Impact of Governmental Regulations and Environmental Virtue Ethics - Case Study Example

Corporate Ethics and Governance Part A Background of the Issue: The report published by Greenpeace in April 2006 alleged that the fast-food chainslike McDonald indulge indirectly in destroying the rainforests of Amazon for growing soy-based animal feed used by these chains for fattening the chicken. The rain forests in the Amazon are being subjected to deforestation for growing a new variety of soybean developed on the basis of research by the Brazilian scientists. The growing of this kind of soybean is greatly facilitated by the rainforest climate of Amazon. Hence the production of soybean has boomed in this region and extensive savanna like ecosystem (known as Cerrado) is being converted into industrial soybeans farms, which is highly detrimental to the environment. Greenpeace has alleged that the soybean producers have not adhered to the environmental requirements that 80 percent of the rainforest area should be kept in their natural format. This act can be considered as a violation of the legal provisions. Another complaint by Greenpeace is that there is an increasing incidence of 'bonded-labour' in the region by using a debt-bondage. The poorly paid workers are lured by the ranchers and are bound under "conditions analogous to slavery". It may be noted that in the year 2005 there were 4133 slaves who were freed from bonded-labour. It may be noted that Amazon is the most diverse expanse of intact forest in the world and that already 15 to 20 percent of the total area of 4.1 million square kilometers of forest are already destroyed. It is also feared that further areas would be put to danger by the change in the climate. The above issue can be considered under different moral theories concerning the environment - Rights theories of Libertarianism and Egalitarianism as well as the Consequentialist theory of Utilitarianism Libertarianism Libertarianism is a right theory which specify (i) that individuals possess and enjoy moral and natural rights (ii) there are legal rights that flow from these natural or moral rights and (iii) that any rational person would be expected to recognize the moral force of these rights being claimed by them. According to the libertarian theory, the role of the government is paramount in protecting the life, liberty, and property of citizens against any interference by the fellow citizens. Any rational person in order to ensure this protection out of self interest would join hands with fellow citizens for securing this protection. In fact the quality of rational self interest compels a person to join any association which has as its purpose securing the protection of life, liberty, and property. "In a few words, they believe that individual freedom is the fundamental value that must underlie all social relations, economic exchanges and the political system." (Martin Masse) Considering the principles evolved in the libertarian theory, the action of Greenpeace in opposing to the action of McDonald's indulging indirectly in destroying the rainforests of Amazon for growing soy-based animal feed used by these chains for fattening the chicken can be considered as pushing the protection under the libertarianism. However libertarians would expect the respective governments to promulgate environmental regulations to protect the Amazon rainforests. Egalitarianism: Egalitarianism while acknowledging the claim of rights by libertarianism valid, goes a step further in extending the terms of the social contract to include certain rights which are termed as 'opportunity rights'. The assumptions under Egalitarianism claim that the rational persons would choose a social contract with terms that not only provide for libertarian protection but also would ensure that individuals are provided with a share of primary goods, where primary goods includes food, shelter, security and some discretionary income. The purpose of such share of primary goods is to provide for a decent life. When the principles of egalitarianism are considered in this case of McDonald's involving itself indirectly in destroying the Amazon rain forests, though there is no resultant share of primary goods available to individuals, to the extent this principle recognizes the libertarian protections, it can be said that egalitarian principles also recognize the act of Greenpeace in protecting the environment. Since there is no social contract involved directly between Greenpeace and McDonald's there can be no extension of any contractual terms to provide for the protection of the Amazon rain forest for common interest and benefit. Nevertheless the egalitarian principles apply to this case to the extent it recognizes the libertarian protections. Egalitarians would further stress that each member of the society owes a duty to other members of the society to provide equity in public property. Utilitarianism Utilitarianism theory is based on Consequentialism. Consequentialism states that any action should be judged by the moral values that emanate as a consequence of the action. "Utilitarianism is a normative ethical theory that places the locus of right and wrong solely on the outcomes (consequences) of choosing one action/policy over other actions/policies".