Terrorist Payments
Prepared by Jonathan Erickson, Kelli Hickey, Eric
Tinoco, and Stephen Winn
1. Summary
The case opens with Alex McAdams, recently retired CEO, being asked to join the Board of
Consolidated Mines International Inc. The case tells us that CMI operates mines in Central America and
northern South America and in 2004 its revenues were approximately $4.5 billion and it had about 25,000
employees worldwide. To aid his decision on joining the Board, Alex decided to conduct his own due
diligence. During this process Alex found two issues and decided to discuss these with Cameron Derry,
the CEO of CMI. The issues involved questionable business practices and political instability within
many of the Latin American countries in which CMI mines are located.
During their lunch meeting, Cameron shared some of CMI’s history going back to the 20s. This
included allegations that CMI bribed government officials, interfered with local unions, and allegedly
participated in the overthrow of a Latin American government. In the 90s there were charges that CMI
exploited its employees, created pollution, and facilitated the importing of illegal narcotics. In an effort to
alleviate Alex’s concern over CMI’s business practices, Cameron stated to Alex that, “None of these
allegations have ever been proven in a court of law.”
In response to Alex’s concern regarding the political environment of CMI’s operations, Cameron
admitted that “There is no effective government in which we operate.” At this point, Cameron informed
Alex that the paramilitary are in control of the countryside where CMI’s mines are located. Cameron
describes these paramilitary groups as “unsavory organizations, [with] their own death squads” who
“have been involved in tens of thousands of Latin Americans.” At this point, Cameron states to Alex that
the paramilitary does not interfere with the company’s operations because CMI has been paying them off
for 10 years. Cameron admits to Alex that “Occasionally we have to do business with some unsavory
characters.” Cameron tells Alex that these “protection payments” are for CMI’s protection of its
employees, property, and operations. Alex voices his distaste of the payments and calls them extortion.
However, Cameron describes these payments as payments for “security services.”
As if that were not enough, Cameron tells Alex that there is an additional problem. He informs
Alex that the U.S. government has declared the United Peoples Liberation Front a terrorist organization.
This is where the case gets interesting. Cameron advises Alex that CMI’s legal counsel has advised the
company to cease the payments. Cameron then expresses fear for the safety of employees if CMI ceases
making the payments. Cameron expresses CMI’s dilemma when he says, “If we stop [making payment]
I’m afraid of what might happen to our employees. I don’t want to support drug trafficking and terrorism,
but I need our mines to stay open.”
Cameron the states his position on the matter as it relates to Alex’s decision to join the Board. He
tells Alex that if he decides to join the Board the first item on the agenda for the next meeting is the
payments and that he wants the Board to approve CMI’s continuing to make the payments. Cameron cites
the safety of CMI’s Latin American employees and operations as his motivation.
2. Parties Affected
The parties MOST affected by this situation are the approximately 25,000 employees of CMI. Cameron
himself says that these payments are made for the safety of CMI employees. As long as the mines are
operating, employees can earn a living and as long as the payments are made the employees can safely do
their job. If the payments were to cease, the employees of CMI have potentially the most to lose. If the
mines close CMI’s employees will lose their livelihood and furthermore may be in danger from the
paramilitary groups.
CMI’s Board of Directors and management can also be affected if payments cease. Perhaps the most
significant way the Board and management would be affected would be if these payments were to be
made public. Now that the U.S. has branded the United Peoples Liberation Front a terrorist organization,
CMI’s Board and management could be perceived as indirect supporters of terrorism and drug trafficking.
The consequences would be serious. Lastly, if payments were to cease, the shareholders could lose their
investment if paramilitary groups retaliated again CMI by damaging its infrastructure and halting its
operations.
3. Moral/Ethical/Problems/Issues
The ethical dilemma in this case places the safety and interests of CMI’s employees against the United
States’ war on terror. According to Cameron the payments were made to ensure the safety of and to
protect the interests of CMI’s employees. However, CMI’s payments may be supporting murder,
kidnapping, drug-trafficking, and torture of Latin Americans. Because we cannot know for sure what the
paramilitary is doing with the money, utilitarians may support the protection payments because they
ensure the safety and livelihood of 25,000 CMI employees. However, given the paramilitary’s history, it
would be difficult to believe that their earnings were not being used to support terror.
The other ethical question is CMI’s motivation. As CEO, deontologists would support Cameron’s making
the payments if he is motivated to do so for nothing more than the safety and welfare of CMI’s
employees. However, one could make the case that he is doing so in the best interest of CMI’s
profitability, which is certainly protected by these payments.
