Abstract
This article explores how an elite was able to facilitate the recovery of one of the greatest European banks, the Banco Ambrosiano, from a corporate crisis which led it to bankruptcy. Drawing on Gramsci’s theory of ‘intellectual and moral leadership’ or ‘hegemony’, this study undertakes a critical analysis of the role played by an elite, mainly composed of public servants, in enabling financial and political forces to avoid the loss of the great heritage of the bank, built over decades of success and public commitment. The study reveals how this elite positively constructed the path to allow the recovery process, using accounting data to identify the forward-looking solutions. This research helps expand historical and critical studies on crises, pointing out how accounting has been an instrument enabling new governing technologies while Gramsci’s theory has been applied extensively to interpret an institutional setting and an action towards an apt solution for protecting public interest.
Introduction
The present article aims to investigate the role of an elite in enabling and facilitating the recovery of one of the greatest European banks, Banco Ambrosiano (BA), located in the ‘Italian financial capital’, Milan.
This bank went into bankruptcy in 1982 (Monti et al., 1983), after a long period of growth benefitting from wide scale, recurring connections with the domestic political system and the Roman Catholic Church, as well as the protection offered by these same institutions. The entities total assets at default was about 4 billion euro, while the bank was the 11th ranking bank in Europe in 1981 (Table 1). It is worthy of note that the BA was much smaller than other Italian banks identified in Table 1, although it was one of the greatest of the privately owned institutions, given that the larger ones were mainly owned by the Italian State.
The major European Banks in 1981.
Source: Thomson Reuters Datastream (accessed on 20 July 2018).
The crisis of BA was unusual in the Eighties, as in the European culture of the time, the stability of banks was considered to be strongly protected by a context of severe regulation. In fact, since 1936, following the Great Depression in America, Italian bank legislation allowed the domestic banks supervisor ‘Banca d’Italia’ to have wide-ranging power in controlling, preventing and addressing any concerns, even with ‘moral suasion’ interventions which went beyond its formal duties. Stability was really considered more important than a bank’s effective efficiency and capability of obtaining a satisfactory financial return (Bellavite Pellegrini, 1996, 1997); these ideas had been widely accepted for many decades in Italy, and in parts of Europe as well.
The BA crisis, like any corporate crisis (Abdelrehim et al., 2015; Barbadillo et al., 2000; Barth et al., 2004; Calomiris, 2014; Chandar and Miranti, 2005; Chandler and Rees, 2005; Gwilliam et al., 2000; Johnson, 2017; Jones, 2011; Kopper, 2011; Mitchener, 2005, 2007; Schenk, 2014), was to have relevant social consequences among the bank stakeholders: workers who worried about the chance of saving their jobs, customers who had deposited their money who were risking their savings, private shareholders who had lost their investments, borrowers (private citizens as well as companies) who would have had to give back their loans and, on the opposite side, a few private interests that might have enjoyed the new negative situation, ready to snatch up the bank’s valuable assets for derisory prices. Despite the private and political attempts of many people to take advantage of such an unusual situation (and despite the recurrent strong pressure of many forces and institutions usually most supportive of the bank), the bankruptcy was resolved in a remarkable example of a well-conceived bailout (Bellavite Pellegrini, 2008, 2013), through a successful mix of procedure, people and accounting. The proposed solutions were new, if we consider the ways crises are usually faced and overcome.
Crises of many different kinds are ever more frequently being investigated in current accounting history literature, considering corporate defaults (Abdelrehim et al., 2015), huge economic and social stress (Barnes, 2007, 2011), natural disasters (Vosslamber, 2015) or even looking at the role played by the accounting professions as possible determinants of crises (Abeysekera, 2005; Heler et al., 2005; Miley and Read, 2013) as well as a means to overcome them (Fogarty and Dirsmith, 2005; Keenan, 2000). Literature usually points out the reasons for the crises, the due diligence in managing them and the ways of emerging from them (Chandar and Miranti, 2005). Papers underline the useful role played by the partnership and the joint efforts of different bodies (at local or national level) in shaping rescue processes towards acceptable situations where technologies of government (Dean, 2009) combine values, power and accounting to overcome crisis processes (Manetti et al., 2017).
Attention is often drawn to interim disclosure during the crises (Abdelrehim et al., 2015), to the growing importance of a combination of forces able to function as a driving force for the rescue (Miley and Read, 2013), while accounting and governance together join paths towards possible solutions: one of the recurrent conditions for overcoming crises relies on the opportunity of connecting forces and institutions placed at different levels, such as local and national governments (Miley and Read, 2013), and private and public organizations (Manetti et al., 2017), able to exert leverage over survival assets, resources and capabilities to overturn criticalviewpoints.
In the case of the BA bankruptcy, the multiple forces which acted, initially with different purposes and ideas, were led by a small number of public servants able to gather together political, institutional and organizational parties and direct them towards the solution figured out by that same group which was finally welcomed, even if this acceptance should not be taken for granted.
For this reason, the article draws on Gramsci’s (1971) concept of social hegemony to contextualize the successful bailout put in place by the elite governing the rescue of BA, within the social, political and economic situation of Italy at that time. The Gramscian hegemonic view helps make sense of the underlying realities that framed the activity of a hegemonic and inspired elite who led the rescue of the bank and helps explore the relevant role played by the accounting information in the elite decision process.
Gramsci’s theory of hegemony has been widely used in accounting literature. For example, it has been employed to examine the role of accounting as a legitimating institution through which Chartered Accountants used their moral and intellectual leadership (i.e. hegemony) to dominate over the accounting profession in Ontario, Canada (Richardson, 1989); to investigate the powerful role of accounting in supporting political hegemony in developed (the United Kingdom) and less-developed (Sri Lanka) countries (Alawattage and Wickramasinghe, 2008; Cooper, 1995); to understand how social and environmental accounting are used, contrary to their potential antagonistic role, to sustain an hegemonic elite interested in business (Spence, 2007, 2009); to address the role of the public accounting profession and the accounting intellectuals in the adoption and diffusion of political ideologies in China (Gillis, 2014; Xu et al., 2014; Yee, 2009) or in constituting and reflecting ideologies in the United Kingdom (Goddard, 2002). Another article suggests the use of Gramsci’s corporate hegemony model to see how passage of legislation masked the continued dominance of the securities markets by a privileged elite and diverted attention from more material questions (Merino, 2003). Further studies use Gramsci’s theory in the field of accounting education (Saravanamuthu, 2004), considering accounting education as a form or a result of hegemony (Ferguson et al., 2005; Warsame, 2006). A stimulating analysis using a Gramscian approach (Walker and Carnegie, 2007) examines how the state attempted to contain female extravagance in dress by re-orientating spending priorities in household budgets, considering the role of ideology in attempts to activate domestic financial reallocations. A recent article (Jones and Melis, 2021) uses the theoretical lenses provided by Gramsci’s work to examine the functions of the Board of Statutory Auditors in Italy since its creation, showing that the changes in the Board’s functions have been much more ‘conjunctural’ than ‘organic’ and have contributed to its survival over time. Finally, another recent contribution (Li and Soobaroyen, 2021) critically analyses the role of accounting in China’s new phase of politically driven economic reforms, and highlights the role of state-owned enterprise managers in accommodating accounting and control practices in line with the state’s hegemonic and ideological demands.
The article positions itself in a strand of research linking accounting with ideology in an accounting history perspective: in particular, the research expands historical and critical studies on corporate crises, pointing out:
The use of the Gramsci theory to qualify the construction and the role of a small and cohesive group in addressing the solution of a corporate crisis;
How accounting has been an instrument enabling governing technologies by this qualified elite.
The knowledge gap the article fills takes two main directions:
Gramsci theory will be applied extensively to interpret an institutional setting (at corporate level) rather than single people or a large population as it usually has been in literature;
The action enabled by the elite is aimed at finding an apt solution for protecting public interest, instead of using its power to create private advantage for some people or disadvantages for certain classes (as in Walker and Carnegie, 2007).
