Chiquita in Columbia

1. Chiquita in Columbia

2. Timeline of events • 1997-2004 payments to AUC • 2001 AUC declared terrorist group in the US • 2001-3 contacts with Justice Department in US • 2003 legal council warned Chiquita • 2003 self-disclosure to DoJ • 2004 sold and out of Columbia • 2007 settlement in the US on terrorist funding (25 mil USD) • 2007 class action under ATCA • 2011 court allows case to proceed in US courts

3. Bodies of law relevant to the case • Columbian criminal law (against Chiquita directors) • Federal criminal law (funding terrorist group) (against company) -> 25 mil USD • ATCA (Columbian victims are plaintiffs) (against company) -> billions USD claimed • Company law (shareholders of Chiquita) (against Chiquita directors) • IHRL cases against Columbia (related to AUC atrocities)

4. Chiquita Litigation Chiquita faced 3 types of litigation. Various parties sued Chiquita: • Prosecutors in the US (-> federal criminal law) • Victims in Columbia (-> ATCA) • Shareholders in the US (-> company law)

5. 1. Federal criminal law 2007, Chiquita pled guilty in the US for engaging in transactions with a specially designated global terrorist. Sentence: • a $25 million criminal fine, • requirement to implement and maintain an effective compliance and ethics program, • five years’ probation

6. The Chiquita Papers Documents that Chiquita turned over to the U.S. Justice Department as part of the sentencing deal 5,500 Pages of Chiquita Records http://www.gwu.edu/~nsarchiv/NSAEBB/NSAEBB340/index.htm

7. 2. Doe v. Chiquita (ATCA) (2007-) Plaintiffs: ‘This case arises as a result of the actions of Defendant Chiquita in funding, arming, and otherwise supporting terrorist organizations in Colombia, in order to maintain its profitable control of Colombia’s banana growing regions.’ ‘In order to operate its banana production in an environment free of labor opposition and social disturbances, Chiquita funded, armed, and otherwise supported the AUC and other terrorist groups.’ http://www.earthrights.org/sites/default/files/legal/cbi-final-complaint-signed.pdf

8. Doe v. Chiquita ‘The deaths of Plaintiffs’ relatives were a direct, foreseeable, and intended result of Chiquita’s illegal and tortious actions. Chiquita’s actions violated not only Colombian law and U.S. law, but also international law prohibiting crimes against humanity, extrajudicial killing, torture, war crimes, and other abuses.’

9. Doe v. Chiquita Legal categories: • conspiracy, • joint criminal enterprise, • concerted activity, • aiding and abetting, and/or • agency or alter ego or joint venture relationship

10. 3. Shareholders litigation Shareholder Derivative Action: breach of fiduciary duty and corporate waste claims. Settled in 2010: ‘The settlement provides for the adoption of certain governance and compliance changes…’ http://www.theracetothebottom.com/chiquita/in-re-chiquita-brands-court-preliminarily-approves-settlemen.html http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ayT65YLVeJBs

11. Fernando Aguirre (Chiquita’s Chairman and CEO) ‘The business solution to our dilemma was ultimately found in the sale of our Colombian banana operation. In June 2004, Chiquita sold its Colombian farms at a loss of $9 million, in order to extricate itself from this difficult situation. Even the terms of the sale reflected our continued interest in the well-being of our workers. The sales agreement we signed required the purchaser to continue the collective bargaining contract with the union that represented Chiquita's workers as well as maintain the strict environmental, social and food-safety certifications we had achieved on these farms.’

12. CSR at Chiquita • SA8000 (labour certification) • Framework Agreement (labour agreement with workers) • ETI (labour standards - learning and compliance initiative based on a Code) • Rainforest Alliance (mainly env. Certification)

13. Polycentric governance and the emerging CSR regime

14. Principled pragmatism Ruggie: ‘a principled form of pragmatism: an unflinching commitment to the principle of strengthening the promotion and protection of human rights as it relates to business, coupled with a pragmatic attachment to what works best in creating change where it matters most – in the daily lives of people.’ (2006)

15. Cumulative progress (I) Ruggie: ‘What do these Guiding Principles do? And how should they be read? Council endorsement of the Guiding Principles, by itself, will not bring business and human rights challenges to an end. But it will mark the end of the beginning: by establishing a common global platform for action, on which cumulative progress can be built, step-by-step, without foreclosing any other promising longer-term developments.’ (Guiding Principles, 2011)

