Posted: June 14th, 2021
Parmalat, a company headquartered in the centre in the Italian city of Parma, was a family business, like most Italian businesses. Parmalat began growing as a company in 1961, when Calisto Tanzi took the reins from his father; Parmalat was therefore transformed from a little cheese and sausage shop into an international dairy and food franchise Tanzi got Parmalat listed in the Milan stock exchange in 1990, with 52% of the shares owned by the Tanzi family. The Parmalat Group established in 1990 had its own production based in 31 Countries and drew on 62 companies, 149 factories and more than 38,000 employees.
The main business of the company was milk (57% of sales), fresh foods (23% of sales), Baked goods (12%) and Vegetable products (7. 6%)(Gumbel. P, 2004) In 2003, Parmalat was announced insolvent after 13 years in the dairy industry. This scandal was considered one of Europe’s largest yet, and was labeled, “Europe’s Enron”. The CEO Calisto Tanzi had admitted to the judge in court that he had been dealing with fraud accounts for over a decade, and had spent over $640 million from his publicly traded dairy company to cover losses at family businesses, such as Parmatour which he also owned.
Tanzi and the ex-CFO of Parmalat Fausto Tonna were arrested, along with seven other executives, accountants and advisors. They admitted to claims of false accounting, fraud, market rigging and forgery. On November 11th 2003, Deloitte and Touche, arose suspicions when they revealed a $640 million investment in the Cayman Islands fund called Epicurum. Shortly after, Parmalat was asked to pay $184 million to bondholders. Deloitte pressured Parmalat to liquidate the funds in the Cayman Islands, when they refused to do so and announced that they were not able to, the entire market panicked, and even more suspicions arose.
Unaware of the fraud dealings, Enrico Bondi, the appointed advisor Tanzi had appointed, suggested liquidating a $5 million Bank of America account. And that is when the “rabbit popped out of the hat”(Edmondson, Fairlamb, ; Byrnes, 2004). The bank account was fabricated, Tanzi and Tonna had forged an official letterhead of the Bank of America using a scanning machine, stating they held $5 million, this was then sent to the auditors who certified the account was real, and the financial reports blew up by three-folds.
In December 2003, Tanzi revealed that the accounting hole in the their accounts amounted to approximately $11 billion. After the arrest, the government put Enrico Bondi, Tanzi’s advisor, in charge of restructuring Parmalat. As Parmalat was named insolvent and eligible for bankruptcy, this allowed the company to continue operations while re-organizing its financial portfolio and paying off its debts. Goals and objectives: The goal of this assignment is to delve into the internal and external environmental factors that lead to the demise of such an established company as Parmalat Finanziaria SpA.
And to therefore comprehend the extent at which some executives take desperate measures to ensure the success and survival of their companies. This success is however short-lived. Compared to the likes of Enron and WorldCom, Parmalat is no less of a global culprit in the corporate world, leaving behind thousands who were victims of their immoral acts. Throughout the course of this paper, I will look closely into insider trading, corporate governance systems, and business ethics in Italy to help fathom such behavior.
Next I will critically analyze the characters involved in the shocking scandal along with the stakeholders who were collateral damage of this act of immortality, followed by a thorough analysis of the scandal based on classical ethical theories. And finally, I will critically reflect upon the case, adding any moral solutions that could be suggested to prevent future Parmalat’s. Method and framework: Internal control and corporate governance in Italy: As I will demonstrate, the Italian system is not to blame entirely for the decisions made by the executives at Parmalat leading to their downfall.
In proof to such a statement, substantive rules and regulations were in place prior to, and during Parmalat’s operations. That is regardless of the fact that Parmalat is an old and established company and had been participating in unethical behavior for a long period of time preceding the scandal. “Things have been strange [there] since the mid – 1980’s “(Edmondson, Fairlamb, & Byrnes, 2004) In 1988, a journal was released for the first time in Italy entitled “Etica Degli -Affari” (Unnia, 1990) in order to promote ethical affairs in corporations.
This journal sought to encourage ethical executive training and introduce codes of ethics in Italian corporations. In Italy, the business community faces two great threats, one of which is organized white-collar crime, which is commonly known as “The Mafia”. The other threats are derived from the corrupt political systems. “The first problem is the fact that Italy is a country with a low ethical temperature. We don’t have a strong sense of the state. The second difficulty has to do with the business environment and the Italian business community itself “(Unnia, 1990)
It is not that Italy knows nothing or doesn’t care about ethics in its business operations. But for historical reasons, Italy operates under catholic principles governed by Rome. However, in practice, many of those biblical teachings are not implemented as shown in this case. Parmalat scandal character analysis, the characters involved and the driven forces behind the scandal: “Plenty of observers want to dismiss the affair as a local Italian matter. After all, didn’t Silvio Berlusconi’s government water down penalties for false accounting?
And isn’t Italy a model of disregard for rules on corporate governance, a place where the rights of minority shareholders are regularly abused? ” (Leaders, 2004) Internal fraud was thus considered globally as a US problem rather than a global problem, disregarding the fact that immorality and unethical traits were widespread across the globe and were sleuthing their way up to the surface. Many people were therefore not convinced that there was a global problem and cast a blind eye at the flaws in their systems. This led to the downfalls of major corporations including, the oldest merchant bank in England, Barings bank.
In view of Parmalat’s case, investors clearly turned a blind eye for years to Parmalat’s curious debt-issuing practices, and its corporate governance flaws. Could the investors have been more conscience and aware, then the fraud would have been detected, and less damage would have been done to them the shareholders, and the other stakeholders involved. Parmalat’s poor corporate governance stood out clearly as the sun, but a lack of strict regulation and internal controls, dismissed such facts to the public eye.
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