As far as we know, this is one of the first attempts to extend the use of the Gramscian approach to the interpretation of the evolution of an institutional setting in an accounting history perspective, although the relationships between accounting and hegemony have previously been investigated in critical or interpretive accounting (Alawattage and Wickramasinghe, 2008; Ashraf and Uddin, 2015; Cooper, 1995; Li and Soobaroyen, 2021; Mantzari and Georgiou, 2019).
Moreover, the study (based on interviews and on the possibility to read the handwritten diaries of one of the main protagonists) contributes to accounting history literature in proposing a critical interpretation of a significant and famous case, known to financial scholars as well as to the wider public for its relevance in the 1980s, that has never been interpreted through this lens.
The remainder of this article is organized as follows. We first outline the theoretical approach that underlines the article, explain the use that has already been made of it in accounting literature and examine the conceptualization of the role of the elite in Gramsci’s theory. Then we describe our research methodology. Afterward, we use the framework to interpret the governance problems arising in the BA bailout within the Italian context. Finally, we discuss our findings on the basis of the theoretical approach adopted to explain how a small hegemonic elite managed the process of saving the bank, creating a system of alliances through political and ideological relations around its opinions, which allowed it to adopt a set of forward-looking solutions – based on accounting data – in the interests of all the stakeholders.
Theoretical framework
Gramsci’s theory of hegemony
The case of BA is examined here by adopting the theoretical lenses provided by the Gramsci theory of ‘intellectual and moral leadership’ or ‘hegemony’ (Gramsci, 1971). Antonio Gramsci (1891-1937) was an Italian writer and philosopher. During the Fascist period, he was arrested, and during his imprisonment (1926-1934), he wrote his Prison Notebooks, which show his perspectives on Italian history and, drawing on the Marxist view, on the relationships between political control, economic crisis and civil society (Femia, 1975). To understand the tools of research offered by the Gramscian theory, it is useful to follow a path involving some main ideas that feed its theoretical constituencies. So, we must clarify the relationships among (a) intellectual and moral leadership, (b) cultural ideology, (c) societal consent, (d) historical bloc, and (e) types of crises leading to different kinds of changes. These concepts are pivotal in explaining the role of an elite, according to a Gramscian perspective.
According to Gramsci, hegemony can arise not only through force and coercion, but also as a result of ‘intellectual and moral leadership’: The supremacy of a social group manifests itself in two ways, as ‘domination’ and as ‘intellectual and moral leadership’ . . . A social group can, and indeed must, already exercise ‘leadership’ before winning governmental power . . . it subsequently becomes dominant when it exercises power, but even if it holds power firmly in its grasp, it must continue to ‘lead’ as well. (Gramsci, 1971: 57–58)
Culture and ideology play a central role in the Gramscian perspective in producing and reproducing a particular societal consent. This consent is based not only on strictly economic terms, but also on cultural and ideological terms. Given these two currents through which Gramsci’s hegemony is expressed (economic and ideological), the ruling class exerts its power through the State apparatus and also through the institutions of civil society (such as media, trade unions, cultural associations, schools, religious institutions and so on). As highlighted by Simon (1982), Gramsci considers power as a relation, while the classical Marxist position conceives of power as being concentrated in the State. As a result, political and civil society are explained in terms of relations of power, where political society represents coercive relations put in place through various institutions of the State, while civil society embraces all the private organizations (such as the ones aforementioned) which contribute to the formation of social and political consensus and consciousness. In other words, civil society represents the arena in which hegemony is secured, representing part of the ‘extended state’ that completes the coercive potential of state agencies (Levy and Egan, 2003: 806).
To explain the formation and the establishment of a hegemonic social structure, Gramsci introduces the concept of ‘historical bloc’. A historical bloc results from a particular set of power arrangements between civil society, economic and political groups. A historical bloc exercises hegemony through the coercive and bureaucratic authority of the state, dominance in the economic field, and the consensual legitimacy of civil society (Spence, 2009: 210). For Gramsci, a historical bloc refers both to the alliance of social and political groups that make up the hegemonic formation, and to ‘the specific alignment of material, organisational and discursive formations which stabilise and reproduce relations of production and meaning’ (Levy and Newell, 2002: 87).
Levy (1997) and Levy and Egan (2003) point out that Gramscian processes of negotiation, alliance formation, and compromise take place in different arenas, involving a variety of actors, from international environment to corporate strategies. Corporate strategies similarly coordinate material, organizational and discursive resources. Corporate strategies implemented by individual companies contribute to forming broader hegemonic structures and can in turn be a product of them. The firm’s material, organizational and discursive strategies allow the formation of a hegemonic social order drawing on conflicts, alliances and compromises. As Levy and Egan (2003: 810) state, Large firms are generally unable to dominate a field purely by virtue of brute economic power or governmental connections; rather, control over a field rests on consent from a broader group of actors. Field stabilisation, or hegemony, depends on an alignment of forces capable of reproducing the field.
Gramsci’s theory also addresses the concept of change, a key issue in accounting history (Fleischman and Radcliffe, 2003; Napier, 2006). For Gramsci, there are two main forms of change. The organic crisis leads to a breakdown of the social relations and institutions behind an existing historical bloc: it is the result of incurable structural contradictions that give rise to an alternative hegemony (Gramsci, 1971). For example, representatives of the existing ruling class may establish a new hegemony involving new ideas and policies. During this period, the system of alliances underlying the hegemony is overcome and a new system of alliances takes its place. For such reasons, according to Gramsci (1971: 178) ‘incessant and persistent efforts’ are required by the ruling class to keep their power, especially during a period of organic crisis. When the opposition forces are not strong enough, the previous ruling class will build a new system of alliances re-establishing their hegemony (Simon, 1982). A ‘conjunctural crisis’ sees an outbreak of negative reactions that may even seem spectacular, but in actual fact there is no significant change in the status quo and the historical bloc is substantially left untouched. For example, an institution may appear in a ‘dramatic’ situation in the short term, but, although there are some changes, the ruling class remains the same.
A Gramscian conceptualization of the ‘elite’
The concepts explained above are the main constituents of a new theoretical device: a small group of people, able to impose themselves for their intellectual and moral leadership, linked by a shared culture or ideology and able to address changes in society, that can be identified as an ‘elite’.
One of the main questions addressed by Gramsci is how a small elite can obtain and maintain its role as the ruling class. As Levy and Egan (2003) point out, in Gramsci’s view a historical bloc is not only dependent on the coercive control exercised by a small elite, but rather rests on a broad base of consent, which relies on coalitions and compromises that provide a measure of political and material accommodation with other social groups, and on ideologies that convey a mutuality of interests. (Levy and Egan, 2003: 805)
In other words, Gramsci’s answer to the previous question is threefold. An elite can continue to keep its role only if it is able to achieve the following results.
The first goal that has to be successfully reached is to create and mobilize an effective system of alliance over time with the organizations of the State apparatus and with the institutions of civil society by means of political and ideological relations. Gramsci’s theory considers the construction of hegemony to be a dynamic process, in which various social and civil classes mobilize and combine to form a system of alliances that diffuses and popularizes the view of the ruling class (Bates, 1975). The values and ideas of the ruling class are, through these alliances, widespread in the society, also by means of other institutions (courts, academia, media and so on); the values and ideas of the elite gradually become considered as ‘common sense’, benefitting the whole society (Goddard, 2002: 659). This system of alliances among the governance of both political and civil society is hence strategic in the Gramscian perspective: without these alliances hegemony risks becoming weak and being overcome (Gramsci, 1971).
