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16 Jan 2004 00:00
As scabby-kneed kids, Calisto Tanzi and Fausto Tonna sat on the same schoolroom bench in the small town of Collecchio, outside Parma.
Decades later they were running a booming dairy firm, first dominating the Italian market and eventually building the company into a multinational dairy business. As director and financial director of Parmalat, billions of dollars of investment from around the world were placed in their hands.
Ta and To, as they were fondly known, seemed a classic Italian success story.
But now they are both in jail and the black hole in the bankrupt company’s finances is growing.
It has yet to be proven whether Ta and To were systematically embezzling funds for the profit of a privileged few. But it is clear that as they rapidly built Parmalat into a huge food empire, they made one bad financial move after another, losing millions at every turn.
Parma Football club, 98% owned by Parmalat and entrusted to Stefano Tanzi, has lost almost â,¬80-million, and Italian media reports say Parmatour, a family-owned tourism group with Tanzi’s daughter, Francesca, on its board, may have lost up to â,¬2-billion.
But with the Tanzi family owning 51% of Parmalat shares and the company’s board comprising mainly family and friends — Tanzi’s brother Giovanni, son Stefano and niece Paola Visconti all held senior positions — the mistakes went unreported for years.
Creditor banks in Parma were probably best positioned to notice trouble was brewing. But several of their chiefs were old friends of the Tanzi family. One Parma bank, the Banca del Monte, was run by another Collecchio man, Franco Gorreri, who was also an internal auditor for Parmalat. And the president of Cariparma savings bank, Luciano Silingardi, was a Parmalat board member until early December.
While international banks are increasingly suspected of involvement in the fraud, the close-knit family model that kept Parmalat’s troubles a secret is a fundamental part of the problem.
“There is nothing wrong with keeping things in the family or close,’’ said economist Carlo Scarpa, a professor at the University of Brescia.
“The problem is when you become a public company, when you take billions of pounds from the market to help you grow, you have to let other stakeholders have a say in who runs the show. Italian firms refuse to do that. It’s a cultural problem.’‘
Italy is traditionally dominated by small and medium-sized, family-run companies. A few of those, like the Agnelli’s Fiat, Benetton and Pirelli, blossomed in post-war Italy to become respected public companies and worldwide brands. Loyal workers at Parmalat, like Fiat, not only depend on the firm for their incomes, but invest their savings in the family company they trust.
But since the Tangentopoli bribe scandals of the early 1990s Italy, Europe’s fourth-largest economy, has fought to shake off its reputation for corruption. But it struggles to attract foreign investors on the same level as its European neighbours. The American Chamber of Commerce in Italy says Italy attracted only 2% of United States investment abroad, compared with 20% invested in Britain.
The core of Parmalat’s business represents 0,8% of gross domestic product. Many of its 36 000 jobs worldwide look likely to be saved by emergency bankruptcy legislation passed late last year and the turnaround skills of a government-appointed administrator.
But if Italy’s regulatory system and family capitalism model are not seen to change dramatically, the Parmalat scandal could cause serious damage to Italy’s tainted image.
Italian Prime Minister Silvio Berlusconi’s unique combination of business and political interests does not help boost confidence. Berlusconi, who faced trial for corruption until an immunity law was passed last June, has changed legislation to reduce, not increase, the penalties for false accounting, and now his government is pushing through a law that will allow his media empire to expand.
“There is a danger that Italy will be labelled as a country with no rules. Or where the laws are just there to be changed,’’ said economics professor Tito Boeri.
The Italian economy is already struggling, having slipped into recession early last year and hard hit by runaway inflation since the euro arrived.
The Italian government is considering reforming its weak regulatory system to ensure a Parmalat-style fraud will never go unnoticed again. A new regulatory body similar to the US Securities and Exchange Committee could be set up, removing controls entrusted to the Bank of Italy. Corporate governance experts suggest large family firms should be obliged to include real outsiders on their boards. — Â
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