Alitalia airline: A business case of bad corporate governance

Abstract

Corporate governance, allocating rights and responsibilities inside the firm, provides worthwhile guidelines that lead management to valuable processes and activities, which are the core of business success for the interests of all stakeholders. This paper provides evidence of an interesting business case in which many corporate governance rules were disregarded. In Alitalia airline company, the management, ignoring corporate governance aspects, strongly disrupted economic value. The study is based on the analysis of managerial profiles of Presidents and CEOs of Alitalia, evidencing their relationship with corporate governance issues. Moreover, we deeply investigated the story of Alitalia and the governments’ political influence on the airline company. We found the absence of a proper mix of authority and responsibility, conflicts of interests and agency costs, poor monitoring activities, lack of managerial skills and scarce managerial effort, jointly with ineffective incentive mechanisms. The consequence was that past bad governance has compromised the ability of the company to create new value. We conclude that when governance principles are disregarded for a long time, even a high performing and cash-rich company can lose its competitive advantage, damaging its chances of a turnaround.