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Awb Scandal - Bad Apples Or Bad Barrels?

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Executive Summary

Organisational factors or �bad barrels’ are said to have instigated many occurrences of corporate corruption and deviant behaviour (Wharton 2002, p 2), involving large numbers of active or passive participants; these are �rarely the result of a few bad apples’ (Murphy 2007, p 7). The AWB case is a clear example of corporate culture and other systemic failures influencing and defining an organisation’s decision making and its ethical posture.

This report addresses the underlying organisational causes of the AWB scandal, whereby AWB paid kickbacks to Iraq in defiance of the rules of the Oil-for-Food programme, instituted by the United Nations (Cole 2006) In so doing, it will consider the evidence and conclusions presented in the Cole inquiry, a Royal Commission established to investigate the conduct of several Australian companies in relation to the program.

The questionable Utilitarian approach of �seeking the greatest good for the greatest number of people’ (Kay 1997, p 1) assumed by AWB itself and its Board, is analysed in this report. It draws attention to the underlying shortcomings in both corporate governance and culture, which play a significant role in allowing or precluding the occurrence of unethical activities. Further, the inaction from DFAT and Australian government in investigating claims against AWB highlights the systemic failures that permitted AWB’s unethical behaviour.

The key causes of and influences on unethical behaviour ascertained from this report are:

• An organisation’s strong profit driven demand to meet financial or business objectives, promoting tolerance for illegal acts

• A culture of вЂ?getting the job done’ (Overington 2006, p 1), where corrupt acts are justified under the proviso that the greatest good will be achieved for the company

• Lack of control mechanisms and moral agents in both corporate and public sector governance, and

• The dominance and control of organisation’s operating as a monopoly; allowing illegal acts to become routine.

On reflection, it can be seen that organisations need to be accountable for the conduct of their employees and all business decisions and outcomes. Therefore, the provision of relevant control mechanisms is pertinent in order to maintain an ethical climate and instil a culture of openness, transparency and accountability. The opportunity to engage in unethical behaviour can also be limited through formal codes of ethics policies and rules that are adequately enforced by governing systems and bodies. Managing and preventing workplace scandals by implementing effective strategies can help to induce organisations into �better barrels’.

3. Introduction

This report explores the AWB scandal, a multifaceted case involving a series of events that took place from 1999 to 2003 in relation to the United Nations (UN) Oil for Food Programme. It analyses the organisation-level ethical failures that contributed to this scandal.

The Australian Wheat Board, initially a government statutory body, attempted to undermine sanctions endorsed by the UN’s Oil for Food Programme, by compensating the Saddam Hussein regime in Iraq through illicit payments of over $A300 million, which contravened the programme’s intent (Bartos 2006, p 2). These kickbacks began while the Australian Wheat Board was under government control; with the illegal activity continuing after the organisation was privatised in 1999, known simply as the AWB (Cole 2006).

Following the Iraqi invasion of Kuwait in 1990, the UN established economic sanctions against Iraq in order to alleviate the �enormous suffering on the common people of Iraq’ (Bartos 2006, p 3). Through the programme known as �Oil for Food’, money could be raised by the Iraqi government through sales of oil and exchanged for basic living supplies such as food and medication via a UN escrow account.

How and why did this scandal occur? Can the problems be pinpointed to fraudulent and corrupt individuals or does the scandal owe itself to failures that occurred at an organisational and systemic level? Analysis of the AWB case in this report, in conjunction with an ethical frame of reference, utilitarianism, looks to the pervasive organisational factors of culture and governance mechanisms to explain the scandal.

To bribe or not to bribe? That was the AWB’s $300 million ethical question.

4. Framing the AWB case

4.1 Utilitarianism

This report examines the overwhelming impact of organisational and systemic failures on the ethical behaviour of those agents involved in the AWB scandal. As business ethics concerns how business agents �ought’ to act (Micewski & Troy 2007, p. 18), it is useful to have an ethical frame of reference when analysing the actions and outcomes in the AWB case. Utilitarian ethics is used as this reference point in the report, as it is recognised as underpinning much economic literature and government decision-making (Pickens 2005, pp.16-17).

Utilitarianism is an ethical approach that in its simplest form promotes the greatest good for the greatest number, or seeks to maximise the benefits over the costs. It is consequential in its focus, concentrating on what is considered a good outcome of an action relative to the group’s notion of good and bad - the outcome determines the ethical appropriateness of an activity. Within this framework, a business should seek to maximise its profitability, market power or other benefit to the least detriment of others. Self-interest is dominant, with something being done for a personal or collective benefit, not because it is �the right thing to do’ (Micewski & Troy 2007, p.18). Accordingly, though this approach has the promotion of collective happiness at its core, it also has the tendency to encourage any means as justifiable to achieve an end. When the outcome, namely profit-making in the case of the AWB scandal, becomes the only focus, utilitarian ethics becomes problematic. Micewski & Troy (2007, p.19) argue that at this extreme, this ethical framework is misinterpreted and in focusing solely on the consequences, and not on the rightness of the act itself, is no longer true ethics.

This disregard for duty-based



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