Corporate Governance Failures–Is Parmalat Eurpoe’s Enron?

Abstract

As the Enron scandal unfolded in early 2002, some European investors felt vindicated. They deplored the greed of American executives, and many of them thought that such a scandal could never occur in Europe. But sure enough, just as American movies reach European theaters after a delay of several months, Europe got its corporate scandal: Parmalat, a corporate debacle comparable in size and intricacy to its major U.S. rivals, and thus quickly dubbed “Europe’s Enron.” Just as U.S. investors had been left aghast in the wake of the Enron scandal, European investors are now asking themselves how a fraud this large could have occurred and how it could have gone undetected for so long. Not surprisingly, given the bad reputation of Italy’s corporate governance system, some members of the media were quick to label the causes of the Parmalat scandal as country-specific. But while the Parmalat debacle is characterized by some typically Italian or European aspects, it also displays some striking similarities to the Enron scandal and other egregious examples of gatekeeper failure. Understanding the differences and similarities between the Parmalat and Enron scandals can shed light on the ways in which corporate governance systems across the world could be improved. Many factual issues regarding the Parmalat fraud still need to be resolved by forensic accountants and courts. In spite of the uncertainty surrounding many details of the scandal, this Note is an attempt to make sense of the Parmalat debacle using academic and journalistic accounts of the events, publicly available financial data, depositions of some of the major Parmalat officials, and some of the complaints filed in the Southern District of New York against Parmalat, its auditors, and other parties who allegedly participated in the transactions under investigation. This Note also tries to compare the events that led to the Parmalat fraud with those that prompted the Enron scandal. The ultimate goal is to understand whether frauds that took place under these different regulatory systems may have been caused by similar gatekeeper and corporate governance failures. Although this Note does not attempt to propose remedies to these problems, it does provide a starting point for academic discussions of potential normative remedies.