Italy rebuilds from the ruins of Parmalat

Link: Move to sue Parmalat in US

Football may be the most popular topic of conversation for Italians, according to a recent survey, but the scandal at Parmalat must surely have been one of the most talked about business upsets to hit the country.

The fall of the house of Calisto Tanzi, the head of the family charged with running Italy’s largest dairy foods manufacturer into debts of EUR14.3bn, provoked more media coverage than you could shake a latte macchiato at.

But the fallout from those momentous corporate events has not just been significant for the directors and auditors of what was one of the world’s biggest dairy companies. While court battles rage, others have been picking up the pieces and weighing the implications from the fall of Parmalat.

Not everyone believes this was a strictly Italian problem. Peter Poulsen, head of the European Federation for Accountants and Auditors for SMEs (Efaa), urges caution – such alleged management misdeeds could have unfolded anywhere.

‘I think the press has been focusing on the wrong aspect,’ he says. ‘Could it not be that because we’ve got such effective governance nowadays we see more scandals coming to light? If we go back 50, or even 100 years, people were behaving fraudulently without ever being exposed.’

Fellow Efaa board member, Federico Diomeda, sees no reason to tar all Italian business practices with the same defective brush as Parmalat or Cirio (the Italian canned-foods producer declared bankrupt in August 2003).

‘Parmalat was so out of the ordinary,’ says the Genova-based accountant. ‘The case needs to be put to one side because the rest of the economic fabric works as it has always worked, and those who do business in Italy will continue to do so quite calmly.’

Diomeda points out that, long before there was a whiff of something sour at Parmalat, the Italian government had appointed a commission to examine whether the country’s auditing practices needed ‘fireproofing’ against Enron-type scandals.

Headed by Professor Francesco Galgano, one of the country’s leading experts in civil and business law, the group concluded no urgent changes were needed.

Diomeda, who also sits on the international committee of the Milan Association of Accountants (ADCMi), and represents the association at the Efaa, points out that professional guidelines on governance enshrined in Italian law closely follow principles set out in recent EU recommendations.

Furthermore, Italian audit and accountancy bodies are very much involved in the EC’s work to develop across-the-zone practices.

‘In the near future there will be a common framework of auditing standards in Europe,’ he explains. ‘This will help single-state members to harmonise procedures. In terms of governance, Italy is probably in the same position as Germany or France.’

That’s the big picture stuff. But what about all those subsidiaries of Parmalat who were, in themselves, absolutely clean?

The meltdown at Parmalat demonstrated that a smaller firm, whose parent company is implicated in financial wrongdoings, can also suffer.

Latte Sole, a small dairy cooperative located in Catania, Sicily, was bought by Tanzi in February 2001. The firm was described by Enrico Bond’, the man appointed to turn around the fortunes of the Parma-based group, as one of the rare jewels in a rather tarnished Parmalat crown.

But once the trouble burst into the media, some banks refused to maintain credit lines with Latte Sole. The move took the management by surprise. The company never halted production – annual turnover in 2004 is set to reach EUR67m – nor lost any of the 160 employees. The business also managed to hang on to its lead position in the fresh and UHT milk sectors in Sicily. But where consumers might rally round, the banks begged to differ.

‘We had very sporadic dealings with the parent company. For example, to set budgets and to communicate monthly turnover. Although we realised that something was wrong (at Parmalat), it was only when the scandal broke there was a direct impact on our finances,’ says Latte Sole operations manager Margherita Grillo.

An action was launched in the courts to restore credit lines, but this failed on a technicality. Subsequently, only one national bank has reopened Latte Sole’s account. Lawyer Francesca Zangara, whose legal practice represents the company, emphasises that the court cases surrounding Parmalat have no bearing on Latte Sole’s affairs.

‘The only consequence for Latte Sole is that one day it will be sold off,’ says Zangara. ‘Bond’ has to sell off either the whole group or the firms within Parmalat. Either way the sale will not affect this company – only the ownership will change.’

The legal wrangling over Parmalat may rumble on, but at least Latte Sole shows there’s life after scandal.

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