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Dangerous Liaisons
In 2003, Chiquita Brands International realized that its discreet payments to paramilitary organizations in exchange for protecting its Colombian employees were illegal. The fruit giant reported itself to the U.S. Department of Justice, paid a large fine and sold off its Colombian operations at a loss. But was that enough?
Thankfully, most U.S. businesses don't have to give much thought to whether they're providing material assistance to foreign terrorist organizations. Yet, experts in business ethics say Chiquita's security problem underscores a situation many companies face every day. Whether it's paying thugs for protection or ignoring cultural norms and customs, for companies engaged in overseas business there's a big difference between doing what is lawful and doing what is right. According to Chiquita spokesperson Ed Loyd, back in 2003, "We were caught between protecting the safety of employees and being legal." The monthly payments the company had been making to one right-wing militia and one left-wing one -- upwards of 100 since 1997, totaling more than $1.7 million, according to court documents -- were legal until Sept. 23, 2001. On that day, President George W. Bush issued Executive Order 13224 prohibiting U.S. citizens from engaging in transactions with organizations deemed "Specially Designated Global Terrorists." Days earlier, both the Colombian groups to which Chiquita contributed had been so designated by the U.S. Secretary of State. The situation "grew out of instability in Colombia," says Loyd. Guerillas controlled the countryside where Chiquita had been doing business -- and was a major employer -- for more than 100 years. Kidnapping and extortion were common practices for these groups, he says. Paying the militias, Chiquita claimed, was simply how business was done in Colombia. The payments were made through private security companies serving as fronts for the violent paramilitary groups known for their involvement in the drug trade as well as some of the worst massacres in Colombia's civil conflict. Chiquita claims it did not realize the payments were against the law until February 2003. At that point, "we had a dilemma on our hands," says Loyd. Company officials sought help from outside legal counsel, who were firm: "Must stop payments," said one memo. "Bottom line: CANNOT MAKE THE PAYMENT," said another. Even after getting this advice from attorneys, Chiquita continued making the "security payments" in order to protect its workers. In March of 2003, the company voluntarily went to the Department of Justice and disclosed its practice of making the Colombian security payments. Two months later, it notified its shareholders. Subsequently, the company sold its entire Colombia operation at a $9 million loss. (Bananas grow at 10 degrees to 15 degrees north or south of the equator. Chiquita has banana operations in Costa Rica, Nicaragua, Honduras and Panama, where, according to Loyd, the company has not paid militias for protection.) Chiquita continued to ensure the safety of its workers by paying off the militias until it sold its assets and left Colombia. As part of the plea agreement with the Justice Department, reached in March of this year, Chiquita paid a $25 million fine. "We did the right thing," says Loyd, noting that there is no reason to believe that the U.S. government would have learned of the security payments had Chiquita not come forward. Nonetheless, in the face of negative publicity, the company recently named a chief compliance officer and implemented companywide ethics training. Beyond Discomfort
According to Lynn Upshaw, author of Truth: The New Roles for Marketing in a Skeptical World, while there may be no crime, such as Chiquita's pre-9/11 payments, companies must move beyond asking if what they are doing is legal. Instead, they should ask whether what they're doing is right. "Chiquita stood up," says Upshaw, "but [it] stood up too late." Upshaw, who is on the faculty at the University of California Berkeley, Haas School of Business, says Chiquita would have been better off never having done business in Colombia as long as doing so required making payments to violent militias. Legal or not, the pre-9/11 payments couldn't have felt right. An association with these groups, he says, "had to leave more than just a bad taste in their mouths." To business ethicists such as Upshaw, it's clear cut: If a U.S. company doing business in a foreign country is forced to rely on outlaw organizations for protection, it shouldn't be doing business in that country -- period. If the police, the authorized military (if appropriate) or a licensed, legitimate private-security agency cannot ensure your people's safety, get out of the country. This is especially true for Chiquita, says Upshaw, since the company has a historic connection to United Fruit, the much-criticized American corporation that traded fruit in third-world countries, giving rise to the expression "Banana Republic," a euphemism for a Latin American dictatorship where produce workers were exploited, and where United Fruit allegedly skirted the law by paying bribes to corrupt officials. In the 1970s, under new ownership, United Fruit changed its name to Chiquita and moved its headquarters to Cincinnati. Citing the costly public-relations cloud that may hover over a scandal-ridden company's head for years, Upshaw says, "There will always be suspicious people because of the past. You can't use normal standards to judge your behavior. You have to be in overdrive." HR as Integrity Agent
