Parmalat Scandal

The Italian dairy food corporation Parmalat SpA was founded by Calisto Tanzi in 1961 and grew to a global company. It had about 140 production centers, 36,000 employees and 5,000 contracted dairy farms (https://en.wikipedia.org/wiki/Parmalat). The dairy food giant defaulted on debt in November 2002 and filed bankruptcy in December 2003. It sounds ridiculous because Parmalat’s subsidiary in Cayman Islands had a $4.9 billion cash balance in Bank of America account. However, this account was falsified. Meanwhile, Parmalat also hid losses of $10 billion and increasing assets as high as $19 billion. The auditors did not show enough professional skeptism and due care during the audit.

There are three internal and one external governance mechanisms used for owners to govern managers to ensure they comply with their responsibility to satisfy stakeholders and shareholder’s needs. First, ownership concentration is stated as the number of large-block shareholders and the total percentage of the shares they own (Hitt, Ireland, Hoskisson, 2017, p. 317). Second, the board of directors which are elected by the shareholders. Their primary duty is to act in the owner’s best interest and to monitor and control the businesses top-level managers (Hitt, Ireland, Hoskisson, 2017, p. 319). Third, is the

THE UNIVERSITY OF NEW SOUTH WALES SCHOOL OF ECONOMICS ECON1202/2291 QUANTITATIVE MEHODS A FINAL EXAMINATION SESSION 2 2008

* The control of the corporation is managed by an elected board of directors. The officers in the company normally have to be approved by the board of directors before they are offered a position to lead the company.

John, when starting a business one has several options in the type of business structure to use. The different types of business structures are the sole proprietorship structure, the partnership structure, the corporation structure, the S corporation structure, and the limited liability company structure. Each structure has advantages and disadvantages and possible tax consequences.

In large corporations the success or failure of the company is the responsibility of the board of directors. According to Richard DeGeorge, “The members of the board are responsible to the shareholders for the selection of honest, effective managers, and especially for the selection for the CEO and of the president of the corporation.” (p. 202). The board members have a moral responsibility to ensure the corporation is run honestly, in respect to its major policies, and to ensure the interests of the shareholders are satisfied. The next responsibility within a corporation is the responsibility management has to its board of directors. DeGeorge writes, “It must inform the board of its actions, the decisions it makes or the decisions to be made, the financial condition of the firm, its successes and failures, and the like.” (p. 202). The management of the corporation is morally obligated to

* The roles and responsibilities of the board of directors in corporate governance and the way the board affects a company’s operation.

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.

In the corporate form of ownership, the shareholders are the owners of the firm. The shareholders elect the directors of the corporation, who in turn appoint the firm’s management. This separation of ownership from control in the corporate form of organization is what causes agency problems to exist. Management may act in its own or someone else’s best interests, rather than those of the shareholders. If such events

There are three types of business structures sole proprietorship, partnership, and general. Each business structure has its advantages as well as disadvantages; the key is determining which business structure will be most suitable for your business venture. Not everyone is looking to run a small business so a sole proprietorship may not be the answer, it could be that you are looking to start small and have your company grow into a corporation but not quite function exactly like a huge corporation. Whatever the case one must determine which business structure best suits their needs and this paper will

After examining the different business formats that are available, it has been decided to stay with the limited liability partnership is the most prudent business organization choice. Although the company has added additional employees it will not change its organization title. This decision is based on the liability clause that will limit losses due to faulty workmanship, and the taxation laws regarding LLCs, by having a favorable tax code.

The rest is owned by the public and financial institutions. It is listed on the Bombay Stock Exchange and National Stock Exchange in India.

As with any kind of business formation, there will always be, to some extent, negative aspects associated with the creation. To this date there is no perfect form of business entity. When deciding on which entity is best suited for a business, there are many things to be considered. Prior to deciding on a business structure, some major points to be thought about are both the legal and tax ramifications associated with the entity chosen. Another criteria that should be considered are the costs connected with the entity type. These cost include the cost of formation as well as any continuing administrative cost that may be incurred. (“Choose Your Business,” 2011)

Parmalat is an Italian based company, founded in 1961 by Calisto Tanzi. Their business model covered the new UHT (ultra-high temperature) production method of milk and dairy products. UHT milk was an upcoming technology from the Swedish firm Tetra Pak, making Parmalat an international player (Buchanan & Yang, 2005). Foreign acquisitions in the field of dairy products made Parmalat a multinational general food company (Ferrarini & Giudici, 2005). In the late 1980’s, Parmalat was Italy’s eighth largest food company and listed on the Italian Stock Exchange in Milan. During the nineties, the Parmalat Group followed a strategy to expand its reach through diverging into new markets like football and the tourism. Family started playing a more important role as Tanzi was placing relatives in important positions and boards of the holding. The Parma football club was acquired and Tanzi’s son Stefano became the club’s president while his daughter, Stefania, became the CEO of the tourism firm, Parmatour (Buchanan & Yang, 2005). By the end of 2002, the group was a world leader in the markets of milk, diary products and beverages and incorporated several well-known brands as Archway, Frica, Grisbi, Mother’s, Pomi and Welsh Farms. Parmalat's figures covered a consolidated turnover reached €7.6 billion in 2002, 36.000 employees and 146

Kristiyan Petrov – 11114067 Polina Panteleeva – 11114049 Stream 133 Group 1314 Department of Economics December 2012