CHIQUITA: AN EXCRUCIATING DILEMMA BETWEEN LIFE AND LAWAN ETHICAL DILEMMA
Assume that you are the top executive for a firm doing business in Colombia, South America. If a known terrorist group threatens to kill your employees unless you pay extortion money, should the company pay it? If you answer “no”, how would you respond to the family of an employee who is later killed by the terrorist group? If you answer “yes”, how would you respond to the family of an innocent citizen who is killed by a bomb your money funded?1
In many parts of the world, doing business is a dangerous proposition. Such has been the case in the country of Colombia in South America. The danger has been described in the following way: “In Colombia’s notoriously lawless countryside, narco-terrorists ran roughshod over the forces of law and order—or collaborated with them in a mutual game of shakedowns, kidnappings, and murders.”2 Foreign companies that chose to do business in many parts of the world are easy targets. These companies have resources, they care about their employees, and many of them have been willing to negotiate with terrorists and just consider it one of the costs of doing business. Security in many of these countries can only be had at a price.3
Formerly known as United Fruit Company and then as United Brands, Chiquita Brands International, based in Cincinnati, Ohio, is the type of company that faces the kind of situation described above. Today, Chiquita is a global food company that employs more than twenty-six thousand employees on six continents around the world. According to its website, Chiquita owns approximately ninety thousand acres (thirty-six thousand four hundred hectares) and leases about fifty thousand acres (twenty thousand hectares) of improved land, primarily in Panama, Costa Rica, Colombia, Guatemala, and Honduras. The company also grows bananas on the Ivory Coast and through joint ventures in the Philippines and Australia. For the most part, the company uses this land for growing, packing, and shipping bananas.4
IT ALL STARTED IN 1997
According to CEO Fernando Aguirre, Chiquita began making payments to paramilitary groups in Columbia beginning in 1997 and extending into
2004. The payments came to a total of about $1.7 million. The company felt it was forced to make these payments because the lives of its employees were at stake.5 During the period 2001–2004, the company was making payments to the terrorist group United Self-Defense Forces of Columbia (AUC). AUC was the group’s Spanish acronym, and it is the name by which the group was primarily known. A major complication during this period was that the U.S. government had declared AUC to be a specially designated terrorist organization, making it illegal to provide funds for them, and the Bush administration had vowed to go after any company that funded terrorist groups.6
CHIQUITA TURNS IT SELF IN
Chiquita turned itself in and reported to the government that it had made the payments to AUC during the years indicated. In April 2007, CEO Fernando Aguirre released a public statement outlining what he called “an excruciating dilemma between life and law.”7 Following are some excerpts from his statement:
• In February 2003, senior management of Chiquita Brands International learned that protection payments the company had been making to paramilitary groups in Colombia to keep our workers safe from the violence committed by those groups were illegal under U.S. law.
• The company had operated in Colombia for nearly a century, generating fifty-four hundred direct and an additional eight thousand indirect jobs. We contributed almost $70 million annually to the Colombian economy in the form of capital expenditures, payroll, taxes, social security, pensions and local purchases of goods and services.
• But during the 1990s, it became increasingly difficult to protect our workforce. Among the hundreds of documented attacks by leftand right-wing paramilitaries were the 1995 massacre of 28 innocent Chiquita employees who were ambushed on a bus on their way to work, and the 1998 assassination of two more of our workers on a farm while their colleagues were forced to watch.
• Despite the harsh realities on the ground, the discovery that our payments were violating U.S. law created a dilemma of more than theoretical proportions for us: the company could stop making the payments, complying with the law but putting the lives of our workers in immediate jeopardy; or we could keep our workers out of harm’s way while violating American law.8
• Each alternative was unpalatable and unacceptable. So the company decided to do what we believe any responsible citizen should do under the circumstances: We went to the U.S. Department of Justice and voluntarily disclosed the facts and the predicament. The U.S. government had no knowledge of the payments and, had we not come forward ourselves, it is entirely possible that the payments would have remained unknown to American authorities to this day.9 In a plea deal, the company was fined $25 million, and in September 2007 it made its first installment payment of $5 million. Chiquita’s general counsel said that “this was a difficult situation for the company” and that the company had to do it to protect the well-being of our employees and their families.” The Department of Justice prosecutor called the payments “morally repugnant” and said that the protection payments “fueled violence everywhere else.”10
BOARD KNOWLEDGE REVEALED
During the investigation of this incident, it came out that the board of directors of the company had received knowledge the questionable payments were going on. A prosecution document, according to the Miami Herald, presented the following timeline of events:
• 2000—Chiquita’s audit committee, composed of board members, heard about the payments and took no action.
