Parmalat Scandal

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Corporate Ownership & Control / Volume 2, Issue 2, Winter 2005 РАЗДЕЛ 3 УГОЛОК ПРАКТИКА SECTION 3 PRACTITIONER'S CORNER INVESTORS TRUST AFTER PARMALAT SCANDAL: THE ROLE OF CORPORATE GOVERNANCE Giovanni D’Orio Giovanni D’Orio, Department of Economics and Statistics, University of Calabria – Rende (CS) Italy. Contact: 1.1. Introduction The collapse of the Parmalat food empire reveals a troubling aspect about Italian capitalism - the lack of effective financial control over its family-owned companies. But was Parmalat scandal a pure problem of corporate governance or was it simply a “fraud”? Bearle and Means (1932 pg. 6) famously explained: “The separation of ownership from control produces a…show more content…
Under Italian Law two main types of company may be incorporated: S.p.A. (Società per Azioni) and S.r.l. (Società a responsabilità limitata). S.p.A. is the normal form for larger companies (joint stock companies). An S.p.A. may be listed on the Stock Exchange although the absolute majority are not. It is however necessary for a company to be an S.p.A. in order to be listed thereon. S.r.l. in practice corresponds to a closely held limited company. It is the kind of structure which is more suited to small-tomedium sized enterprises where limited liability is required. This is by far the most common type of company used by Italian entrepreneurs and that most frequently chosen by foreign parent companies when setting up their subsidiaries in Italy. The governance structure of corporations is twotired: the managing board (consiglio di amministrazione) has the function of ratifying decisions that have been previously taken by the controlling group, and is supplemented by a board of auditors (collegio sindacale) who are responsible for internal monitoring. Directors can either be executive or nonexecutive and there is only a limited number of external directors. They tend to meet only a few times a year and the meetings are frequently of poor quality. In addition, information is generally scarce and incomplete. Even though board members and managers are supposed to use the "agent's diligence" in the management of the company,
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