Lessons Learnt from AWB

The conduct of AWB and its officers was due to a failure in corporate culture … no one asked “what is the right thing to do?”

Royal Commissioner Terence Cole recently handed down his report of the inquiry into certain Australian companies in relation to the UN Oil-for-Food Programme.

http://www.offi.gov.au/agd/WWW/unoilforfoodinquiry.nsf/Page/Report

Much of the 2,065 page, 5 volume report deals with the conduct of the Australian Wheat Board (AWB) in its payment of inland transportation fees to a company named Alia which was a means of making payments to the Iraqi Government in contravention of United Nations sanctions then in place.

The Report discusses in length the failings of AWB and notes:

• For AWB, any monetary consequences of any civil or criminal proceedings would not likely to be significant. The consequences of AWB’s actions, however, have been immense. AWB has lost its reputation. The Federal Court has found that a “transaction was deliberately and dishonestly structured by AWB so as to misrepresent the true nature and purpose of the trucking fees and to work a trickery on the United Nations.”
  
• Shareholders have lost half the value of their investment. Trade with Iraq worth more than A$500 million per annum has been forfeited. Many senior executives have resigned their positions untenable. Some entities will not deal with the company. AWB is threatened by law suits both in Australia and overseas.

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The Royal Commission found that the conduct of AWB and its officers was due to a failure in corporate culture.

The question posed within AWB was:

What must be done to maintain sales in Iraq?

The answer was given:

Do whatever is necessary to retain the trade.

No one asked, “What is the right thing to do?”

Instead, much time and money was spent trying to determine if arrangements could be formulated in such a way as to avoid breaching the laws and sanctions, whether conduct could be protected, by various subterfuges, from discovery or scrutiny, and whether actions were legal or illegal.

The Royal Commission found that when inquires were mounted into AWB’s activities, the company took all available measures to restrict and minimise disclosure of what had occurred.

The Royal Commission asked the question – why?

The Royal Commission found:

“The answer is a closed culture of superiority and impregnability, of dominance and self-importance. Legislation cannot destroy such a culture or create a satisfactory one. That is the task of boards and the management of companies. The starting point is an ethical base.

At AWB the Board and management failed to create, instill or maintain a culture of ethical dealing.”

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The Royal Commission was not tasked with making findings of breach of the law. Their function was to indicate circumstances where it might be appropriate for authorities to consider whether criminal or civil proceedings should be commenced.

The Royal Commission found such circumstances to exist.

The US$18B Project That Never Delivered

The train wreck was predetermined on Day 1

By May 2002, the government’s efforts to build a technologically audacious new generation of spy satellites was foundering.

The contractor building the satellites, Boeing, was still giving Washington reassuring progress reports. But the program was threatening to outstrip its budget and pivotal parts of the design seemed increasingly unworkable.

It took two more years, several review panels and billions more dollars before the government finally killed the project – the most spectacular and expensive failure in the 50 year history of American spy satellite projects.

The collapse of the project called Future Imagery Architecture (FIA) was all but inevitable – the result of a troubled partnership between a government seeking to maintain the supremacy of its intelligence technology, but on a constrained budget, and a contractor all too willing to make promises it ultimately could not keep.

By the time the project was killed in September 2005 – a year after the first satellite was originally to have been delivered – cost estimates ran as high as US$18 billion.

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The United States satellite agency – the National Reconnaissance Office – put the FIA contract out for bid in 1998 despite an internal assessment that questioned whether its lofty technological goals were attainable given the tight budget and schedule.

As Boeing moved from writing its proposal to building the hardware, assembling a work force of thousands, outside engineers questioned the photo satellite’s intricate optical system.

It soon became clear the system could not be built.

Boeing had never built the kind of spy satellites the government was seeking. Yet Boeing said it could live within the stringent spending caps imposed by Congress and the satellite agency, the government accepted the company’s optimistic projections.

Despite its relative inexperience, Boeing was given responsibility for monitoring its own work.

At the same time, the satellite agency, hobbled by budget cuts and the loss of seasoned staff members, lacked the expertise to make sound engineering evaluations of its own.

A torrent of defective parts repeatedly stalled work. Even an elementary rule of spacecraft construction – never use tin because it deforms in space and can short-circuit electronic components – was violated by parts suppliers.

Another factor in the project’s demise was a decline in American expertise in systems engineering, the science and art of managing complex engineering projects to weigh risks, gauge feasibility, test components and ensure that the pieces come together smoothly. From 1961 to 1995, the National Reconnaissance Office had never delivered a project on cost or on schedule.

Boeing did not allow adequate time for testing its technology.

Pulling off such complex new technology requires extensive testing and work on multiple solutions to especially difficult problems. There is no margin for error – once in orbit, a broken satellite cannot be easily fixed.


The Search for Lessons

The satellite agency and military experts are still sifting through the wreckage, looking for lessons – beyond budgetary issues – that would prevent a similar meltdown in the future.

It identified that the satellite agency:

• Had failed in selecting Boeing when it had had no experience in building imagery spy satellites.
  
• There were significant failings in the satellite agency’s oversight of the project.
  
• There were excess data demands and technological risks to manage and no effective system to manage them.
  
• There was no independent cost-estimating group to review project proposals and set budgets.

A member of the House of Representatives Intelligence Committee said: “There is a good rule on projects like this …aim for only one miracle per program.”

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Since the FIA debacle the National Reconnaissance Office banned Boeing from bidding on new spy satellite contracts.

But the news is not bad for Boeing.

The company received a $430 million kill fee for the optical satellite system.

And the satellite and its technology remains in Boeing’s hands.