The second goal relies on fashioning consent around the ruling class’s view. A political leadership (at macro or micro level) is based on consent which is secured by the diffusion and popularization of the ‘world view’ of the ruling class (Bates, 1975: 352). This consent is not only based on economic discourse or coercive control, but rather on coalitions (and compromises) with other groups, and on ideologies and discursive frameworks that constitute perceptions of mutual interest and sharing of common values. Hegemony can thus arise not only through force and coercion, but also as a result of ‘intellectual and moral leadership’, that diffuse establishing alliances within the organizations of the civil society (Gramsci, 1971: 57), which represents the context where consent is developed and organized.
Finally, an elite must balance different social forces over time. According to Gramsci, effective maintenance of power rests in the capacity of the elite to continuously balance the interests of diverse social forces. As Xu et al. (2014) point out, this needs continual (re)negotiation among various class interests in the shifting socio-political relations and may involve many social groups, not necessarily the productive forces alone. In Gramsci’s theory, an important idea is that various social classes mobilize and combine through time to form a system of alliances satisfying all of them (Bates, 1975: 352), where ‘the dominant group is coordinated concretely with the general interests of the subordinate groups’ and hegemony is conceived of as a continuous process of formation and the superseding of unstable equilibria between the interests of the fundamental groups and those of the subordinate groups–equilibria in which the interests of the dominant group prevail, but only up to a certain point. (Gramsci, 1971: 182)
In the Gramscian perspective, these three elements represent the pillars on which the ability of a small elite to keep its role as the ruling class is based. These three elements will later be used as the interpretative keys through which to examine the case under study.
This framework is apt in this case as the possibility of success in the rescue of BA relied on many key issues which are dealt with and investigated through the Gramsci perspective:
How a small group of persons can establish a hegemony able to redirect the course of actions. In the proposed case, we will investigate how a small group of people was able to figure out an outcome different from that expected by financial markets or by other political and social forces;
How culture and ideology help keep a group of people cohesive and able to address new solutions. This was determinant in allowing this group to obtain wide consent in society and to struggle with external forces looking at different traditional bailoutsand this cohesive group of people had to leverage a shared knowledge to find an original way out to the problem they had to deal with. Accounting was determinant in finding this new way;
How an elite, able to establish a hegemonic group, could overtake a ‘historical bloc’ lead by an organic crisis and work out an escape from that bloc, allowing a new reality to be built. This is relevant in this case, as a ‘normal’ way out to the crisis would have meant destroying value for many people and favouring just the interest of new shareholders, dissipating the wealth of consent (and value) the bank had among customers and stakeholders overall.
Methodological aspects
The research relies on a huge and original quantity of primary sources, among which are the ‘diaries’ (encompassing the period from 1982 until 1985) of the then Governor of the Italian Central Bank, Carlo Azeglio Ciampi, who was also the Governor of the Supervisory Authority; these ‘diaries’ have been partially transcribed (Bellavite Pellegrini, 2013). As far as we know, these ‘diaries’, written up almost every day by their author, have never been used in previous international research. One of the authors of this article had the opportunity to check their contents and to read through them, beyond what has already been transcribed: they offer wide insight into circumstances, meetings and decisions that characterized the period before and during the bailout. They also provide comprehensive information about the constitution and the action of the new elite leading the recovery process.
Other primary sources used in this work include the minutes of the general assembly of shareholders, those from the meetings of the board of directors and the board of auditors of BA, Nuovo BA (the new bank born as a result of the bailout) and La Centrale (a financial company holding several majority participations in banks and insurance companies, related to the story). These minutes encompass roughly three years, from the beginning of 1982 up to October 1985, taking into examination more than 50 records of the Board of Directors’ and different general shareholders’ meetings. The primary sources helped us explain the evolution of the bank bailout and detect the effects of the hegemonic elite activity.
We also greatly benefited from the record of direct interviews with the main protagonists of the bailout, useful for verifying our main argument. In particular, the interviews regard (a) the then Governor of the Bank of Italy, Carlo Azeglio Ciampi, who died in 2016 (interviews date: 2009), and very briefly the then Minister of the Treasury Beniamino Andreatta (interviews date: 1997); (b) respectively the then Nuovo BA’s President Giovanni Bazoli (interviews date: 2008–2012) and the member of the Board of Directors Nerio Nesi (interviews date: 2012); (c) and the then members of the Resolution Procedure’s Supervisory Board, Francesco Cesarini (interviews date: 2010–2012), and Mario Cattaneo (interviews date: 2010-2012). To avoid any potential ethical issue, interviews were coded and they are referred to in the text as ‘interview 1, 2, 3 . . .’ by grouping all the interviews with the same interviewee under the same number, while related interviewees were coded as ‘informant 1, 2, 3 . . .’ (see Table 2). Besides, the names of persons quoted in all interviews were anonymized as A, B, C and so on.
Informants, role, and interviews.
These interviews are part of two broad research projects undertaken in the last two decades, having the purpose of rebuilding, through time, the story of the bank after the crisis. We have extracted the parts of these interviews relevant to explaining the BA corporate crisis (see Table 3), as they were not focused solely on that topic, but dealt with many subjects regarding the evolution of the bank in the two decades following 1982. We are confident none of the interviewees had a particular self-interest to be protected regarding the recovery process as none of them was responsible for the crisis. The interviews were developed separately for each of the interviewees, but there is a huge convergence of the narratives regarding the scenarios they depict. In any case, for the purpose of this work, their verbatim have been compared with other primary and secondary sources we collected.
Topics debated (regarding BA crisis) during the interviews.
As far as we know, the interpretation of the BA case, in the light of the Gramscian theory, has never been proposed in accounting, management, or economic literature nor in other publications.
We also drew on publicly available documents that have been useful in providing historical contextualization for the study; we focused on national laws and decrees that have influenced the choices of the political and banking authorities, and on BA’s financial statement for 1981, Nuovo BA’s and La Centrale’s financial statements for 1981–1982 and the following years, and other relevant studies on BA (quoted in references). Finally, we integrated the primary sources with articles and books by both Italian and foreign scholars which describe the case of the BA bailout.
We examined our primary (and secondary) sources, looking at the relationships the elite was able to establish with the stakeholders operating in the sphere surrounding the bank and in particular pointing out the main topics related to Gramsci’s theoretical framework, that is, the way through which the elite:
Created and mobilized an effective system of alliance through time with the organizations of the State apparatus and with the institutions of the civil society by means of political and ideological relations;
Fashioned wide consent around its view;
Balanced different social forces during the time of the rescue process.
Through this scrutiny, we could understand the characteristics of the elite, its activity during the rescue period and the accounting information used during their decision process.
Governing a banking crisis: the case of Banco Ambrosiano
The bailout antecedents
BA was incorporated in 1896 in Milan as an eminently Catholic oriented commercial bank, whose main sponsor was Giuseppe Tovini, a lawyer who was successively raised to the honour of ‘Blessed by Pope John Paul II’ in 1998. Tovini was well experienced in incorporating banks because, prior to BA, he had set up two other banks: Banca della Valcamonica and Banca San Paolo of Brescia, with similar features to BA (Taccolini and Cafaro, 1996). Because Tovini’s intention was to incorporate a proper joint stock company and not a cooperative institute, like a ‘one head-one vote’ popular bank (ASBA, sections 2, 3, and 7), he provided well-balanced corporate governance, introducing into the BA statutory charter a decreasing proportion between owned shares and the voting rights available to each single shareholder and a 5 per cent voting rights cap (ASBA, section 1). This provision was not usual at that time in Italy, where the proportion between votes and shares was the main rule. But all over the world that provision was not an exception: on both shores of the Atlantic and Pacific Ocean, as well as in the United Kingdom, a decreasing voting right was anticipated in order to counterbalance managerial skills and wealth endowment (Dunlavy, 1998).
