Gori’s career at Pirelli draws to a close
The leadership feud between Pirelli’s two top managers, Marco Tronchetti Provera (64) and Francesco Gori (60), described within the company as a “redefinition of the organisation model”, is a first-class déjà vu experience for many observers of globally active corporations.
Decades ago, after the long-established German firm Krupp only managed to scrape through a steel crisis plaguing the country’s Rhine and Ruhr regions with the aid of substantial state support, the German government pressured the company’s top management to step down. Krupp boss Berthold Beitz resigned and retreated to “Villa Hügel”, the famed hilltop residence of the Krupp family, where he took over chairmanship of Krupp major shareholder the Krupp-Foundation; he kept his seat on Krupp’s Board of Directors.
Everything should have remained this way had his replacement, Günter Vogelsang, not been so spectacularly successful. Vogelsang made a clean sweep and sold every loss-making asset, terminated the production of commercial vehicles and locomotives and, in the remaining core Krupp businesses, rapidly earned enough money to repay the government ahead of time. Thanks to this recovery, which he only observed and admired from afar, Beitz’s influence automatically grew once again. The “Hill” intervened with increasing frequency until Vogelsang chose to decline an extension to his contract and left Krupp. The spoiled for success top man saw himself as the leader, not just the executor of the Foundation’s orders. Following Vogelsang’s departure, Berthold Beitz officially “only” served as chairman of the Krupp Board, later honourary chairman. In practice, however, the Krupp-Foundation chairman alone decided what to do and not to do.
This has remained the case until the present day. There is no way around the nearly 99-year old gentleman. The Board must remain favourably disposed towards the “Hill”, as thanks to the Foundation’s 25.1 per cent share in the now-merged ThyssenKrupp Group, just one person continues to call the shots: The chairman of the Krupp-Foundation. While the now 92-year old Vogelsang enjoyed enormous career success following his resignation, Krupp has experienced numerous crises and currently ThyssenKrupp faces a massive challenge that could even – once again – threaten its very existence.
Even success can create victims
Now to move from Germany’s Ruhr district to Milan. The city is considered Italy’s unofficial capital, its “moral” capital and its “gateway to the world”, not to mention Italy’s centre of business. The Pirelli name is as legendary there as Krupp is in its homeland. And in the early 90s the Leopoldo Pirelli-led tyre and cable company stood on the brink. Then Marco Tronchetti Provera, at the time a relatively young man (whose family in the meantime has accumulated a 25.1 per cent shareholding in Pirelli), took over leadership of the company. With a firm hand and the patience of the creditor banks the financial expert succeeded in restructuring measures. Out of necessity, the cable and diversified products business units were sold. Pirelli returned to its roots, namely tyres.
During the era of internet euphoria, however, just before the internet bubble burst, the company made a couple of spectacular divestments. Tronchetti sold several small IT businesses with low three-figure million turnovers for billions of dollars. That is the upside. The downside is that he invested this money in Telecom Italia. With this, a crucial decision – that didn’t pay off – was made. Due to some neat financial arranging he gained leadership and control of this company, even though Pirelli and Benetton only possessed a minority shareholding. Tronchetti wanted to show himself and others that, and how, a formerly dull state-owned enterprise can develop and be made to bloom, how values can be created. Then came the burst of the internet bubble and the 9/11 attacks, and billions of dollars in assets were destroyed. The goals Tronchetti set couldn’t be reached; the company’s exit a few years later was perhaps not entirely voluntary, however it came as a relief for the Pirelli Group. It may well also be the case that Italy’s government pushed for Pirelli’s exit from Telecom Italia.
Over the years just one company business performed the way it should: Pirelli Tyre. Business unit leader, Francesco Gori, who in the near future will retire after 33 years in the tyre maker’s service, is one of the most experienced tyre managers in the world. Before his promotion to leadership of this business unit eleven years ago, Gori held positions of responsibility in product planning, strategy and sales. In the 1990s Pirelli constantly lost market share and appeared to have little long-term future. Gori halted this trend and established Pirelli anew. The challenges he faced were not easy and at first very little financial means were at his disposal; later every cent was required for the Telecom adventure. The situation even went so far that Tronchetti discussed with analysts the possibility of selling Pirelli’s commercial vehicle tyre division in order to regain a little freedom to move with Telecom Italia. This proposition was opposed by management, and would at any rate have been very difficult given the close integration between Pirelli’s passenger car and truck tyre factories. That said, who’d have purchased the business back then, at a time when there was very precious little money to be made from manufacturing commercial vehicle tyres?
By the turn of the millennium Gori hadn’t managed to not only stop this negative trend, in the following years until the present he also led the tyre maker Pirelli towards a very strong global position. According to turnover the company may “only” be the fifth largest tyre maker in the world, but this is nothing to look down on and, upon closer inspection, it can be seen that this turnover is almost exclusively generated with the premium Pirelli brand. Therefore, it is not possible to think in raw sales figures alone. Pirelli is about high performance tyres, premium tyres and ‘green’ tyres. And, above all, about a single-brand strategy! All other major competitors tot up their turnover from multiple brand names that must each be looked after and advertised, and sold at a price below that of the first brand. The result: low margins.
Some time ago, it was predicted that Pirelli and its solitary brand would not be able to compete against its rivals, who were capable of offering products in various price segments. Such forecasts turned out to be incorrect. Only with brands – with premium brands – can good earnings be made; the money earned with budget brands is nothing to write home about. And because this is the case, Pirelli’s competitors are increasingly reducing production capacity in this segment.
It is only in the last few years that sufficient investment was made in Pirelli’s tyre business. The company’s last attempt at reorganisation, its excursion into the real estate sector, proved unsatisfactory and was also terminated.
The Pirelli Group is on the way to breaking through the six billion euro barrier. In 2011 it made a net profit of 461 million euros from its 5.6 billion euro turnover. Gori had achieved all his goals, the tyre business is enjoying constant growth and double-figure EBIT margins have been attained. Not a cloud was to be seen on the horizon.
Yet problems are now coming into view after all. Gori leads the tyre business and has a place on the company’s board. And as the Pirelli Group is now 99 per cent tyre-related, what exactly is the role of the Group chief executive who didn’t achieve the expected success when attempting to restructure the company? Tronchetti made it clear he wasn’t ready to move to a position on the Board. And given the balance of power, the better choice was out of the question, and thus the die was cast. Driven by a self-image fed from years of success, Gori drew the necessary conclusion and the Italian “Hill” took over leadership.
Pirelli can’t, and shouldn’t, embark on a new change of direction, however. The now 64-year old Marco Tronchetti Provera has scant time remaining in his professional life to contemplate a long-term restructuring. Besides that, the company should heed the old proverb: “Cobbler, stick to your trade.” Pirelli can do many things, but can do one thing particularly well: Produce and sell tyres. Chances are strong that things will stay this way.
In the eyes of market observers and customers, Francesco Gori will be remembered as a reliable partner. Clear in his negotiations, consistent and perseverant in their implementation. Pleasant to deal with, even when broaching difficult subjects, and with a strong sense for subtle humour. Time and time again, Francesco Gori showed that a person is only successful when they – like a figure skater – mastered the compulsory exercise along with the freeskating. You must be able to convince the financial world and the bank analysts with exciting stock exchange stories, but before this you must also take on a multitude of customers who are at best only of regional significance. It is a pity that Gori, who fought for both the company and the famous Pirelli brand for 33 years, took the decision to step down.