Analysis of Parmalat's Corporate Governance and Failures

This report examines the corporate governance failure of Parmalat, focusing on the mechanisms that could have prevented its collapse. The analysis begins by identifying the major failings, including the lack of independence among non-executive directors, the combined role of chairman and CEO, and the lack of independence from controlling stakeholders. The report then proposes mechanisms such as power distribution, a supervisory authority like a board of directors, and the crucial roles of non-executive directors, auditors, internal audit committees, and the board of directors. It emphasizes the importance of these mechanisms in promoting accountability, ethical conduct, and preventing fraud. The report concludes by discussing the equal importance of these mechanisms in ensuring good corporate governance, drawing on examples such as Apple Inc. to support its arguments. The report highlights the significance of strong oversight and ethical practices in preventing corporate failures.

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Organizational Governance
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2. Mechanisms that may have assisted in avoiding the Parmalat failure
The first mechanism that would be put in place to prevent the collapse of Parmalat is the
distribution of power among the different levels of the management at the company. It is
imperative to understand some of the reasons that led to the failure of the company. The first
reason was the misappropriation of funds and fraud. The reason why it was very easy for the
highest level of management to misappropriate the funds of the company was that the structure
of the company depicted weaker management at the middle level and weaker stakeholders
(Jacoby, 2018). Therefore, it was apparent that no authority would confidently question the
actions of the top management.
Tanzi shareholders proved to have more power, and that is why they comfortably
channeled money to their accounts illegally. When an organization fails to balance the power
that is held by all shareholders, it is likely to give the top management an opportunity to do as
they please and this is because the top management is not subjected to any authority. In this
respect, if the managers were given more power in the organization, they would have questioned
and looked into the illegal channeling of the organizational money. However, because they did
not have the authority to do so, all they could do is relax and watch as the organization's top
management was taking the company down the path of demise.
The second mechanism would be to establish an authority that oversees the functions of
each level of management such as the board of directors (Yu, Krause, Bell, & Bruton, 2016). The
mechanism has worked in the past, and a good example can be seen in the case of Apple Inc. In
1985, Steve Jobs who was a founder of Apple Inc. was removed as the organization’s CEO by
the board. Such a mechanism comes in place to protect the interest of the minority shareholders

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and to make sure that accountability is promoted at every level of the organization. The
employment of this mechanism would have avoided the failure of Parmalat. The reason behind it
is because there would have been a higher authority that would not have watched as Tanzi
shareholders interfere with the funds of the company illegally. Parmalat had powerful top
management, weaker middle management, weaker stakeholders, and weaker minority
shareholders. The mechanism where there is a higher authority that oversees the functions of
every level of management would have made sure that the voice of the weak was considered.
The mechanism of having a higher superior authority would have avoided the failure of
the company because the two audit firms would have been careful while discharging their
mandate at the organization (McCahery, Sautner, & Starks, 2016). Deloitte Touche Tohmatsu
and Grant Thornton International conspired with the Tanzi shareholders because they knew that
Tanzi shareholders were superior. Therefore, the two organizations knew that nothing would
come to haunt them. If there were a superior authority that oversaw their activities, the
companies would have feared to be involved with fraud (Council, 2003). As a result, the
company would not have failed.
3. Do you think that the roles of non-executive directors, auditors, the internal audit
committee and the board of directors are all equally important as mechanisms of ‘Good’
corporate governance?
Non-executive directors are important for corporate governance, and this is because they
are not interested parties in the organization's affairs. Therefore, they take a neutral position, and
the decisions they make are professional and not compromised (Dimopoulos & Wagner, 2016).
Non-executive auditors are also essential, and this is because they deliver services to many

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organizations; thus they would not like to be engaged in any malpractice because this would
tarnish their reputation. Therefore, the decisions they make are to promote their ethics thus
enhancing good corporate governance (Tricker & Tricker, 2015). When it comes to the case of
internal audit committees and the board of director, it is evident that they promote good
corporate governance. Looking at the example given about Apple Inc. in 1985, it is evident that
the board of directors comes in place to make sure that the organization is run by people who
have what it takes to secure its bright future (Dimopoulos & Wagner, 2016). The internal audit
committees are also essential, and this is because they make sure that everything is ethical at the
organizational level. In the case of Parmalat, it is evident that the presence of the internal audit
committee would have discovered the misconduct of the Tanzi shareholders and the conspiracy
between them and the audit firms before the company reached to the point of failing. All the
bodies and committees take a neutral position, and in the case of any failure, they are
answerable; therefore, they make sure that ethics are upheld, and that goes a long way to promote
good corporate governance.

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References
Council, A. C. G. (2003). Principles of good corporate governance and best practice
recommendations. Australian Stock Exchange Limited.
Jacoby, S. M. (2018). The embedded corporation: Corporate governance and employment
relations in Japan and the United States. Princeton University Press.
Dimopoulos, T., & Wagner, H. F. (2016). Corporate Governance and CEO Turnover Decisions.
McCahery, J. A., Sautner, Z., & Starks, L. T. (2016). Behind the scenes: The corporate
governance preferences of institutional investors. The Journal of Finance, 71(6), 2905
2932.
Tricker, R. B., & Tricker, R. I. (2015). Corporate Governance: Principles, policies, and
practices. Oxford University Press, USA.
Yu, X., Krause, R. A., Bell, G., & Bruton, G. D. (2016). A Configurational Exploration of
Family Relationships, Corporate Governance, and Firm Performance. In Academy of
Management Proceedings (Vol. 2016, No. 1, p. 10063). Briarcliff Manor, NY 10510:
Academy of Management.