In its almost century of activity, BA achieved at least two outstanding outcomes in the Italian banking environment (Bellavite Pellegrini, 2008):
Notwithstanding the severe financial turmoil of the Thirties which shook the European and Italian economy like an earthquake, the institute was not bailed out by the Italian State, because it never was on the edge of bankruptcy. In this way, the bank remained an unlisted company with dispersed ownership not controlled by the Italian State;
Furthermore, the aforementioned features of BA’s ownership structure became progressively uncommon within the Italian banking system. The specificity of BA’s characteristics contributed to triggering a sentiment of suspicion and of distrust in BA’s management from the external environment. In fact, in the state-controlled Italian banking system, an unlisted bank, large in size and with fragmented ownership would have eventually raised a control stability issue. At that time, in Italy, corporate coalition agreements (BA/Pres) were substantially unknown, from a juridical point of view. Therefore, the majority of Italian scholars were sceptical about the fairness of a corporate coalition government (Bellavite Pellegrini, 2008), since from the early fifties, the main concern of the BA management was connected with the stabilization of control.
It was quite easy to recognize that notwithstanding the 5 per cent voting cap, control over BA was, in any case, within the grasp of a single organized shareholder. At first, the bank’s management tried to organize a network of ‘friendly shareholders’ (BA/VA, section 3), but soon they realized it was very difficult to firmly stabilize the control of the bank in this way. 1 For this reason, BA’s management decided to follow another path to obtain the same outcome, namely to stabilize the control of the bank using other (opaque) devices, like apparently unrelated foreign subsidiaries. Even if it had been possible to find different solutions, it is still surprising that a quite puzzling way was chosen, that is, to stabilize control of the bank and the managerial power through a sort of shadow control of itself by the bank.
Under this decision, from the late fifties the management of BA secretly and progressively incorporated different financial companies, featured by uncommon fantasy names, like Lovelok or Compendium (FR/BAH), whose aim was to buy up BA shares. These financial companies were initially located in Luxemburg or in Lichtenstein and successively, during the seventies, were transferred towards other countries beyond the Atlantic Ocean, like Nicaragua, Panama or the Bahamas, which were unlikely to be accurately supervised by any competent Italian market or monetary authorities.
At that time, BA was not considered a group of companies and it was not mandatory for BA to release a consolidated balance sheet. 2 The working of the self-controlling mechanism implemented by the BA management foresaw the fulfilling of different steps. The first was the incorporation of financial companies in one of the above-mentioned countries. These companies were financed indirectly by BA or by some of the BA’s subsidiaries in an indirect way, that is, through the ‘back-to-back’ technique (FC/CMIV). In this way, financial intermediaries not connected with BA received deposits from BA, with further secret instructions given in order to channel those funds to one of the above-mentioned financial companies according to the secret instructions received from BA (AGLM).
Those funds were utilized by the ‘shadow subsidiaries’ of the BA to buy up BA shares on the market. Even if BA was not listed on the main stock exchange market, its shares could be found on a ‘restricted’ market (Bellavite Pellegrini, 2013: 306) where there were many limitations to the exchanges. This ‘restricted’ market was strongly influenced by the institution issuing the shares and was much diffused in Italy. It happened for many Italian banks: their shareholders were mainly private citizens or other institutions. In this way, the bank management obtained different and important outcomes. The first was to be self-controlled, the management itself becoming, in this way, the ‘shadow controlling shareholder’ of the bank (FC/CMIV) and triggering therefore vast out of control agency costs. More specifically, the market was systematically misled because the supposed foreign financial companies attending BA’s general shareholders meeting with significant blocks of the bank shares were effectively not independent investors whose business judgement suggested buying BA’s shares because of their brilliant perspectives. On the contrary, these above-mentioned companies were effectively shadowy self-controlled subsidiaries of BA itself, whose endowments, permitting purchase of BA’s shares, were indirectly provided by the headquarters in Milan. These procedures triggered a second result, that is, extremely relevant information asymmetries for which it was almost impossible to understand the real nature of the ultimate shareholder of BA.
The overall corporate description of the BA was finalized by the incumbent management in such a way as to be completely misleading to other shareholders, to the customers and to any sort of monetary authorities. From this point of view, the managerial autocracy of BA, supported by the above described self-controlling deception, characterized the bank from the late fifties until 1982, the year in which the bank went into bankruptcy.
During the seventies, shareholders were further intentionally betrayed because they were forced to believe that the fiduciary ownership of the foreign financial intermediaries controlling BA was to be attributed to ‘Istituto Opere di Religione’ (IOR), the Vatican Bank. The IOR, which was set up by Pope Pius XII in 1942, was more a private bank for Religious Orders and Congregations than an ordinary commercial bank (FC/CMIV). The attribution of ownership was extremely credible, because of the common Catholic origin of the two institutes, and everybody believed it to be true. The two institutions were guided by the same deliberated values and assumptions, and their ruling bodies were strongly connected. For these reasons, for several years effective ownership of the BA was attributed to the IOR. In 1982, IOR was deeply involved in the BA bankruptcy because of the strong business connections between BA’s President and Chief Executive Officer, Roberto Calvi, and the IOR’s counterpart, Bishop Marcinkus. Prior to the evidence of bankruptcy, the overall accounting representation was so confused, because of the existence of informational asymmetries, that it was unclear to the IOR and BA managers as well, whether the fiduciary ownership of the BA subsidiaries abroad was effective or not.
These information asymmetries allowed the management of BA to control the bank and to survive for some additional years. Had it been possible to have deeper knowledge of the precise perimeters of the BA Group, it would have emerged that the bank had defaulted ever since the late seventies (Bellavite Pellegrini, 2008: 227–321).
In the early eighties, at least two events contributed to sweeping away the information asymmetries which had allowed the fraud. Indeed, a consistent revaluation of the dollar versus the Italian currency made the shadow subsidiaries’ debt a heavier burden, because the debt was issued in dollars. Moreover, the governing body ruling the bank experienced a gradual reduction of the protection system offered by political and social parties (many politicians and the Vatican were linked to the bank) and by the institutions of the State apparatus (Bank of Italy, Ministry of Treasuye, other bank supervisors) (Bellavite Pellegrini, 2008, 2013). In particular, a more incisive supervisory action by the Bank of Italy (in accordance with the decisions of a new Minister of the Treasury), which was becoming progressively suspicious in relation to the BA’s business, forced the BA towards more transparent disclosure regarding its market participants (BdI, M-10.82).
The governance of the bank rescue
Bank crises have been dealt with in Italy by leveraging on moral suasion by the central authorities (Bank of Italy) towards a more sound and well operating bank, able to recover the situation, assuring stability in the domestic banking system (Conti et al., 2014, 2016).
This has been common behaviour for a long time, especially for small and medium banks. Central authorities, after having detected the main reasons for a bank crisis, looked for another organization (often another bank) able to buy, and possibly merge with the ‘bad company’, to solve the problem or to transfer the solution of the problem to a well-established company. The moral suasion relied both on the Central Bank’s estimable reputation (Goodhart, 2011) and on its enforcement authority, combined with its supervisory power.
In the situation presented in this work, the size of BA prevented the Bank of Italy from finding such an easy solution: it was difficult to figure out a takeover of the BA by another bank, owing to its dimensions. On the other side, a bailout would have had adverse effects both on the savings of BA’s customers and on investors, with terrible consequences in regard to public opinion, considering that the BA was close both to the Catholic Church and to the majority party which therefore expected a backlash in future political polls.
An ordinary bailout was hoped for by a consistent and silent group of financial institutions, wishfully imagining that an ordinary bailout would have permitted them to obtain a great advantage and enjoy dividing up the rich remains of the devastated bank. (interview 5, 2012)
The very first days of BA’s bankruptcy, declared on 18 June 1982, turned out to be promising for a positive outcome of the bailout (not the ordinary one), because a well-conceived elite of civil servants took over the situation, veering it towards an effective positive solution. This elite was led by different outstanding personalities.
