Corporate behaviour is considered critical for the success of any organization, both in terms of maintaining relationships with the stakeholders as well as attaining financial success. The corporate behaviour includes ethical codes of conduct, legal rules and social responsibility principles (Graham, 2013). The corporate behaviour affects not just the shareholders and the stakeholders of the company, but also the economy of the organization. A socially and ethically responsible behaviour of the leaders in any business organization makes the organization more sustainable (Black, 2001). This can be witnessed in the AWB’s “oil-for-wheat” scandal where the director and chairman of AWB Limited failed to manage the conduct of their employees regarding illegal sanctions and corruption. The essay will present the view that the corporate governance is highly responsible for the corporate behaviour. The organizations need to develop strict corporate governance principles which govern the ethical behaviour of the employees within the organization and its related overseas operations.
To understand the significance of a good corporate governance framework and good corporate culture in framing a good corporate behaviour, it is necessary to understand the impact of corporate misconduct. The AWB’s “oil for wheat” scandal is one of the greatest examples of corporate misconduct (Frain, et al., 2013). The background of the incidence dates back to the time period between 1993 and 2003 when UN established a program for Iraq named as oil for food where the money received by selling oil in Iraq was put in an escrow account and it was, later, used for buying wheat (SBS News, 2015). From 1999 to 2002, AWB was found to be involved in the act of making an illicit payment to the Iraq Government as supposed “transportation fee” which was funnelled to Saddam Husain’s regime. It was a breach of the UN trade sanctions. This case can be witnessed as a perfect example of a corporate culture leading towards greed, deception and corruption. The investigation reports of the UN suggest that how the corporate culture of AWB influenced the corporate behaviour and the behaviour of the senior managers. The senior managers of the company kept the sanctions and CG principles above the profits and sales of the organization (Fallon & Cooper, 2015).
The above case highlights that the company did not follow any corporate governance principles which are extremely necessary for any organization. They breached all laws related to ethical corporate behaviour. The corporate culture of the organization got inclined towards greed, deception and corruption. The organization needed to follow the principles of corporate governance to develop a good corporate culture (R.M.Haniffa & T.E.Cooke, 2005). Good governance develops a healthy corporate culture. CG deals with the formulation of a few principles which the organization must follow to get managed and controlled. It ensures that the organization determines effective objectives and forms ethical guidelines which must be followed to meet the objectives. The Hybrid CG regulations laid by Australian Security Exchange (ASX) are considered to be the best for the company performance as they are not very strict but entails come form of sanction to maintain a regulatory influence over the employees. The ASX CG principles promote responsible and ethical decision-making, make balanced and timely disclosures and respect the sanctions and the rights of stakeholders (ASX Corporate Governance Council , 2010).
In my opinion, if AWB had followed these principles, they would have performed all their operations within the limits of their corporate conduct and developed a corporate culture significantly away from breaches and corruption. This opinion of mine has also been supported by Grebe in his published article in 2013 (Grebe, 2013). As per the report published by Fallon and Cooper in 2015, the culture of AWB encouraged all its employees to maximise the revenue and the profits of their company. It encouraged the employees to do what-so-ever it takes to maximize the revenue of the company, even if it included breaching the international laws and ethical standards. Thus, the employees of the company helped the owners to continue this act of bribery and breaching and did not oppose it. Increasing the revenue of the company, by any means, increased the benefits of managers in the form of super salaries, bonuses and incentives. The Board members serving their tenure when the scandal occurred and company made exceptionally high revenue, were re-elected for their unethical efforts for yet another term. Their salaries were rose to $1 million (Fallon & Cooper, 2015). All these acts show that the corporate culture of AWB promoted bribery, corruption and breaching of international laws and sanctions to maximize their profits.
The Royal Commission was established late in December 2017 for investigating and finding out whether any of the Australian financial institutions are engaged in any sort of corporate misconduct and their legal proceedings need to be forwarded to the Commonwealth of Australia. The Commission began functioning on 13th March, 2018. The Commission has reported the appalling behaviour of a few major banks in Australia including forged documents, alleged bribery, misselling the insurance to the people who are not efficient enough to afford it and lending money to the customers without verifying their living experiences. One of banks which is said to be involved in such an act is Commonwealth Bank (The Guardian, 2018).
According to the Australian Transaction Reports and Analysis Centre (Austrac), the Commonwealth Bank was guilty of 53,700 breaches of laws related to counter-terrorism and money laundering and it failed to explain the transactions worth $77 million over a number of years through its deposit ATMs (The Guardian, 2018). The Bank sold financial products and advices to their customers as they are the considered to be highly profitable. However, the bank sold them to the customers without obliging their financial interests. They just sold the products to make more money and 75% of the cases revealed that these advices failed to comply with the best interests of the customers. Not only the poor financial advice but also the reprehensible behaviour of the bank was not in compliance with the noble corporate behaviour. The poor conduct of the bank included the administration errors, breaches of lending obligations and fraudulent documentation (ABC News, 2018).
