Application Of Ethical Theory In Palm Oil Production Industry Assessment Answer

Executive Summary

This assignment critically analyses the application of ethical theory in the Palm oil production industry.  The business ethics theory of Corporate Social Responsibility (CSR) is described as the social obligation and the moral duty in the organizations. The role of management and government in decision making in the Palm oil company has been evaluated in this task. The egoism theory has been described as a significant way to increase individual interest in a particular situation. In this assignment discussion has been taken place on the two normative approach and theory.  Corporate social responsibility theory and virtue of ethics theory has been described along with its impact on the Palm oil industry. Considering the countries such as India, Indonesia, and Malaysia the  Virtue ethics, and Ethical Egoism theory  is varied.  Decision making the senior manager and government of the palm oil industry is based on the profitability they have gained from the industry and environmental issues caused due to the excessive palm oil production in the industry.   There has been a reference to the Palm oil industries in India, China, Malaysia and Indonesia and their way of deciding on the Palm oil production. Some issues in the Palm oil industry are identified in the assignment on which some strategic recommendations joining Roundtable on Sustainable Palm Oil(RSPO)  has been given. Social campaign on environmental sustainability has been considered as a major recommendation.

1 Introduction

Ethical decision-making is currently a topical discussion worldwide due to the increasing rate of non-ethical decisions in multiple industrial sectors. The issue of ethical decision-making is also being applied in the case of production and manufacturing industries, and; consumers have now become conscious about organizational activities and often make their decisions based on the ethical activities as said by Bull and Ridley-Duff (2019).

In the case of organizations, they have also focused on ethical activities, especially through CSR instruments. However, in many cases, it becomes difficult to uphold the ethical side due to multiple moving parts of large scale projects.  Decision making in palm oil industry is related to profit generation and environmental consideration. Research show that palm oil product  ius responsible for environmental pollution and dangerous for wildlife. 

This may come down to prioritisation of profits over people but also in some cases it can be due to genuine ignorance of a companies impact on the environment. 

Organizations which are  operating internationally marketplace face the issue in relation to  of environment, social and economic . Therefore need to adapt ethical theories  is important to make more environmentally friendly decisions. 

The way of doing business has advanced rapidly. Globalization can raise not only legal questions but also new questions about moral control. Because companies are connected together globally, they need to base their decisions are important factors other than profits. 

There are five approaches, which may be considered virtue ethics. These are consequentialism, deontology, justice and the common good approach. These general business ethics, serve as a good be a guide for analysing a global industrial company. The example we will use is the production of palm oil, an industry which is growing in intensity.

This assignment will shed light on the principles of ethical decision making in the Palm oil industry and critically analyse their applicability. Different theories and models on organizational ethics and decision-making are being applied to examine how the leading Palm oil production sector's government and management will make decisions. Two normative approaches to ethics and decision-making are applied in this assignment. Corporate Social Responsibility theory, Virtue ethics, and Ethical Egoism theory described in the assignment applied to the Palm oil sector of India, Indonesia, and Malaysia.

1.1 Two normative ethical perspectives on decision making and business ethics:

Normative ethics evaluates the ethical behaviour and the branch of philosophical ethics that investigates suitable acts regarding ethical decision making. Ethical theories and practices are said to be normative as it is morally correct in acting. 

The normative approaches of marketing and business ethics are the basic perspective that offers moral dimensions of taking the suitable decision on the humanitarian ground as stated by Werhane (2019). The fundamental perspective of the normative approach is to provide an in-depth view and develop the ethical role of marketing in society. 

2 Ethical theory analysis

According to Tsoukas (2018), ethical theory is analyzed in several ways, such as analysis of the ethical issues, alternatives, assessment of the stakeholder, the ethics of alternatives, practical constraints, and action needed for improvement. Ethical theories are analyzed for better ethical decision making.  Each of the ethical theories' parameters generates ideas for conducting business with ethical virtues that can provide beneficial effects upon the stakeholder and the management. In addition to Jamnik (2017), the existence of international business ethics has been an undoubted reality, and it is the need of modern society for future improvement. Research reveals that the global society and consequent ethics in business have not been successful in defining clear underlying values and principles on which they operate.  Business ethics is the necessary object that culture and society developed to the connect to the business with the world. 

