Fabrizio Bava

Is the "new" parmalat model of corporate governance a best practice in Italy?

Abstract This paper presents an analysis of corporate governance of the “new” Parmalat, born in the aftermath of the infamous financial scandal, and aims at verifying if this new model of governance can be considered a best practice for Italian listed companies. Many papers have already highlighted that the Parmalat scandal was facilitated by bad governance which did not have an efficient system for the safeguarding of creditors and minority shareholders in presence of a family corporation. This paper presents the results of the comparison between the “old” and “new” rules of Parmalat corporate governance, highlighting the considerable differences in the composition and functions of the various company bodies. Moreover, an in-depth analysis of the efficacy of the external and internal control systems is also provided. The main points of strength which make it possible to consider the new Parmalat as a model of best practice in Italy are identified, although critical aspects are also pointed out. The paper concludes by making suggestions aimed at strengthening the model of corporate governance of Italian listed companies.

Related parties disclosure: Is a risk-based approach more effective?

Following recent corporate scandals increased attention has been paid to Relat-ed Party Transactions (RPTs), since they have often played a central role in abuses and frauds. Regulators have consequently been obliged to strengthen current regu-lations, introducing new bans and requirements aimed at guaranteeing the substantial and economic fairness of RPTs and a proper level of transparency. This reaction is due to the high inherent risk of these transactions and because companies in crisis tend to resort to this type of operation. In Italy, the regulations on RPTs were completely revamped in 2010. The material RPTs that have to be disclosed through an ad hoc communication were defined by former regulations through qualitative criteria, whereas now a quantitative approach is used in order to reduce subjectivity. The initial results of the new regulations show that a higher number of RPTs has been disclosed to the market, thus improving transparency, but the effects of RPTs remain unreported in Income Statements. Through an online questionnaire this paper, starting from previous research, in-vestigates potential improvements supported by independent directors involved in the RPT evaluation process. These independent Directors are uniquely placed to shed light on the experience of the initial years of application of the new Regula-tion, which may help lawmakers, after the lengthy initial consultation process, in-evitably influenced by divergent (and non-independent) interests without the bene-fit of the hindsight that is now available. It is to be hoped that lawmakers will take note of these results and fine-tune the regulations accordingly, without necessarily abandoning the quantitative approach, in order to increase the transparency of the information made available on RPTs.

The influence of profitability on related party revenues

In recent decades, related party transactions (RPTs) have played a prime role in major corporate scandals, obliging regulators to strengthen the rules with new bans and costly requirements on companies. The aim of the regulatory process is to guarantee the proper use of RPTs, avoiding their incorrect use and abuse. This study contributes to the literature on RPTs, refining previous studies on this topic and providing evidence to justify the attention of lawmakers, leading to increasingly costly and mandatory regulation. Focusing on the revenues made with RPs, we investigate the relationship between variations in profitability and the intensity variations of RPRs in income statements. Results show that the intensity of RPRs increases with a decrease in company profitability. This inverse relation underlines the potential risk of these transactions.