Enabling a system of alliances by means of political and ideological relations
The first personality was Carlo Azeglio Ciampi, Governor of the Bank of Italy. Ciampi (1920–2016), who initially graduated in Latin and Greek from the very prestigious ‘La Normale’ University of Pisa, joined the Bank of Italy in 1947 and became Governor in 1979 (17 years after the BA bailout, in 1999, he became the 10th President of the Italian Republic). The second was the Minister of the Treasury, Beniamino Andreatta (1928–2007). Andreatta, initially an academic economist, joined the Christian Democrat Party and became Minister of the Treasury during the period 1981–1982. In a famous speech to the Italian Parliament, on 2 July 1982, he denounced the unclear connection between BA and IOR, the Vatican Bank, asking for the Vatican to take responsibility in relation to the then rising scandal. This was uncommon public behaviour for an outstanding member of the Christian Democrat Party at that time.
These two eminent people were the most relevant public officers (Governor of the Central Bank and Minister of Treasury), but they perceived the meaningful necessity of enlarging their group. So, Andreatta leveraged at first on a learned person, Giovanni Bazoli, at that time a lawyer and Associate Professor of Law at the Catholic University of Milan. Bazoli was appointed as Chairman of the Nuovo BA and served for 34 years, till 2016, as President of the new bank, passing through all the mergers which subsequently led to the incorporation of Intesa-San Paolo, the largest Italian bank and, moreover, one among the first banks in Europe.
This selection, as many other further 3 choices, was based on friendship, academic connections (having its centre in an esteemed university, the Catholic University of Milan) or cultural proximity with thinkers and advisors close to the liberal wing of Italian Catholicism. Bazoli was close to Andreatta because their respective families belonged to that wing.
This was a new intellectual and political movement willing to renew the image of the old Catholic party, perceived of as conservative. The new liberal Catholicism, on one hand, was more able to settle into dialogue with the progressive and lay part of the Italian intellectuals and politicians, while on the other hand it established competition with the latter in order to promote new models of state and society, after Italian political forces emerged from the so-called ‘Years of Lead’, characterized by the terror wrought in Italy by the ‘Red Brigades’ (Brigate Rosse). The need to rely on people close to those that held liberal Catholic leading ideas was the main force in carefully selecting a handpicked group of men, the core of whom was strictly related to the Catholic Church. The meeting point between Ciampi, on one hand, and Andreatta and Bazoli, on the other, may be recognized in the mutual involvement of liberal and Catholic thoughts and actions in the rebuilding of Italy after the material and moral collapse of the Second World War.
These three eminent personalities had a crucial role in leading the bailout as may be understood by considering their background, their connections and their aims.
The appointment of Bazoli as the President of Nuovo BA can be explained through this perspective. He told Ciampi and Andreatta (from interview 2 on 31 July 2009) I didn’t think I was the right person to face up to this kind of situation. Only a great banker could have done it successfully. ‘A’ and ‘F’ walked with me arm in arm along a corridor that seemed to me as long as eternity to convince me. ‘A’ told me that he had a degree in the Classics, but nonetheless he had become Governor of the Central Bank.
The self-same Governor strongly supported and protected the elite and prevented different political influences over the bailout, as other eminent figures in the State did not agree with this kind of solution: for instance, the very influential former Minister of Economic Planning (who would once more become Minister from 1983) wrote to Ciampi: ‘you are taking measures which will lead the Bank of Italy to ruin’ (from interview 1 on 21 October 2009). As emerges from an interview with ‘A’ (granted in 1995 to ‘G’ and ‘B’): I remember that the news about ‘M’s’ flight from Italy came on Saturday; I was leaving Rome with ‘F’ for an informal Ecofin meeting. Before leaving, we went to Palazzo Chigi (the home of the Government) to speak with the Premier, ‘H’. I asked ‘I’ to go immediately to Milan, as on Monday he would be appointed supervisor or provisional commissioner. After some days we managed to get approval for the Bank to be submitted to a commissionary procedure and the commissioners have to be appointed. To avoid political pressures, we didn’t wait for the 15 days allowed as a maximum delay for the provisional procedure. After 48 hours, the definitive commissioners (‘J’, ‘K’ and ‘L’) were appointed to everyone’s surprise.
Favouring consent between the views of the ruling class
The elite was able to create consent with, first, the institutions of the State. The Governor of the Bank of Italy (interview by ‘G’ and ‘B’ with ‘A’, 1995) said we agreed to divide our tasks: the Bank of Italy took care of the relationships with the banks while the Minister of the Treasury would have attended to the relationships with the Vatican and the IOR (the Vatican Bank). Hence, the Cardinal Secretary of the Vatican State concluded that everything might be resolved in a spirit of justice and truth.
Ciampi and Andreatta promoted a meeting among six banks (later seven as per below): Istituto Mobiliare Italiano (IMI), Banca Nazionale del Lavoro (BNL), Istituto San Paolo di Torino, Banca Popolare di Milano, Banca San Paolo di Brescia and Credito Bergamasco (subsequently Credito Bergamasco decided not to participate in the bailout and was replaced by two other Italian commercial banks: Credito Romagnolo and Banca Agricola di Reggio Emilia). The meeting among the banks which might have eventually been interested in the BA bailout took place on 9 July 1982, from late afternoon till late at night, in Rome. The meeting was successful in deciding that the six banks a) will support the BA providing the needed liquidity; b) are eventually disposed, should the BA be put into liquidation, to incorporate a new bank, taking over the assets and liabilities of BA. (‘diaries’ on 9 July 1982, 6:30 pm–1:30 am)
It is however interesting to underline that this solution (a) was identified as a result of deep insight into the accounting information provided by the Special Commissioners and the Supervisory Board; (b) was followed and precisely implemented by the two outstanding leaders of the aforementioned elite when it seemed clear that other attempts to incorporate an intervention Group had failed, like that implemented by Silvio Golzio, the Chairman of the Italian Bank Association (ABI) on 9 July 1982.
Important events occurred: the coordination and the unity of intent of the two above-mentioned Italian authorities fostered the creation of an ‘intervention group’ composed of four private banks (Banca Popolare di Milano, Banca San Paolo di Brescia, Credito Romagnolo and Banca Agricola di Reggio Emilia) and three state-controlled intermediaries (Istituto Mobiliare Italiano (IMI), Banca Nazionale del Lavoro (BNL), and Istituto San Paolo di Torino), triggering in this way a perfect equilibrium of corporate governance in the future ownership structure of BA, since 50 per cent of the ordinary shares were owned by private banks and the other 50 per cent were owned by state-controlled ones. The conceived plan was finalized in a very short period of time, between Friday 6 August and Monday 9 August 1982. Over that weekend, the Italian assets and liabilities of BA were attributed to a new bank which was called Nuovo BA, as Ciampi had foreseen since the very beginning of July, which was incorporated on 6 August, with the seven banks of the intervention group being the shareholders of the new bank. Because of this spin off of BA’s Italian assets and liabilities, on Monday 9 August 1982, the 107 Italian BA branches reopened under a new name and a new owner. The chairmanship of Nuovo BA was assigned to Giovanni Bazoli, as representative of one of the private banks, Banco San Paolo of Brescia (NBA/VCdA, section 1).
Balancing the interests of different social forces through time: the role of accounting
Building a strong and cohesive elite was so relevant in pursuing two different, but complementary aims: (a) protection of stakeholders’ and further deposits’ and (b) the implementation of any feasible devices in order to maintain the value represented by the history and reputation of the organization.
The possibility of finding a solution was a real challenge, owing to the adverse situation of the accounts of the bank.
After the bankruptcy of the BA had been declared, the appointed Special Commissioners and the Supervisory Board implemented an accurate revision starting from the financial reporting at 17 June 1982, which they received from the previous Board of Directors and from the auditors who had been forced to resign. This document was composed of an assessment of assets, liabilities and net equity at that moment and an estimation of revenues and costs for the period (Bellavite Pellegrini, 2008). Both the Special Commissioners and the Supervisory Board differently and independently revised the data provided by the previous directors, adding many positive and negative integrations and accounting adjustments with the aim of better understanding the effective going concern ability of BA.
