Business Society and Ethics: The AWB Scandal


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Legal and social framework, implications and remedies that are available


Business Society & Ethics

1.Present the Case Study. Identify and analyse the issues and the implications.For example: What is this about? What are the key issues? Who is involved?


2. Discuss the issues in your case study in the context of Ethics studied this semester.Examples Listed:

Milton Friedman’s doctrine on the goal of a firm                                                              Morality

Ethical Theories                                                                                                                        Environmental Issues

Self Interest/Personal Gain                                                                                                    Social Media

Triple bottom line                                                                                                                     the Whistle-blower

CSR narrow view and broad view                                                                                          loyalty,

abuse of power                                                                                                                           role of bribery


3. Discuss the legal and social framework? What implications/remedies are available?

NB: Valley of Gods case Study:

Compare India’s legal issues and responses to what would be the case in

Australia including the legal issues associated if it was in Australia.


7 Eleven Case Study:

The action/reports initially involves the ACC


4. What steps would need to be put in place to:

  • combat and minimise the risk of future unethical or immoral practices
  • enhance its reputation, corporate governance and or CSR systems


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 financial 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 specifically 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 flowed 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 specific 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 flowed 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. For example, just a month after AWB made its first 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 Office 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.


Uproar in India’s ‘Valley of Gods’ over green ruling

Its ski slopes are considered among the best in India while its stunning views are a magnet for hikers, horse riders and paragliders in the summer.

But a new ruling by India’s environmental court designed to protect the Kullu Valley from its hordes of visitors now threatens to devastate the tourist industry, according to furious local businesses.

“The vast majority of the people are engaged in tourism activities in and around the Rohtang Pass,” says Anup Thakur, president of the Kullu-Manali Hoteliers Association.

“Isn’t the livelihood of the people more important than the environment?”

Thakur’s fears are echoed throughout the Himalayan valley known as the “Valley of the Gods”, a favorite haunt of the British during the colonial period and now one of India’s most popular tourist hotspots.



The valley is framed by the majestic Rohtang Pass which rises to a height of 13,050 feet (3,978 metres), its roads often gridlocked in the summer months and flanked by a seemingly endless row of stalls selling tea, food and trinkets.

The accompanying mounds of rubbish and other pollution has reached such alarming levels that snow on the slopes has been turning black while glaciers have been melting at a record rate, the court has been told.

In a move aimed at reversing some of the environmental damage, the National Green Tribunal (NGT) last month banned all commercial activity around the pass and the adjoining ski slopes.

The NGT also banned horse riding, snow biking and paragliding on the top of the valley while the food shacks were all ordered to close.

“Except water, everything else is prohibited in and around the pass,” the green court said in a ruling which caught locals by surprise.

“There is a right to tourism but it has to be within the framework of the fundamental rights of the public which takes precedence,”the court added.


Melting glaciers

Scientists from the Pant Himalayan Environment Institute told the tribunal that vehicle emissions and other pollution were causing huge damage to the environment, including the melting of glaciers.

Campaigners say the situation had been allowed to reach crisis point as authorities in the state of Himachal Pradesh had turned a blind eye for decades.

Although the state government did introduce a daily limit of 1,000 vehicles on the Rohtang Pass earlier this year, the tribunal said the quotas were rarely enforced.

During the tourist season, the sheer weight of numbers means the 50-kilometre journey from the base of the pass to the town of Manali — which should take around two hours — lasts up to seven.

The pass can experience sudden and dramatic changes in the weather that have claimed countless lives over the years. In Tibetan, its name translates as “heap of dead bodies”.

It remains closed to traffic for half the year due to wintry conditions and can sometimes be buried in up to 30 feet of snow.


But once the snow clears, the situation changes dramatically and there is no shortage of local

-“All doomed”-

There are also close to a 1,000 hotels in the twin resort towns of Kullu and Manali, which have been attracting generations of Western backpackers as well as Indian tourists.

The hotelier Thakur acknowledged there should be”a check on tourism activities in the area” but said the court had taken no account of “our bread and butter”;.

Other businesses, from taxi drivers to tea stall owners, also fear for the future if the bans are not soon lifted.

Suresh Acharya, a local resident, said a whole range of outdoor pursuits would be effectively brought to a halt by the ruling.

“Hundreds of locals are engaged in paragliding, pony riding, snow scooters and mountain bikes, what will they do after this ban,”said Acharya.

But Raju Banon, who runs one of Manali’s oldest hotels, Banon Resorts, said the environment needed to be protected so that tourism could flourish long-term.

“If this court order is not implemented, Manali will finish, and if that happens we are all doomed,”he said.

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