Scandal Is Blow to Italian Capitalism
Consigned to Cell 104 at Milan’s San Vittore prison for almost two weeks, Calisto Tanzi has been held up as a national disgrace for his role in what investigators say is one of Europe’s biggest cases of corporate fraud.
But some say that the collapse of the Tanzi family’s Parmalat food empire reflects as badly on Italy -- and its centuries-old tradition of dynastic capitalism -- as it does on any one individual.
“Italian capitalism is still a system where a few great families control large portions of the economy,” said Francesco Gianazzi, a professor of political economy at Bocconi University. “It’s a special Italian problem.”
In Collecchio, Tanzi’s allies say, the 65-year-old never stopped thinking of the company based here as belonging to his clan, even after it sold shares to the public in 1990. And Tanzi’s lawyer said that his client didn’t think he was doing anything out of the ordinary when he shifted hundreds of millions of dollars from Parmalat’s accounts to those of his soccer team, to the family’s privately held travel company, Parmatour, and to other firms.
To Tanzi, it was all the same big family pot, said his lawyer, Michele Ributti. “It’s an Italian way of thinking.”
The idea that the Parmalat affair is fundamentally Italian in nature is a bitter one for business leaders, politicians and investors who, when Enron Corp. was melting down in the U.S., figured that grand-scale corporate fraud couldn’t happen here. If a family’s wealth was tied up in its firm’s stock, the thinking went, the family would make sure nobody cooked the books and hurt the company.
Judges say that wasn’t the situation at Parmalat, where an estimated $9 billion has gone missing. Tanzi, ousted as chairman on Dec. 15 and arrested two days after Christmas, is among eight executives behind bars as investigators around Europe and in the U.S. look into what the Securities and Exchange Commission calls “one of the largest and most brazen financial frauds in history.” As they were after Enron, major U.S. banks are being examined for the advice they gave the giant firm and the fees they took in return.
When the Parmalat affair unfolded in December, prices fell for stocks and bonds issued by other family-controlled companies in Italy. “It raised investor eyebrows” about financial regulation in Italy, especially of family firms, said money manager Jamie Stuttard of investment house Schroders in London.
Many of Italy’s largest publicly traded companies are controlled by the men and women who founded them or by their descendants. Among them: Telecom Italia, Benetton Group and Fiat.
The biggest corporate families play outsize roles in politics, society, philanthropy -- and especially on the soccer field. Prime Minister Silvio Berlusconi’s network of companies, which controls Italy’s largest private broadcaster, owns the AC Milan soccer club. The prime minister named his political party, Forza Italia, after the “Go Italy” chant of the national team’s fans.
Food and Soccer
The Tanzis are as closely identified with their soccer franchise, Parma AC, as with their food conglomerate, just as the Cragnotti family -- which owned most of Italy’s largest canned-goods firm, Cirio, before it went bankrupt last summer -- was feted for its winning team, Lazio.
The tradition of capitalist dynasties in Italy dates at least to the Renaissance, when such powerful merchants as the Medicis of Florence sponsored great artists while building up regional centers of commerce. For centuries, relatives in this country of close-knit families naturally went into business together. In the Parma province in Northern Italy, celebrated for its cheese and ham, the business was often food.
So it was for Calisto Tanzi and his kin. In 1961, when his father died, Tanzi left college at 22 to take control of a small family business that supplied cured meat. A plaque on the wall outside Parmalat’s Collecchio headquarters reads “Calisto Tanzi and Sons.” Underneath, the words “Salami and canned goods” are still visible.
The younger Tanzi built Parmalat into Italy’s eighth-largest company, with 36,000 employees around the world and products -- boxed milk, Pomi tomato paste, Archway cookies -- on the shelves in 30 countries. At the same time, he wanted the company to stay near its roots in Collecchio, and insisted its executives buy houses here.
“The whole economy of Collecchio is based on Parmalat,” said bar owner Giuseppe Costanza.
Indeed, in this village on the Taro River, people find it hard to be disloyal to Tanzi. The Parmalat patriarch is still revered as a big-hearted employer, successful soccer-club owner and generous benefactor who gave $2 million to restore the 16th-century Correggio frescoes at Parma Cathedral.
“It is impossible for us to say anything against Mr. Tanzi,” said Vincenzo Marzullo, a 27-year Parmalat veteran who works on the Kyr yogurt production line. “He is our cavaliere,” a term of honor usually translated as “knight.”
Tanzi was sure to keep the company in family hands after its initial public offering. His son Stefano was named chief executive; his brother and niece took seats on the board. The family as a whole held on to 51% of Parmalat’s stock through its ownership of a parent firm.
In 1999, the Borsa Italiano exchange, where Parmalat shares trade, introduced a code of ethics calling for a minimum number of independent directors on every board, as well as audit committees loaded with independent members.
But the code allows a company as large as Parmalat to ignore the minimum requirements if it explains its decision to the public. It did just that, saying in one instance that “given the existing shareholder structure, we do not believe it necessary” to abide by the code.
With few outsiders keeping watch, investigators say, Tanzi found it easy to siphon money from Parmalat.
According to what investigators say arrested Parmalat executives have told them, Tanzi ordered funds to be sent to his family’s other companies and directed financial officers to record false credits in Parmalat accounts.
The scheme unraveled after Parmalat changed its auditing firm and was forced to acknowledge that a subsidiary in the Cayman Islands didn’t have the nearly $5 billion in a Bank of America account that it had claimed to have in September.
The arrested Parmalat executives have confessed to a smorgasbord of misdeeds, including forging bank documents, court records show. As the inquiry began, investigators say, executives destroyed incriminating papers and computer files.
Finger-Pointing
Inside the 125-year-old San Vittore prison, Tanzi has told interrogators that he knew generally about the fraudulent books. But he has blamed his former chief financial officer, Fausto Tonna, and others for hatching the schemes. Tonna and the others, however, said Tanzi gave all the orders.
“We may never know everything they did,” a prosecution source said, adding that most of the money may be gone for good. “We are talking about more than 10 years.”
On Monday, Tonna was taken from prison to face more questioning by prosecutors. It wasn’t clear just how forthcoming he was, but he certainly didn’t answer any questions from journalists who were at the prosecutors’ offices in Parma.
“I wish you and your families a slow and painful death,” he told them.
When Italians return from their customary two-week Christmas vacations on Wednesday, the government will begin debating what to do in the wake of the Parmalat scandal.
Berlusconi, who recently quashed an investigation of his own company by approving a watering-down of fraud laws, has called for a regulatory overhaul. Agriculture Minister Gianni Alemanno has said authorities should try to rein in Italy’s corporate families.
“Parmalat grew so much and kept the same structure,” he said. “This was the weak point.”
Many experts who have complained for years to no avail believe that Parmalat will lead Italy to change its permissive corporate culture.
“I’m convinced that this is a turning point,” said Umberto Mosetti, a University of Siena law professor advising Parmalat shareholders. “If it isn’t, Italy may well have just become irrelevant in the capital marketplace.”
