After Bernabe became CEO problems at Eni reached the detonating point with the Clean Hands scandal.
The extent of the scandal’s impact on Eni caught Bernabe by surprise. Over the years, he had strongly suspected corruption within the upper ranks of the company, but he knew neither its extent nor its mechanisms, or that such a massive degree of personal gain was involved. For instance, he was mortified to learn that one manager stood accused of using embezzled money to buy luxury villas all over Europe. All of a sudden, he realized how stupid he was, Bernabe recalls. He was like a parent who did not realize his child was taking drugs. Then, when you find out, you ask, How could not have realized?
As Bernabe grappled with this question, prosecutors closed down entire Eni buildings to prevent tampering with evidence, at one point, they shut the company’s headquarters in Milan. With a decimated senior-management team, Bernabe worked for weeks almost alone at the top of the company and practically around the clock. He describes the impact of Clean Hands as like an atomic bomb exploding on your head.
Many Italian companies struck by the Clean Hands investigation claimed their managers were being targeted by mistake. But Bernabe offered no such reassurance. Instead, he asked all the senior managers of Eni’s operating companies for their resignations. He challenged those who remained to see the scandal as he did: as an opportunity to re-create a more transparent, productive, and competitive company. The old Eni may be burning he told his employees in a speech, but a new enterprise could rise from its ashes. The transformation would require clarity, transparency, and rigor.
Indeed, Eni has been something of a phoenix in the years since its crisis. Bernabe’s consolidation efforts have decreased capital spending by $1.3 billion and debt by $ 9.1 billion. Labor productivity has risen 112% and while revenues have dropped as the company has divested operations, profits have risen sharply. Eni posted a loss of $ 554 million in 1992; in 1997, it enjoyed profits of $3 billion. And finally, Eni’s first public offering in November 1995 was such a success that the company held a second tranche in 1996; it sold 1.2 million shares and netted $5.2 billion. The deal was the largest secondary cash offering in the world and the largest public offering ever made in Italy. A third tranche took place in July 1997; in the end, 49% of Eni was publicly held. The stock, which entered the market in the $30 range, has recently been trading at more than $70.
Radical transformations like the one at Eni offer an opportunity to test common assumptions about leadership. We might assume, for instance, that Franco Bernabe is comfortable with friction and unpredictability. However, Bernabe actually hates conflict and tries to avoid it. Nor does he fill the role of the classic charismatic leader. He is unprepossessing and shy on the point of appearing remote. A colleague once described him as a surgeon precise very clear cut, and on some occasions without emotions. Bernabe also defies the model of the leader who has worked his way up the ranks networking along the way. He began his career as an academic and worked as an economist at Fiat. At Eni, he began as the assistant to the chairman and then worked as the head of planning. He himself will tell you that before being appointed CEO of Eni, he never ran the nitty-gritty of an operating business but worked at the edges not doing, but listening observing and learning.