Ethics, morality and leadership: The AWB scandal
The series of corporate scandals and transgressions that have emerged over the last decade, including those associated with Fannie Mae, Freddie Mac, Alcoa, Enron, HIH, Merck, Lehman Brothers, Parmalat, Union Carbide and WorldCom, have not only contributed to global ?nancial crises. They have also raised questions about the quality of corporate leadership and ethics, and damaged the psychological relationships between such companies and their multiple stakeholders. Studies of such scandals and transgressions in Australia suggest that fraud, including corporate scandals and institutional corruption, has cost the Australian economy dearly.
This is supported by extensive research on corruption carried out by Transparency International, which targets particular countries in Asia and Africa and their governments for special attention. In response, many governments and enlightened corporations have established tighter corporate governance (CG) and personal accountability regulations and mechanisms, together with a wide range of corporate social responsibility (CSR) programs. While the former are aimed speci?cally at preventing fraud and other unethical practices, CSR is primarily intended to enhance corporate reputations through undertaking socially responsible community activities.
In the case of the Australian Wheat Board (AWB), the government-owned monopoly wheat exporter, a combination of incompetence, pragmatism and clear deception led to the scandal that engulfed AWB in 2006. Together with other competitors, AWB was found to have been involved in the provision of large amounts of kickbacks to government representatives in Iraq in order to ensure the continuing supply of their wheat, in contravention of explicit Australian government legislation. It was revealed that AWB had participated in such illegal activity, including the startling revelations that of the US$1.8 billion that had ?owed to Iraq during Saddam Hussein's regime through bribes and the rorting of the United Nations Oil-for-Food program, a large proportion (US$300 million) came from just one company, AWB. Of the more than 3000 companies that had contracts with Iraq, 2253 paid kickbacks, but none more so than Iraq's biggest wheat supplier, AWB.
The local and global media went on a rampage, with one commentator describing the events unfolding at the time as 'Deceit by the Truckload'. Finally, in response to overwhelming publicity, the Australian government established the Cole Inquiry to investigate the scandal.
Corporate deception and incompetence, and the Australian government's apparent predisposition not to initially accept the claims of AWB's accusers, were the consistent themes throughout the 12-week inquiry into the so-called 'oil-for-food' scandal. Among other ill effects, this affected Australia's reputation internationally; for example, its ranking on the Transparency International Corruption Index fell from 9 to 11
The Cole Inquiry raised a number of speci?c issues about AWB's values and operating procedures, as well as broader issues about corporate ethics, morality and leadership. It questioned how such illegal and immoral activities had been allowed to occur; the apparent absence of internal auditing procedures, the AWB managers' ethical and leadership shortcomings; and the company's cover-up of its actions. However, it also questioned the Australian government's apparent lack of monitoring, and its reluctance to confront the problems despite a mountain of diplomatic cables that ?owed to ministers and their staff suggesting that AWB was involved in systematic misbehaviour.
That AWB went to extraordinary lengths to deceive is unarguable. But whether this clears the government of responsibility for not acting on the many tip-offs about AWB's behaviour depends on whose test you use.41 According to Australia's prime minister at the time, John Howard, the test should be one of 'reasonableness'. In the press conference following his appearance at the Cole Inquiry a few hours earlier, the prime minister countered arguments that his government should have acted on the dozens of warnings by citing others who had been duped by AWB. However, there had been numerous earlier warnings of AWB's unethical practices.42 For example, just a month after AWB made its ?rst payment of US$500 000 into the Jordanian account of transport company Alia (half owned by the Iraqi government), the Canadian Wheat Board was told by the Iraqis that to have its wheat contract processed it would have to pay US$700 000 into the same Jordanian account. The Canadians duly quizzed the propriety of such 'trucking fees' with the UN's Of?ce of the Iraq Program, to be told it was indeed illegal. If that was the case, then why was AWB doing just this, they asked.
Questions:
- Critically assess the actions of AWB and the Australian government, and identify which of them violated the principles of morality and ethics giving reasons for your decisions.
- What could AWB and the Australian government have done differently to avoid these accusations of corruption?
- Explain the steps that AWB needs to put in place to combat and minimise the risk of future unethical or immoral practices and to enhance its reputation, including corporate governance and/or CSR systems.