16. Cumulative progress (II) Ruggie: “there is no single silver bullet solution to the very complex business and human rights challenges. Instead, all social actors – states, businesses, and civil society – must learn to do many things differently. But those things must cohere and generate an interactive dynamic of cumulative progress – and that is precisely what the Protect, Respect and Remedy framework is intended to help achieve.” (2010)

17. Ruggie and the law Ruggie did not endorse an international and overarching legal instrument on CSR at this moment in time. He explicitly affirmed the necessity or at least encouraged states to consider a specific international treaty (on goss international crimes), national laws in various fields, and that all these interventions are called for now.

18. Q. for Ruggie (2008) Q: What are biggest obstacles you have run up against so far in the mandate? A: ‘The sheer intellectual magnitude of the task has been the most daunting challenge. Every right, every sector, every company, every continent, every country - the mandate encompasses them all. And the final report has a 10,700 word limit! This has been no easy task.’

19. CSR Corporate voluntarism Incentives and best practices

20. ’Business case’ of CSR “Business case” of CSR = presents CSR as being in the self-interest of business Why companies bother with CSR? What are the benefits for companies?

21. Manage a ‘Modern Asset Mix’ “Effective management and control of resources requires a decision-making process which takes proper account of all the factors relevant to the outcome. In the modern economy these factors have become very wide in scope... Relevant factors include the need to manage relationships with employees, with suppliers of all kinds of resources – physical, intangible and intellectual – and with customers, both direct and indirect. They include the need to manage wider impacts on consumers, the community and the environment. Reputational assets are also of critical importance in a world where external perceptions can transform business prospects, for better or worse.” UK Review of company law

22. CSR risks • diverse • accumulative & escalating • issues-driven • short on data • relative rather than absolute performance Association of British Insurers (2002)

23. diverse (might come from many different directions, from any stakeholder group) • accumulative (may build slowly from a number of small events, but one of those events can be the catalyst which sets off an uncontrollable reaction) • escalating (the relatively minor cost of an incident in one country or subsidiary may have a much bigger indirect impact elsewhere, such as the loss of a contract worth many times the immediate cost of the original incident) • issues-driven (constantly shifting in importance, with new issues emerging suddenly) • short on data (hard predictive data is usually sparse or non-existent), and • based on relative rather than absolute performance (may stem from one company’s position relative to its peers, rather than absolute performance) Association of British Insurers (2002)

24. Why investors care about CSR? “The rationale for our research is that good environmental performance is a proxy for, and indicator of good management in general, and good management has always been seen by the investment community as an excellent indicator of good financial performance.” (financial analyst)

25. IKEA and the business case “Problems that we face in China and Asia are often related to fulfillment of local legislation, minimum wages, working hours, overtime compensation, falsified records, and lack of production planning. These problems result in tired workers, low production efficiency, high rates of accidents and illness, high worker turnover, large influx of unskilled workers and factories not meeting local legislation. This is not cost efficient and it poses many corporate risks. Through our special projects, we can show suppliers that by meeting standards, the end result will be increased productivity, improved human resources management, improved labor-management communication and reduction of working hours.”

26. Suppliers and the business case “unresolved tensions among price, quality, and delivery time on the one hand, and CSR requirements on the other risked undermining the credibility of the business case… [M]any buyers acknowledged that their organizations send mixed messages about the balance between commercial and CSR requirements.” The market does not yet send a consistent message about the importance of CSR. World Bank 2004

27. Ford and the business case Henry Ford and the Model T http://www.wiley.com/legacy/products/subject/business/forbes/ford.html

28. Ford doubles wages overnight On January 5, 1914, Henry Ford announced a new minimum wage of five dollars per eight-hour day (double the previous wage), in addition to a profit-sharing plan. It was the talk of towns across the country; Ford was hailed as the friend of the worker, as an outright socialist, or as a madman bent on bankrupting his company. Many businessmen – stockholders in the Ford Motor Company – regarded his solution as reckless. http://www.wiley.com/legacy/products/subject/business/forbes/ford.html

29. Benefits from CSR • Operational efficiency (cost savings) by avoiding disruptionsof operations caused by unrest in surrounding communities, or from adopting more efficient and environment-friendly technologies that save raw materials or minimize waste. • Reputational gains: attracting talented employees, better employee morale, better relations with institutional investors concerned with the ability of management to spot and handle ‘corporate governance’ risks and opportunities, better terms with business partners, consumers, regulators etc.

