In late June 2004, a plant manager in charge of a Mexican plant of Tyson Foods sent a memo to his headquarters in Springdale, Arkansas about 2 women who did not work for Tyson’s but were being paid from his payroll, the equivalent of $2,700 per month (and had been for years). The women happened to be the wives of two veterinarians stationed at the plants as part of Mexico’s effort to meet high sanitary and processing standards. The veterinarians certified products as suitable for export, a step required by countries like Japan and increasingly sought after by Mexican consumers as an assurance of quality and safety for locally produced processed meats. The purpose of the payments was “to keep the veterinarians from making problems,” according to a subsequent memo — in short, bribes.
At headquarters, executives convened, including the president of Tyson International, the vice president for operations, and the vice president for internal audit and evidently agreed the payments to the wives had to stop. A company lawyer said he was seeking advice on “possible exposure” from the payments, evidently referring to potential liability for maintaining fraudulent records and bribing foreign officials, which are felonies under the Foreign Corrupt Practices Act (FCPA). And then, having identified the serious ethical and legal lapses, and the need to stop the bogus payments, this group of executives “were tasked with investigating how to shift the payroll payments to the veterinarians’ wives directly to the veterinarians,” according to a subsequent statement of facts negotiated by Tyson’s lawyers and the Department of Justice.
The issue of the payments resurfaced in November 2006, and this time, Tyson retained an outside law firm, who conducted an internal investigation and, under a government program intended to encourage voluntary disclosure of white-collar crime, turned the results over to the Justice Department and the Securities and Exchange Commission. In February 2011, the government’s investigation ended when Tyson was charged with conspiracy and violating the Foreign Corrupt Practices Act . Tyson agreed to resolve the charges with a deferred prosecution agreement in which it “admits, accepts and acknowledges” the government’s statement of facts, and paid a $4 million criminal penalty. The company paid an additional $1.2 million and settled related S.E.C. charges that it maintained false books and records and lacked the controls to prevent payments to phantom employees and government officials.
In the 23-page letter agreement between Tyson and the Department of Justice, the criminal information, and the S.E.C.’s public statement of facts all withheld names, identifying the participants only as “senior executive,” “VP International,” “VP Audit” and so on. The FCPA specifically provides for fines of up to $5 million and a prison term of up to 20 years for individuals, as well as fines of up to $25 million for companies. However, no one will be charged.
1. Do you think this agreement without prosecution is sufficient to stop these types of ethical breaches? Discuss.
2. The article mentions that settlement costs would be passed on to the shareholders. What types of costs would these include?
3. Where would these costs show up in the financial statements?
4. Research Tyson Foods on the Internet. Do you see any other incidents that provide positive or negative evidence as to the “tone-at-the top” and the ethical environment at the company? Discuss.
Stewart, J.B. (2011) Bribery, but Nobody was Charged. The New York Times, June 24 (Retrievable online at http://www.nytimes.com/2011/06/25/business/25stewart.html?_r=1&hp)