HR leaders, who are in positions to know their organizations better than anyone, can and should be agents for "systematic integrity" early on, says Upshaw. HR, he says, is well-positioned to advocate for a culture in which decision makers know in their guts when legal compliance isn't enough. Of course, most HR departments lack the clout to persuade a business to cease operations in a foreign country. Upshaw says the key is to build integrity into a company's culture and reinforce it continually. He suggests screening all job candidates (whether they're involved in international business or not) for integrity as well as competency by describing the Chiquita security story, asking the candidate how he or she would handle the situation, and listening for candidates who respond by saying that Chiquita simply should not have been in business in such a place. "Integrity is a key component of an individual. To be a fully competent employee, you should operate with integrity by reflex," Upshaw says. What's more, he adds, HR has the opportunity to inject integrity into department managers. "You can make a good case that HR is the entry point to an organization." He recommends integrity training -- "not just lecturing, but meaningful training." This can be done through a formal process or by initiating discussions of real-world business issues (such as Chiquita's story) with line managers and key decision makers. "This is not something you achieve. It's something you work at every day to maintain." Upshaw says HR is in the perfect position to make sure there's momentum. "It's critical," he says, "because it can slip away." He advises HR to keep informed of business stories in the news involving ethical decisions -- and to talk about these issues with managers. "HR needs to keep its finger on the pulse of how the world is changing, how the industry is changing -- including the legal, regulatory and social issues swirling around them -- and the major issues abroad. After all, you'll be hiring people who will be hiring people in these places." When there are ethical lapses, stepping up can take guts. After all, no one wants to stand up to a powerful executive. Susan Engle, currently HR director at Mediasmith, Inc., a San Francisco-based advertising agency, and former HR executive at Visa, says that in her experience, failing to act when someone is doing things that seem inappropriate for fear of affecting a client relationship often leads to bigger problems down the road. Of course, it's not usually on the scale of making security payments to militias. "It could be giving inappropriate raises, or inappropriate reviews," she says. "If something doesn't sound right," she says, "it probably isn't right." For example, if you're paying a bona fide security company to protect the building and maintain people's safety, that probably feels right to you. But if you're paying an outlaw gang in exchange for its promise not to harm your employees, even if it is legal, it probably does not feel right. Everyday Ethics
At Zeeland, Mich.-based furniture maker Herman Miller, integrity is ingrained in the company culture through a written code of conduct that helps employees balance business decisions and ethical behavior. "We have a weekly newsletter and a monthly video that goes to all employees," says Mark Schurman, Herman Miller's director of external communications. Each video and newsletter contains a section on ethics, constantly reminding employees that integrity is everyone's responsibility. "It's been such a part of the company for so many years, I have never, ever found myself in a meeting where we were strategizing how we would say what we needed to say. I'm never asked to compromise." Upshaw cautions that the law lags behind reality. "It took a 9/11 [for us] to say, 'Wait a second . . .' but it had been going on because [managers in particular countries] said that this is how it was always done." When enough decision makers, whose guts tell them something isn't right, question the validity of "but it's always been done this way," companies will make fewer embarrassing and costly ethical lapses, says Upshaw. And don't think it can't affect the bottom line, he adds. "If you love fruit and a store happens to carry Dole and Chiquita, you may think twice."
June 16, 2007 Copyright 2007© LRP Publications |
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