Comparative Study: Downfall Of Parmalat And Medici Bank - Essay.

Parmalat Brief

In the case study as has been discussed and referred to herein, the study shall involve a critical analysis of the study of the downfall of Parmalat Corporation of Italy in the year 2002 and shall also be compared to the case of Medici Bank and shall be related and referenced with the principles and elements of Ethics, responsibility, accountability, corporate governance, and certain alike factors. The study will also incorporate into its contents the reasons for the failure of both the entities in the specific sectors they dealt in and the parameters of corporate governance and ethical responsibilities which the entities failed to honor to and suffered a drawback. The study will also incorporate in this paper the importance and relevance of having an effective leader in the corporation and the disintegration of the entity in absence of a leader for handling the same.

The case that shall be discussed initially would be the case of the downfall of Italian Parmalat in the year 2002 and the probable as well as certain reasons behind the failure of the same. The failure of this entity was a sheer surprise for all the entities operating in the sector as a legacy did come to an end following the failures of the entity being discussed herein. Parmalat was founded in the year 1961 by Calisto Tanzi being the founder of the same. As far as the profile of the corporation is considered it was started and initiated as a family-run farm in North Italy and over a very short span of the term expanded and diversified its operations and branches at a global level becoming one of the largest Multinational Conglomerate in the field of dealing in dairy products not only in its domestic and home state that is Italy but also in many other countries having being recognized at a great level and it felt like there was no looking back for the entity and conglomerate considering the continued growth and success of the organization (Hella, 2019).

The problems did commence for the corporation in the early ’90s when one of the branches of the conglomerate in South Africa started suffering hefty losses and the corporation to avoid the risk of survival threat and injury to the common repute of the conglomerate entered into dealing with voluntary and wilful misconduct and fraudulent activities to cover up and compensate the losses of the South African Branch of the entity herein referred to as Parmalat. The primary misleading operation so conducted by the entity was basically concealment of the fraudulent operations and the minus revenues of the branch and covering them by showing superficial and falsified data and indicating surplus revenues of the entity. The corporation to hide the losses of the branch entere3d into the manipulation of the books of accounts of the entity and avoided any kind of auditing control and manipulated the annual balance sheet of the entity and this modus operandi slowly and gradually initiated for all those branches and sector where the corporation was entering into incurring of losses (Ali, 2020).

Fraudulent Activities of Parmalat

The underlying reason why this fraudulent conduct of the corporation could not be run for a longer period is the indication of excess cash reserves of more than 4 Billion Euros and inability pay for the bonds so issued amounting to the gross sum of 150 Million Euros and it was in the year 2003, the scam was decoded and the corporation entered into the phase of prosecutions, dissolution, and closure. The unethical techniques which the corporation resorted to since the ’90s to manipulate the books of accounts and defraud the concerned executives and personnel so concerned with the actions of the corporation were Double billing scheme, Fake inflation of the revenues, and assets procurement to borrow from the banks, Engagement in the processes of financial engineering to execute the plans of wilful fraud in the most effective way to avoid and digress from any risk of audit and financial check and reporting (Christopher, 2019).

The corporation not only did involve its executives and key managerial personnel for committing and resorting to fraudulent actions and aggressions but also did include third parties, financial institutions, and even auditors to violate corporate legislations and enter into the process of commission of white-collar offenses to deter from entering the phase of breakdown and closure which was ultimately the result in the year 2003 when the fraud being committed from the span of 13 last years was decided by the law enforcement agencies and officials by scrutinizing and investigating the actual books, records, revenue receipts, inflated values, fictitious assets the company alleged to have invested in for keeping them as collateral and borrowing from financial institutions and banks and defrauding the repayments of the same (Beerbaum, 2021).

On the other hand, as far as the Case of Medici Bank is concerned it cannot be directly and proximately compared with the case of Parmalat's downfall the major reason being the legacy of the corporations, the sectors they worked and operated in, and the primary underlying reasons for their failures and downfall. As has been viewed and considered in the above referenced and stated paragraphs it is evident that the fall of the Italian Dairy Multinational Conglomerate herein referred to as Parmalat was the fraudulent activities and the willful negligence and misconducts by the executives and the key managerial personnel of the entity aggressed with to save the repute of the entity and digressing from facing realistic corporate challenges and rather than resorting to the mechanisms of Corporate ethics and responsibility resorted to criminally offensive actions which led to shutting down of the entity as a whole in the year 2002 (Winter, 2022).