Each business organization maintains corporate social responsibility to establish its duty to society as said by Nizamuddin et al. (2016).  For business ethics management, both social responsibility and humanitarian grounds are evaluated for business management and are the result of proper ethical theory analysis.

2.1 Corporate Social Responsibility theory:

According to Greenwood and Freeman (2018), the business ethics theory of CSR is about the obligation of society and the moral duty, which each of the business organizations in the global environment needs to follow while taking account of the decision-making. The theory is justified and applicable in the three moral and ethical grounds such as, emerging and changing social and environmental responsiveness and social expectation to the particular social problem. Some normative principles such as fairness, social justice, and human rights are required to be maintained in the business. CSR theory covers how good ethical behaviour of the company can allow each citizen contribute better to the society and community. There are multiple solutions to the aversive issues in society, and each particular aspect of these solutions are covered in the theory.

In addition, Scherer (2018) says that, CSR theory includes all the ways an organization reacts and responds to society's expectations and demands. Expectation requirements and CSR are linked.CSR theory also includes the moral responsibility of the organizations and their governing body towards the society so that a better understanding of the environmental and social management is gained. CSR theory of business ethics highlights Ethical virtuousness and Ethical compliance and legality, which are important to be maintained to make suitable decisions as stated by Ferrell et al. (2019). Here the managerial responsibility is identified as social activities for the long-term betterment of the society by mitigating obvious and continuous issues. The issue may be social, political, or economic. In the opinion of Schleifer and Sun (2018), international trade of agriculture commodities has grown very strongly. Private governance programs are  now very important  to maintain global value chains.  Research shows that  programs play a similar role in the value chains feeding into fast-growing emerging markets like China and India. Countries which are the leading operators of palm oil production and distribution has focused on the maintenance of corporate social responsibility to capture emerging market. 

2.2 Virtue ethics and egoism theory (Traditional ethical theory):

According to Swanton (2016), virtue ethics in business ethics is about people's viewpoint to purchase their self-interest. However it is a normative form of considering the possible behavior of the people regarding the situation and decisions to be made. Virtue ethics is also considered the ethics position where moral thinking is used to help make a decision based on personal and professional interest. 

As per Wu et al. (2017), “Psychological egoism is a purely descriptive theory, which purports description of a basic fact about human nature.” Virtue ethics is based on psychological ethics, where its assumed all human behaviour is influenced by self-interest. In this form of decision-making, a personal ethical dilemma is not considered as it can hamper individual and business interests. In the decision-making process, the individual is highly satisfied by the benefit, then decision-making becomes very suitable. Some trains of thought are Machiavellian and others such as Ethical egoism go against the principles of impartiality. Most philosophers said that ethical egoism is the basic fact of human behavior accorded to Fang and Slavin (2018).

In the opinion of Iskandar et al. ( 2018), the egoism theory is highly appreciated in some cases and industries where self-interest is very high and highly beneficial if a decision is made in its favour. To some extent, ethical egoism is suitable as it will allow the individual to give their force on establishing the fact to fulfil their self-interest which may in turn benefit others i.e if the high level decision maker performs well the company performs well and the staff get paid well. In the opinion of Schleifer and Sun (2018),  the theory is very much effective for fulfilling the organizations operations in managing self-interest. The role of managerial decision-making is very complex and significant in considering the situational requirements.

2.3 Application for decision-making:

Azam et al. (2016) believes that, both theories are useful and applicable to the management and government's decision-making in the development of the Palm oil sector. According to this case study, Palm oil is becoming a booming global commodity. Some economists and environmentalists remain sharply divided because either can be the way to slow down global warming or be the significant environmental killer. 

Oil production in the Palm oil industry is the major contributing factor to reduce poverty in developing countries. The industry of Palm oil in the global market is responsible for generating more than $3,000 per hectare, but conventional agriculture earns lower than $100. Therefore, for the development of a global economy, the major focus has to be given on the Palm oil sector's production and development.

 According to Aziz and Hanafiah (2017), the Palm oil industry has to be banned as it has disastrous consequences for those who live near the rainforest. Significant wildlife has been lost with the increasing production of Palm oil. Therefore, in decision-making, several conflicts stand between the economy and social responsibility. 