In Table 4, the two bodies appointed by the Bank of Italy envisioned two different measures of the imbalance between the assets and liabilities of BA. It appears clearly that
Revised financial data of BA (billion liras, 1982).
The net equity of the old bank (nominally 409 billion liras) had to be subjected to negative corrections in net assets for about 916 billion liras, according to the Supervisory Board, and for about 1,176 billion liras, according to the Special Commissioners. The respective net unbalance reached about (409 – 916) = – 507 billion liras or (409 – 1176) = – 767 billion liras;
Even if other positive correction were considered (related to participations and properties) for about 287 billion liras (suggested both by the Supervisory Board and by the Special Commissioners), together with a limited positive net result (8 billion liras) accounted from the beginning of the financial year 1982 to 17 June 1982, the previously calculated unbalance would result in (– 507 + 8 + 287) = – 212 billion liras (according to the data provided by the Supervisory Board) or (– 767 + 8 + 287) = – 472 billion liras (according to the data provided by Special Commissioners);
It was not worth making further investigations because, whatever the accounting criteria (more or less conservative) employed were, one arrived in any case at a huge negative amount of net assets.
The informant 2 (in an interview in 2012) underlined the required amount for a successful equity offering was not implementable by the incumbent ownership structure of BA, mainly composed of fragmentary ownership by shareholders. These latter would not have had either the financial strength to pursue this strategy, nor the needed trust in any managerial team, because of previous bad management. A structural change was not only suggested but had clearly become absolutely necessary.
In reality, the 409 billion liras of equity were completely lost by the bank and its shareholders and a proper bailout procedure had to be followed: the company would not have been able to collect the needed capital increase of about 1,000 billion liras to ensure a going concern, as this huge amount was considered not in tune with the available resources of the market at that time. An extract from interview 6 (1997) states: a traditional bailout was strongly supported by important forces belonging to: a. Italian private entrepreneurship, composed of the so called ‘Salon’ of this lobby, such as ‘O’, [president of a great Italian car company], ‘P’, [president of a powerful company producing tyres and rubber cables], and ‘R’, among others, b. public entrepreneurship, such as ‘Q’, [CFO of one of the greatest companies owned by the State in the hydrocarbon sector] c. Italian politics, like ‘N’, [former Minister of Economic Planning], and d. the Italian institutions.
This is also confirmed by informant 1 in his interview (2009): he recalled that, during the first steps of the meetings with ‘F’, useful in debating how to solve BA’s problems, two people reached out to the general Manager of the Minister of Treasury to support a proposal. We also read in the ‘diaries’ (22 June 1982): (a) it’s bewildering, as it leads to a solution which would assure proprietorship of the BA for the major stakeholders, with a complete removal of the minor ones; (b) in any case, it is better to wait for the commissioners’ inquiries about the financial statement and to proceed fairly.
The bailout solution would have led to the removal of the small shareholders ultimately and to the cancellation of their residual value. Informant 6 continues in the interview (1997): We asked ourselves where there could be values to be picked out to help the recovery and protect small shareholders and stakeholders. We didn’t want to lose value wherever it was.
The small group debated how to achieve a new kind of recovery (interview 6, 1997): we researched our solution leveraging on our expertise on accounting and we agreed to:
split the great unbalance of the old bank into two companies, one to be owned by a group of Italian banks and the other (the so-called liquidation of the old bank) to be left to the old shareholders; the first one would have received the ‘Italian assets and liabilities’ of the former bank, the liquidation would have maintained the foreign credits/debits towards subsidiaries, other credits and financial assets, especially the long term assets; 4 I strongly supported the idea described in ‘diaries’ (on 2 July 1982, at 9:15 am): ‘in the case of voluntary liquidation of the bank, there will be the incorporation of a “Nuovo BA” which absorbs assets and liabilities of the old one with equity provided by primary Italian banks’;
manage the selection of assets and liabilities to fulfil two complementary criteria: (a) to assure the possibility for the new bank to be a successful going concern; (b) not to let the weight of the bankruptcy burden only the old shareholders, diversely from what was expected by the forces which opposed our group [he meant the elite] and proposed an ordinary bailout;
arrange this selection in such a way as to balance the burden to be placed on the shoulders of the new owners of the company, with the burden to be left on the old shareholders (represented also by a large community of small shareholders); moreover we would have been glad to give the old shareholders the possibility of being part of the new bank as if they had not completely lost their value.
After all assets and liabilities were split into the two companies, according to a coherent iterative process aimed at finding the required solution, the final result was not yet satisfactory. A further effort was needed to reach the aim the elite looked for: not to make the weight of the recovery burden fall (only) on small shareholders and the community and to give the possibility of further development to the ‘domestic business’ of the new bank. The solution was promoted by Andreatta (Bellavite Pellegrini, 2013): to make the new bank owners pay a heavy goodwill to the old company to allow two important Italian subsidiaries (La Centrale, a financial company holding several majority participations in banks and insurance companies, and Interbanca, another bank devoted to medium-long term loans) to pass to the new bank. Andreatta knew this proposal was challenging, owing to the accounting evidence of the net equity in the two subsidiaries: the solution came after an intensive accounting debate among Ciampi, Andreatta, the Special Commissioners and the Supervisory Board (Bellavite Pellegrini, 2013). As the overall net equity of La Centrale and Interbanca was about 157.26 billion liras, informant 6 said in his interview (1997), I eventually put on the table an undisputable decision: the price was 350 billion liras, thus figuring out a goodwill of about 140 billion liras; ‘A’ and ‘B’ strongly supported this decision that could not be taken for granted. In any case we had also evidence of ‘positive correction in net assets’ (including La Centrale and Interbanca among others) for 287 billion more than the net accounting equity, highlighted both by the Supervisory Board and the Special Commissioners.
So, an important amount (about 350 billion liras) was paid by the Nuovo BA to the old BA for the controlling stake in La Centrale and for about 30 per cent of Interbanca. Even if it was technically a price, the elite called it ‘the goodwill’ in brief to underline that this price embedded a surplus with a special purpose. Ciampi wrote on 8 August 1982 in his ‘diaries’ with undoubted satisfaction: The payment made by the bank which receives assets and liabilities for the Liquidation of 350 billion as goodwill reduces the burden for the other constituencies by the same amount.
Many years later, in an ex-post scrutiny of such decision, an amount of economic value roughly equal to 270 billion liras has been determined (Bellavite Pellegrini, 2013). This additional evidence suggests that the goodwill paid by the Nuovo BA to the old BA, even favouring the community of old shareholders, was to some extent not so far off being fair towards the overall plurality of stakeholders: the aim of balancing the interest of different stakeholders was really pursued and accounting helped in this achievement.
To some extent, it is not obvious why the Nuovo Banco should have paid significant goodwill towards the liquidation of a distressed bank. However, over the question of the amount of goodwill, the Minister of the Treasury would not accept any sort of bargaining with the banks composing the intervention group. Incidentally, during those days, the informant 1 received a letter from ‘O’, the incumbent Minister of the Italian government, asking him to refrain from the sale of the La Centrale stake to the Nuovo BA. But, once more, ‘“F” and I strongly refused this perspective’ (interview 1 on 9 December 2009): the elite once again refused solutions that could have led to damage to the community.
The result of the recovery process
In the following years, the Purchase Act implemented by the Nuovo BA concerning the Italian assets and liabilities of the BA was renegotiated several times. The overall credit triggered by that Act was revised according to the different levels of solvency of the transferred assets and credits. Many of them were initially sold at quite a low price, while in due course the recovery rate was definitely higher. On one hand, the revision of the price shows a continuous counterbalance between the rights of stakeholders and the going concern of the Nuovo BA, while on the other hand it underlines the objective difficulties in pricing the nonperforming loans.