• 2002—Soon after AUC had been designated a terrorist organization, a Chiquita employee learned about the designation and alerted the company.
• 2003—Chiquita consulted with a Washington attorney, who told the company, “Bottom line: cannot make the payment.”
• 2003—Two months later, Chiquita executives reported to the full board of directors that the company was still making payments. One board member objected and the directors agreed to make the payments known to the Justice Department.
CHIQUITA’S SOCIAL RESPONSIBILITY INITIATIVES
An interesting description of the company’s track record in the area of corporate social responsibility (CSR) makes this case particularly out of the ordinary. Jon Entine’s account of Chiquita’s turnaround as a company is instructive. Apparently, Chiquita spent at least 15 years living down its long-standing reputation as a “ruthless puppeteer manipulating corrupt Latin American banana republics.”11 Once operating as United Fruit, the company began turning itself around in 1990 and remade itself into a model food distributor, complete with high environmental and ethical standards. Better Banana Project. In the early 1990s, the company separated itself from its competitors by teaming up with the Rainforest Alliance on sustainability and labor standards. This became known as the Better Banana Project.12 The Rainforest Alliance had the following to say about Chiquita’s adoption of the Better Banana Project: Chiquita Brands International, Inc.—a global leader in banana production—today announced that it has transformed its farming practices and led the way for the banana industry. The Rainforest Alliance monitors and verifies that Chiquita’s farms abide by strong environmental and social standards, which have positive impacts on rural communities and tropical landscapes. By meeting the Rainforest Alliance’s standards, Chiquita has improved water quality, instituted programs for recycling and safe waste disposal, dramatically decreased agrichemical use, and improved the quality of life of workers on all its company-owned farms in Latin America.13 Chiquita also became well known through its publications of its corporate responsibility reports. The company issued public reports on its corporate responsibility efforts each year starting in 2000. In addition, beginning in 2003, the company issued interim updates on its corporate responsibility progress as part of its annual reports to shareholders. Regarding its CSR initiatives and payments to terrorist groups, CEO Fernando Aguirre had the following to say: Chiquita is completely committed to corporate responsibility and compliance. The fact that we voluntarily came forward and disclosed the payments to the paramilitaries did not simply acknowledge an illegal act, it proved our willingness to take responsibility for our actions, even when such a step comes at considerable cost. Legal scholars, business ethicists and governmental leaders can, and should, consider the implications of the situation we faced. There are a number of questions that deserve serious discussion and debate, among them: What should a company do when faced with the excruciating conflict between a possible violation of law and protecting the lives of its workers? What is the proper public policy toward, and punishment of, companies that voluntarily reveal potentially illegal behavior to the government?14 In June 2004, Chiquita sold its Colombian farms at a loss of $9 million, in order to extricate itself from this difficult situation.15
A TALE OF TWO COMPANIES
The Chiquita payment controversy has been called a “tale of two companies.” One Chiquita comes across as a defiant, secretive multinational, with lots of resources, determined to break the law to keep its employees safe and its businesses running. The other Chiquita builds partnerships with groups such as the Rainforest Alliance to support the Better Banana Project and issues frequent corporate social responsibility reports to keep its stakeholders happy and informed, eventually extricating itself by turning itself in, paying a huge fine, suffering tremendous embarrassment and loss of reputational capital, and finally selling its farms to help reach closure. Which is the real Chiquita?
Questions for Discussion
1. Go back to the ethical dilemma at the beginning of the case. Which position did you take and why? Did your position change after you read the case?
2. Was Chiquita justified in making the extortion payments to protect its employees? Was the company really between a rock and a hard place? What should it have done?
3. Using your knowledge of business ethics and global practices, what concepts, principles, or ideas from your study have a bearing on this case? Explain how some of them might have guided Chiquita toward better decisions.
4. What is your assessment of CEO Aguirre’s statements? Is he sincere or just making excuses?
5. What is your analysis of the Chiquita board of directors’ handling of this case? Do you think selling the farms at a loss in Colombia was the right thing to do? Why?
6. In the “tale of two companies,” which do you think is the real Chiquita and why?