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Parmalat, Impermanent

An FC Now reader emailed yesterday afternoon suggesting that we consider commenting on the Parmalat case in Italy. Catching up on the last few days of coverage — the events have really been accelerating — I was saddened as it struck be that these stories seem to be remaining the same. Accounting scandal, insolvency, fraud, arrests. I almost yawned: Yeah, yeah, yeah, same old, same old.

An FC Now reader emailed yesterday afternoon suggesting that we consider commenting on the Parmalat case in Italy. Catching up on the last few days of coverage — the events have really been accelerating — I was saddened as it struck be that these stories seem to be remaining the same. Accounting scandal, insolvency, fraud, arrests. I almost yawned: Yeah, yeah, yeah, same old, same old.

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It’s getting hard not to turn the page when coming across another corporate corruption case. But I wonder: Do business leaders become deadened to such events? Or will people continue to push and pry and prod for transparency and accountability? Is this an uphill battle — or is this truly not the way business should work? I think the latter. But some of the coverage raises interesting questions.

One article that gave me some hope that the world wasn’t awash with deadpan-handling reporting was Huw Jones’ recent piece, “What’s in a Name? Bulls Say Parmalat No Enron.” Adding a layer of context and insight to the almost-hourly news about the case, the piece looks at the possible impact that Parmalat’s fall will have on other businesses.

Stock market historian David Schwartz suggests that the difference is rooted in the state of the market — bull vs. bear. Enron collapsed during a bear market, and people were waiting for a shoe to fall. “Bear markets find problems that auditors fail to find,” Schwartz said. When Enron fell, its decline added to the general pessimism, and people started looking at — and for — other companies’ flaws.

In a bull market, on the other hand, corporate corruption tends to draw attention to the specific organization in question. “Punishing a company but not all other companies is a bull market phenomenon,” Schwartz says.

Even though it appears as though Parmalat’s pratfall won’t affect the market like Enron’s end did, I wonder what that really means. When the economy is slow, do we turn a slower eye to new cases of corruption because some business is better than no business at all?

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Another intriguing wrinkle is the global nature of the Parmalat example. Some sources quoted in Jones’ article state that the problem is “specifically Italian” and that the situation says more about Italian corporate governance than governance in general. (Already, that theory seems to hold little water, as leaders in other countries speculate on how large local impact will be.) In addition, the Italian government is developing a bailout package and the European Union had already started reconsidering its accounting standards and corporate governance following the Enron example.

It’ll be interesting to see how the American and European cases continue to develop over time — and what impact they have globally, as well as locally.

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