Parmalat Rise and Fall
Introduction
The rise and fall of Parmalat was an important event as it highlighted the corporate governance issues in the corporate world of Italy. Parmalat was found by Calisto Tanzi, CEO and Chairman, in 1961 with a pasteurisation plant in Italy. The company was headquartered in Italy and had grown to be a multinational company into all sorts of milk products, beverages and bakery goods. Three decades later, in 1990, it became a publicly traded entity and was listed on the Milan stock exchange. Although Parmalat had become a publicly traded company yet it was similar to other European companies in which they were ran as a giant family business with highly centralized power structure. Most company decisions were made at the top by the CEO with financial information available only to the CEO and Chief Accounting Officer. The board of directors of Parmalat also lacked independence as revealed in the latest and final filing. There was not an independent board of directors that was not subject to the influence by the Tanzi family to act as a protection to the integrity of the company operation and safeguard of the company assets. We will examine the nature of the Parmalat accounting fraud, the process leading to the identification of the fraud, the external and internal responses to the fraud and finally, a discussion in which the Parmalat scandal could have been prevented if certain independent controls and mandatory regulations were in place.
Nature and Context of the Parmalat Fraud
The setup of the Parmalat group was a typical complex structure of a centralized, few shareholders and family-owned business in the European Union. The strong blockholder of the Parmalat group was the Tanzi family. Parmalat S.p.A was the core of Parmalat group and owned by Parmalat Finanziaria and Dalmata Srl with 89.18 per cent and 10.82 per cent of voting shares respectively. Parmalat Finanziaria was owned by Coloniale S.p.A with 50.05 per cent of the company voting
The rise and fall of Parmalat was an important event as it highlighted the corporate governance issues in the corporate world of Italy. Parmalat was found by Calisto Tanzi, CEO and Chairman, in 1961 with a pasteurisation plant in Italy. The company was headquartered in Italy and had grown to be a multinational company into all sorts of milk products, beverages and bakery goods. Three decades later, in 1990, it became a publicly traded entity and was listed on the Milan stock exchange. Although Parmalat had become a publicly traded company yet it was similar to other European companies in which they were ran as a giant family business with highly centralized power structure. Most company decisions were made at the top by the CEO with financial information available only to the CEO and Chief Accounting Officer. The board of directors of Parmalat also lacked independence as revealed in the latest and final filing. There was not an independent board of directors that was not subject to the influence by the Tanzi family to act as a protection to the integrity of the company operation and safeguard of the company assets. We will examine the nature of the Parmalat accounting fraud, the process leading to the identification of the fraud, the external and internal responses to the fraud and finally, a discussion in which the Parmalat scandal could have been prevented if certain independent controls and mandatory regulations were in place.
Nature and Context of the Parmalat Fraud
The setup of the Parmalat group was a typical complex structure of a centralized, few shareholders and family-owned business in the European Union. The strong blockholder of the Parmalat group was the Tanzi family. Parmalat S.p.A was the core of Parmalat group and owned by Parmalat Finanziaria and Dalmata Srl with 89.18 per cent and 10.82 per cent of voting shares respectively. Parmalat Finanziaria was owned by Coloniale S.p.A with 50.05 per cent of the company voting
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