Internal Breakdown and Involvement

As far as the case study of Medici Bank has been considered as has been referred to in case of study specifically, the major and underlying reasons for the failure of the Bank was an absence of an effective leader to govern the management and administration of the Bank and wilful negligence in maintaining and upholding the legacy of the bank. The lack of sufficient, reasonable, and adequate expertise on the part of the principal personnel of the corporation after the death of the founder of the Bank was one of the major reasons for the downfall of the bank.

As far as the comparison of the same with the downfall of Parmalat is considered they cannot be said to be directly same as in the former entity case herein referred to as the case of Parmalat there was a criminal and ethical standard breach by the principles executives and key managerial personnel of the entity for 13 years and in the case of latter herein referred to as the Medici Bank there was no as such corporate governance breach by the entity as far as defrauding the outsiders and any third part is concerned and the major reason for the failure of the same was inefficient management and administration of the entity and the subsequent failure for the principle reasons of management of the entity. Concerning and considering a thorough study of the Failure of Medici bank and the background and history of the sole founder of the Medici Bank in the year 1397, it can be inferred that post the collapse of the sole founder Mr. Giovanno Di Bicci in the year 1464 the corporation entered into the phase of chronic downfall and ultimately was forced to close and terminate its operations in the year 1494 and also suffered a major drawback and collapse as far as the repute and goodwill of the corporation is considered (Connell And McDowell, 2018).

It is evident from the study about the failure of Medici Bank it can be inferred that the inadequate expertise of the sons of Bicci was ultimately the reason for the demise of the corporation in the year 1494. The latter personnel of the corporation could not manage the internal and external business environment and neglected the impact of the same on the business entity which ultimately led to the demise of the bank and its operations. Some other important and crucial reasons which can be attributed to the failure of the corporation is the negligence of the personnel of the corporation to manage the affairs well and diversion of the excess and surplus funds and reserves of the corporation for evading the threat of probable war-like situations and appropriating the funds for the personal usage to lead a luxurious life ignoring the potential impact on the business operations and the probability of the failure of the business soon which was the ultimate consequences of these operations of the personnel of the organization (Consiglio, 2020).

Medici Bank Brief

As far as the ethical position of both the corporations discussed herein is concerned being referred to as Italian Conglomerate Parmalat and Medici bank. Considering the ethical position of the former corporation Parmalat it is evident from the readings and news articles that the ethical base of the corporation was non-existent as far as the actions and operations of the corporation are concerned. Considering the operations and activities of the corporation which did involve aggressing with the fraudulent means to honor the survival of the corporation was not at all based on ethical grounds as it did violate the interests of third parties, authentic stakeholders of the corporation including the employees of the organization who were non-cognizant and unaware about the operation being conducted in the corporation and also of the banking and financial institutions from which the corporation as an entity borrowed money by the presentation of inflated revenues and fictitious assets which did not exist in the real records of the corporation (Rashid et al., 2018).

The ethical principles which were breached by the corporation when it resorted to such means and measures of violating the books and records of the entities are the approaches of Utilitarianism, Fairness in the operations, the principle of integrity and loyalty towards those to whom the company herein referred to as Parmalat was directly responsible and accountable to. As far as the Ethical base and framework of Medici Bank are considered, the corporation did strongly advocated and supported the ethical principles in the administration of a business and also assessed the importance of ethical decision making and actions for a corporation to ensure sustained growth, success, and survival. The corporation since it commenced its operations till the death of the founder of the entity herein referred to as Medici Bank and thereafter the entity suffered a collapse of the ethical framework and structure of the organization in its entirety (Gorbhani Esfahlan, 2021).

Although the corporation suffered an ethical collapse and setback post-1464 the base and premise of the corporation did never change except in extraordinary situations as in company resorted to wilful conduct of fraudulent activities, never did it breach the loyalty to its stakeholders, and neither did it breach the integrity of the corporation until the period of it being dissolved and wound up. Considering the red signals and notice to the third parties is concerned about the issues that the corporation was aggressing with both in the case of Medici bank as well as Parmalat was not possible for the third parties to deal with although some precautions could have been taken on the part of the personnel so concerned to be cognizant of the wrongful activities being conducted by the key managerial personnel of the entities to prejudice the interests of the third parties so talked about and referred to herein (Minadeo, 2018).