According to the corporate social responsibility theory on social obligation and moral duty, it can be said that organizations in the global market have some responsibility towards the environment. Furthermore, CSR is about maintaining responsibility for society as said by, The World Wide Fund for Nature (2012). The CSR theory allows examining whether the environmental issue regarding Palm oil production is dangerous or not. 

The CSR theory will help determine to what extent the Palm oil industry may impact the market and regions. On the contrary, some critics said that the traditional Egoism theory in business ethics is helpful as it can increase interest level of the government to give more attention to the oil production system in the Palm oil industry so that it can provide a beneficial impact on the global economy without hampering the wildlife and environment. In the case of decision-making, the traditional Egoism theory in business ethics helps make the individual aware to examine the Palm oil industry's current situation and the countries determined to produce Palm oil for an economic benefit, according to Radhakrishnan et al. (2017). 

2.4 Decision making by the government (referring to the Palm oil industry case):

The government's decision-making on producing Palm oil has to be based on assessing several case studies of the Palm oil industry. 

Figure 2: Palm oil production and distribution

(Source: Padfield et al. 2016)

The economic impact of Palm oil production is very high in certain countries, such as China, Indonesia, India, parts of the EU, and the US. Production of palm oil is financially vital for Malaysia and Indonesia along with the rural community there. 

According to the economic report, in 2011, the palm oil industry is responsible for 3.2% of Malaysian GDP and 6%- 7% of Indonesia's GDP. In addition, Saeidi et al. (2016), apart from that, the Palm oil sector in these countries employs huge number of employees. 

In 2011, more than 12% of unemployment issues had been removed by recruiting 590,000 direct workers and 230,000 indirect workers in the sector. In countries such as Malaysia and Indonesia, more than 3.7 million people are associated with the palm oil industry and downstream industries. 

The research shows that China is the third-largest Palm oil consumption market in the world.  Therefore, Sompong et al. (2016) states that, the need for Palm oil in the market is very high.  70% of Palm oil imported by China is used for cooking purposes, and 25% of editable Palm oil is used for instant noodles. An estimated 55 % of China's palm oil is imported from Indonesia and Malaysia market. Therefore, According to Devarajan et al. (2017), the countries' government decides to give more focus on the production and development of Palm oil. Decision making processes of governmentsare based on the Virtue ethics theory which include several steps as can be seen in Figure 3 below.

Figure 3:  Ethical decision-making model

(Source: Shankar et al. 2017)

Based on the models, the leading countries' government have to identify the ethical problems such as environmental issues that are rising due to the Palm oil industry. In the opinion of Othman, Yusop and Ismail (2018), information has been collected by the government in order to deal with the situation.  As a result, the governments of India, Malaysia, and Indonesia have implemented a Roundtable on Sustainable Palm Oil (RSPO) principles for operational benefits in the industry of Palm oil as stated by Afriyanti et al. (2016).

2.5 Decision making by senior management (referring to the Palm oil industry case):

According to Damanik et al. (2016), assessment of challenges of sustainable Palm oil production shows the need for management decision making. The industry is the major source of significant social benefits. Major employment issues of the countries are managed through recruitment in this industry. One major decision is to source sustainable Palm oil to get major benefits. 

The RSPO trademark has to be applied by the senior management on the product so that customers are assuring that the Palm oil they are purchasing is not caused by social and environmental harm. By sourcing the Palm oil, the companies are assuring that the business operation does not contribute to other counties' illegal activities as stated by, Sales, Ghirardi and Jorquera (2017).

Figure 4: Decision-making model of management

(Source: Palm Oil: Good Or Bad, 2020)

Based on the CRS theory, Hambali and Rivai (2017) stated that, the senior management authority has to focus on the sustainability issues in the Palm oil cultivation. Senior management in the Palm oil companies in India, Indonesia, and Malaysia has to follow eight major principles of RSPO such as, commitment towards transparency, major compliance with appropriate laws and regulation, commitment towards financial viability and long-term finance.

The use of suitable techniques most practiced by millers  and growers, managing responsibility to the environmental and maintaining wildlife  and natural resources, considering  employees and of persons and community which are affected by mills, are responsible for new plantings development, commitment towards continuous improvement in the key areas of operations

The principles mentioned above are required to be followed by senior management to reduce social issues and ethical issues of decision-making. Organizational reputational risk can be managed, and the company's operational benefit can also be achieved by following the RSPO principles as said by Vidal (2013).

