1. Lack of separation of ownership and control:
Ownership and control of Parmlat was concentrated in a single strong shareholder that resulted in the oppression of minority shareholders.
The Tanzi family owned 51% of Parmalat through a complicated pyramid ownership structure and also actively managed the company1. Other managers in the company lacked independence.
The Tanzi family exerted significant control over the firm and used its power in the organization to pursue personal interests at the expense of minority shareholders.
2. Lack of board independence:
The board chair and CEO positions were held by the same individual, Calisto Tanzi2. This allowed for concentration of power in his hands and manifested in various conflicts of interests and cover-up of the fraud over many years
The board was not truly independent. Of the 13-member board, 8 were executive and 4 were members of the Tanzi family, resulting in inadequate oversight
Insiders sat on the board committees. The CFO sat on the audit committee3. The chair of the audit committee was also the accountant of the Tanzi family4
3. Weak internal financial and management controls:
Lack of strong internal accounting controls that enabled the falsification of accounts and fraudulent financial reporting
Lack of management transparency and conflicts of interest - Parmalat’s CFO was also Chairman of Coloniale S.p.A., the Tanzi family holding firm that owned 51% of Parmalat5
Poor operational risk management manifested in rapid expansion into, and acquisitions of unprofitable non-core business operations.