3. Study and discuss Italy’s corporate governance regime and its role in the failure of Parmalat Following such high-profile corporate scandals as Enron and WorldCom in the United States, European business executives smugly proclaimed that the same could not happen on their side of the Atlantic as Europe does not share America’s laissez-faire capitalism. Unfortunately, however, they were proved wrong quickly when Parmalat, a jewel of Italian capitalism, collapsed spectacularly as a result of massive accounting frauds.
Parmalat was founded in 1961 as a dairy company. Calisto Tanzi, the founder, transformed Parmalat into a national player by embarking on an aggressive acquisition program in the 1980s when local governments of Italy privatized their municipal dairies. While solidifying its dominant position in the Italian home market, Parmalat aggressively ventured into international markets during the 1990s, establishing operations in 30 countries throughout the Americas, Asia/Pacific, and Southern Africa. To finance its rapid expansion, the company borrowed heavily from international banks and investors. Worldwide sales of Parmalat reached €7.6 billion in 2002 and its aspiration to become the Coca-Cola of milk seemed within reach. However, things began to unravel in 2003.

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Parmalat's Stock Price 4.5 40 3.5 3.0 T 2.5 20 Stock Price (Euro) T 15 1.0 0.5 T Jan 2001 Jul 2001 Jan 2002 Jul 2002 Jan 2003 Jul 2003 Jan 2004 Jul 2004 0.0 Date