Case Study followed by my personal recommendation on how to improve the landscape after the Parmalat disaster. This was part of a course work I had to do.

1. December 2012
Case Study CHAPTER
18: PARMALAT
MKT 3400: Principles of International Business
Yafees Sarwar

2. MKT 3400 CASE STUDY YAFEES SARWAR
A Statement of the Problems:
Should the European and Italian authorities do more to make sure that companies hold
themselves to higher standards or should they be satisfied with the measures taken by Parmalat
and maintain the status quo?
Definition of Key Players:
1. Parmalat: Parmalat is a key figure for this analysis because all the changes in laws and
governance are now being considered because of its fraudulent activities.
2. The American, European and Italian Governments: These governments are key figures for
this analysis because they have the power and means to force companies to make changes and
adopt new measures. They also have the capacity to legally punish the companies.
3. The financial institutions- Bank of America, CitiGroup, Credit Suisse, First Boston,
Deutsche Bank, Morgan Stanley and UBS AG: These institutions are key players because they
are the ones who facilitated Parmalat to raise a lot of capital internationally and charged high
fees in doing so. These institutions were the enablers of Parmalat to accrue huge amount of debt
also. It was also Bank of America who admitted to not having a certain bank account that
surfaced initially during Grant Thornton’s auditing or investigation of Parmalat.
4. Auditors- Grant Thornton, Deloitte and PricewaterhouseCoopers: The auditors were key
players because they were essential to finding out the fraud that was taking place at Parmalat.
The first two discovered the Parmalat fraudulent accounting practices and how they were
inflating their balance sheets by hiding the losses and employing other techniques. The latter
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3. MKT 3400 CASE STUDY YAFEES SARWAR
were hired ultimately to try and restore confidence in various stakeholders within Parmalat and
to convince them that the company was moving ahead in the right direct post-bankruptcy.
5. Upper Management-Calisto Tanzi, Giovanni Tanzi, Stefano Tanzi, Francesca Tanzi,
FaustoTonna: These individuals were convicted for fraudulent practices and the consequent
failure at Parmalat. They are key players because they were in charge of Parmalat during the
time the company was being investigated and they are responsible for making all the decisions
and knowingly engaging in unethical business practices.
6. Latin America, especially Argentina and Brazil:Latin America was important for the
Parmalat fraud case to become clear and apparent. It is in Argentina and Brazil where the first
early red flags went off which signaled that massive theft was taking place at Parmalat.
7. Enrico Bondi:He was appointed by the Italian government to oversee the recovery efforts
post investigation of the firm. He was made the CEO of Parmalat and he quickly got involved to
clear up the mess. Mr. Bondi brought lawsuits against the auditors and banks for recklessness
and negligence amongst many other charges.
Decisions that are required to be made:
There are multiple challenges facing the authorities regarding this problem and it requires multi-
faceted decisions to be made. Firstly, they would need to consider the auditing standards and the
regulatory systems in place. The authorities did admit that the regulations in place are not in line
with international standards and that is something they need to consider. Parmalat has schemed
billions of dollars out of the economy and resulted in tremendous amount of losses for the
stakeholders. The authorities need to seriously think about reforming the accounting and
reporting procedures and how tightly they need to monitor these. They would also have to come
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4. MKT 3400 CASE STUDY YAFEES SARWAR
up with a decision as to how to enforce these measurements. The authorities also need to focus
on the way business is done in Italy. Since Parmalat’s upper management was almost entirely
comprised of the family members of one particular family, it became difficult for outsiders to
know what was really going on let alone warn others about what was going on. So the corporate
governance structure needs to be looked at and they need to evaluate how much influence can
family members of family owned businesses listed publicly have on upper management without
disclosure to others. One final decision which the authorities might need to look at is the way the
firms in Italy are audited. Two or more auditors can actually audit a firm at the same time like in
the case of Parmalat during the suspected years; Deloitte and Grant Thornton were
simultaneously auditing the firm by dividing up the work. This is counterproductive because it
bars the auditors from getting the whole picture of what’s going on.
Alternatives Considered
There are not many alternatives to consider. Because of the magnitude of the corruption, most of
the people believe that some serious measurements need to be taken to avoid future fraud cases.
The case mentions that management integrity failed maybe the business schools which train
these individuals for upper management positions should focus a bit more on law and ethics.
They could get intensive training on why it is in the best interest for everyone to avoid fraudulent
dealings. Ultimately everyone gets caught and all the hard work is spoiled so this is one
alternative they can consider emphasizing on. Another thing they can do but it is highly unlikely
is let things be at status quo. Parmalat could be treated as a one-off and people can hope it won’t
be repeated again and that there is no need to make drastic changes to the economy and
regulations based on one mishap.
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5. MKT 3400 CASE STUDY YAFEES SARWAR
Recommendations
Strengthen auditing standards.
Internationalize accounting methods and reporting standards by bringing it in line with
Europe and the United States who has a proven track record to audit the firms well.
Establish greater government oversight and regulations.
Reform the corporate governance structure by having a greater percentage of mandatory
employment for individuals who are basically ‘outsiders’ or does not have direct stake in
the firm in terms of ownership etc.
Reform the auditing measures and establish that only one auditor can audit a firm and the
job can’t be shared or divided amongst multiple auditors.
Heighten the requirements for banks to issue loans and help firms raise capital. Banks
should have the complete auditor’s report before making such decisions and should have
access to the auditors and can ask them for recommendations any time regarding the
status and health of the firm.
Make the punishment more severe for those guilty of corporate fraud by either having the
option of capital punishment for money stolen over a billion dollars or the option of life
in prison for anything less than a billion dollars. Harsher the punishment, the less likely
people will try to steal from the company.
Increase the corporate training by HR educating and explaining all the employees about
theft, how to detect them and how to be a whistle blower and how it can be done safely.
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6. MKT 3400 CASE STUDY YAFEES SARWAR
Characteristics of the Case that is Uniquely International
There are several problems and aspects of this case which are uniquely international. Firstly,
Parmalat was a global brand selling in over 80 countries worldwide. It had products all over the
world. Parmalat had acquisitions it made overseas. During the recovery process, the problems
arose that it had to sell many of its foreign subsidiaries which were not making profits.
Parmalat also borrowed money and raised capital through international financial institutions like
Bank of America, Citigroup, Deutsche Bank and others. Parmalat was also selling its stocks and
bonds in foreign markets like in the United States.
Also, during the downfall of Parmalat, the SEC in the United States sued Parmalat for engaging
in fraud in the US.
Parmalat was also audited by international auditors like Grant Thornton, Deloitte and
PricewaterhouseCoopers.
Parmalat’s upper management was also involved in opening up shadow corporations and bank
accounts in foreign countries and tax havens like the Cayman Islands and other parts of the
Caribbean.
All of the above are characteristics of this case which are uniquely international.
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