Background
Corporate governance is deemed as a set of rules, as well as, practices which are adopted by the companies for directing its employees to do the actions and make the decisions in a particular manner. As these rules help the companies in making the decision regarding the process of corporate governance, it has a major impact over the performance of the company (Beekes, Brown and Zhang, 2015). In this regard, the ethical principles are employed by in the processes of corporate governance, which not always result in increased revenues or high share prices, but present other advantages, which go beyond the bottom line of the companies. This relationship has an impact over different performances of the company, included in which are that of stock, environment, accounting and even management turnover (Hanks, 2017). And this has led to a widespread belief that best practices of governance leads to superior performance of the firms.
This report has been prepared to be presented before the board of directors, in order to highlight on the relationship between corporate governance and corporate performance. In doing so, the concentration would be on the problems which took place at Murray Goulburn so as to highlight the failure of ethical values and corporate governance at Murray Goulburn. An attempt would also be made to understand why a whistleblower did not come forward to highlight the breaches taking place at Murray Goulburn.
Murray Goulburn is a recent example of the monumental mismanagement in the company. The problem escalated in May 2017 where Mark Elliott, who is a class action specialist, added his name to the claims being made against the company, along with ASIC and ACCC in looking at just were the company realised when the company was unable to pay just $5.60 per kilogram as the farm gate prices, which was far away from the $6 per kilogram which was floated by the previous boss, Gary Helou (Durie, 2016). The company stunned the farmers when it promised to pay them around $6 for a kilogram of milk solid, before any announcement was made; but in the actual announcement made in 27th August, 2017, the stated that the price of $4.80 would only be offered. This directly impacted the farmers as a number of farmers purchased more farm and cows as it was expected to boost their income. In the hopes of high milk prices, this was done and in this very attempt, the farmers lost everything. This was especially significant because the incident occurred in the backdrop of the collapse of global prices which had resulted in the prices already going down (Jasper and Long, 2017). As a result of this fiasco, the company had to shut down its plants to write off the debts of the farmers (Hatch, 2017).
Failure of Ethics in Murray Goulburn case
When a person visits the website of the company, they come across a governance page, which showcases that the belief of the company is in providing clear set of values, where the emphasis is on a culture which encompasses strong corporate governance, good ethical conduct and sound business practices. The company commits towards making certain that its practices and policies reflect a high standard of corporate governance. The framework of governance for the company follows such conduct where the accountability of the directors is towards the shareholders. And so, the risk is properly overseen and managed by the company (MGC, 2017a). However, when the background given in this report is highlighted, it shows that the story is far from the truth.
The first and foremost failure of the company was in taking care of its stakeholders. Farmers are deemed as the weakest link when it comes to the supply chain and as a result of this incident, the farmers were left with 40% less of this company and even a higher level of debts as a result of the management of the company going too far in a very quick manner, particularly when the time in the cycle was unfavourable. Corporate governance requires the company to work towards the people but the company failed to identify the risk of failure of its actions, let alone the analysis of the risk. As a result of this, the company undertook steps at such a period where the efforts were deemed to fail. This directly impacted the farmers as their hopes of recovering from the global crisis in dropped prices of milk, by the promise of company to offer a rate of $6.
The code of conduct of the company, which is deemed as a charter of values and morality of any company, shows that the brand and reputation of the company is very important to it. And as a result of the achievements, the company prides itself on its enduring partnerships with different stakeholder groups, included in which are the suppliers. The code of conduct also stated that the company acts with integrity and honest but the same is not true (MGC, 2017b). This is clearly highlighted through the false promise made by the company to the harmers to offer higher rates when in reality it offered rates which were very less. This resulted in the farmers having to bear the loss when they bought additional farmland and livestock to benefit from the raised prices of milk. Hence, this not only led to a breach of different legislations, for the misleading and false conduct, but the same breached the ethical values of the company, on which it prides.
Responsibility of Board of Directors
The board failed in undertaking their responsibility towards the shareholders as they adopted such an approach which was not calculated properly. They failed in being careful in taking their duty owed under the statutory law, where they had to take sound business decisions (Bernstein, 2015). Without calculating the impact of their actions on the shareholders, they made out the announcement which was false. By fooling the farmers, they invited the different regulatory bodies to make actions against them, and this is the reason why the case came to the light of the nation as being a major failure on part of the management of the company, in effectively managing the affairs of it.
The corporate culture of a company shows its beliefs and behaviours and assists in making determination of how the employees and the management of the company make interactions with each other, apart from the manner in which the outside business transactions have to be dealt by the company. It remains difficult to define the corporate culture of any organization as the same is implied and organically develops with time. Further, it culminates from the people who are hired by the company, particularly from their traits (Kotter, 2008).
The corporate culture of Murray Goulburn was not an exemplary based conduct as no one in the company raised any voice about the misleading and unconscionable conduct of the company with regards to the promised price of milk (Baker-Dowdell, 2017). The company did have a set of beliefs coded through its code of ethics, but the same was not incorporated properly into the company. This is the reason why the senior management ignored the interests of the farmers and made false and misleading claims. Hence, the people who form the company, particularly the ones at the top of its management, failed in following the beliefs of the company, which stem from the ethics.
The ethical culture of the company revolves around such ethics which the company follows and is drawn from the mission and vision of the company, for propagating respect towards both humanity and nature, which results in creation of a better world. The organization members commit towards the development of these in an ethical manner and for conducting their work in an ethical manner, in addition to developing relations with environmental stewardship and social justice at its base (NYSEC, 2017). The ethics of the company were drawn properly on paper, but the reality was quite different. The company, particularly the ones running the key operations of the company, were indulging in such business activities which were not evaluated in a proper manner, as a result of which, the suppliers, i.e., the farmers were harmed, particularly in terms of their finances (Mazzarol, 2016).
