Nottingham University Business School

MSc in Business and Management

2015/16

Individual Coursework Coversheet – Electronic

Submission

NAME: Pierfrancesco Bresolini Eibenstein

Student ID: 4257378

MODULE TITLE: Managing People and Organisations

(N14135 UK)

The enlightened entrepreneur: philanthropy and ethical capitalism

of the Italian fashion company Brunello Cucinelli

Table of Contents

Introduction .......................................................................................... 1

1 Literature Review ................................................................................ 2

2 The company: Brunello Cucinelli ............................................................ 3

3 Analysis ............................................................................................. 5

Conclusion............................................................................................. 8

List of References

1

Introduction

In recent years, the financial crisis has characterised the global economy. The focus on

profit has led the direction of business at the expense of employees, people and society.

Moreover, many companies have delocalised their production to countries where the cost

of labour is less expensive. These aspects have not helped in the creation of a strong

organisational culture. However, the case of the Italian clothing company Brunello

Cucinelli demonstrates the possibility of running a highly successful business based on

strong values of respect and ethics.

Philanthropy and ethical capitalism are such important and rare aspects

nowadays. However, a strong organisational culture focused on the well-being of

employees and stakeholders created by a founder, combined with a non-diversified

business neither geographically nor economically, could pose some significant risks.

According to Beckhard and Dyer (1983), the presence of only one owner with the power

for total decision-making is extremely risky in terms of succession after their death and

the subsequent continuity of that positive organisational culture. This is traditionally a

problem for Italian family-run businesses.

This risk seems to be greater in the specific case of the company Brunello

Cucinelli, where also issues of size, relationship with trade unions, talent attractions,

business continuity and growth can be identified as potential issues.

The purpose of this essay is to analyse the various positive and negative aspects

of the strong organisational culture at Brunello Cucinelli, with specific focus on the

benefits and risks. The paper will be divided into three sections. Section one will describe

the main theories and literature review relevant to this case study, followed by the

history and the main characteristics of this particular company in section two. The last

section will offer an in-depth analysis of the values of the company, with the aim of a

complete evaluation of the potential risks of such an organisational culture at Brunello

Cucinelli. A final discussion section is presented before concluding the paper.

2

1 Literature Review

In 1985, Schein published the first edition of his book Organizational Culture and

Leadership in which he started to identify three different levels of organisational culture.

These three levels are: artifacts, espoused beliefs and values, understanding assumption

(Schein, 1996). In specific, Mullins (2011: 451) defines artifacts as “physical space and

layout, the technological output, written and spoken language and the overt behaviour of

group members”. This classification is important in helping to understand the different

levels of organisational culture. However, what really is organisational culture? One

simple definition of organisational culture is given by Deal and Kennedy (1982: 4): “the

way we do things round here”. Another definition from Morgan (2006: 116) is: “the

pattern of development reflected in a society’s system of knowledge, ideology, values,

laws, and day-do-day ritual”.

Different countries have developed different cultures with very different

approaches. For instance, take the case of Western culture compared to Eastern culture.

Morgan (2006) describes the differences between individualistic American companies and

collectivistic Japanese companies. Japanese culture is the result of a long tradition based

on honour and the military, in which “the spirit of service of samurai” was a cultural

value (Morgan, 2006: 118). In modern Japanese society, this spirit of service has been

translated into a strong bond between people, and between corporation and employees

(Morgan, 2006). Wilson (2014: 230) indicates the concept of “Confucian dynamism” in

which the long-term approach of this philosophy describes change and adaptation with

respect to traditions as is the case in Japan. Given this, companies in Japan, as well as

the East in general, are flexible; they give something back to the people and this spirit of

cooperation ensures a high degree of involvement of people in companies: “everyone is

expected to perform at the best of his or her ability” (Morgan, 2006: 120). Instead,

American companies are rigid, they want to be the winner, the focus is on profits and the

means of achieving this is by exploiting employees (Morgan, 2006). This practice

exacerbates conflicts and divisions in the workplace between employers and employees

(Morgan, 2006). This lack of willingness to change and give, and lack of ability to see

3

changes and adapt to them combined with the modern crisis of values was a major

factor behind the 2008 economic crisis (Rose, 2010). Similarly, organisational climate

plays a fundamental role in terms of employee commitment, engagement and,

ultimately, loyalty. Mullins (2011) defines organisational climate as something intangible

yet something that can be felt. She underlines the importance of creating a positive

climate in order to motivate people to work, to secure their commitment, to engage

employees and for their psychological well-being. By increasing the quality of work on

offer, employee loyalty increases correspondingly.

Finally, it is important to understand the possible relationship between

organisational culture and work motivation. Herzberg (1966) introduced the theory of

hygiene factors and motivators. Hygiene factors do not motivate people but if they are

not satisfied, the result is dissatisfaction and malcontent in the workforce. On the other

hand, motivators facilitate positive satisfaction. However, if they are not satisfied, they

do not generate dissatisfaction. Motivators are simply additional incentives that can

motivate workers.

