The hubris hypothesis of corporate social irresponsibility: evidence from the Parmalat case. (2013)

“the personality and values of (the CEO) contribute to explaining the development of Parmalat, the manifestation of its weaknesses and why the firm … fell into the hubris trap of its CEO.”

G. B. Dagnino, A. Minà & P.M. Picone, University of Catania.

From – Integrity in organizations: Building the foundations for humanistic management. Edited by W. Amann, A. Stachowicz-Stanusch
Palgrave MacMillan, New York.

It was dubbed “Europe’s Enron” – the saga that engulfed Italy’s milk-processing giant Parmalat and its senior executives, blue-chip European and American banks, accountancy firms, politicians and 130,000 hapless small shareholders following the discovery in 2003 of a $14bn black hole in its finances.

The authors of the chapter explore the possibility that hubris was an antecedent of the corporate social irresponsibility of the case.

Their analyses “show that the firm’s founder and long-time CEO Calisto Tanzi played a central role in both Parmalat successes as well as in its financial collapse … the personality and values of Tanzi can contribute to explaining the origin and development of Parmalat, the manifestation of its strategic weaknesses and hence why the firm … fell into the hubris trap of its CEO.”

Background (from ‘The Parmalat scandal’ by Eeleni Chalkidou, WorldFinance.com):

During the 1980s and 90s, Parmalat was hailed as a jewel in Italian commerce as entrepreneur Calisto Tanzi converted his father’s ham retailer in the city of Parma into a global dairy and food giant largely on the basis of long-life milk.

In 2003, bondholders learnt that nearly €4bn of funds in a Bank of America account were non-existent.

The bank said the transfer document was a forgery. Tanzi, various family members and several executives were arrested, including feared chief financial officer Fausto Tonna, who told journalists “I wish you and your families a slow and painful death” as he entered court. At the firm’s offices, investigators found smashed computers and thousands of shredded documents.

2004, Parmalat’s debts were fixed at €14.3bn, eight times what the firm had admitted. After initial denials, Bank of America’s chief of corporate finances in Italy admitted to participating in a kickback scheme. Furious US creditors filed a $10bn class action suit against Parmalat’s former auditors and bankers while Parmalat’s administrators sued Bank of America, Citigroup, Deloitte & Touche and Grant Thornton for $10bn each. In December 2010, Calisto Tanzi, then 72, was given an 18-year sentence (which he promptly appealed).

Access the book here: The hubris hypothesis of corporate social irresponsibility