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Archer Daniels Midland, GrainCorp and the liability firewall

The Coalition government is split over the controversial bid for GrainCorp by American commodities trading giant Archer Daniels Midland (ADM). Treasurer Joe Hockey has found himself torn between upholding…

Joe Hockey has a big decision to make by December 17. jcburns/Flickr

The Coalition government is split over the controversial bid for GrainCorp by American commodities trading giant Archer Daniels Midland (ADM).

Treasurer Joe Hockey has found himself torn between upholding his own free-market ideology and the demands of the Nationals to protect core agricultural assets used in the export of grain. Needless to say Hockey has a difficult decision to make by December 17.

Executives of GrainCorp and ADM have also thrown their hats into the debate about what is best for Australian export competitiveness.

While much of the controversy has surrounded what foreign control of our agribusiness means, few have questioned whether ADM, with its chequered history of corporate responsibility, is the type of company we want operating in Australia and how this takeover may impact the corporate responsibility of GrainCorp.

ADM is famous for price fixing and is mentioned in almost every textbook or article written on the subject. This is because in 1993 many of its senior executives were indicted for colluding in the lysine market. It turned out to be the biggest antitrust case in US history (and inspired the making of the film The Informant! with Matt Damon). As a result the Vice-Chairman at the time, Michael Gross, went to prison and the company was fined US$100 million. Later, in 2005, ADM had to pay an additional US$400million to settle a class action antitrust suit.

Ian Pinner, the president of ADM’s grains division, faced heated questioning by a senate committee in relation to this history. He told the ABC subsequently:

“The history is there and its publicly available and people are knowledgeable of it. The ADM I work for today is a great business, we have the highest standards of integrity … the history is exactly that”.

Mr Pinner is right. ADM’s corruption led to landmark policy changes in antitrust law and its enforcement, which has made it a lot harder for companies like ADM to offend subsequently.

Against this dark backdrop limited attention has been paid to ADM’s more recent run-ins with the law. In 2001, the company was the subject of a number of major US federal law suits in relation to air pollution, in which it was fined US$1.46 million and required to spend an additional US$1.6 million on control upgrades.

Subsequently, in 2003 ADM tried to avoid mandatory requirements to make more pollution control upgrades and had to pay another US$4.5million in penalties and $6million to support various environmental projects.

So what does this mean for Australia and for the proposed takeover of GrainCorp, in particular for its corporate social responsibility?

Unfortunately, GrainCorp has been quite slow on the uptake in relation to CSR, showing little accountability for social issues or environmental impacts. Despite its size and extensive operations GrainCorp has not published a single comprehensive or assured report on its emissions or social initiatives.

The perception is that large multinationals like ADM have standardised environmental control systems across countries, in which case ADM may “lift” the accountability of GrainCorp, promoting better management and reporting of its social performance.

But the research shows a very different picture, suggesting that under foreign ownership GrainCorp has less reason to improve its engagement with social and environmental issues and may, in fact, reduce its performance in these areas.

One of the issues is that under the US Tax Reform Act of 1986 firms are able to construct a liability firewall between themselves and their subsidiaries. As a result of this legal arrangement parent companies have moved their polluting activities to their subsidiaries and these have been found to have significantly higher rates of pollution than their parent companies.

The situation is even worse when subsidiaries operate overseas. Research shows that the greater the geographic distance between a subsidiary and a host company the less likely that the subsidiary will engage in corporate social responsibility. This is because these distant subsidiaries are unlikely to have positive reputational affects in the host country. GrainCorp’s social responsibility is unlikely to impress ADM’s American stakeholders.

Of further concern is the more recent finding suggesting that, in order to appease the rising expectations of local stakeholders, parent companies transfer their more irresponsible behaviour to their overseas subsidiaries.

The research suggests that as a subsidiary of ADM, GrainCorp’s social responsibility will be focused on American, rather than Australian issues. It seems likely that there will be less ability for local stakeholders to influence GrainCorp in relation to its social responsibility.

Australia is by no means a pollution haven for companies like ADM. But the takeover may contribute to a situation in which we relinquish some of our power to pressure GrainCorp to improve its social and environmental performance and respond to the concerns of local stakeholders.

When Joe Hockey considers the deal, what will be the principle that guides him? Ideology, politics, or the national interest? If, as many speculate, there will be conditions on ADM as part of the takeover then surely improving GrainCorp’s social and environmental accountability should be one of these, lest it follow in the footsteps of its new parent.

Join the conversation

14 Comments sorted by

  1. Jack Arnold

    Polymath

    Thank you Max for dispelling the unfortunate ideological belief that all foreign takeovers are likely to be beneficial for the industries that are taken over, or the nations whose politicians are silly, or corrupt, enough to allow foreign takeovers of essential food manufacturing industries.

    Before the AWB and Graincorp, Australian wheat growers were at the mercy of grain traders who set prices that were often less than the cost of production. The AWB changed that by paying a stable price for wheat and holding the sole wheat export licence that gave farmers a belated financial return due to interesting accounting procedures.

