Case Study

Bob's International Popcorn

Bob's International Popcorn (BIP) has a code of ethics that says, "We will follow the law of [our home country] and the laws where our crops are grown. We will respect the local culture of the countries where we develop our supply chains."

BIP is setting up suppliers in Kosovo, a new republic in the Balkans, and they follow the proper legal requirements to establish operations before beginning to look for agricultural land to purchase.

They contact a landowner and make an offer, which is accepted. Land records establish that they are dealing with the owner of record. BIP executives talk to local banks and discover that there are very few real estate mortgage brokers in the country, and the banks are not willing to provide financing for the purchase.

After working out financing from the home office, BIP finalizes the transaction and discovers they are unable to secure title to the property. Employees at the land registry explain that one of the neighbours has filed a protest. He is not questioning the ownership of the landowner; he is protesting BIP's right to purchase the property. The land registry will not budge, and BIP's funds have been given to the previous owner.

BIP's legal counsel cannot resolve the issue according to the official laws of the land and recommends cancelling the deal and getting the money back.

The real estate is purchased caveat emptor (which means it is "sold as is") and a local attorney tells BIP they cannot win without a bribe.

Eventually, as BIP staff struggle through the confusions, someone discovers there is an old unwritten customary law that provides a right of first refusal to an adjacent property owner that has merely expressed an interest in the propertythe basis of the neighbour's protest. He is not asking for a bribe, and the land registry is not asking for a bribe, and even the courts are not asking for a bribe. They are all respecting an unwritten right of adjacent property owners that the BIP team did not discover. The adjacent property owner acknowledges the problem and is merely asking for a few years to get his money together to buy the property. Meanwhile, BIP's money is spent.

The apparent solution is to wait. If the adjacent owner buys the property, he will give the money to BIPbut it may not be the same price that was paid.

1. What is the application of the code of ethics in this scenario? Could you have discovered this problem? 2. What are the clues that there would be problems with this property transaction? What could you do when you discovered the clues, and what basic contract approaches might you take? 3. Discuss your impressions of how likely it may be to run across situations where customary law and practice may run afoul of traditional business practices. 4. Is this a code of ethics problem? Or is it simply a legal problem?