Corporate Culture of Murray Goulburn
The ethical conduct of the company can further be highlighted through the application of ethical theories. The theory of utilitarianism provides that such an act is deemed as ethical through which the utility of the undertaken action can be enhanced or maximized (Blowfield, 2013). The businesses are required to have their focus over the happiness of the general public particularly the ones affected by the actions of the business (Crane and Matten, 2004). The ethical theory of Kantianism dictates that the business decision has to be undertaken in a rationale manner and the ethical issues are to be undertaken in a manner where the decisions are made after analysing it properly (Beiser, 2014).
Both these theories show that the actions undertaken by the company were not ethical. The misleading or deceptive conduct of the company was something which did not work towards the benefit of the public as a whole. In other words, the utility of the action was not enhanced, instead was diminished, particularly for the different stakeholders. Based on Kantianism, as the action was not evaluated in proper manner, which means that the rationale decision was not undertaken, thus unethical conduct was undertaken. In short, by failing to properly evaluate the announcement in context of the global changes, the company failed to make the rationale decision.
Whistleblower can be defined as a person who brings forward the illegal or the unethical conduct of the organization, whereby some critical information of the company is brought before the world so that the unethical actions can be stopped, or at least brought before the eyes of the general public. The moral values and the wrongdoings of the company force the people to indulge in whistle blowing activities, where the greater good is given preference over the good of the organization (Brown, 2008).
In the entire incident that took place, not a single whistleblower came forward. No one raised any issue about what was going on in the company. One of the reasons for such occurrence is that the majority of the staff, which comes at the level below the top management, which made this decision, is usually not aware of the key decisions of the company, particularly of the rates which are being offered to the suppliers. Such decisions are deemed as confidential, which is not commonly available with the employees of the company. Thus, due to the lack of proper information, no one could blow whistle on the matter.
Protection of Whistleblowers and Stakeholder Impacts
However, the whistle is not essentially to be blown by the junior level workers and the same can be done by the ones involved in the decision making process, particularly where their viewpoints are not given due consideration, particularly when these viewpoints are ethically inclined. And from this stems another major reason for the whistle not being blown. The ones who blow the whistle are under a threat of not being employed by the company and even by the future companies. Another reason is that they often face the prospects of the company raising an action against the whistleblower as the information brought before the public is confidential. This means that in addition to losing the job, they have to face litigations. So, where a member of the decision making committee or the top management raised the announced price being a wrong one, they could have faced grave consequences for their actions (Alfred, 2016).
Considering the significance of the whistleblowers, the regulatory bodies have drafted different instruments for protecting the instruments. Each nation has its own set of legislative instrument through which the whistleblowers in the nation are given protection. They are protected from being discharged from their job for blowing the whistle and also from any discrimination from being a whistleblower for another company. The reason for offering protection to the whistleblowers is due to the governments wanting unethical conduct to be curbed in order to protect the different stakeholders and their interests, which are inclined to the work being done by the companies.
A key protection which is offered in Australia is given under Corporations Act, 2001, particularly under Part 9.4AAA, whereby the whistle blowing protection is extended to the employees and the officers of the company in addition to the subcontractors in the nation (Department of Parliamentary Services, 2005). Under this section, both immunity and protection is provided to the employees of the company who highlight the alleged contravention of this act. However, there is a limited scope of whistleblower legislation in the nation. These often are deemed as insufficient mechanism for protecting the whistleblowers in the private sector. This has led to the Public Interest Disclosure Act, 2013 being updated to offer public sector whistle blowing protection (Time Base, 2014).
On the basis of the analysis of the case study highlighted above, certain recommendations can be drawn out for Murray Goulburn and for the companies in general. The first requirement of the companies is to adopt ethical practices. In this regard, it is not sufficient to simply create a code of conduct and the corporate governance practices. Instead, the need is to adopt these policies in the true spirit. In order for the company to derive the benefit of corporate governance in context of enhanced corporate performance, there is a need to uphold the theme of corporate governance, and work towards the people, the planet and for the profit. The next recommendation for the companies is to create a proper corporate and ethical culture, which promotes ethical conduct; thus, stopping companies to taking actions like fake or misleading conduct. Lastly, there is also a need for the companies to create their own whistle blowing mechanisms, so that the cause of concern can be raised by the individuals before the proper authority. This is particularly of importance when a particular wrong doing is being carried on in the company, of which the top management is unaware.
Conclusion
The case of Murray Goulburn is a leading example of how a failure in corporate governance can impact the organization and raise claims against it through regulatory bodies like the ASIC. This case also presents an example of why the companies should not indulged in misleading and deceptive conduct. Thus, it can be concluded that ethics are an important part of any organization and there is a need to uphold the ethical values when the business of the company is conducted. The need of ethics not only stem from corporate governance but also from the different legislative instruments. By adopting the approaches of corporate governance, Murray Goulburn could have avoided the entire scandal, but failed to do so by not considering the interests of the farmers, and instead fooled them in already hard hit market. Hence, the companies are required to adopt the approaches, which are complaint with both ethics and the law.
References
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Baker-Dowdell, J. (2017) ACCC labels Murray Goulburn’s conduct towards dairy farmers “unconscionable”. [Online] The Advocate. Available from: https://www.theadvocate.com.au/story/4627626/accc-launches-action-against-murray-goulburn/ [Accessed on: 20/10/17]
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