Chiquita: An Excruciating Dilemma between Life and Law* AN ETHICAL DILEMMA Assum

Question

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?1

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.”2 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

OUR EMPLOYEES

According to CEO Fernando 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 from 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 Fernando 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 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 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

Chiquita now faces a host of lawsuits related to its time

in Colombia. These include one from three U.S. citizens

who survived a five-year hostage ordeal by

Colombia’s notorious FARC paramilitary group.

The employees’ lawsuit suggests that Chiquita’s connection

with FARC may have been more proactive

than just paying protection money. The suit also claims

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 tomove 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.

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. It

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 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?

Explanation / Answer

1. The original position regarding the ethical delimma in the beginning of the case can be just be very optimistic. i was in agreement with chiquita,s decision and had hopes that eventually its decision to protect its staff at all costs was one of the best. but after further analysis of the case , my decision started to change, there were no more hopes n chiquita. you want to guard the lives of your stakeholder and staff but do not want to stop sypplying money to terrorists group killing numerous citizens. After reading the entire case my position did change since i belive that the ruling on chiquita not to pay more extortion money to any guerrilla group was in one way or the other right. for one the company made payments of approximately $1.7 million towards the illegal group that was perhaps used toward buying a ton of weapon and many more harm done to citizen than it would have done to the same company.

2. No , I dont think so that Chiquita was justified in making the extortion payments to protect its employees. I think the company should have went to the U.S goverment or any law enforcement to help handel the situation and get protection. I think they were kind of between a rock and hard place because with columbia being such a dangerous place to do busy in and being easy targets does make it harder decision and ultimately the company wanted to do what they thought was the right for their employees. However I also feel that overall selling their farms sooner would have been the best option in protecting their employees . Also next time they should research better on the locations of where they want to put one of their farms.

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