Culture, Compliance, and Eli Black

When you hear the word “culture,” you think of arts, traditions, a common identity, and shared values. But compliance with legal standards does not immediately come to mind. It should.

In teaching classes for the PUCP Lima and the IPC – Instituto Peruano de Compliance, I have been thinking a lot about the culture in which companies and their leadership teams find themselves. Consider the story of Eli Black.

Mr. Black was a rabbi, active and respected in the Jewish community. He was also respected in business – he was the Board Chair and CEO of his multi-national company. He was well-regarded for his values. No doubt those values weighed heavily on him as he struggled with his company that was having an extremely difficult year. The year was 1974, only a few months after the Watergate scandal came to a head and President Nixon resigned. Eli Black was only 53 years old, and his company, United Brands, the parent of Chiquita Bananas, was suffering heavy losses from hurricane damage to banana crops and from a 100% increase in Honduran banana export taxes and larger increases in Costa Rica.

Like the leaders of so many other companies at the time, he faced a culture in countries like Honduras and Italy in which businesses bribed public officials in exchange for getting what they needed. An SEC civil suit would later allege that United Brands concealed a $1,250,000 bribe to Honduran officials and $750,000 to Italian officials. After Watergate, there was Bananagate. After the bribe, the 100% tax increase on Honduran bananas was rolled back, saving United Brands – Chiquita Bananas – $7.5 million.

Imagine how this cultural divide created cognitive dissonance that weighed on Eli Black. He arrived at his office at 8 am on February 2, 1974, on the 44th floor of what was then the Pan Am Building on Park Avenue. Using his heavy attaché case, he smashed the window and leaped to his death. He left no note. It is impossible to know but I believe he was overwhelmed by the culture collision, the morals of his faith community versus the harsh reality of dirty practices in business in many places. The bribe was not itself illegal, but concealing it from shareholders was. The SEC concluded Black must have known of and approved the bribe. The company failed in its efforts to convince the SEC to keep the whole affair secret. Its disclosure would result in the overthrow of the Honduran military government, and the nationalization of the company’s Honduran railways, the divestiture of its lands, and it brought great harm to US relations in Honduras.

In the wake of his personal tragedy and corporate scandal, the post-Watergate United States Congress held hearings and eventually adopted anti-bribery legislation, namely, the Foreign Corrupt Practices Act, in 1977. Today, the Department of Justice that enforces the law publishes guidance that expressly addresses “culture” in the corporate sphere.

Whether a company has a “culture of compliance” with laws against bribery, among others, is essential to defeating corporate prosecution when potential violations arise. The DOJ Manual that guides prosecutions (9-28.800 – CORPORATE COMPLIANCE PROGRAMS) provides that:

Compliance programs are established by corporate management to prevent and detect misconduct and to ensure that corporate activities are conducted in accordance with applicable criminal and civil laws, regulations, and rules. The Department encourages such corporate self-policing, including voluntary disclosures to the government of any problems that a corporation discovers on its own. See JM 9-28.900.

Is the compliance program just a piece of paper? If so, it is useless to avert corruption or save the company from punishment. But an effective compliance program, one that can help to prevent prosecution, creates a

culture of compliance, including awareness among employees that any criminal conduct, including the conduct underlying the investigation, will not be tolerated.

An effective compliance program established mechanism, devotes resources, and sounds a clear “tone from the top”. It provides for prompt, voluntary self-disclosure and full cooperation. It produces activities that reflect shared values – it creates a culture.

The culture of bribery has given way to the culture of compliance. It is far from perfect. DOJ press releases settling bribery cases continue to feature some of the world’s most sophisticated and well-capitalized companies that are paying enormous fines and restitution. But I would argue that the culture of compliance in trans-national businesses is increasingly pervasive and has prevented a lot of bribery scandals while quieting others.

Eli Black should have lived to see it.