Open Letter to Karen Lowry Miller
Author of Newsweek Article
"Seeking The Light"
Dec. 27 / Jan. 3

Ms. Lowry,

You must either be very young, or very new to business reporting, or very Anti-Italian
to use the Parmalat as your sole excuse for completely denigrating Italy and it's Business Practices.

Lester Thurow, economist at the Massachusetts Institute of Technology, stated in Tuesday's New York Times that "scandals are endemic to capitalism" and that "anyone who thinks the current round of corporate scandal could have been prevented with new rules and regulations simply does not understand American capitalism."

Mr. Carney who edits The Wall Street Journal Europe's Business Europe column, states: "Mr. Thurow couldn't be more right. Scandals are a feature of any free system, because, human nature being what it is, some percentage of people everywhere will turn out to be crooks."

Wharton School asks very directly: Is Parmalat, really analogous to the American corporate scandals of the past three years?

Robert E. Mittelstaedt Jr., Wharton’s vice dean and director of executive education says  “In some ways it’s no more than a symptom of the times; these are people who had great ambitions and when those ambitions weren’t being realized they wanted to create what wasn’t there. It’s no different than what went on with other companies like Enron.”

Parmalat, Enron, and other American firms such as Tyco and WorldCom all have number fudging at their core – efforts to make the companies look healthier than they were. They all raise questions about the behavior of accountants, auditors and underwriters who might have, should have, or did know that something was wrong.

These days “large companies seem prepared to engage in some appalling kinds of mischief in order to boost stock price or maintain market share,” says Thomas Donaldson, professor of legal studies at Wharton. That was not true 20 or 30 years ago, either in the U.S. or overseas, he adds.

Peter Cappelli, director of Wharton’s Center for Human Resources, says ”In the 1990s, federal legislation in the U.S.spurred the use of stock options that gave executives an incentive to boost share prices in the short term, and some companies used accounting games to do so.

In the U.S. it’s acceptable for executives to reach for ever-greater compensation and perks. “It’s not very common in Europe,” he says. “I think that’s mainly what holds [things] in check, these social norms.”

In general, European companies have not followed the U.S. model. European executives are not paid as much and don’t have the same incentives to boost short-term performance at the expense of their companies’ long-term health.
---The Wharton School of the University of Pennsylvania--January 20, 2004

Therefore I suggest strongly that you seek additional "background" knowledge, AND lose your superior attitude along with your arrogance and recognize that what you wrongheadly refer to as "cozy" ways that cause problems (that incidentally are a European practice of doing business with only people they know and trust, much like Asians).

And if there is a broke system, I would first examine the American system, but also   the almost total "abandonment of Ethics" by American business men.

This has not been an Italian problem or even a European problem, But an American problem that is now starting to spread worldwide.

Further I would like to point out that it appears that the Parmalat accounting maneuvers were designed to keep the company afloat after it lost fortunes in Latin America, rather than to directly enrich Tanzi and his family –

In that respect, the case looked different from many of the American cases, such as Tyco and Enron, where the chief goal appeared to be enriching a handful of insiders.

Most accounts say the Tanzi family lived a relatively modest lifestyle given their wealth. That can’t be said of the Americans accused of wrongdoing, whose self enrichment and self indulgence was breath taking.

Also. please note the complicity of the company’s auditors, Grant Thornton and Deloitte & Touche, and banks, including Citibank ,and Bank of America, Americans ALL involved with Parmalat!!!!

Allow me to also remind you that the Wall Street Journal is a daily litany of the absence of morality of in American Business. You see both a plethora of Governmental Prosecutions (from usually disinterested agencies) and explosion of Litigations, only because of the boldness and pervasiveness of Fraud.

In addition to Enron, Tyco, World Com, allow me to add a few others to "tickle" your memory. Ken Lay, Jeff Skillings, Dennis Koslowski, Bernie Ebbers, Smith Barney, Jack Grubman, Global Crossing, Sandy Weil, Citibank, Sam Waksal, Imclone, The Rigas, Adelphia, Henry Blodgett, Health South, Richard Scrushy, Martin Gross, Rite Aid, El Paso Gas, Dynergy, Frank Quattrane, Arthur Anderson & Co. Merrill Lynch, Martin Frankel, etc., etc,. ad naseum.

If you need additional names, I have an almost inexhaustible list to provide you with.

The either Anti Italian attitude, or your stooping to exaggeration/sensationalizing is unworthy of you.

I am sure you will agree that Italy is entitled to an apology from Newsweek for it's failure to put the Parmalat matter in proper and accurate "context".

