The Iraq wheat scandal should sound a warning to public companies that sound governance is crucial to the bottom line.
Following the James Hardie asbestos compensation fiasco and other corporate ethics disasters, the AWB oil-for-food scandal has provided yet another high-profile example of how poor management of so-called "soft" business ethics issues can rapidly translate into hard outcomes for share owners. AWB has lost more than a third of its market capitalisation and, according to some analysts' projections, may lose up to two-thirds of its value should it lose its wheat export monopoly as a consequence of the massive damage to reputation it has brought upon itself.
If the Cole inquiry finds that AWB breached Australian law and charges are recommended, we can expect the defence that AWB acted in the interests of shareholders and wheat growers when allegedly contravening the UN oil-for-food sanctions. Measured over a longer time frame, however, it becomes more difficult to view the alleged behaviour as being in the interests of the company.
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