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.