By Dan Christensen, FloridaBulldog.org
Facing a federal court hearing to determine whether they should be held in criminal contempt, Carnival cruise honchos Micky Arison and Arnold Donald appear to have had twin epiphanies about their multi-million-dollar leadership failures.
Those failures led the pair this month to co-sign an agreement with prosecutors approving, for the second time in two years, a guilty plea by Carnival subsidiary Princess Cruise Lines to violating its five-year probation for felony convictions involving the illegal dumping of oily wastewater into the sea.
The changes in attitude of Carnival’s chairman and CEO are traceable to Oct. 29. That day, Arison and Donald appeared in court via Zoom and heard Miami Senior U.S. District Judge Patricia Seitz announce plans for a hearing to decide whether each should be held in contempt “for their failure to meet their probation obligations … obligations that Mr. Arison and Mr. Arnold Donald made a commitment to me back in 2019 that they would personally take responsibility for and take charge of.”
Contempt convictions could have landed Arison, perhaps better known for his ownership of the NBA’s Miami Heat, and Donald behind bars for up to six months.
The prospect of wearing orange jumpsuits was apparently too personal to bear for both the 72-year-old Arison, whose estimated net worth is $6.7 billion, and Donald, 68, who The New Yorker reported collected $5.2 million in retention and performance-based stock awards in 2020, lifting his total compensation that year to an estimated $13.3 million.
Carnival’s profits paid the original $40 million criminal fine in 2017. The publicly traded company’s treasury coughed up another $20 million two years later with its first guilty plea to six probation violations. Carnival (NYSE: CCL) paid an additional $1 million last week following its third guilty plea in the case on Jan. 7.
A JUDGE’S CONCERNS
At the October hearing, Seitz expressed her concern about troubling findings in a letter by an auditor and court-appointed monitor about top management’s failure to set up and maintain an independent internal investigations unit required by an environmental compliance program that was a special condition of probation in 2017.
Monitor Steven P. Solow, a partner at the multinational law firm Baker Botts, told Seitz, “What the company’s own employees have told us and shown us is that the root cause of the problem with internal investigations is connected to a broader problem of corporate culture.” Hundreds of interviews, he said, “revealed that the company culture is still anti-learning, that is people minimize or avoid information that is negative or embarrassing to the company or its leaders.”
Solow noted that the criminal case began years ago when employees on one ship, the 3,142-passenger Caribbean Princess, decided to fix a problem by “dumping oily wastewater overboard, and doctoring the ship’s records to hide what they had done.” That included an illegal dump of 4,227 gallons of “oily mixtures” off the coast of England in August 2013, as well as a half-dozen additional overboard discharges in 2012 and 2013 during cruises “to and from the Southern District of Florida, without the use of required pollution prevention equipment,” according to the government’s original charges.
At the time of conviction, Carnival blamed the crimes on what prosecutor Richard Udell said were “a few bad apples” on the Caribbean Princess. Later, however, Solow said a top executive laid the blame not on rogue employees but on Carnival’s “excessive frugality.” He added that “recent incidents” have involved “failures to follow environmental and safety requirements and to maintain accurate records. This indicates that underlying culture issues remain.”
Seitz listened, then said she’d asked a federal probation officer to prepare a petition to revoke probation.
The judge expressed frustration with Arison, noting she’d tried unsuccessfully to get him “to take ownership” of the situation.
“Mr. Arison, this company – this is not the first criminal proceeding that this company has gone through. It’s not the second. It’s not the third. And you have been at the helm of the company throughout. I almost feel like I’m talking with a chronic drug addict in that they come in and they are remorseful, they say the right things, but it doesn’t translate into walking the walk. And I want this company to succeed.”
ARISON ‘TRIVIALIZING’ CONCERNS
Still, as prosecutors Udell and Thomas Watts-Fitzgerald noted in a court document two weeks later, Arison’s remarks to the court were inappropriately defensive and failed to accept responsibility for Carnival’s violations.
Arison, they said, used the “hard work” of Carnival’s employees to get ships up and running amid the COVID-19 pandemic to deflect “responsibility for the corporate culture that he helped to create,” while also “trivializing” the court’s concerns with quips like, “And yes, they make some mistakes. Yes, they serve a bad steak to people on occasion.”
The prosecutors said, too, that Carnival CEO Arnold likewise did not accept responsibility for, or even address, the monitor’s finding that the required internal investigation unit, named the independent analysis group (IAG), “lacks sufficient independence.”
“I do question this feeling of IAG doesn’t have independence,” Arnold told the judge.
Further, a transcript of the proceedings shows prosecutors also told the court that in 2020 Carnival “botched the investigation of two [employee] hotline complaints alleging concerns about the IAG’s structure and independence.” And in July 2021, they said, the company admitted to the monitor that the IAG which Carnival had established had no authority “to investigate potential systemic issues or self-trigger internal investigations.”
Ultimately, though, Arison and Donald dodged contempt charges. Judge Seitz’s plans to hold a hearing on the matter evaporated after the two Carnival leaders signed the government’s probation violation plea deal.
Carnival will come off probation after the expiration of the five-year period in April. Meanwhile, it must meet several deadlines to make structural changes regarding the IAG or face additional fines.
“Right now, we’re – the training wheels are to come off,” Seitz said to conclude the Jan. 7 hearing. “And if this corporation violates again, the people I’m looking at are the ones that are responsible for that violation because they did not take the steps necessary to ensure that their team had the tools, the training, the resources needed to work together as an effective team to avoid risk. I mean, human beings can make mistakes, but this company has had a past practice of – and, even during the course of this probation, missteps that go beyond just simply mistakes.”
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