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ITALY: Corporate Governance Lessons from Europe's Enron

by By Michael Gray, Compensation Analyst; Carlotta Amaduzzi, Global Analyst; and Stephen Deane, Publications Director, Institutional Shareholder Services

Europeans are labeling it their Enron. The U.S. Securities and Exchange Commission is calling it "one of the largest and most brazen corporate financial frauds in history." And one investigator gushes, "The whole is truly beyond all limits....In every company we have found forgeries and falsifications of all sorts. But in this case we are really beyond the limits of the imagination."

Parmalat Finanziara, the Italian dairy and food giant, is fast joining Enron and WorldCom as a household name for corporate scandal. The alleged financial fraud at Parmalat spans more than a decade and involves sums whose estimates have ballooned from EUR 4 billion to more than EUR 8 billion. Founder, chairman, and chief executive Calisto Tanzi has been ousted from the company and board and is under arrest. Enrico Bondi, who replaced Tanzi in December, has been given new authority to act as sole administrator of Parmalat. He has 180 days to save what he can of the company.

While Bondi races against time to unearth the sources of the scandal, some corporate governance experts are already drawing lessons.

The Corporate Governance Significance

"Clearly what has happened in Parmalat, and Ahold a few months ago, indicates that boards -- when they are not truly independent, when they're not truly vigilant -- risk what I'd call laxity of compliance mechanisms to catch fraud," Peter Clapman, Senior Vice President and Chief Counsel of TIAA-CREF, told the Friday Report. He emphasized that the latest scandal exposes a global problem, not a uniquely Italian one.

Clapman urged every country to undertake

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