(Online Guide) This implies that one should perform only those actions which maximize good feeling or thing out of the actions. Under such circumstance any action may be categorized as right if the consequence of such action is better than the alternative consequences. Thus it may be said that even if the consequences of an action are insignificant such action may be regarded as right so long as the other alternative consequences are not better. Hence to decide an action as right under utilitarian principle the action must maximize the total or average welfare. Judging on this basis the action of McDonald's indulging indirectly in destroying the rainforests of Amazon for growing soy-based animal feed used by these chains for fattening the chicken can not be considered as right. To sum up from egalitarian point of view equity is considered to occupy a prominent role in any societal action. There is a broad spectrum of the beliefs of the egalitarians in which the people in the society have a responsibility for each of the members of the society and hence would advocate that the companies should not create danger to any life irrespective of the nationality of those subjected to such danger. A libertarian on the other hand would expect that the government protecting the market place should provide environmental regulations and it is not a sense of global responsibility. Conclusion From the discussion on the Greenpeace-McDonald episode on the business ethics and social responsibility aspects, it can be observed that the shareholders and customers will have the greatest impact on the organisations, if the multinationals are held accountable for their not meeting their social responsibility obligations. It implies that with a greater involvement of the individuals in recognising the elements of business ethics and CSR principles in their purchase options it would put the companies realise their responsibilities in the CSR issues. The effect of regulatory measures at best can serve to curb the corporate scandals. On the other hand if CSR issues like the one discussed are considered by a majority of customers to be of importance to the protecting the environment the company and its executives would think twice before they indulge in any kind of these operations. Word Count: 1175 Part B Stakeholder Theory, Virtue Ethics, and Disclosure Aguilar's Managing Corporate Ethics (1994) is just one of several reports on companies that are not guided simply by maximization of profit. Some of the recent articles in ethical theory have taken up the case of the importance of other corporate goals or purposes (Enderle 1996; Collier 1998).The traditional concepts in business management have been replaced by a deontological 'Nexus-of-Contracts Theory'. This theory identifies the rights of each group of stakeholders to bargain with the organisation for the protection of the firm specific assets which are being put to use by the firm in production. Within this broad framework of the stakeholders' rights there have emerged two additional theories which are subordinate to the original theory but are opposing to each other. These can be found in: Stockholder theory based on the principle of libertarianism and Stakeholder theory based on the principle of egalitarianism Both of these theories base their arguments on different strategies for addressing the issues of 'conflicts of interest' and 'natural inequality'. Stockholder Theory Davidson (1987) asserts that a corporation exists as a separate person from the shareholders. Hence according to this theory, the most efficient way to conduct the affairs to the satisfaction of all the stakeholders is to manage the undertaking in the best interest of the stockholders. The theory states under that situation the interests of other stakeholders though morally relevant, will be automatically taken care of the interaction of market forces. The theory assumes on the basis of libertarian ideology that all the agencies possess equal rights to bargain, but there cannot exist positive rights which make one group of stakeholders victorious in the competitive situation faced by all the groups of stakeholders. According to libertarian theory the role of the government stops with remaining impartial in the determination of those agencies which win the competition. The role of the government under such circumstances includes the duty to provide a legal framework to take care of the enforcement of the impartial rules of the fair play. Thus the stockholder theory advocates the naturalistic principle which is based on 'reciprocal altruism'. Therefore there is no necessity for the stockholder theory to bring in the ideology of 'utilitarianism' or 'altruism' in managing any corporation. Stakeholder Theory: Freidman (1970) observes that the stakeholder theory relies on both the ethics of principle and ethics of consequence (Freeman, 1994). In contrast to the stockholder theory, the 'stakeholder theory' has been evolved by Edward Freeman which insists on the management to take into account the interests of all the agencies connected with the decisions of the management like shareholders, employees, customers, managers, suppliers and the community in which the firm is operating. (Tom and Norman, 2001) According to Robert Phillips, (2003) the stakeholder theory is based on a moral foundation that the real world constituencies go to the bargaining process are under a veil through which it is not possible to identify the natural advantages and disadvantages possessed by the