Audit and Grant Thornton

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Executive summary
In the dawn of 21st century, Italian company Parmalat suddenly collapsed with €14 billion in debt, which made it the biggest corporate failure in Europe history. This case provides us a good opportunity to investigate corporate governance issue in Continental Europe. In this paper will be initiated with introduction of Parmalat’s history and events review on its bankruptcy, followed by analyzing the shortcomings of its corporate governance in both internal and external aspects and finally the conclusions about why the corporate governance of Parmalat failed to prevent the scandal from happening will be drawn. Changes made by government in regulations after the scandal will be also revealed and at the end, we will put forward some constructive suggestions regarding to corporate governance for family-based business groups similar to Parmalat.

1.Company Background
Parmalat is a multinational Italian dairy and food corporation,who was always trying to style itself as the "Coca-Cola of milk". In 2002, Parmalat still ranked second in the survey of “the most famous food brands in the world”.

However, in 2003, Parmalat was involved in a financial scandal, which was considered as “one of largest and most scandalous corporate financial frauds in Europe history.” The Parmalat case represents the most important problem commonly associated with Continental European corporate governance structures, summarized as a controlling shareholder that exploits the corporation rather than monitoring its managers. Unlike Enron’s, Parmalat’s governance structure was obviously incomplete. Despite this deficiency, Parmalat had a very high investment grade credit rating, which made it able to borrow amounts of capital from investors. 2.Early History

In Italy in 1961, after dropping out of college, Calisto Tanzi took over his father’s preserved meat business, which he went on to found as Parmalat. In 1963 when a Swedish company developed the Ultra Heat Treatment (UHT), Mr. Tanzi noted this revolutionary development and adopted this new technology to give Parmalat milk longer shelf-life milk that beyond six months without refrigeration. The name Parmalat was given to the milk produced, and its special paper packaging was soon being known as Tetra Pak. From then, Parmalat started its expansion into the dairy industry.

Parmalat emphasized greatly on brand promotion. From the seventies, Parmalat sponsored and gradually held the ownership of Parma A.C., a soccer club in Italy. The Parmalat trademark became popular with Italian’s leagues raising and broadcasting around the world. In the same decade, Parmalat started its market penetration in Latin American and other European.

In the early 1980s, Parmalat took a series of actions of further expansions: Parmalat consolidated its position as a world leader in the dairy market with spreading into other food markets, such as fruit juices, bakery products, fresh products, ice-creamed, etc.

After listed on the Milan stock exchange in 1990, Coloniale s.r.l. (the Tanzi family’s company holding Parmalat’s shares) used its controlling stake in the raising of capital of a listed company. Through a complex financial transaction, Coloniale kept a controlling stake of 51 percent in Parmalat Finanziaria, which became the listed holding of a group formed by 58 companies, in which 33 of them were based outside Italy. The most important of these companies was Parmalat S.p.A., the main operating company.

At the end of the decade the Parmalat Group was still expanding. Between 1998 and 2000 it purchased 25 companies. The trend continued at the beginning of the new millennium and Parmalat was continuously issuing bonds.

At the end of 2002, Parmalat was the listed holding of a multinational food group consisted of more than 200 companies distributing in 50 countries. The group was a multinational leader in the markets of milk, dairy products and beverages. It operated 139 industrial...
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