Research On Parmalat

ANALYSING THE ROLE OF INTERNAL & EXTERNAL ENVIRONMENT, SOCIAL RESPONSIBILITY AND MANAGERIAL ETHICS IN PARMALAT & AWB

By John Geevarghese (ID 21639689)

INTRODUCTION :

Goal of this assignment is to carefully understand the crucial role of Internal / External Environment, Social responsibility and Managerial ethics in the rise and fall of well known organisations like Parmalat, AWB and others. The only way to understand the active roles of these factors will be by understanding it through different perspectives so that an integral understanding can be developed.

Enron, WorldCom, Parmalat and now AWB have strengthened public support for legislation that demands corporate transparency and ethics. Requirement for a corporate culture that aligns with the values of all stakeholder, employees, customers, society and shareholders is one of the key factors, which are pressed in this assignment.

We start with the world of Parmalat and AWB and then follow their history up to the scandal. We will also try to understand the Internal/ External Environments that led to the rise and fall, Managerial ethics of Parmalat/ AWB and Social responsibility of the Organisation.

Overview of Parmalat

Calisto Tanzi's career initially began in his Fathers Prosciutto Ham Exporting Company. After this they shifted the focus of the business into Dairy products in 1950's. He got Parmalat listed in the Milan stock exchange in 1990, but 52% of the shares were with the family of Tanzi. The Parmalat Group established by 1990 had its own production bases in 31 Countries and drew on 62 companies, 149 factories and more than 38,000 employees. The main business of the company was milk (57% of sales), fresh foods (23% of sales), Baked goods (12%) and Vegetable products (7.6%) (Gumbel et al, 2004).Its insolvency in 2003 eclipsed the Enron and WorldCom cases because Parmalat executives allegedly created fraudulent bank records that drove the company to its demise. Kaufman, Aaron M. (2007). The European Union goes Comi-tose: hazards of harmonizing corporate insolvency laws in the global economy. http://www.entrepreneur.com/tradejournals/article/168283784.html

Overview of AWB Scandal;

The AWB affair is a complex story involving a series of related events:

a deliberate and calculated act by one of the government's statutory bodies to subvert government endorsed United Nation's sanctions regime, while keeping the relevant Ministers in Dark;

With the privatisation of that body, an inadequate due diligence process which meant that the problem was not uncovered and dealt with at the time вЂ" and the kickbacks continued;

The newly privatised entity, either deliberately or by misadventure, continuing to act at best improperly, or potentially (pending the findings of the Cole inquiry) illegally; and

Systemic failure of the government, the industry, the oversighting bodies and the public service to take action to deal with the illegal activities, and associated subterfuge, even alerted to the possibility that it was going on.

INTERNAL & EXTERNAL ENVIRONMENTS

EXTERNAL ENVIRONMENT

We will discuss about the two components of External Environment i.e. Specific environment and General environment and their active role on organisations like Parmalat & AWB.

Specific environment :

Competitors:

Some of the investments and acquisitions Parmalat has made were not so competitive and were destroying its value. For example, in 1987, it spent €130 million on a station called Odeon TV that it hoped to build into Italy's third major network, but it collapsed after three years, as a result of competition. Similarly, with AWB, Growers have already seen the benefits of competition as the AWB has reduced the current pool costs by $ 27million dollars in response to prices posted by potential new entrants to the wheat market. When competition was introduced to harvest finance economic analysis commission by the Grain Growers Association (GGA 2003) showed that growers saved $ 50million between 2001 and 2003 with substantial ongoing savings.

Suppliers:

As a consequence of the scandal, Parmalat couldn't pay off the suppliers for the raw materials they had already delivered. The farmers' group, Confagricoltura, said Parmalat had not paid for its milk supplies since August and now owed around € 120m. Confagricoltura said 5,000 Italian dairy farms stood to be affected by the crisis. (John Hooper, J. & Milner, M., 2003)

General Environment:

Political/ Legal:

In 1970 both fresh and UHT milk was permitted for sale in every grocery and not only on specialised milk shops. In 1973 the Luxemberg court of Justice declared the monopoly of Centrali del Latte (Municipal Milk distribution centers) in Italy illegal.(Krell, 2004).While in contrast law also played an important role post-scandal, after the 2006 implosion of the Parmalat dairy company in Italy, with almost $18 billion in outstanding debt. Prompted by these outrageous examples, laws have been passed with the target of reducing the potential risk of such infamous behavior. While in case of AWB there was a major influence of politics and Politicians in the administration, which created an environment of ambiguity.

Sociocultural:

The following distinctive variables, as indicated by La Porta et al. (1998) can be found in the Italian system which led to ambiguity in Operations in Parmalat:

Italian firms depend heavily on bank finance;

Banks have never played an important role in the corporate governance of firms;

Financial markets have historically been shallow and small;

Ownership and control were concentrated;

There are conflicts of interest between minority and majority shareholders;

Board of Directors played a limited role;

The markets for corporate control are not active;

Hostile take-overs are difficult and unlikely;

Technological :

Parmalat 1963 started to adopt