Organizational Governance Assignment 2022

Running Head: Organizational Governance 0
Organizational Governance
August 10
2019

Organizational Governance 1
Table of Contents
Introduction......................................................................................................................................2
Question-1........................................................................................................................................2
Parmalat Scandal and its Major Failures.....................................................................................2
Three Failures of Governance.....................................................................................................3
Question-2........................................................................................................................................4
Mechanism that may assist the failure of Governance for Parmalat...........................................4
Question-3........................................................................................................................................4
Role of the committee..................................................................................................................4
Mechanism of Governance..........................................................................................................4
Conclusion.......................................................................................................................................5
Reference.........................................................................................................................................6

Organizational Governance 2
Introduction
This assignment is based upon the scandal of Parmalat which was the biggest scandal
happened over last 15 years. The assignment defines the failures of the management committee
due to which the scandal was going and they were unaware of it. Three failures of the
governance of parmalat are briefly explained in the assignment. In this assignment the action that
could be taken by the governance of the company through which the scandal can be identified
and stopped on time is also provided. For the good governance the importance or the value of
different members in the organization committee is briefly answered. The aim of the study is also
to understand the mechanism for implementing good governance in the organization.
Parmalat is multinational company focused in the dairy and food production. Today the
company is executing the operational work in Europe, North America, South America, Australia,
China and South Africa. In 2003 the company collapsed with the hole of 14 billion euro in their
accounts which was the biggest bankruptcy in history of Europe (Dănescu, Oncioiu, &
Spătăcean, 2019).
Question-1
Parmalat Scandal and its Major Failures
According to Solomon if this system was implemented in the process of company the
monitoring of structure and framework could perform easily. From the core entire monitoring
system of the company was rotten. The auditors and legal advisors of company allows the
management to conduct the fraud. Parmalat was the company owned by Tanzi family and due to
this reason there was lack of ethics in the resource of company. As a result for the personal gain
the chairman moved the funds of the company to the members of family and in their personal
business. When the research was conduct it was found that company has no any account in the
bank of America for which the auditor of company claimed for the confirmation of third party
(Camfferman, & Wielhouwer, 2019). This created a controversy amongst the directors and other
member of committee.

Organizational Governance 3
Three Failures of Governance
i. Lack of Independence or non-executive directors: The governance of the company
was weak as there were no sufficient directors present as per the Sarbanes Oxley act.
The committee which was designed for the auditing and remuneration were
depending upon the Tanzi family. Since 1963 in the board of the company there was
only one senior manager was designated in the company and can be easily convinced
to take any biased decision (Susanto, 2019). As per the statement of the company 4
directors out of thirteen were independent but company never discloses the name of
these directors. The governance system reflected by the company it was completely
unethical and mockery system.
ii. Position of higher authorities was not separated: Duties of the higher authorities i.e.
chairman and CEO of the company was not different. The holding of the company
was under Tanzi family due to majority voting. In any organization the tasks are
categorized in which hiring, fire, evaluation and compensation in the management are
defined according to the performance. In parmalat the chairman and CEO were from
the Tanzi family and single person cannot complete the tasks of these two
designations (Derwort, Jager, & Newig, 2019). When the role is separated then to
evaluation of the company planning and execution are easy to conduct. Also the
stakeholders of the company can be controlled and direct according to the target of
company.
iii. Lack of compliance: It is very important for every company that they have some
independent directors who are responsible to control the shareholders and their
activities. In parmalat the corporate governance was absent which leads the company
towards failure of complying with the legislation. A strong governance system in
organization helps to manage the compliance of the company so that the rules and
regulation of company cannot be violated (Kuznetsov, Nikishova, Solovyova, &
Lukoyanov, 2019).

Organizational Governance 4
Question-2
Mechanism that may assist the failure of Governance for Parmalat
The governance in any corporation plays critical role to identify the issues related to
operational, compliance, and finance. For the effective governance in any corporation the
independency of the board is necessary. It maintains the balance between executive management
and non-executive management and the sustainability of the accountability in management can
be controlled. The role of the independent board is totally different compared to chairman of
company as they are responsible for the monitoring of auditor, regulators and other member of
the committee (Fairchild, Gwilliam, & Marnet, 2019). If the parmalat follow the independency in
the board then no such issue could happen in the company.
Question-3
Role of the committee
The governance bodies in the organization like executive directors, shareholders,
auditors, and the management are responsible to perform their work mutually. They execute the
operation of the organization for the interests of the all stakeholders. The system with the
properly managed governance is able to implement effect control system, policies, planning for
the stakeholders of organization. The role of chairman and the CEO are different and important
for the governance in an organization. It is the responsibility of the chairman to provide support
CEO in the decision making (Lange, Bornemann, & Burger, 2019). The non-executive members
in an organization are an independent director who monitors the role of the management. The
auditors and legal advisors are also crucial part of an organization to which the responsibility is
assigned for evaluating the frauds in the management.
Mechanism of Governance
There are some mechanisms defined for the governance of the company which can be
implementing with the process of the organization. These are Internal Mechanism, external
mechanism, small business relevance, and independent audit. For the parmalat the mechanism
can be preferred is independent audit (Pahl-Wostl, 2019).
Independent audit: It is the audit analysis of all the financial statement which is the
component of corporate governance. The audit report of the company examines the financial

Organizational Governance 5
statement of internal and external stakeholders. By the implementation of this mechanism the
management committee can control the stakeholders and their activities.
Conclusion
In this workbook the study about the parmalat fraud is analyzed with the failures of
governance found in the organization. In the study it was found that the fraud happened in the
company was the biggest in the history of Europe. The failures which were examined are
explained due to which the fraud was happened in the company. This assignment is concluded
with the importance of the different role in the management committee in which the company
Parmalat lacked. The mechanism of the governance is also recommended in the assignment.

Organizational Governance 6
Reference
Camfferman, K., & Wielhouwer, J. L. (2019). 21st century scandals: towards a risk approach to
financial reporting scandals. Accounting and Business Research, 49(5), 503-535.
Kuznetsov, M. Y., Nikishova, M. I., Solovyova, V., & Lukoyanov, K. I. (2019). Economic
Consequences of Corporate Conflicts. In Handbook of Research on Corporate
Restructuring and Globalization (pp. 73-100). IGI Global.
Dănescu, T., Oncioiu, I., & Spătăcean, I. O. (2019). Fraud Risk Management for Listed
Companies' Financial Reporting. In Network Security and Its Impact on Business
Strategy , 137-156.
Derwort, P., Jager, N., & Newig, J. (2019). Towards productive functions? A systematic review
of institutional failure, its causes and consequences. Policy Sciences, 52(2), 281-298.
Fairchild, R., Gwilliam, D., & Marnet, O. (2019). Audit within the corporate governance
paradigm: a cornerstone built on shifting sand?. British Journal of Management, 30(1),
90-105.
Lange, P., Bornemann, B., & Burger, P. (2019). Sustainability impacts of governance modes:
insights from Swiss energy policy. Journal of environmental policy & planning, 21(2),
174-187.
Pahl-Wostl, C. (2019). The role of governance modes and meta-governance in the transformation
towards sustainable water governance. Environmental science & policy, 91, 6-16.
Susanto, A. B. (2019, April). JCG Pyramid of Leadership in Family Business. In 2nd Padang
International Conference on Education, Economics, Business and Accounting
(PICEEBA-2 2018). Atlantis Press.