Should this attempt have been successful, the liquidation would have first refunded (as in fact happened) the debt in regards of BA and only subsequently that due to BA’s shareholders, as the latter were residual claimants. Had the liquidation been unsuccessful, ‘A’ and ‘F’ decided that they would turn to the content of the Sindona Law: the Italian Treasury was allowed to lend money to the distressed bank at a 1 per cent rate, as well as to buy Treasury bonds, which at that time had higher interest rates, so registering a revenue equal to the difference between the market rate and the effective lending rate. This accounting effect would have consequences for the stakeholders involved in the bankruptcy and confirm the social attention paid by the elite in considering the social aftermath of the rescue.
As a result of such a process, the elite involved in the rescue deliberately tried to keep the Italian State at arm’s length, limiting its role. In reality, the elite reached different results:
The Italian State was only indirectly involved in the BA bailout through three of the seven banks which composed the intervention group. From this point of view, the BA’s case was only partially a proper bailout since a significant part of the resources used by the ‘intervention group’ was not provided by the State;
Italian monetary authorities decided to spin off the Italian assets of the BA attributing them to the Nuovo BA, in a successful attempt for a proper balance between BA’s going concern and stakeholders’ rights; and
Then, Nuovo BA paid 350 billion liras to the old BA in liquidation for the controlling stake of La Centrale, thereby creating the premises for a satisfactory settlement with other stakeholders, without any public intervention (NBA/VCdA 2).
Finally, to let the old shareholders be involved in the new initiative, in 1983 the board of the Nuovo BA attributed bank warrants to be eventually converted into ordinary shares at no cost to the former shareholders. The warrant could be exercised with a definite striking price, as a moral constraint in shareholders’ regard. The attribution of bank warrants and their conditions were widely discussed among ‘A’, ‘F’, the Special Commissioners and the members of the Supervisory Board and, at the end, unanimously approved by them. In 1985, the positive economic results of the Nuovo BA allowed for a successful and unanimous exercise of the warrants, contributing in this way to softening the capital losses experienced by the shareholders involved in the bankruptcy three years before and to reawakening shareholders’ interest in the Nuovo Banco.
Discussion
The question of how to deal with crises, both at corporate and at a broader level, has been investigated by the accounting history literature, which has a long track record of stories proving the intertwined role of different forces, at local or national level, in organizing rescues (Manetti et al., 2017; Miley and Read, 2013). The intervention of the State helps too in finding solutions through legislative effort (Lloréns, 2000); in some cases, a reaction to insufficient controls determines changes both in procedures and regulation, even by means of pronouncement by the regulatory or enforcement authorities (Heler et al., 2005). Accountants usually have roles in crises, alternatively, either as they fail to assure an effective control, or because they offer their contribution in re-establishing an acceptable going concern. So we can recognize both the use and the non-use of accounting in crises (Fogarty and Dirsmith, 2005). Moreover, looking at the publication of financial statements allows an early perception of crises, as their frequency is an indicator of economic performance (Lloréns, 2004).
In this context, corporate crises of financial institutions have become a controversial issue with vast political and social echo nowadays (Barth et al., 2004; Mackey, 2010; Reinhart and Rogoff, 2009; Schenk, 2014), owing to the wide-ranging effects they have on people and society.
In our study, we investigate the case of BA through the theoretical lenses provided by Gramsci’s theory of social hegemony (Bates, 1975; Gramsci, 1971), that we extend to interpret the evolution of this organizational setting. Such a framework allows us to insert and contextualize the BA’s rescue within the social, political and economic situation of Italian society: we are in tune with the claim of using a hegemonic analysis to assist revolutions more than with merely understanding past crises (Goddard, 2002).
The interpretation of this case through the Gramsci theory offers new insights useful for a better comprehension both of the recovery and of the usability of the framework in a corporate setting (which is quite new, as far as we know). The main points, appearing as closely linked together, can be summarized as follows:
How the elite exerted the hegemony, directing the greater society towards the recovery ideas that had to be shared and the organizational target (a corporate one) which was the main object of this hegemony;
The crucial role of accounting in helping address a solution in tune with the moral values and the declared purposes of the group of people who took the burden of bringing about a positive solution of the crises; and
The willingness of the elite to use hegemony to pursue a public interest.
Exerting the hegemony
The distinction between the civil society in which the elite has to gain its leadership and the main target of the elite’s action (a corporate setting, a bank) is a new first point in using the selected framework, different from many cases we find in the accounting literature where the two settings were the same (as for example: Alawattage and Wickramasinghe, 2008; Cooper, 1995; Li and Soobaroyen, 2021; Mantzari and Georgiou, 2019; Walker and Carnegie, 2007). This couple of settings (the entire society and the corporate institution) have been investigated within the particular scenario where the bankruptcy developed, is characterized by a deep lack of consensus, largely diffused in society, about the capability of the old company and its management to emerge from the crisis (Bellavite Pellegrini, 2008).
BA went through an ‘organic crisis’ that is a crisis that ‘differs from “ordinary” financial, economic and political ones’ (Fazi, 2018: no page number): it is comprehensive as it encompasses ‘the totality of a system or order that, for whatever reason, is no longer able to generate societal consensus (in material or ideological terms)’ (Fazi, 2018: no page number). This crisis entailed ‘incurable structural contradictions’ and marked the end of a period of one hegemony, giving rise to an alternative form. To emerge from this situation, members of the elite had to gain recognition and recognizability from a large span of public servants, private citizens, businessman, bankers and influential members of the Church of Rome. They also had to manage disparities against other forces as usually happens, with alternative results, which has effects on accounting tools (Ashraf and Uddin, 2015).
Coherently with this need, the initial elite was extended, increasing a system of alliances among political and civil society that played a crucial role in implementing the BA bailout: so the elite was composed of intellectuals, business and professional leaders, members of the state apparatus, all involved in supporting and spreading the elite’s new view. In accordance with Gramsci’s theory, ‘the relation between base and superstructure implies that the latter is not a mere logical consequence of the former. Rather, the base can be influenced by the superstructure’ (Spence, 2009: 223). Besides, the members of such an elite considered themselves as belonging to the same liberal wing of Italian Catholicism, which had become central to the functioning of the Christian Democratic Party, the party that was leading the Italian Government (Taccolini and Cafaro, 1996). It is not surprising that members of that Party (which represented, to some extent, old elites) were involved in facilitating the rescue and recovery when BA found itself in difficulties. The final acceptability of the ‘new elite’ to that Party seems to have been important for the success of the rescue. 5
The representatives of the new elite established a new hegemony in society, to be applied to that corporate setting (the bank gone into a bankruptcy). The new hegemony was rooted in a different basis from the previous one, involving new ideas, values and policies. The case of BA documents how this small and inspired elite took over the leadership of the bailout and unanimously drove the bank towards a forced, but forward-looking, solution: the Gramscian framework ‘presents a strategic notion of power which suggests how actors can gain at least partial comprehension of and influence over complex social and political systems’ (Levy and Egan, 2003: 824).
The case reveals solutions about crises that furnish new perspectives in accounting history studies: not only forces enabling the recovery as they usually do in many rescue processes (Schenk, 2014), but tightened together to constitute a small cohesive group of people, ideologically homogeneous, sharing values and ideals and culturally advanced; forming an elite able to express an intellectual and moral leadership in the country, both in the business and political worlds, devoted to addressing the issues of a corporate setting.
The role of accounting
From an intellectual point of view, people belonging to the elite shared the same technical perspective in addressing the problems, using their common accounting culture and expertise to examine the complex situation and to find a positive solution.
Accounting has been an essential instrument used by the new elite, as it often is in a political hegemony (Alawattage and Wickramasinghe, 2008). In this case, however, its use was not to maintain the status quo (Merino, 2003).
