At the end of 2003, the Italian food-giant Parmalat ran into financial problems. While the producer of dairy products and beverages ought to have more than 4 billion euros in liquidity, it appeared that the company could not repay a 150 million euros bond in time. This only turned out to be the tip of the iceberg: during the weeks that followed the black hole in the company accounts increased to over 14 billion, resulting in one of Europe's largest bankruptcies. Parmalat was founded in 1961 when Calisto Tanzi, a 22-year-old university dropout, took over a small, regional family firm after his father's death. In the following years, the company expanded rapidly and employed 36 000 staff in 30 countries at the time that the scandal went public. From being one of Italy's corporate success stories, Parmalat's accounting fraud ruined the savings of more than 100 000 private investors, resulted in serious reputation damage for the Bank of America, Citicorp, Grant Thornton, and Deloitte and Touche, and caused financial problems for dairy farmers across the globe. Interestingly, and in line with other scandals such as oil Enron and Ahold, only a few analysts had foreseen the problems at the dairy manufacturer and publicly voiced their concerns.

As the scandal unfolded, more and more problems were exposed. First, while the books displayed a Parmalat account of 4 billion euros at a subsidiary of the Bank of America in the Cayman Islands, this money appeared not to exist. Second, Calisto Tanzi admitted that he had funnelled about 500 million euros away into other (family) companies and falsified the company accounts. In response, he stated: "I apologize to all who have suffered so much damage as a result of my schemes to make my dream of an industrial project come the Third, the board of directors turned out to be not fully independent (e.g., one of the non-executive directors weed to work for Parmalat) and Calisto Tanzi combined my position of CEO and chairman of the board of directors. Given the huge failure of the corporate governance system as a whole, Italian prosecutors ordered trials for more than 20 people, ranging from the former CEO and CFO to several bank officials and accountants. In 2005, the first 11 officials submitted a plea to prevent jail sentences.

In 2008 former CEO Tanzi was sentenced to 10 years in prison. According to his attorney, this client is a broken man; who knew-nothing about finance and simply wanted to provide for himself and the community. The judge did not convict officials from any of the involved banks and accountancy firms, as it could not be proven that they knew or could have known the deplorable financial state of the Parmalat books. In the meantime, the bankrupt group of Parmalat firms has been restructured, The Italian Prime Minister, Silvio Berlusconi, appointed Enrico Bondi to manage the firms rescue. In October 2005, the new Parmalat Group was established and on 6th October the new corporation was listed on the Milan Stock Exchange.

1. Search for background information about the Italian corporate governance context. To which extent do you think that the institutional context and national culture have facilitated this crisis?