3 Discuss the company's role in listening to the stakeholders

The companies producing the Palm oil need to listen to the stakeholders regarding any decision on the Palm oil production and distribution. According tothe stakeholder theory, organizational dimensions manage a successful business to involve the internal and external stakeholders while doing the business accorded to Kenechi et al. (2017). Approaches of the stakeholder and shareholders in corporate governance help make a fair decision. 

According to this theory, Hasan and Reed (2016) believes that, interconnected relationships between the customers, investors, suppliers, employees, and others who have a stake in the organization are useful in making the decision less harmful to the community and business. Based on the palm oil industry case, it can be said that RSPO has been established in 2004 that involves multi-stakeholder and key players such as Sainsbury’s, Unilever, WWF, AAK, and KLK in order to take concern on the promotion and production of the Palm oil. In the opinion of Othman et al. (2018), in case of decision making, the company has to focus on some important areas, Consideration of the market growth and role of Palm oil industry to provide economic benefit is the major areas before taking any decision.  Privatization programs like RSPO govern through market is the major role for the company. Giving example of China and India, it can be said that, assessment of consumer demand and characteristics of the end market is the most important role for the company.  While it has been identified that private governance is primarily consumer-driven, company has to listen to the stakeholders. 

3.1 Benefits for stakeholder consideration:

 In response to the sustainable processing and production of Palm oil, Aziz, Budianto, and Oda, (2016) believes that, RSPO has taken ideas from some sectors of the Palm oil industry to deal with the operation. In this way, responsibility is distributed through the different stakeholders to produce sustainable Palm oil. 

According to Siregar et al. (2017), in the Consequentialist theory, organizations have to judge their actions according to the effect of their consequences. In seeking a solution, multiple idea generation will allow for the best idea that is suitable for the business and environment. In the case of palm oil, the involvement of multiple stakeholders in decision-making effectively manages the potential environmental risk of deforestation and loss of wildlife. The companies role to the stakeholder is such that, each company stakeholders has to be allowed to give their opinion on sustainable Palm oil production. The community and society near the Palm oil production sector are allowed to inform their issues, the company has to follow the principles and guidelines of RSPO for sustainable Palm oil production as stated by Salman, Najib, and Djohar (2017).

4 Conclusion

By spreading awareness of the caveats associated with Palm Oil production, Governments can encourage higher levels of company engagement with RSPO.

RSPO involvement from the key players and companies in the industry will be the primary way to reduce environmental issues regarding palm oil production. Through awareness development about environmental and social problems, small companies should stop the illegal export of palm oil. Companies such as Wal-Mart, Tesco, The body shop, and P&G have to stop purchasing palm oil from the local small palm oil company. Thus, it can be concluded that considering the case of the palm oil industry, the normative approach has to take a better way that can be beneficial for the world economy and environment.  

Two ethical perspectives are the Corporate Social Responsibility of the companies and responsibility regarding the environment/social. The application of egoism approach in the industry is very much effective for decision making. The management of the palm oil industry of China, India and Malaysia has applied ethical approach to make sustainable operation. It allows to  carry out suitable for the operational approach of the global palm oil industry and managers' decision-making process. Managerial and ethical approaches are used in the palm oil industry for decision making. Managerial responsibility is identified as social activities for the long-term betterment of the society by mitigating obvious and continuous issues.

5 Recommendation

Principles of RSPO: The companies under the palm oil production industry should strictly follow eight important principles of Roundtable on Sustainable Palm Oil. By following the principles, products of the companies will be considered environmentally sustainable to the consumers. Customers will satisfy by purchasing sustainable palm oil, which is not affecting the environment. The end result will be a more ethically safe product not just for the consumer, but for the global and local environment. 

Commitment to sustainable palm oil rise: Companies importing palm oil should be involved in the commitment of purchasing palm oil from sustainable palm oil production companies. 

Only certified sustainable Palm Oil should be purchased by manufacturers and buyers. This type of regulation can ensure that the highest standards are the norm within the industry.

Companies should also ensure the future supply of clean palm oil by making it a central part of their ethos. Companies have to ensure that by taking palm oil from the sustainable oil production companies, they will ensure biodiversity and protect from damage to any wildlife.