

Under Mr. Guarguaglini, the company became a strong international competitor and nearly doubled its work force to some 71,000 people through a series of at times costly acquisitions.

The group is best known for its still-profitable AgustaWestland helicopter division. Through its Alenia unit it is also a supplier to Boeing for its new Dreamliner passenger aircraft.

In November, Alenia took a write-down of €753 million, or $1 billion, partly because components supplied to Boeing were deemed to be unsatisfactory.

Just Tuesday, its Ansaldo transport units signed a $1.3 billion contract to supply technology and vehicles for a new, driverless subway system for Honolulu.

In 2008 Finmeccanica bought DRS Technologies, a U.S. supplier of military electronic products, for €3.4 billion, a price that some analysts consider too high and that has contributed in no small part to a debt load of €4.7 billion.

Mr. Guarguaglini also attempted to simplify the group and focus on its principal areas. But some analysts say that the strong state presence, with the Finance Ministry owning just over 30 percent of Finmeccanica, prevented broader changes because of the impact they might have on the company’s Italian employees, who account for around 56 percent of its global work force.

Since taking over in May, Mr. Orsi has spearheaded a series of efficiency plans that include selling some €1 billion in assets and nonstrategic operations.

Mr. Giustiniano at Luiss University noted that the company operated in sectors that were especially vulnerable to global factors like the economic downturn. That, he said, partly explained the company’s recent losses, which totaled €324 million in the third quarter.

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