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Pundit’s Mailbag — Chiquita’s Motivations

Jim Prevor’s Perishable Pundit, March 26, 2007

Our piece entitled Chiquita’s Shame — And Our Ineffective Anti-Terrorism Policy brought a number of responses, including this one from an executive who asked to remain anonymous:

I just read your article on Chiquita Shame (March 22) and had a couple of questions for Chiquita. Are they really walking the Corporate Responsibility talk?

They are still sourcing a tremendous amount of volume on Chiquita bananas and Chiquita pineapples from the same growers in Colombia…are we to think that the current supplier is not making the same payments to terrorist groups?

Has Chiquita done a thorough audit to see if its current supplier is paying the same terrorist groups? I think it has been stated that Colombia was Chiquita’s most profitable division during the years they were paying terrorists!

In my opinion, it is not about the safety of employees or corporate responsibility, etc…it is about the bottom line!

This note reaches across many areas to the nature of corporate responsibility. We don’t think the focus on “motivations” — did Chiquita pay the protection money because it valued the lives of its employees or did it pay the money because it wanted to stay in business — really makes sense.

Obviously, the ability of thugs and terrorists and, for that matter the Mafia to extort protection money is always limited by the profitability of the business and the value of the assets.

If you own a little fruit store and the Mafia comes and tells you that bad people might burn it down unless you pay them protection — if it is a lucrative fruit store you have a dilemma. If you were losing your shirt on the fruit store, you walk away, because there is no value you desire to protect.

Chiquita had a profitable business in Colombia, its executives wanted to protect it and, of course, they couldn’t have a good business if their employees kept getting killed.

Doubtless, in an integral way, Chiquita both wanted to preserve its business and protect the lives of its employees.

Now our correspondent’s suspicion that Chiquita’s current supplier from that region probably also pays protection money is probably true. As we said in our original piece there are areas in the world without effective government, and terrorists extract what can be thought of as a kind of illegitimate taxation on businesses in those areas.

Now Chiquita was clearly wrong because it was clearly violating the law and, in our society, you have to follow the law even if you disagree or the outcome is ridiculous.

But when our correspondent asks if Chiquita has done thorough audits to see if its suppliers pay protection money, it imposes on Chiquita a standard that is not imposed by law and would be difficult to do in any case.

After all, payments can be made in a thousand ways. You can overpay for janitorial services or copy paper or chemicals. The owners give an option on their shares to the terrorist. How would they ever find all this?

Perhaps even more important, what is the point? If Chiquita ceases doing all business in Colombia, the bananas don’t disappear; they will just get sold to someone else.

The situation in Colombia is very difficult because the government of Colombia is a friend of the U.S. and it, and the people of Colombia, are even more victims of the terrorists than we are.

So banning all trade with Colombia would hurt our allies and the innocent people in Colombia.

In other words this is not North Korea or Iran — where we are in a fight with the government of the country. This is a case where the government of the country is too weak, too corrupted by narco-money, to maintain control over all its territory.

We have trouble dealing with the corrupt practices of much of the world. Beyond terrorism, the Foreign Corrupt Practices Act precludes US firms from paying bribes.

Sounds good and ethical, right?

Yet, the practical consequence is loads of overpaid “consultants” and “agents” who pay the bribes themselves.

Because the culture in much of the world is corrupt and if you want to play, you have to pay.

So American companies have to pay for this service to “legitimate” businesses who make the problem go away.

Sometimes, though, working through third parties adds a layer of costs so U.S. firms lose out on the business to competitors.

It may be worth it. Corruption is such a corrosive factor in society that we are very fortunate it is not a prominent part of business in the U.S.

Habits are hard to break and people who get used to paying people off overseas might get in the same habits domestically.

Still, whether dealing with terrorists or corruption, the core problem is that our authorities can’t change the culture of the world and can’t protect Americans in body (terrorism) or business (corruption) if they refuse to play along.

Yet if Americans don’t play, we cede the field to others who don’t function under any of these laws.

This is an ethical dilemma that goes beyond simple questions of whether companies only care about profits or also care about employees.

Many thanks to our correspondent for his thought provoking letter.

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