30. Milton Friedman

31. The Social Responsibility of Business is to Increase its Profits The New York Times Magazine, September 13, 1970 http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html

32. Milton Friedman & the business case The mandate of business executives is “to make as much money as possible while conforming to the basic rules of society, both those embodied in law and those embodied in ethical custom”. Friedman notes the benefits to the company resulting from CSR strategies (e.g. desirable employees, less sabotages, other worthwhile effects) and states: “in the present climate of opinion with its widespread aversion to ‘capitalism’, ‘profits’, ‘the soulless corporation’, [CSR] is one way for a corporation to generate goodwill as a by-product of expenditures that are entirely justified in its own self-interest”. (1970)

33. Friedman’s ‘dollar for dollar’ threshold CSR’s benefits must pay back ‘dollar for dollar’: “It may very well be in the self-interest of that corporation to spend money on improving conditions in that community. That may be the cheapest way it can improve the quality of the labor it attracts. The crucial question for a corporation is not whether some action is in the interest of the corporation, but whether it is enough in its interest to justify the money spent.’ (1972)

34. CSR Corporate voluntarism Good practices

35. Responsible investment 1. Principles for Responsible Investment – for institutional investors (2006) 2. "Equator Principles" – for project financing (2006) 3. IFC Performance Standards (2006)

36. 1. Principles for Responsible Investment (2006) • 2005: 20 institutional investors from 12 countries joined at invitation of Kofi Annan • Assets under management: USD 13 trillion • Aim: ‘encourage the consideration of environmental, social and governance (ESG) issues by institutional investors into investment decision-making and ownership practices and thereby improve long-term returns to beneficiaries.’ • Objective: Principles to be integrated within the mainstream investment and ownership practices across the investment functions of an entire organization.

37. Six Principles • Integrate environmental, social and governance (ESG) issues into conventional investment analysis • Be active, responsible owners by promoting good corporate practice and reporting on ESG issues • Seek appropriate disclosure on ESG issues from the entities in which they invest • Report transparently on the actions they have taken • Promote responsible investment • Work collaboratively

38. What are the implications for fiduciary duty? ‘The Principles are based on the premise that ESG issues can affect investment performance and that the appropriate consideration of these issues is part of delivering superior risk-adjusted returns and is therefore firmly within the bounds of investors’ fiduciary duties. The Principles clearly state they are to be applied only in ways that are consistent with those duties.’ (FAQ)

39. 2. "Equator Principles" - project financing The commitment of banks: “We will not provide loans to projects where the borrower will not or is unable to comply with our respective social and environmental policies and procedures that implement the Equator Principles”

40. Projects • Category A – Projects with soc & env impacts that are diverse, irreversible or unprecedented; • Category B – Projects with limited impacts that are few in number, generally site-specific, largely reversible and readily addressed through mitigation measures; • Category C – Projects with minimal impacts. E.g. power plants, chemical plants, mines, transportation & telecommunications infrastructure

41. 3. International Financial Corporation (IFC) IFC Performance Standards on Social and Environmental Sustainability (2006) PS 1: Social & Environmental Assessment & Management System PS 2: Labor and Working Conditions PS 3: Pollution Prevention and Abatement PS 4: Community Health, Safety and Security PS 5: Land Acquisition and Involuntary Resettlement PS 6: Biodiversity Conservation and Sustainable Natural Resource Management PS 7: Indigenous Peoples PS 8: Cultural Heritage

42. CSR in the supply chain

43. Main schemes • Fair Labor Association (FLA) (1999) • Social Accountability International (SAI) (1997) • Ethical Trading Initiative (ETI) (1998)

45. Pricing of shoes (Clean Clothes Campaign, FAQ)

46. FLA Any company that adopts the Code shall require its licensees, suppliers and contractors to comply with applicable local laws and with the Code (whichever is higher) • forced labor, • child labor, • harassment or abuse, • non-discrimination, • health and safety, • freedom of association and collective bargaining, • wages and benefits, • hours of work, • overtime compensation • Minimum wage (not ”living” wage)

47. CSR in the extractive industry

48. Main schemes • Kimberley Process (KP) • Voluntary Principles on Security and Human Rights (VP) • Extractive Industry Transparency Initiative (EITI)