Reference no: EM132841788

Questions for Discussion

1. Go 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 differently?
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 then-CEO Aguirre's statements? Did he come across as 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. If you were the judge in the consolidated case, what would you decide?
7. In the "tale of two companies," which do you think is the real Chiquita and why?

Chiquita: An Excruciating Dilemma between Life and Law

An 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?

Background

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." Foreign companies that choose 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 is available only at a price.

Formerly known as United Fruit Company and then United Brands, Chiquita Brands International, based in Cincinnati, Ohio, has faced the kind of situation described above. Today, Chiquita is a global food company that employs more than 20,000 employees across 70 countries in six different continents. The company has strong brand name recognition and premium positioning in the United States and Europe and operates with solid logistics and an efficient supply chain.

Buying Security: Protecting Its' Employees

According to then-CEO Fernand Aguirre, Chiquita started making payments to paramilitary groups in Colombia 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. During the period 2001-2004, the company was making payments to the terrorist group United Self-Defense Forces of Colombia (AUC). AUC was the group's Spanish acronym, 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.

Chiquita Turns Itself In

Chiquita turned itself in and reported to the government that it had made the payments to AUC during the years indicated.

In 2007, CEO Fernand Aguirre released a public statement outlining what he called "an excruciating dilemma between life and law." 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 4,400 direct and an additional 8,000 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.
• However, during the 1990s, it became increasingly difficult to protect our workforce. Among the hundreds of documented attacks by left- and 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.
• 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.

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 wellbeing 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."

Board Knowledge Revealed

During the investigation of this incident, it was discovered that the Board of Directors of the company came to know that 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 this 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 Department of Justice.

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 unusual. Jon Entine's account of Chiquita's turnaround as a company is enlightening. Apparently, Chiquita spent at least 15 years living down its longstanding reputation as a "ruthless puppeteer manipulating corrupt Latin American banana republics." 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. Rainforest Alliance had the following to say about Chiquita's adoption of the Better Banana Project, "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 landscape." The Better Banana Project's ability to be responsive to environmental concerns without threatening the livelihood of companies and employees earned it the 1995 Peter F. Drucker Award for Nonprofit Innovation. Chiquita also became well known through its publications of its corporate social responsibility reports. The company issued public reports on its CSR efforts each year starting in 2000.

Regarding its CSR initiatives and payments to terrorist groups, CEO FernandoAguirre pointed to the fact that the company came forward voluntarily to disclose the payments to the paramilitaries as an indication that Chiquita is "completely committed to corporate responsibility and compliance." He noted too that the voluntary action involved considerable cost. In June 2004, Chiquita sold its Colombian farms at a loss of $9 million in order to bring closure to the issue and remove itself from a difficult situation. The company settled its case with the U.S. Justice Department for $25 million.

Lawsuits against Chiquita

After this, Chiquita faced a host of lawsuits related to its time in Colombia. These included one from three U.S. citizens who survived a five-year hostage ordeal by Colombia's notorious FARC paramilitary group. The employees' lawsuit suggested that Chiquita's connection with FARC may have been more proactive than just paying protection money. The suit also claimed that Chiquita used its network of local transportation contractors to transport weapons to the group.

These same charges have propelled the largest lawsuit, based on the Alien Torts Claims Act (ATCA), filed by family members of thousands of Colombians who were tortured or killed by paramilitaries in Colombia. Cases from around the country were consolidated and put before a South Florida federal judge. Chiquita asked the judge to dismiss the case arguing that, as a victim of extortion, Chiquita was not responsible for the crimes that the paramilitary groups committed. U.S. District Judge Kenneth A. Marra granted Chiquita's motion to dismiss terrorism-related claim; however, he allowed the plaintiffs to move forward with claims against Chiquita for torture, war crimes, and crimes against humanity. If the plaintiffs succeed, the cost to Chiquita could be in the billions. In 2014, Chiquita won dismissal of this lawsuit by 4,000 Colombians who sought to hold the company responsible for the deaths relatives. The court said it lacked the power to review the claims because all relevant conduct took place outside the United States and that Chiquita's mere presence in the United States did not confer jurisdiction.

A Tale of Two Companies

The Chiquita payment controversy has been called a "tale of two companies." One face of 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 face of Chiquita builds partnerships with groups such as Rainforest Alliance to support the Better Banana Project and issues frequent corporate social responsibility reports to keep its stakeholders pleased and informed. The company tried to extricate 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 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 differently?
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 then-CEO Aguirre's statements? Did he come across as 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. If you were the judge in the consolidated case, what would you decide?
7. In the "tale of two companies," which do you think is the real Chiquita and why?