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
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3. Financial Fraud
The most distinctive feature of Parmalat’s financial reports was the coincidental high level of cash and debt. Similar to Enron’s, its disclosure policy was characterized by its management’s vague and arrogant approach towards analysts and investors. Traditionally, European companies hold more in assets than American companies do; so when the document was provided to explain the company’s assets in relation to its debt, nothing was seen as extraordinary. Figure 1 Parmalat(PAF) time line & International stock price
In October 2002 the group launched a bond issue of 150 million, and in November a new bond issue by Parmalat Soparfi followed, with a value of €200 million and Morgan Stanley acting as the only bookrunner. These issues alerted the market. On 6 March 2003, the Italian asset management association wrote a letter to Parmalat and CONSOB, accusing the group’s lacking of transparency. As a reaction, Parmalat organized a meeting in Milan on 10 April 2003. During this meeting, Mr. Tanzi announced that the Group’s CFO, Mr. Tonna, had resigned and a new CFO, Mr. Ferraris, was in charge. The market reacted positively and the price rebounded after the February’s downturn.
Mr. Ferraris, Parmalat’s new CFO, had promised that it would have used only cash to repay the Group’s debt. Nevertheless, in June, it was discovered that Parmalat had privately placed a new bond. The real amount of all pending bonds was still a secret. When
Corporate governance in itself has no single definition but common principles which it should follow. For example in 1994 the most agreed term for corporate governance was “the process of supervision and control intended to ensure that the company’s management acts in accordance with the interest of shareholders” (Parkinson, 1994)1. Corporate governance code is not a direct set of rules but a self-regulated framework which businesses choose to follow. This code has continued to change in the past 20 years in accordance with what is happening in the business world. For example the Enron scandal caused reform in corporate governance with the Higgs Report which corrected the issues which were necessary. Although it does not quickly fix problems, it gives a better framework to
Without understanding the company financial condition he acquired many companies in the food industry which resulted in financial losses. Also he manipulated financial reports in order to hide losses. Tanzi further, diverted 500 million euros from company reserve to Parmatour (which belonged to his daughter) without taking approval from shareholders and stakeholders.
Phenomenal growth of interest in corporate governance has emerged in recent years. The body of literature on the subject has grown markedly in response to successive waves of large corporate failures. Furthermore, there have been numerous attempts to define what constitutes ‘good corporate governance’ and to provide guidelines in order to enhance the quality of corporate governance.
Up to now no specific world-wide common understanding or single definition for “corporate governance” has been established. More generally, corporate governance can thus be understood as the totality of all national and international regulations (e.g. Sarbanes-Oxley Act), rules, values and principles (e.g. UK’s “Code of best practices”) that apply to businesses and determine how they are steered and monitored.
The article is written to help readers gain a solid understanding the roles of corporate governance, both inside and outside the company. Its goal is simply to impart information, not make claims or arguments on its own. I will be judging it mainly on the sources gathered, numerous examples and explanations given and the overall effectiveness it possesses in effectively communicating its ideas.
Lay and Skilling placed a heavy emphasis on “strong earnings performance” and on increasing Enron’s stature in the business world.
In the aftermath of major scandals and bailouts in the United States, the world`s and the public’s confidence in public corporations, has been shaken. With the publicized scandals of Enron and other corporations in the United States, the faith in public corporations fell as fast as the stock market. Investors had no confidence in corporations or in their boards. Measures needed to be taken to form regulations to provide stronger accountability, to prevent these types of scandals from happening and to rebuild the confidence of investors. Corporate governance of publicly traded
telecommunications company, was a victim of these expectations that led to the evolution of a
The objective of this article was to address the questions “how does the concept of market failure apply to ethical corporate governance? Are corporate ethics authentic in the modern corporation or just lip service? Will Sarbanes-Oxley achieve results?” (Jasso, 2009, p.1). Before they are answered, I want to answer them myself. Market failure applies to ethical corporate governance because the factors that lead up to the failure and after the failure are usually not ethically correct. In other words, corruption was involved and ethics were forgotten, even if they existed. Corporate ethics are authentic in the modern corporation, but it really depends on the company and the people involved.
Khon’s relationship with the financier commenced in 1985 to help grow the Vienna based bank, channeling investor money worth more than $ 9.1 billion into his company. Mardof operated a one of a kind Ponzi
The world has witnessed a series of corporate bankruptcies in the recent decades like Enron, Lehman Brothers Inc, Global Crossings, and Tyco in the USA; HIH in Australia, Parmalat in Italy, APP in Asia, and Islamic bank Ltd. of South Africa. These collapses have weakened and shaken the confidence of shareholders, debtors, governmental institutions, and other similar relevant stakeholders in corporate governance (CG) and the stock markets, and led to regulating many reforms and codes of best governance practices all over the world, to strengthen transparency and restore confidence in financial markets (Barros et al., 2013). For instance, after the financial failure of Enron and dissolution of Arthur Anderson; one of the five largest audit and accountancy partnerships in the world, U.S enacted the Sarbanes-Oxley act of 2002; France regulated the financial security law of 2003, as many other countries developed a set of regulations in the aftermath of huge corporate scandals. In Addition, the integration and globalization of financial markets also has given significance and highlighted the importance of CG as claimed by Srinivasan & Srinivasan (2011).
Introduction: A discussion on corporate regulation and governance is of great importance in today’s economic world. A number of high profile collapses such as HIH, One Tel, Harris Scarfe, Ansett, focuses ones attention on governance issues.
There are various government structures in organizations although they are different from one branch of the government to the other. The structures help the government manage its economy efficiently. In the economy a too big to fail firm (TBTF) exists and it is defined as one that its complexity, size, critical functions, and interconnections are in the sense that in case the firm goes into liquidation unexpectedly, the rest of the economy and financial system will face severe consequences. The government provides support to TBTF companies not because they favor them but because they recognize implications for an advanced economy of allowing a disorderly failure outweighs the cost of avoiding the failure. Helping the TBTF firms enable the economy to realize high revenue. Various activities are to prevent their failure. They include providing credit, facilitating a merger, or injecting the capital of the government. The paper addresses the structures of the administration and the concept of too big to fail in financial and non-financial institutions plus the ethics involved with the theory.
The third ratio mirroring the company’s efficiency is the creditors’ days ratio, which measures, according to Atrill, the number of days in which the business pays its debts to suppliers. Britvic PLC’s financial statements recorded in 2009 a 20 days increase in the above mentioned ratio compared to the 2005-2008 average that had a value of 149 days. Therefore, Britvic PLC paid in 2009 its debts 169 days after the enclosure of the transactions. Taking into consideration the fact that Britvic PLC is operating in the soft drinks industry, which has a medium pace of generating cash, it may be stated that this ratio’s value is high enough to reflect that Britvic PLC is risking the creditors’ goodwill. On the other hand, the company paid its short-term liabilities in approximately four months after receiving the supplies