Italy: The Reign Ends; The Benettons set the modern standard for Italian family empires, in part by letting pros run the show.(Cover Story)

Byline: Karen Lowry Miller, With Barbie Nadeau in Rome

In the mid-1950s, Luciano Benetton was a bored clerk in a clothing shop in the northern Italian village of Ponzano. Inspired by raves over a lemon-yellow sweater his teenage sister had made for him, he sold his accordion to buy her a knitting machine, and was soon delivering her creations by bicycle. After roping their two brothers into the business, he spent a year in Scotland studying the art of handling wool, and the four siblings opened their first factory in 1965. As Benetton became synonymous with colorful sweaters, Luciano set the provocative tone for which the brand would become famous by posing nude for a 1993 worldwide ad campaign.

Now the intimate relationship between family and company is undergoing a wrenching change. After World War II, the Benettons were one of the new clans who began to crack the circle of elite Italian business families long dominated by the Agnellis, who owned Fiat. Over the decades they established themselves as members of that elite and then as leaders, proving that family firms can break out of their home markets by developing into of Italy's most recognized global brands. The Benettons dared to change with the times, diversifying into profitable roadside restaurants and tolls while other clans stood still.

Now they are again charting the way for Italian capitalism by handing their life's work over to professional managers, something the Agnellis, the Pirellis and certainly the Tanzis of Parmalat have been loath to do. The family still owns two thirds of the company, but only Luciano still holds a formal post. "They are really leading the way for others," says University of Bologna political scientist Gianfranco Pasquino, who calls Benetton "an Italian company of modern times."

Benetton has had a string of outside CEOs. One took it public in 1986, one bought up sports-equipment companies like Nordica, and one sold them off again. But the four siblings ran the show, and several of their 14 children entered the company. Now they are getting out for real. One year ago they hired a new CEO, Silvano Cassano, a former executive with Fiat and Hertz, and hung up their knitting needles. "We're at a very important passage now," says Luciano Benetton, recalling the early struggles in an interview at Villa Minelli, the renovated 16th-century Venetian ...