Accounting allowed the elite to figure out how to overcome a crisis in an original way: instead of accepting an overall destruction of the value embedded in the old bank company, as usually happens in bankruptcies or in bailouts (Conti et al., 2014; Schenk, 2014), accounting arrangements were used by the elite to look for an original selection of assets and liabilities to be moved to a new bank or to be left within the old company. This selection was worked out not simply to allow for a new successful business in the new bank (which was very relevant), but also to pursue a coexistent purpose: not to place the burden of the failure on single classes of stakeholders but to balance the effects among them. The coexistence of these aims was challenging and the solution provided reveals the ability of the elite to coordinate and balance both the overall situation and the enterprise’s economic interests as is depicted in Li and Soobaroyen (2021), where there is a selective use of accounting and control practices deployed for reasons beyond their economic functionality. This was managed through careful attention to the consequences different accounting arrangements could have had. So, the elite:
(a) debated the specific accounting values and decided to spin off just the Italian assets of the BA attributing them to the Nuovo BA, successfully balancing BA’s going concern and stakeholders’ rights;
(b) then, Nuovo BA paid 350 billion lira to the old BA in liquidation for the controlling stake of La Centrale (a holding company controlled by the old bank) and a relevant part of Interbanca (a bank working in the medium-long term sector), allowing proper satisfaction of other stakeholders without any public intervention and reducing the imbalance of the old company. A substantial amount of the equity endowment of Nuovo Banco was used in order to create a more balanced equilibrium of rights between the shareholders of Nuovo Banco and the creditors of BA; and
(c) finally, in 1983 the board of the Nuovo BA decided to attribute warrants at no cost to the then shareholders of the bank to be converted into ordinary shares some years later. This latter possibility was definitively made concrete, contributing to the diffusion of the idea of success.
Pursuing public interest
In this case, political hegemonies are not mechanisms useful in making one class (the ruling class) deploy strategies to dominate and control the others or to extract consent from them in a Machiavellian sense (Alawattage and Wickramasinghe, 2008).
The emerging elite played a key role in identifying a solution in the interest of all stakeholders involved. This appears quite new if we consider the majority of situations – usually examined through the lens of the adopted Gramsci theoretical framework – where hegemony is considered as a crucial point, and differently from what usually happens in bailouts and recovery processes following crises (Schenk, 2014).
On the contrary, here the elite did not pursue a particular nor a strictly private interest, but a public one. This choice required (a) building a dynamic alliance among the diverse categories, also co-opting elements belonging to potentially antagonistic groups (such as tax-payers, depositors or customers) into the ruling group, and (b) facing the daily attacks of those who, outside the elite (private entrepreneurs, managers of state-owned enterprises, members of the State apparatus, public servants, influential politicians) looked at different solutions, most of them trying to convey the valuable assets of the failed bank (especially the intangible ones) into private hands, to let someone gain an advantage at no cost.
Besides, as has been documented, pursuing public interest was made possible without public cost. The Italian state was only indirectly involved in the BA bailout through three of the seven banks which composed the intervention group. Public servants such as the Governor of the Central Bank as well as the Minister of the Treasury didn’t use public money to get the results they obtained.
This result relied on the elite’s common vision, juxtaposing the role of the public sector with the private one and balancing the interests of different social forces through time. This was one of the greatest strengths of the idea elaborated by the elite, that contributed so much to its success and was much appreciated also by the Church which decided – two years later – to give a voluntary contribution (about 400 billion liras) to the new bank. They had a great challenge to face and the result was completely uncertain, even if their formal position at the head of different institutions (Central Bank and Minister of the Treasury) was relevant. Considering the dimension of the assets involved in the corporate crisis, the outcome was judged as very difficult (Bellavite Pellegrini, 2008: 374) and the top public officers involved risked failure, with a reduction of their personal credibility at the head of the institutions they governed. Besides, success was not to be taken for granted, as many different forces were working in opposition to the efforts of the elite, which on the contrary played an agent role, so underlying the agential dimension of political hegemony (Alawattage and Wickramasinghe, 2008: 322). In reality, the elite was convinced of finding a comprehensive solution to the bankruptcy, a solution able to satisfy the interests of all the stakeholders, and not just of one (i.e. the State, the depositors, the previous management, the shareholders, the tax-payers or the employees). So, only at the beginning of August 1982, did they realized they might be successful, as Ciampi writes in his ‘diaries’ (6 August) about his relationship with Visentini, his opponent: ‘I realize that among us the only real point of dissent is the allocation of “La Centrale”, but it is clear that on this point we aim for similar solutions’, and later on the same day he continued explaining that – after important institutional meetings – two important government ministers ‘will agree on the allocation of “La Centrale” in the new bank, as a substantial element of the proposal’. The accounting evidence proposed by the bodies in charge of the procedure was properly used, in order to find a feasible balance of rights and duties among the different stakeholders and constituencies taking part in the bailout: the ‘politics of change’ (Alawattage and Wickramasinghe, 2008: 325) became possible through accounting.
Conclusions
This work explains how an elite had success in overcoming a corporate crisis through its intellectual and moral hegemony, leveraging on accounting and favouring public interest.
The strong connection among ‘hegemony / accounting / public interest’ may offer new perspectives for future research, both in accounting history and in critical/interpretative accounting. While some of these links have already been investigated by literature – and in particular those between accounting and the elite as for instance in Cooper, (1995); Li and Soobaroyen, (2021); Mantzari and Georgiou, (2019); and Walker and Carnegie, (2007); – this new perspective aims to make more extensive use of Gramscian theory in accounting studies.
We recognize a further opportunity for using Gramsci’s theory in accounting history (as suggested in Merino, 2003 and carried out in Xu et al., 2014), as it has been applied in other social sciences, confirming the possibility of a positive role of political hegemony in influencing and providing solutions for complex social and political problems (Levy and Egan, 2003). While originally (Bates, 1975; Gramsci, 1971) elites were conceived of to obtain purposes that might damage some categories of people, or to subdue people not belonging to the same group, as if they embodied Machiavellian forces (Alawattage and Wickramasinghe, 2008), in the BA case the elite worked hard to obtain results able to benefit a large span of stakeholders, who would have been damaged by other recovery solutions that were supported by different groups of political and economic forces. This result was pursued by composing a ‘bloc’ able to carry out a real solution to the crisis and effectuate a true change, by aligning economic, organizational, and ideological forces (Levy and Newell, 2002: 96).
A second possible extension of the Gramsci theory is demonstrated here: its theoretical constituent can be applied – as it was in this case – to a corporate organizational setting, rather than to a widespread community or society, as it is commonly used in social literature and also in that of accounting (Mantzari et al., 2017; Mantzari and Georgiou, 2019; Saravanamuthu, 2004; Spence, 2007, 2009; Xu et al., 2014; Yee, 2009). This proves the applicability of the theory for a larger span of different settings, confirming that this approach can provide a rigorous theoretical methodology that goes beyond the fields for which it was originally conceived, and can be useful to cast insights into in-depth studies of developments within specific organic crises (Goddard, 2002: 684) of companies.
Accounting has been embedded and ‘social constructed’ in the elite’s work, as an instrument highly relevant to the bailout’s success: the new social entity – as a result of the recovery process – had the opportunity to properly share values with different stakeholders. The final design was built by leveraging on the possibilities that accounting disclosed to the people belonging to the elite itself. So, the combination of Gramscian theory and accounting has been proved not just in displaying social accounting emancipatory potential (Spence, 2009), but in giving a contribution to the research stream which looks at specific crises and hegemonies in more depth (Goddard, 2002). The elite capabilities and accounting have been subsumed by the rationales of a political hegemony (Alawattage and Wickramasinghe, 2008) able to carry out real change, and to offer a solution to social challenges, enabling everyone to understand how values are formed in a particular society and how such values are tied to the social, economic and political context (Yee, 2009: 88) where those challenges have to be overcome.
