The Corporate Hospital

There was no joy in Castelfranco Veneto. The northern Italian town's major industry, the Confitex raincoat and cloth factory, which employed 1,650 workers, was about to close. The company was nearly $20 million in debt and losses were mounting daily. Lamented the parliamentary representative from that district: "For us, Confitex's closing will be worse than an earthquake."

That was little more than a year ago.

Today Confitex and Castelfranco Veneto are thriving, beneficiaries of a new government-sponsored hospital for ailing companies. The agency, known as GEPI (for Gestioni e Partecipazioni Industriali, or Industrial Management and Participation), was created by the Italian government 18 months ago to revive fundamentally strong firms that have fallen on hard times. And times have been particularly hard for Italy's industry in the past three or four years. Under the impact of incessant strikes, inept management, stiffening foreign competition and generally dismal economic conditions, Italian companies have been disappearing as fast as scampi at a gondolier's picnic. About 1,500 plants closed in 1970 alone.

Since its inception, GEPI has received more than 200 applications for help, of which 50 have been accepted and another 50 are still under consideration. Some 80 companies were turned down as hopeless cases, and another 20 had to go elsewhere for treatment; one of GEPI'S ground rules is that a patient cannot be accepted unless there is a demonstrably good chance of recovery. GEPI'S usual therapy is to use government money to buy a minority, or in some cases a majority holding in an ailing company. Whenever possible the agency tries to find private firms to buy shares as well. Often GEPI arranges a merger with a stronger company. If a company's situation appears hopeless, GEPI may simply abandon it and concentrate on developing a substitute industry in the region to provide alternative employment. In the case of Castelfranco Veneto's Confitex, GEPI bought a 100% interest in the firm and streamlined its production.

In many instances GEPI analysts use the newly bought shares to oust a firm's present management and replace it with new executives--often younger men trained in U.S. management techniques.

"We try to rob American firms," jokingly admits GEPI General Manager Franco Grassini, himself a product of Harvard and the London School of Economics. The agency's president, Enrico Bignani, served on an advisory committee ft trie Harvard Business School for seven years, and no fewer than 15 of its top staff members either graduated from U.S. business schools or learned the art of management at such American-based multinationals as General Electric, Westinghouse and W.R. Grace &Co.

None of GEPI'S patients, mostly small manufacturing firms, have yet been rehabilitated to the point where they can be returned entirely to private ownership. But early results are encouraging. Falconi, a leading elevator and hoist manufacturer, was headed for bankruptcy late in 1971 when GEPI bought a half-interest in the firm, arranged for another elevator maker to buy the remaining half, and installed a new management. Falconi (renamed SAIR, for Societa Ascensori Italiani Riuniti) is expected to report reduced losses for 1972. Remmert, a manufacturer of zippers, ribbons and other notions, had closed one of its two plants, put 1,500 workers on short hours and racked up hundreds of thousands of dollars in losses by the end of 1971.

GEPI bought a 52% interest in the firm and began a reorganization that will not be completed until 1974. But even now both Remmert plants are back in operation.

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