2 The company: Brunello Cucinelli

Brunello Cucinelli was born in 1953 in Castel Rigone, in the province of Perugia (Italy),

and hailed from a humble family of farmers (Rinaldi, 2014). When he was 15, his family

left the countryside and moved to the suburbs where his father secured a job in a factory

(Nalley, 2013). Brunello enrolled on a diploma course to become a building surveyor but

he left university in 1975 before finishing it (Rinaldi, 2014). Two events in this period of

life greatly influenced Cucinelli: the insults thrown at him by classmates because of his

rustic dialect and the sadness of his father at home after being humiliated in the

workplace (Friedman, 2013). The latter, in particular, hurt him: “I would see him in the

evening silent and troubled at times, however, when during the day he had been

subjected to humiliations, sometimes even insults from his employer” (Cucinelli, 2010:

13). From that point on, the concept of a need for ethics was born within him: “I don’t

4

know what I will do with my life, but whatever it is, I will do it for the dignity of

humankind” (Nalley, 2013: 81). Inspired by Luciano Benetton, who was producing multi-

coloured woollen sweaters, he decided to apply the same strategy to cashmere sweaters,

which were usually grey or black at that time (Davis, 2015). In 1978, he founded his

company with no finances and by asking friends to lend him the first kilograms of

cashmere and he sold the first 53 sweaters in Bolzano (Nalley, 2013). Since that point,

the company now has 1400 employees, 3000 independent contractors in the region and

in 2014 posted a revenue of £251 million (Proietti, 2015). In 2012, he went public via an

IPO in the Borsa Italiana of Milan (LaRocca, 2014a). The market appreciated his

philosophy and during the initial days of trading, the company’s share value increased by

over 50% (Rinaldi, 2014). In fact, it is because of Cucinelli’s philosophy that his

company is so interesting. He states: “if I give you the right conditions to work, and I

put you in a beautiful place, where you feel a little bit better about yourself because you

know your work is being used for something greater than producing a profit, maybe you

will get more creative, maybe you will want to work more” (Mead, 2010). Brunello

Cucinelli has built a special company with a special philosophy. Operating in the absolute

luxury sector, the Italian produces clothes of extremely high quality and sells them at

equally high prices (Davis, 2015). The sweaters retail at about £1,500-2,000 each.

Meanwhile, Cucinelli has also bought and restructured the medieval hamlet of Solomeo,

in the province of Perugia, and home to the company’s headquarters. In 2009, Cucinelli

won the EY prize for “Italian Entrepreneur of the Year” and in 2010, he received a

honorary degree from the University of Perugia (Cucinelli, 2010).

5

3 Analysis

During the last decade, many luxury brands, including Italian brands, have delocalized

their production to countries where the cost of labour is lower (Kapferer, 2012).

Furthermore, during the crisis of 2008, many companies made employees redundant and

rationalized their cost structures and investments (Rose, 2010). However, in amongst

this backdrop, cohesion between employer and employees at Brunello Cucinelli actually

strengthened. Cucinelli assembled all the workers, declared that nobody would be let go

and said: “tomorrow will be another day. Don’t be scared. We’ll all work harder and be

more creative” (Gwyther, 2014: 40). In 2009, Cucinelli showcased the company’s most

beautiful collection, which went on to secure its highest sales for a single collection. “This

because people felt esteemed” declared Cucinelli (Gwyther, 2014: 40). In this company,

there is a sense of belonging as there is, as previously mentioned, in Japanese

companies. People want to be part of something (Goffee and Jones, 2013), they want to

be appreciated and respected for what they do. This is an important motivator factor

according to Herzberg.

“I decided that I would work toward improving human dignity, and this has been

my lifelong objective” stated Cucinelli (EY, n.d.). This is the starting point of his

philosophy. He has invested a lot for the wellbeing of his people. In accordance to

Schein’s notion of artifacts, the company headquarters in Solomeo is in an ancient castle

with open space workplaces and the canteen resembles an old inn where good quality

homemade meals are served for only £2.20 (Davis, 2015). Cucinelli usually eats with his

employees, and everybody, including Cucinelli himself, is obliged to work daily from

8am-5.30pm. He strongly recommends not sending work emails after 5.30pm because

according to Cucinelli, “people need their rest. If I make you overwork, I have stolen

your soul” (Pendleton, 2015). In terms of artifacts, other facilities at company

headquarters include a library and a theatre. Additionally, Cucinelli usually organises

cultural events for employees and their families (Friedman, 2013).

