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.