Liberty Shared: Corporate Accountability and Liability in the Malaysian Palm Oil Industry

Liberty Shared: Corporate Accountability and Liability in the Malaysian Palm Oil Industry

Liberty Shared: Corporate Accountability and Liability in the Malaysian Palm Oil Industry


Palm Oil and Society

It could be said that most consumers know little about palm oil or its use, even though it is contained in a very wide variety of products ever present in most households across the world.1 Many people are perhaps only aware of palm oil and the palm oil industry because of the ongoing public discourse and civil society attention on the social2 issues, (e.g. the recent complaint against Felda3 , one of the largest palm oil production companies, for awful labour practices and worker conditions) and the long standing environmental issues,4 such as deforestation.

To a degree, the palm oil industry does openly accept that the social and environmental issues exist and it recognises that broader society increasingly wants these addressed because over the years it has responded with various initiatives. The most important demonstration of the industry’s efforts to address the social and environmental issues is the establishment of the Roundtable on Sustainable Palm Oil5 (RSPO) and the willingness of companies to join the RSPO. The RSPO is not a regulator and has no legal powers, however it does have mechanisms for certification, complaints, dispute settlement and investigation of its members.

At the end of November 2018, the RSPO demonstrated, as it has done on many occasions, that it is prepared to use its resources when the complaints panel brought actions against FGV Holdings Berhad (Felda). But huge and fundamental problems persist and the RSPO’s efforts have not raised the standard of practices, even in the large companies, to the levels that convince concerned consumers, civil society, buyers and investors that the problems have been resolved.

This lack of resolution is largely driven by the failure of the industry and those concerned by the industry’s impact to agree on the nature and extent of the problems. Those committed to examining the industry are motivated by details provided by many victims and observers which describe the nature of the social and environmental issues as often rooted in criminal and unlawful underlying activities such as bribery, organised crime, physical abuse and financial crimes. On the other hand, the industry continues to treat problems as ethical issues and social responsibility, but after several decades of promises and initiatives, the problems remain the same, only at a greater magnitude. Efforts by the industry to change its operating environment to eliminate organised criminality recruiting labour, debt arrangements imposed on workers on plantations, injuries caused by pesticides and continuing incidence of child labour, are unconvincing as they still focus largely on restitution rather than prevention. Disclosure is weak as there is little disclosure about relationships with recruitment agents, payments and the arrangements.

Crime, unlawfulness, palm oil and Malaysia

That the operating environment of an industry should be so entwined with criminal and unlawful activity is of little surprise, and it is not unique to the palm oil industry. As discussed above there is work to combat this, it is just currently insufficient. The complaint against Felda and subsequent letter to Felda from the RSPO at the end of last year draws attention to problems that are repeatedly communicated to civil society by victims and migrants providing their labour to the industry.

“(i) FGV had by written agreements outsourced its foreign workers to FGV’s contractors in violation of Malaysian laws and this may be considered as acts done in furtherance of trafficking in persons. This is a violation of RSPO P & C 2.1 and 6.12 (details of which are further elaborated in the table below) that must be addressed by FGV as a matter of priority. (ii) FGV’s recruitment and employment processes need further improvements as indicators of forced labour are present and cumulatively, points to a breach of RSPO P & C 6.12 including issues relating to contract substitution, freedom to contract and resign, passport retention and workers’ freedom of movement and workers’ working and living conditions (details of which are further elaborated in the table below).”

It continues. “Reference should also be made to the ILO Indicators of Forced Labour, which are as follows:

  • Abuse of vulnerability;
  • Deception;
  • Restriction of movement;
  • Isolation;
  • Violence;
  • Intimidation and threats;
  • Retention of identity documents;
  • Withholding of wages;
  • Debt bondage;
  • Abusive working and living conditions; and
  • Excessive overtime.”