In terms of salary, his employees are paid 20% more than the market rate and

there are many benefits in terms of friendship, freedom and quality of work life

6

(LaRocca, 2014b). In fact, LaRocca, after visiting Solomeo, stated: “When I visited the

factory and surrounding facilities, employees related to each other as long-time friends

would, or even as family members“ (LaRocca, 2014b: 10). In contrast to a case study by

Garvin (2014), where the Indian company described had a staff turnover of 35%,

employees are happy to work for Cucinelli. Staff turnover turnover is low and Cucinelli’s

School of Crafts received 15 times more applications than places offered (Gwyther,

2014). Cucinelli in 2001 founded the School of Craft with the aim to “re-install the sense

of dignity in these professions” (Koh, 2015: 90). People are recognised for their work

and this is an important motivator.

In his company, it is possible to recognise the concept of long-term “Confucian

dynamism”, in which there is adaptation with respect to traditions. Cucinelli takes

strength from tradition. He is of proud his traditions, nationality and religious beliefs and

has based his company ethics on these.

Despite all the positivity, there is, however, one issue that persists, namely that

of how to attract the best talent. The company does not have offices in elite cities such

as London or Milan, and it is difficult to attract young brilliant managers to work in

Solomeo, as stated by Cucinelli (LaRocca, 2014b). Another issue could be the ever-

increasing size and scope of Cucinelli’s company. According to Mullins (2011), as

companies become larger, problems in terms of more formalised cultures and structures

in a less-friendly environment can arise. This can accordingly affect employee

participation in a company. Furthermore, Cucinelli’s business is not diversified, unlike

LVMH or Armani for example, and the subsequent risks related to being a mono-business

are magnified.

Like American companies, Cucinelli works on capitalist principles and accordingly,

his objective to make profit. However, unlike his US counterparts, he wants to make

those profits healthier based on a cycle of natural growth (Koh, 2015). He says: “if you

are an investor, I hope that you will stay with me for three, four, ten years. But if you

ask me to make profits in ways that I have to change my allure, I won’t do that. I won’t

lose my identity” (Nalley, 2013: 83). In terms of profit distribution, as Goffee and Jones

7

(2013) describe in the case of Waitrose, Cucinelli shares part of the profits with his

employees and part with his Foundation which aims to undertake many charity activities.

Such ventures have included the restoration of old public Italian buildings or the

construction of a hospital in Malawi (LaRocca, 2014b). Sharing profits with employees is

also a practical way of involving employees in an organisation, as well as securing their

loyalty and commitment at work (Eibenstein, 1978). However, despite Cucinelli’s

generally excellent relationship with his stakeholders, one important issue to consider is

his poor relationship with trade unions. In his company, trade unions do not exist and

consequently, this raises an issue when it comes to employee rights. The business may

be operating well at the moment under an entrepreneur who has built an ethical and

philanthropic environment, but if matters change in the future, employee rights may not

be guaranteed given the non-existence of trade unions. Employee rights are all based on

the unwritten magnanimity of Cucinelli and, even if there has been a Code of Ethics since

2011, it is only his personality that leads the company’s strong and positive

organisational culture.

Fenner (2015) may define Cucinelli as “probably the best boss ever”, but within

that description lies possibly the most significant risk to the company’s continuing future

success. According to Rinaldi (2014), the biggest risk for this company is the over-

dependence on its founder and CEO Brunello Cucinelli. Morgan (2006) states that in

order to developing a strong corporate culture, it is necessary to have a charismatic

leader. Cucinelli is a charismatic leader and everyone admires him for his coherence. He

has two daughters but he has stated: “you cannot inherit a company. You can acquire

the ownership but not the ability to run it” (Gwyther, 2014: 40). Cucinelli considers

himself as just a temporary custodian of the company, and sees the stock market as its

future custodian (Nalley, 2013). However, having a “future custodian” brings the risk of

a different management style as well as different values. The problem of continuity

within the company and its organisational culture will come to a head when Cucinelli is

no longer able to manage it.

8

Conclusion

A strong organisational culture is vital if employees are to be engaged in the running of a

business. However, if this culture is created and led by a charismatic entrepreneur, the

most pressing risk is continuity of the culture after that entrepreneur is no longer in

charge. This paper described the particular case of Brunello Cucinelli, in which an

entrepreneur has built an enlightened company where human rights are respected and

the well-being of employees is a priority.

In the analysis, the main characteristics and risks of the company are described.

It was concluded that a strong and positive organisational culture is vital to engage

employees, and so gain their trust and loyalty. This case study also demonstrates that it

is possible to run an ethically capitalist venture able to make profits even during a period

of economic crisis.

This analysis was conducted using only secondary data through internet research.

It would be interesting to personally visit the headquarters of Brunello Cucinelli in

Solomeo and obtain primary data. In terms of limitations, some other details and

aspects of this company have not been included in this paper and further research could

be carried out on this fascinating company. It is interesting to see how ethics in business

can yield important results and it would also be desirable if other organisations became

aware of this.

List of References

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