Comparison With Parmalat

The ideal signals that the outsiders and third parties shall consider to save themselves from the exploitative, prejudicial, and manipulative actions of the organization are discussed herein. As far as the corporate governance mechanism is concerned, the consistent failures of the entities to provide adequate returns and dividends to the stakeholders of the entity, the failure to ensure adequate inventory management, disruption of the supply chain and logistics of the corporation, consistent fallout of a long time retained employees from the corporation, inadequate financial accounting reporting, failure to furnish audit records as and when required to be inspected by the authorized members and stakeholders of the organization and several other prerequisites which shall be reasonably and mandatorily be considered by the third parties before entering into the deal with an organization (Means And Cloud, 2020).

As far as the case of Parmalat is considered it can be inferred from the actions and fraudulent activities that the corporations resorted to in core were related to manipulation of the books of accounts and financial statements of the entity which was used as the means to defraud the stakeholders and the outsiders so connected either directly or indirectly with the operations and progressions of the entity. The effective monitoring of the documentation so given and afforded by the organization for raising the funds was not considered effective by the Bank personnel and the financial institutions so concerned which resulted in negligence on the part of the third party which led to the acceptance of the falsified document without ensuring the authenticity of the same and disgruntling the personal and organizational interests, therefore (Zhang, 2021).

The reasons why the people failed to see the danger signals is the financial engineering on the part of the corporation herein referred to as Parmalat and the non-expertise of third parties to understand the same which led to the dilution and prejudicing of the interests of the third parties and another stakeholder therefore which led to the demise of the corporation as has been discussed herein. Considering the socio-economic and political setup and structure of the state wherein the corporation did commence and principally operated with its operations is not designed in such a style to facilitate the general public of such a level of financial engineering as far as the timeline when the corporation operated is concerned and this lack of adequate knowledge, awareness and expertise did make it easy for the corporation to aggress it fraudulent activities without any third party being vigilant of the same (Lahjie Natoli And Zuhair, 2021).

As far as the modern case on the lines of Parmalat is concerned and considered the entity is Croatian retail and food giant Agrokor which can directly be related to the actions of the Parmalat and on the same lines. The corporation in recent times has been charged with Multi-Billion Fraud prejudicing the interests of the general public as well as the stakeholders of the corporation. A brief of the case relating to the similarity with Italian giant Parmalat has been discussed herein. For 26 years the corporation as has been named herein as Agrico is discussed and considered, the major aims and objectives with which the corporation has facilitated its progressions and operation is lawlessness and political inclusions and interference relating to major tax evasions and unlawful manipulations and exploitation of the financial statements, exploitations of the financial reporting controls and auditing standards of the corporation leading to the commission of fraud in Millions and Billions (Rancic, 2018).

As far as Ferrero is considered the problems which can arise soon basically relates to the problems of adopting unethical means and ways to achieve success which may have the aggressive potential to damage the fundamental interests of the stakeholders of the organizations as well as the third parties so related with the corporation. As far as the adherence to ethical approaches and principles by the corporation is considered it is quite evident that to attain higher margins and generate revenues the corporation may resort to the adoption of any means which may be unethical or even illegal, as the instances of child labor in such a renowned corporation are considered. Although the fact is the corporation is strictly against the principles of child labor and devolution of the human rights of the employees but the fact that the corporation has been an element of using the mechanism of child labor somewhere points out the possible human rights and ethical violation by the corporation (Ho, 2018).

Conclusion

Concluding the above it can be concluded and inferred that the agencies and the third parties shall be vigilant enough before aggressing any deal and activities and ensure adequate authentication before contracting a deal and as far as the ethical conduct of the entities is concerned they shall in the phase of problems and losses avoid entering into the fraudulent activities which prejudice the interests of the stakeholders and the general public. The stakeholders shall also be well equipped in terms of knowledge to verify and authenticate the document of the corporation.

References

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