different constituencies and under that circumstance it is not possible to bargain effectively in the absence of the information about the advantage positions. Moreover it is for the bargainers who are more concerned with their own interest to make a sacrifice of their short term benefits against the security they gain in the long-run. This difference in the position of advantages of different agencies also gives rise to question that when an agreement is reached between the 'most advantaged' and 'least advantaged', to what extent the contractors concerned can trust each other to keep up their commitments. This lack of confidence gives rise to the need for the monitoring of the contracts externally by the government through regulatory forces to ensure compliance as well as to punish the respective contractors for non-compliance. Stakeholder Theory and Utilitarianism: Businesses just as human being can be seen as agents who make decisions (French, 1984; Brown 1990). However the stakeholder theory presupposes more interaction of stakeholders in the decision making process. As observed before the stockholder theory proposes that the corporations need to be managed in such a way that when the self interest of the stockholders is taken care of the interests of the other stakeholders will be automatically protected. This ideology is based on traditional natural law approach which suggests the preference of equilibrium by the Mother Nature and assumes a naturalistic approach based on reciprocal altruism. In contrast the stakeholder theory assumes the usage of 'utilitarianism' based on the ideology of 'ideal altruism'. 'Cost-benefit' analysis is a form of utilitarian thinking (Newton & Scmidt, 1996) Robert Goodin (1995) observes utilitarianism is more appropriate theory for public policy issues. Therefore the stakeholder theory assumes the cultivation of utilitarianism into a system which is constructed by more of self interested bargainers. The principle of utilitarianism though does not relate to the agencies themselves, but relates mostly to the governmental institutions which are intended to maintain the free market concepts and also monitor the corporations to insure the compliance with the contractual obligations. Descriptive and Normative Concepts: The discussion on the notion of profits as a business purpose is more descriptive than normative (Marwin Brown). But both the stakeholder and stockholder theories claim to be both descriptive and perspective. The stakeholder theory is descriptive in nature in so far as it describes the corporations to comprise groups of bargaining stakeholders in the form of shareholders, consumers, managers, employees, and so on. The theory also identifies the role of both the market forces and the legal measures in minimising the contracting costs for monitoring compliance associated with resolving conflicting interests of the contractors. (John Boatright, 2002) In order that the stakeholder theory to be both descriptive and normative the theory must possess an explanation as to how the various groups of stakeholders would approach the bargaining of their rights in the real world situation. There must also be prescription of moral as well as legal rules that chalks out how the rules relating the ways in which the stakeholders should bargain and whose interests should impartially prevail over the others' under different competitive situations. There should also prescriptions about the role of the government and other international bodies in the process of such bargaining. In a society there are prescriptions on the basis of both legal and moral grounds. The legal grounds take the form of legal frameworks enacted by the coercive powers of governments and the moral grounds are shaped by traditions and conventions. However the distinction between legality and morality depends largely on the coercive powers of the governments. It is the inference of the egalitarian and libertarian ideologies of Western liberalism that even in the absence of any coercive influence from the government or other regulatory bodies, it becomes obligatory on the part of the agencies to adhere to certain moral rules. But the utilitarian principles believe that the constituencies of the real world do not always act rationally; do not always act impartially and are not tend to make any decisions in the absence of coercive measures. Therefore it can be concluded that the stakeholder theory which is based on utilitarian principle is largely dependent upon the prescriptive or normative concepts. Disclosure by McDonald's in their Website about the Issue of Amazon Deforestation: Applying the principles of stakeholder theory and the associated discussion on the normative ideology and utilitarian principles the action of McDonald's can be clearly seen as an action based on a prescriptive or normative approach. The CSR statement clearly exhibits the fact that there existed an allegation from the Greenpeace which necessitated the action from the company's side to start negotiating with the suppliers and other non-governmental organizations to find a solution to the issue highlighted by Greenpeace. It can not be said that the company acted on an instrumental approach as there would have been absolutely no pressure on the organisation to proceed with negotiating with the suppliers as they were not directly involved in the issue and they would have easily