    Even so, the present proposal that is the sole discretion of Joe Hockey, the hopeless joke of the Coalition, has the real potential of destroying the wheat industry by pushing prices below production costs over time.
    Look at what happened at SPC and the 750,000 productive fruit trees being ripped out due to cancelled contracts.

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    1. Norm Stone

      logged in via Facebook

      In reply to Jack Arnold

      And thank you Jack for showing so clearly where this could lead. With the UDV (United Dairy Farmers of Victoria) are getting excited about the foreign sale of WCB:
      (http://www.vff.org.au/vff/Documents/UDV%20Hotline/UDV%20November%20Hotline%20241013%20v1.pdf)
      it is very pertinent to look at SPC/Ardmona. These fruit growers had a strong, under capitalised co-operative, with a very popular and successful brand. They got into bed with the devil (CCA) and should not have been surprised to find themselves stuffed and up shit creek, in barbed-wire canoe without a paddle.

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    2. wilma western

      logged in via email @bigpond.com

      In reply to Norm Stone

      It is tragic that so many Oz co-ops and other enterprises are being hoovered up by overseas companies with hardly a murmur from the general public .

      And now that twit Paul Howes is procliaming that ADM should be allowed to take over Graincorp and that Medibank Private should be flogged off too.

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    3. Jack Arnold

      Polymath

      In reply to Norm Stone

      Then Norm, there is the case of the Twofold Bay fish cannery closed and removed by John West despite realistic offers from locals to purchase the factory WIWO. John West closed the factory to reduce market competition, and Australia lost another productive industry employing Australians in urban regional communities.

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  2. Garry Baker

    researcher

    May 2013 ...

    New York (May 03, 2013, 2:18 PM ET) -- Archer Daniels Midland Co. told investors Wednesday that it had set aside $25 million to resolve a Foreign Corrupt Practices Act investigation related to its grain and feed exports.

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    1. Garry Baker

      researcher

      In reply to Max Baker

      Oh well, yet another $29m provision here and there for court settlements is a trifling matter for ADM. Granted, it relates to a case of five years ago, but the troublesome thing is the ADM grains boss Ian Pinner has gone to some trouble to explain these happenings are now the stuff of history. So - declaring a current provision of $54 million for expected court fines in the near term is irrelevant to their task at hand - ie: Seize control of a huge chunk of Australia's wheat crop.

      Early release parolees do these things to "Gaol time is over, it's a now a thing of the past. - Trust me

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  3. Michael Hay

    retired

    This article is fine, but the methodology of decision-making by the Treasurer alone, is faulted. The subject should be debated by our parliamentarians (assuming they are capable of rational debate without degenerating into petty party politics) and the resultant vote should guide the Treasurer in his decision.
    Such a method of governance may well be beyond the capabilities of of our politicised system and, if this is the case, a catalyst must be found in order to create a governing system which does actually reflect the will of the people, not the wishes of the (less than) 2% of the voters who belong to political parties.

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  4. Roma Guerin

    Pensioner

    Please excuse me repeating myself. The comments on the other article went off at a tangent about sport (?) Thanks Jack Arnold, those wasted fruit trees still having me writhing with anger.
    "Have I got this right? A US company wants to buy an Australian crowd. If the o/s mob buy our company, we will amount to about 2% of their assets. As the US conglomerates are known for taking over and closing down little companies so they have more control of the product sales, why should this time be any different? I don't believe for a minute that if they owned GrainCorp they would bend over backwards to increase OUR farmer's wheat sales to China for instance. And so what if GrainCorp only owns half our ports. Can we afford half our ports to decline or close because there's no more XX tonnes of Oz wheat passing through?"

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  5. Ian Rudd
    Ian Rudd is a Friend of The Conversation.

    Retired accountant & unapologetic dissident

    From a quick check on the history I see that GrainCorp was privatized in 1992 under Paul Keating's government. (Note: a Labor not Liberal government.) It comes as no surprise to me that the end result of this would be a takeover by a multinational. It's all part of the decades long trend of greater concentrations of power which is instrumental in ever rising inequality and erosion of real democracy.

    I can only hope the Nationals earn their keep and the trust of farmers and do their utmost to block this takeover. We'll see what they're made of.

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    1. Jack Arnold

      Polymath

      In reply to Ian Rudd

      Ian, sadly the Notional Party you have for a 19th century future is too busy betraying regional communities by turning wheat fields into CSG fields for distant foreign shareholders to worry their little heads about selling off Graincorp.

      The purportive leader, Warren Truss managed to ask just one question in the last Parliament while the Deputy Leader and member for Rinehart is far too busy putting his snout into the parliamentary allowances & entitlements trough covering football expenses and attending weddings overseas to bother with any matter that just might have an effect on his constituency.

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  6. Bob Phelps

    Director at Gene Ethics

    The Nationals always sell out rural and regional Australia, as lap dogs to Liberal interests. The Greens offer a stronger voice for rural communities so its time for country voters to seriously consider electing them. Some of their progressive policies may not be all country people would prefer but overall they are positive. See http://greens.org.au/policies/sustainable-agriculture and http://greens.org.au/regional-and-rural Give The Greens a go!

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