Respectfully,
Richard Annotico
Publisher of The ANNOTICO Report

PS. And then in Regard to Europe, we have:

The four bailouts of Credit Lyonnais in the 1990s, that cost over $15 billion in French taxpayer dollars.

German Chancellor Schroeder arranged bailout in 1999 for Philipp Holtzmann, the construction company, and the Chancellor has failed more often than not in attempting to strong-arm local banks into propping up failing businesses.

Royal Ahold, a Netherlands-based supermarket and foodservice operator, to overstate earnings by at least $500 million in 2002.

Conrad Black, using the British Hollinger Int'l as his personal "piggy" bank.
Need I mention the Berings Bank fiasco.

Are Italy's entrepreneurs ready to put aside their Old World ways
and play on the global stage? Yes—sort of.

By Karen Lowry Miller
Newsweek International
Dec. 27 / Jan. 3 -

Mention Italian business these days, and what comes to mind is Parmalat, the dairy company whose financial shenanigans, exposed one year ago, rivaled those of Enron.

To the chagrin of executives from Venice to Rome, Parmalat's subsequent collapse fueled stereotypes about Italy's cozy, Old World ways.

Although the entire Continent struggles to reconcile such practices with the so-called Anglo-Saxon rules of the United States and Britain—which demand greater transparency and accountability—Italy's entrepreneurs have exhibited a particular resistance to change.

Italian capitalism is still dominated by family companies and their bankers. Capital markets are shunned in favor of loans negotiated among friends over a fine glass of Barolo. Relatively few firms bother to list their shares, and Italy's corporate bond market is the weakest in the Eurozone.

Relentless pressure from global competition and the international flow of money, however, is pushing corporate Italy toward more modern business practices. Telecom Italia's decision this month to buy up the 44 percent of Telecom Mobile (TIM) it didn't already own is a case in point. The deal removes some of the byzantine layers of ownership that blurred the accounting and management lines of responsibility in these two firms. Telecom Italia Chairman Marco Tronchetti Provera is a master at what the Italians call "capitalism without the capital," in which a small stake in a company at the top of a pyramid is leveraged into decision-making power through to the bottom. He controls TIM through a complex pyramid of five public and private companies that includes Olimpia, which owns 17 percent of Telecom Italia.

The merger will remove one link in the chain of command, which could make the combined company more efficient and transparent. That, in turn, should gladden the hearts of investors. "There are mainly financial reasons for this [deal]," says Patrizio Pazzaglia, fund manager at Bank Insinger de Beaufort in Rome. "But the fact that it also meets the interest of the market is a positive thing."

The buyout seems to mark a newfound willingness on the part of corporate dealmakers to grant shareholders an equitable share of the spoils. The last time Tronchetti Provera removed a layer from his pyramid—in 2003, when he engineered the merger of Telecom Italia with Olivetti—holders of Telecom Italia shares raised an uproar, claiming that all the benefits went to Olivetti shareholders. One fund manager took out full-page newspaper ads criticizing the deal and another tried to block it in court. Now, says Carlo Alberto Carnevale, professor of business policy at Bocconi University in Milan and a critic of the 2003 merger, international investors have forced a change in governance at Telecom Italia. Independent directors sit on the board, and minority shareholders were offered cash for their shares. "Management now understands that it has to move with the markets and not against them," Carnevale says.

The markets have noticed. In 2003, investors' concerns about corporate governance knocked 15 percent off the share price, says Lehman Brothers analyst Paul Norris. "This time nobody has a problem with the terms, which are perceived as fair." Indeed, the share price has climbed since the plan was announced. The new structure also makes financing easier. After borrowing $12 billion for the TIM purchase, Telecom Italia now has $44 billion of debt. Yet debt is more clearly identified, and can be paid off by full access to the cash flow from the mobile unit, says Carlos Winzer, an analyst at Moody's. "It's a transparent transaction that improves the corporate structure," he says.

This being Italy, of course, the windows of corporate governance aren't crystal clear. Some observers grumble that so far, all the benefit seems to go to Olimpia and, by extension, Tronchetti Provera. The industrialist, many analysts believe, made the deal more to prop up the finances of Olimpia than to improve the competitiveness of the fixed line and mobile-telecom businesses. It is not yet clear what industrial synergies will come from merging the two firms. Telecom Italia officials won't discuss that until March; analysts' estimates of cost savings range from zero to 1 billion euro. "I see a certain Machiavellianism in presenting it as an industrial deal without giving the market information on the economic value of synergies," says Massimo Mucchetti, author of "Fire the Bosses," a book on Italian capitalism. And yet, he says, "the whole operation goes in the direction of modernizing the market." In Italy, that's progress.

With Jacopo Barigazzi in Milan
http://msnbc.msn.com/id/6733221/site/newsweek/