Also, there is the issue of CMI’s motivation for inviting Alex, a recent retiree, to join the board. Did
Cameron ask Alex to join the Board because he will vote to continue to make the protection payments? It
would seem so because Cameron made it a point to express his position regarding the payments with
Alex.
4. Answers to Chapter Questions
1. My position is that Alex should not join the Board of CMI. While the case stated that this would be
major step for Alex, I believe his Board member ship has great potential to damage his reputation. I say
this because if the protection payments were to become known, the Board, which would include Alex,
could be seen as supporting terrorism. This would likely do great damage to Alex’s reputation.
Additionally, I believe that CMI’s management may have asked Alex to join only because of his
perceived willingness to “play ball”, that is, to vote in favor of continuing the payments.
2. If he joins, he should vote in favor of the protection payments. It makes no sense for his to join the
Board and vote against the payments, especially with the knowledge of Cameron’s position. He would
likely be creating a difficult situation for himself.
3. If Alex genuinely wants to be on this Board, and he supports discontinuing the payments, he might
consider persuading Cameron to see it his way. However, this is very unlikely. I do not believe it is
possible to do business in that region without paramilitary inference. The best option for Alex may be to
simply decline the offer and wait for another Board seat opportunity without the moral baggage that
comes with this one.
5. Personal Reaction
Our position on the protection payments is such that we believe they are, in fact, extortion payments. We
believe these payments are ethically wrong and furthermore, we believe they represent a bad way of
doing business. CMI has put its employees and operations at the mercy of the paramilitary groups. While
management believes they are protecting its employees, assets, and operations, we wonder if they have
ever considered the possibility of the paramilitary asking for higher fees? According to the article, CMI
paid $1.7 million between 1997 and 2007. We wonder what is to stop these paramilitary groups from
upping the asking price for security. And if this happens, where does it end? Plus, we have serious
concerns with CMI’s ethical (or lack thereof) history. It is interesting to note that during Cameron and
Alex’s conversation, Cameron did not say that the allegations dating back to the 20s, 50s, and 90s were
not true, he said that they had never been proven in a court of law. Untrue allegations and allegations not
having been proven in a court of law are two very different things. We believe this very likely calls CMI’s
integrity into question in Alex’s mind.
Another interesting point to consider is CMI’s motivation in recruiting Alex. The case tells us that Alex
was recently retired at the time of CMI’s offer. Is it possible that Cameron and the other members of
management were just using Alex because they believed he was likely to vote in favor of continuing the
payments? One has to wonder how much autonomy could Alex have expected from the rest of the Board,
if any at all. Or was he expected to simply vote in lock-step according to Cameron’s wishes? Was this the
reason that Cameron made it a point to inform Alex of his position – namely that he wanted the Board to
vote in favor of making the payments?
We believe CMI’s business is in an inherently dangerous position. As such it is our position that Alex
should not join CMI’s Board. The United States has declared the United Peoples Liberation Front a
terrorist organization and this puts CMI is an untenable position. If the Board votes to continue the
terrorist payments, CMI could be accused of indirectly supporting terrorism. If CMI halts the protection
payments, there could be reprisals from the paramilitary against its employees. CMI is in a lose-lose
position and it is better for Alex if he does not join their Board.
6. What would we do?
If we were in Alex’s position we would not join CMI’s Board. First, we believe CMI has always been in a
bad position by having to pay for “protection services”. This has always meant that the paramilitary group
can up its fee anytime it chooses. Furthermore, there is nothing stopping the paramilitary groups from
bringing harm to CMI’s employees and its operation even though they are being paid not to. We believe
this places too much power in the paramilitary groups’ favor and this is not a desirable position to be in.
Now that the United Peoples Liberation Front has been declared a terrorist organization, CMI is now
facing a potentially large reputational risk factor. One has to wonder how much CMI is profiting from
their operations. How much are they being compensated by assuming this much risk? And how does this
amount compare to the protection payments? We believe Alex should ask Cameron all of these questions.
Ultimately, we believe Alex should not join its Board. We also believe CMI should at least consider the
long-term possibilities of investing their assets in a different way. We believe that long-term business
diversification is in the best interest of all of CMI stakeholders, especially its 25,000 employees. We do
not see how it can continue to do business in this manner. We foresee harm coming to its reputation or
worse still, harm coming to its employees.