Case 6-7 Getaway Cruise Lines: Questionable Payments to do Business Overseas (a GVV case)
Kirsten had her dream job, combining her love of accounting with traveling. She’d just had a big promotion to Director of International Accounting for Getaway Cruise Lines. As the director in the Houston office, she was currently overseeing final contracts accounting for the docking of two small cruise ships during the 2016 Olympics in Rio de Janeiro, Brazil.
The idea behind using a luxury cruise ship as a hotel choice for the sporting events was based upon high-end travelers wanting luxury, individualized attention, and security in a high crime–ridden city. The marketing for the cruise lodging included secure transportation to and from the ship to the sport venues each day and for evening entertainment. The ship also offered onboard fine dining and nightclubs. Being smaller in size, the ships would be able to dock at a pier in the Rio harbor. The cruise line was offering private security for the guests who wanted the protection and would have guards on the pier at all times.
The last contracts were proving to be the thorniest and had the most difficult set of problems. The latest contract received from Bob Regan, Getaway’s representative in the Brazil office, noted that the Getaway line needed to pay an additional $25,000 per ship to facilitate the applications. Additionally, the line would need to provide Rio with its surplus electricity and potable water. Kirsten knew that cruise lines used reversed osmosis to treat wastewater back into potable water and often sold the surplus at the different ports-of-call. Bob stated that Brazil was experiencing a severe drought, which was affecting the country’s electricity supply and causing rolling blackouts, making it a requirement for any ships in the harbor to share a certain amount of their electricity and potable water. The final documents, fees, and other agreements were to be signed at Getaway headquarters and returned in two days. As Kirsten reviewed the final contract, she was troubled by the $25,000 fee and the requirement to provide surplus electricity and water.
Kirsten called headquarters in Miami, Florida, to talk to her boss, Matt Davies, about the issues of concern to her and directions on how to handle them. She wondered if the additional requirements from Bob were legal payments.
Matt returned her call within the hour, but the conversation was not encouraging. He seemed in a hurry and impatient with the request for guidance on the problems.
“Kirsten, I do not understand your concerns over the paperwork and fees required. This is part of your job and why you were hired. I expect you to handle these details and the accounting without a lot of hand-holding.”
“I know that I am to handle the final paperwork and accounting for all permits and other payments. The $25,000 fee request for each application surprised me. Also, the requirement for the ship to share its electricity and potable water seemed a bit odd and a little heavy-handed. Does share mean donate or does it mean sell?”
“Now, don’t get too excited yet. I’m sure that all of these fees and requests for electricity and water are just a normal way of doing business in Rio. Are you sure you understood Regan correctly? Maybe you should use our translator and have the contracts re-translated so that the details of the request are clear and there are not any miscommunications. I’m sure the translator will show you that this is all just a misunderstanding. Use the water and electricity pricing sheet and make sure that the contract states that any sales of water and electricity are on a surplus basis, after the needs of our guests are met.”
“Matt, I do not mind using the translator; I am very concerned about the possibility of making improper payments and the unease I feel about this. Maybe…”
“Kirsten, trust that all will be fine. Now I must go!”
“What is your availability tomorrow, if I need you?”
Matt told Kirsten to handle it. She was worried about the issues even though he had dismissed her concerns. In fact, she wondered why he didn’t take it more seriously. Maybe she was reading too much into the situation, but her intuition was normally right on the money. Now she had to tackle the problems and see if they had reasonable solutions.
Kirsten decided she needed a little moral support from friends and family. She called her longtime friend John Fox. Fox was always a good listener and helped her to keep her moral compass in the right direction. Fox was able to listen and give feedback to Kirsten.
“John, can you see why this situation has me so stressed? Do you think I am overacting?”