The list above does not focus on the harmful activities that create and sustain the ongoing supply of labour, of which the injury to the victim is a consequence. This system supplying labour, or at least makes labour available, often begins in a local village or town in another country with the deceit of an individual and then relies on organised criminal and unlawful arrangements to move people and money across borders until groups of workers are received and then located on a plantation. At present, palm oil businesses and governments have not implemented the effective governance, due diligence, monitoring to prevent the use of this unlawful and criminal system of supply labour or transform it.

Unless there is greater investment in business internal controls, governance and risk management concerning the outsourcing of labour and disclosure of the practices and arrangements so verification and external monitoring can be conducted then the businesses will continually have to contend with these issues. Global society, which includes buyers, product makers and investors, are not going to be convinced that there is control over these issues and the risk of abuse and active involvement in criminal and unlawful arrangements until there has been investment in lawful labour supply systems.

Why ethics and corporate responsibility are inadequate?

The current and continuing reliance of many workers on a system of labour supply that is founded on transnational criminal and unlawful arrangements is the clearest argument against the capacity of ethical business initiatives and corporate social responsibility to solve these issues. Several decades have passed and the unlawful and criminal arrangements and structures are perhaps much more institutionalised9 and structural than before. Furthermore, it is likely businesses have adjusted and priced in the ethical and social responsibility ‘risk’ and cost to their value propositions and have successfully arbitraged the risk between ethical and criminal.

The very visible continuation of the use of forced labour across the industry, as the Felda matter demonstrates, particularly the use of undocumented migrant workers, and the involvement with unlawful and criminal recruiters to provide is certainly proof enough that ethical business initiatives and corporate social responsibility efforts are not sufficiently persuasive nor effective. Ethical responsibility needs to sit in a framework of clear criminal, civil and regulatory liability so that arguments of business ethics are a refinement to an underlying legal position, they cannot be the primary default position for corporate governance and management. It did not work in the banking and finance industry and there is little reason to believe it will work in non-financial industries.

As Supt. P.R Gunarajan A/L Ramayal of the Malaysian Police indicates in the July 2013 paper “Organised Crime: Governments Initiatives, Laws and Investigation of Human Trafficking In Person and Smuggling of Migrants in Malaysia”, the problem is at a fundamental level involving various elements of criminality and unlawfulness such as smuggling, trafficking, corruption and networks of organised crime. It is a criminal issue, not simply an ethical one. The harm and injury caused from this criminal and unlawful system of labour supply, which touches upon increasing areas of the criminal, civil and regulatory frameworks, give rise to direct risk and liability for the plantations and producer businesses. Similarly so, for those stakeholders providing supporting services to these industry participants such as banks and auditors. Indirectly, laws and regulations with local and extra-territorial effect, give rise to risk and liability to those benefiting and profiting from the products such as buyers and investors. There must be greater liability and greater effort to hold liable and accountable those who deliberately continue to seek to profit from exploitative labour practices and fail to develop and implement robust risk management, governance and management for prevention and protection.

Accountability of corporations and their stakeholders

To the question of accountability and liability, one is left asking – if not the corporations and their stakeholders then whom?

No doubt, to sustain and improve the rule of law, if it is so desirous, it is a government’s responsibility to apply more resources to rooting out corruption, as is arresting and convicting those found guilty of relevant offences. And it is a government’s function to propose legislation concerning anti-trafficking, modern slavery and the underlying issues. It is clear who benefits from the abused labour and who owns and perpetuates the business model and so those who are accountable. In the long term, it is better for the workers, investors, service providers and the economics of the industry if these parties are also held accountable and liable, allowing businesses with good practices to thrive and be rewarded appropriately.

Compliance and adherence with all laws and regulations is inherent in the capitalist model and so where it is failing then risk increases and business valuations must be adjusted. Society is increasing past the point of considering profiting from abuse of labour simply an ethical issue but one that should be punished and penalised. New legislation, consumer action, investor attitudes and civil society activity all demonstrate this changing perspective. At first blush, the controllers of a company and the company itself owning the businesses using labour in this unlawful and criminal manner are accountable, the question is the degree of liability.

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