This case presents a picture where the corporate misconduct directly impacted the interests of the customers. In this case also, the corporate culture of the Commonwealth Bank is the major reason for the corporate misconduct as the culture of the bank is to maximize the rate of profits for the institution, even if it is not in the interest of the customers. The culture of the organization directly impacts the individual learning, motivation, values, decision making and communication of the employees. The organizational culture delivers the values and its vision to the employees. Thus, if the employees in an organization are doing the same, they are inspired by the negative culture of the organization which encourages them to perform any possible task, whether legit or illegitimate, to maximize the revenue and profit of the organization (LI, 2015).
According to Thomsen (2004), the ethical values in an organization’s culture are influenced by the corporate governance. There are three major mechanisms of governance- the board composition, stakeholder influence and ownership structure. The corporate culture and corporate behaviour is framed by the managers and the board of directors in large organizations such as Commonwealth Bank. Thus, a significant framework based on ethical corporate governance principles must be framed to shape a corporate ethical behaviour (Thomsen, 2004).
The ASX principles of corporate governance and Codes of conduct have value as the internal guidelines as well as the external statement of the corporate commitments and values. They clarify the organization’s values, mission and principles and link them with the professional conduct standards that must be followed in an organization. They do not just predict the behaviour of the organization but also present the ethical standards which the employees of the organization need to follow ( Ethics.org, 2018). The organizations usually have these codes of conduct or corporate governance principles well defined, whether it’s legally mandatory or not for them to follow them. This determines the corporate reputation of organizations and a company with good ethical practices and behaviour is accepted well by the stakeholders. Such companies have certain competitive advantages over their competitors (Adam & Rachman-moore, 2004).
But the question is whether all these principles, guidelines or CG frameworks ensure ethical behaviour of the organizations and the employees working for it. In my opinion, sticking to these guidelines is necessary but there is a need for carrying out strict monitoring processes to check whether these guidelines are strictly implemented or not. All the big organization has a written set of ethical rules on paper which need to follow but these written guidelines are actually followed or not, depends on the organizational culture. The activities in practice influence the employees more than a few rules which are just written on papers for fulfilling the legal requirements. For instance, both the companies found guilty of unethical behaviour were renowned companies with good corporate reputation before these incidents took place. They also had ASX guidelines or CG principles to be followed but still the culture of the organization focused more on gaining profits apart from maintaining the company ethics. Thus, corporate culture highly influences the behaviour of the employees than mere mentioning the CG principles (Schein, 2009).
If these guidelines are to be followed with full efficiency, then the rules and regulations need to be stricter and regular audits and checks need to be organized. The compliance of these principles must be cross-verified by the authorities. The company must be asked to disclose their financial information, CSR related data and other accounts at regular intervals and it must be made mandatory. If any company fails to do so, they must be asked for a proper explanation and the data must be verified on a regular basis. This will allow the companies to keep a check on the day to day activities of the employees and check if they go unaligned with the CG principles (ASX Corporate Governance Council , 2010).
A corporate culture must be developed on the basis of certain guidelines identified by the corporate culture. Disclosure of all the information must be provided on time so that it is ensured that the company is ethically trying to perform its duties and the profits earned by the company are strictly as per the ASX principles defining the code of conduct. The employees of the company must be interactive and encouraged to follow the rules and keep the interest of the society above their personal interests. They must be taught to serve the moral values of their job first and then, personal interests (Agle, et al., 2014).
Conclusion
The report gives an account of the impact of corporate culture and the corporate governance frameworks on the corporate behaviour followed within the organization. The cases described above prove this conception. The corporate cultures of both Commonwealth Bank and Australian Wheat Board used to keep the profits of the organization above their ethical standards. They focus on maximizing their revenue and do not worry about the sanctions or legal measures. They even used the foul measures to increase the revenue of the company. Thus, there is a need for the authorities to make their measures stricter and audit the company operations on a regular basis.
Ethics.org, 2018. Why Have a Code of Conduct. [Online] Available at: https://www.ethics.org/resources/free-toolkit/code-of-conduct/[Accessed 2018].
ABC News, 2018. Banking royal commission: Fees for the dead and cash bribes — the greatest shocks (so far). [Online] Available at: https://www.abc.net.au/news/2018-09-08/banking-royal-commission-biggest-scandals/10214238[Accessed 2018].
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