“You do have a sticky situation on your hands. You were the one that spoke with Regan. I know that your intuition has been spot-on in the past and you should not ignore it in this situation. Say, didn’t you mention that the CEO of Getaway had set a high ethical tone at the company as a top goal of the line? If you feel the fees and sale of electricity and water are improper, and if it doesn’t look like Davies will take a stand on it, can you contact the CEO? Don’t you think the CEO would want to know if the company was about to make questionable payments or engage in corruption?”
“You make a good point. I can always count on objective advice from you. I’ll call Davies tomorrow and try to clarify his position. I would really hate to break the chain of command and go right to the top. I’ll have to try and convince him that these payments may cross the line and seem to be improper to me.”
“You could explain how bribery is against the law of the United States.”
“I think I will have to start with how it is dishonest and unfair to other companies. I will have to think on this, but you have given me support and hope that this might turn out all right. I’ll call you in a few days to give you an update. I really owe you!”
The next morning Kirsten felt calm and confident that she could confront any prospect of bribery with integrity. First, Kirsten met with the translator to get a new translation of the contracts. Then she had a conference call with Bob Regan in the Rio office.
Bob was as overbearing as Kirsten remembered. He stressed how the “facilitation fees,” as he called them, must be paid within a week or the ships would not be allowed to dock in the Rio harbor. Kirsten asked more about the facilitation fees, whether a standard pricing list for the fees was available, why he was requesting the amount for three ships when only two would be docking, and more details on the sale of surplus electricity and water from the ship.
“Bob, let’s settle the sale of the electricity and water to the city of Rio first. I have our standard contract for the sale of surplus utilities with the pricing list here.” Kirsten explained. “The contract is for a set amount each week. The city has stressed that as guests in the harbor the line should want to donate it as a sign of mutual cooperation and leadership in the tourism industry.”
“That’s right,” Bob replied.
“But Bob, the ship can only sell its utilities after needs of our guests are met. Our first obligation is to meet the needs of our guest.”
“It’s not that simple, Kirsten. Due to ongoing drought the city’s needs must come before any other organization’s needs. Besides, the providing of the utilities can be considered an additional rental cost of docking at the pier.”
“But the docking fees were agreed to in principle two years ago. Are you saying that amount has increased?”
“No, no, you misunderstand. Of course, the docking fees have not changed. The basic contract is the same, but it has been updated for current circumstances. The situation has changed and now utilities need to be donated as well as the docking fees.”
“But our obligations to our guests…”
“Yes, but if we do not help with utilities, the line will have to pay a fine of $100,000 a week for not sharing the utilities.”
“But that was not part of the agreement.”
“It is now a requirement for the ships to be allowed to dock in the harbor.”
“How does this fit in with the facilitation fees?”
“Those fees are also part of whether the ships can dock or not.”
“Are these additional requirements bribes to do business in Brazil even when the company has an existing contract? That would not be honest nor in keeping with the company’s policies or U.S. laws.”
“I do not think these requirements are bribes but rather the cost of doing business in Rio.”
“I think I understand, Bob, but still feel uneasy about the situation. I need to consult with Matt Davies at headquarters. I have finished the paperwork and have no authority to renegotiate any contract revisions. I will get back to you soon.”
Bob reminded Kirsten that the company had to meet the deadline or its ships couldn’t dock nor could there be boarding or deboarding from the ship if there were any outstanding fees or fines due.
Kirsten thought about how she would present the issues to Matt and wondered about the future and alternatives open to her. After a brief period of reflection, she dialed Miami and asked to speak with him. Matt was in a meeting, so she left an urgent voice mail and another message with his assistant. While she waited for him to call back, she considered what might happen to her if Matt was adamant about the cruise line making the requested payments. What about her future with the line? Then she returned to the most important point, which was to be true to her values.
1. Do you think the two payments are facilitation payments or bribes? Explain.
2. How might Kristen best explain her point of view to Matt while being true to her values?
3. What are the likely reasons and rationalizations Matt will give for making the payments discussed in the case?
4. Are there any levers that Kirsten can use to counteract the reason and rationalizations and persuade Matt about the right thing to do?
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