wriggled out of the issue on the plea that they were not directly responsible for any detrimental action to the environment by the suppliers of soya. Moreover they had a similar environmental issue raised by Greenpeace sometimes earlier which went into litigation and finally McDonald's came out without any harm. In the absence of moral pressure from the whole of other constituencies McDonald's would have chosen to react in the same way again. It was the widespread criticism and moral pressure created by all the agencies involved applied the necessary pressure on the organisation to take any action in the issue. Hence the action of McDonald's can clearly be identified as a normative approach by the company. Consideration of the utilitarian principle also signifies the action of McDonald's prior to the allegation from Greenpeace in sourcing the supply of chicken meat from the suppliers who get their soy feed from Brazil. The company ought to have known that the suppliers get their soy feed from producers who destroy the rainforests of Amazon and the company ignored the factual knowledge which was within its possession. Moreover the environmental virtue ethics prescribes the human-environmental interactions and relationships. Hence an adequate environmental ethics not only requires an ethical action which provides the necessary guidance as to what an organisation should do or not do with respect to its obligations towards environment but also specifies an ethic of character. The purpose of ethic of character is to provide the essential guidance as to what attitudes and dispositions which an organisation should possess and also those the organisation should not possess. In this respect the action of McDonald's is based also on an environmental virtue ethic as the character of the company itself is subjected to change. (Ronald Sandler, 2004) (Word Count: 1654) Part C Impact of Governmental Regulations and Environmental Virtue Ethic Assuming that the action of McDonald's is ethically wrong it would still be difficult to fix them legally. The shortcoming of the legal frameworks is that the national legal frameworks cannot extend beyond the borders of the respective governments and these kind of environmental degradation often involve more nations who may not have uniform legal regulatory frameworks and the corresponding corrective mechanisms to prevent the action of the erring organisations. In the instant case of McDonald's buying the chicken meat from poultry suppliers getting their soya feed involves many nations and regulations. Moreover there are different contractors involved in the whole chain like the soya producers, the soya traders, poultry suppliers and at last McDonald's and other companies. It is difficult to fix the responsibilities on all of these constituencies legally. As such it may not be possible to restrict the actions through legal means. Therefore it is necessary that the environment virtue ethical principles are the natural recourse to mitigate issues of this kind. It is imperative that the producers, intermediate suppliers and the end users, everybody understands the rights and wrongs of their actions from an environmental perspective and amend their ways to protect the environment from degrading. Though not simple this approach alone will prove effective than the legal approach to this and other environmental issues as there is no scope for pinpointing the individual responsibilities in most cases. Word Count 240 References: Aguilar, F. J. (1994) Managing Corporate Ethics: Learning from America's Ethical Companies How to Supercharge Business Performance. New York: Oxford. Brown, M. T. (1990) Working Ethics: Strategies for Decision Making and Organizational Responsibility. San Francisco, CA: Jossey-Bass. Collier, J. (1998) "Theorizing the Ethical Organization." Business Ethics Quarterly 8 (October): 621-654. Davidson, D. et al. (1987) Comprehensive Business Law: Principles and Cases. Boston, MA: Kent Publishing Company Enderle, G. (1996) "Towards Business Ethics as an Academic Discipline," Business Ethics Quarterly 6(1): 43-65. Freeman, R.E. (1997) "A Stakeholder Theory of the Modern Corporation," in Ethical Theory and Business Fifth Edition ed. T. Beauchamp & N. Bowie, Upper Saddle River, NJ French, P.A. (1984) Collective and Corporate Responsibility. New York: Columbia University Press. Friedman, M. (1970) "The Social Responsibility of Business Is to Increase Its Profits." New York Times Magazine, September 13 Goodin, R.E. (1995) Utilitarianism as a Public Philosophy. Cambridge University Press John R. Boatright, (2002) "Justifying the Role of Shareholder" (in) The Blackwell Guide to Business Ethics, ed. Norman Bowie Oxford: Blackwell Publishers. Martin Masse (2000) What is Libertarianism' Accessed from Marwin T. Brown 'Putting Profit in its Place' Working Ethics Paper McDonald's Corporation "Products: Responsible Purchasing - Rainforest Conservation" Accessed from Newton, L.J. & Schmidt, D.P. (1996) Wake Up Calls: Classiccases in Business Ethics. Belmont, CA: Wadsworth Publishing Company Online Guide 'Utilitarianism' Accessed from Robert Phillips, (2003) Stakeholder Theory, and Organizational Ethics San Francisco: Berrett-Koehler Publishers Ronald Sandler (2004) 'Introduction: Environmental Virtue Ethics' Accessed from Tom L. Beauchamp and Norman E. Bowie (2001) Ethical Theory and Business, 6th edition Prentice Hall Read More