Assignment: Parmalat Scandal
In 2003, Parmalat Group, Italy's eighth largest company, and which is ranked among the top ten international food products companies, collapsed and entered bankruptcy protection after disclosing that nine billion dollars were was missing from its accounts. Its management and controlling shareholder were then indicted for fraud. Parmalat's global investors around, especially in Italy and the United States suffered severe losses as a result of that fraud (Segato, 2006).
Melis (2005) stated that "the ownership and control structure of Italian listed companies is characterised by a high level of concentration, and by the presence of a limited number of shareholders, linked by either family ties or agreements of a contractual nature (i.e. shareholders' agreements), who are willing and able to wield power over the corporation. Parmalat was a complex group of companies controlled by a strong blockholder (the Tanzi family) through a pyramidal device;" and "despite ownership disclosure rules, the structure of the group is not easy to trace, especially at an international level. This is not unusual among large Italian groups" (p. 479).
Based on the required readings and research, discuss:
1. What is the role that Parmalat's management and its accounting department played in this case?
2. Compare and contrast the U.S. GAAP and the IFRS; which is a better system, and why? Should the United States move to IFRS?
3. Some of the Anglophone business media have branded the Parmalat case as a particularly Italian scandal, where they suggested that Parmalat's case is country-specific that is more likely to happen in Italy than in any other country. Do you agree/disagree with this statement? Explain your rationale.
4. The Parmalat case has exposed how deficient the Italian rules of corporate governance are. Explain the importance of corporate governance when doing business internationally.
Sources used in the development of the Parmalat Mini Case Study (not required reading!):
Melis, A. (2005). Corporate governance failures: To what extent is Parmalat a particularly Italian case? Corporate governance, 13(4); 478-488.
Segato, L. (2006). A Comparative Analysis of Shareholder Protections in Italy and the United States: Parmalat as a Case Study. Northwestern Journal of International Law & Business, 26(2), 373-446.