Lesson 3

1. Philosophy Ethics and Business

2. Utilitarianism, Deontology and Social Justice

1-1
 Philosophical Ethics and Business

McGraw-Hill/Irwin
Business Ethics: Decision-Making for Personal Integrity
& Social Responsibility,
3-2
1-2
Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 The Ethical Question:
How should we live our lives?

 This discussion will suggest a more accessible understanding of ethical

theories to shed some light on the practical and pragmatic application of
these theories to actual problems faced by business people.
 An ethical theory is nothing more than an attempt to provide a systematic
answer to the fundamental ethical question above.
 Not only do ethical theories attempt to answer the question of how we
should live, but they also provide reasons to support their answer.
 Ethical theories seek to provide a rational justification for why we should
act and decide in a particular way.

3-3
1-3
 Decision Point: Who is to say
what is right or wrong?
 An ethical relativist holds that ethical values are relative to
particular people, cultures, or times.
 The relativist denies that there are can be any rationally
justified or objective ethical judgments.
 When there are ethical disagreements between people or
cultures, the ethical relativist concludes that there is no way to
resolve that dispute and to prove that one side is right or more
reasonable than the other.
 Do you believe that there is no way to decide what is right or
wrong?
3-4
1-4
 Decision Point:
Application
 Imagine a teacher returns an assignment to you with a grade of “F.”
 When you ask for an explanation, you are told that, frankly, the teacher
does not believe that people “like you” (e.g., women, Christians, African
Americans) are capable of doing good work in this field (e.g., science,
engineering, math, finance).
 When you object that this is unfair and wrong, the teacher offers a
relativist explanation. “Fairness is a matter of personal opinion,” the
professor explains.
 “Who determines what is fair or unfair?” you ask.
 Your teacher claims that his view of what is fair is as valid as any other.
Because everyone is entitled to their own personal opinion, he is entitled
to fail you since, in his personal opinion, you do not deserve to succeed.
3-5
1-5
 Philosophical ethics
Ethics is the branch of philosophy that explores the nature of moral virtue and
evaluates human actions. Philosophical ethics differs from legal, religious, cultural
and personal approaches to ethics by seeking to conduct the study of morality
through a rational, secular outlook that is grounded in notions of human happiness
or well-being. A major advantage of a philosophical approach to ethics is that it
avoids the authoritarian basis of law and religion as well as the subjectivity,
arbitrariness and irrationality that may characterize cultural or totally personal moral
views. (Although some thinkers differentiate between "ethics," "morals," "ethical"
and "moral," this discussion will use them synonymously.)

3-6
1-6
 Teleological (results
oriented) ethics

A teleological outlook is particularly appealing because it takes a

pragmatic, common-sense, even unphilosophical approach to
ethics. Simply put, teleological thinkers claim that the moral
character of actions depends on the simple, practical matter of the
extent to which actions actually help or hurt people. Actions that
produce more benefits than harm are "right"; those that don't are
"wrong." This outlook is best represented by Utilitarianism, a
school of thought originated by the British thinker Jeremy
Bentham (1748-1832) and refined by John Stuart Mill (1806-
1873).

3-7
1-7
 Theological vs.
Philosophical Ethics
 Many people and cultures across the world base their ethical
views on certain religious or theological foundations.
 Unlike theological ethics, which explains human well-being
in religious terms, philosophical ethics provides
justifications that must be applicable to all people regardless,
of their religious starting points.

3-8
1-8
 Utilitarianism: Making Decisions
based on Ethical Consequences
(insert obj. 1)

 Utilitarianism has its roots in 18th and 19th Century social and political
philosophy and was part of the same social movement that gave rise to
modern democratic market capitalism.
 Promulgated by John Stuart Mill & Jeremy Bentham
 “… “the ‘greatest happiness principle’ holds that actions are right in
proportion as they tend to promote happiness; wrong as they tend to
produce the reverse of happiness.” - John Stuart Mill

3-9
1-9
 Utilitarianism
 Utilitarianism begins with the conviction that we should
decide what to do by considering the consequences of our
actions.
 Utilitarianism tells us that we should act in ways that produce
better overall consequences than the alternatives we are
considering.
 “Better” consequences are those that promote human well-being:
the happiness, health, dignity, integrity, freedom, respect of all the
people affected.
 A decision that promotes the greatest amount of these
values for the greatest number of people is the most
reasonable decision from an ethical point of view.

3-10
1-10
 Utilitarianism: Examples (insert obj. 2)
 Utilitarianism provides strong support for democratic institutions and
policies and opposes those policies that aim to benefit only a small
social, economic, or political minority because of its emphasis on
producing the greatest good for the greatest number.
 Therefore, it could be said that the economy and economic
institutions are utilitarian in that they exist to provide the highest
standard of living for the greatest number of people, not simply to
create wealth for a privileged few.

3-11
1-11
 Utilitarianism: Examples

 Consider also the case of child labor. In judging the

ethics of child labor, utilitarian thinking would advise
us to consider all the likely consequences of a
practice of employing young children in factories.
 Compare the problematic consequences of child labor
to the consequences of alternative decisions.
 Then, consider also the consequences to the entire
society.

3-12
1-12
 Utilitarianism: Examples
 Thus, one might argue on utilitarian grounds that
such labor practices are ethically permissible
because they produce better overall consequences
than the alternatives.

3-13
1-13
 Utilitarianism:
Lessons from Examples
 Because utilitarians decide on the basis of
consequences, and because the consequences of our
actions will depend on the specific facts of each
situation, utilitarians tend to be very pragmatic
thinkers.
 No act is ever absolutely right or wrong in all cases in
every situation; it will always depend on the
consequences.

3-14
1-14
 Utilitarianism:
Lessons from Examples
 Utilitarian reasoning usually supplies some support for each
competing available alternative, e.g., ban child labor as
harmful to the overall good or allow child labor as
contributing to the overall good.
 Deciding on the ethical legitimacy of alternative decisions
requires that we make judgments about the likely
consequences of our actions.
 How do we do this? Within the utilitarian tradition, there is a
strong inclination to rely on the social sciences for help in
making such predictions.

3-15
1-15
 Utilitarianism and Business: Profit
Maximization vs. Public Policy
Approaches (insert obj. 3)
Another question remains to be answered:
How do we achieve maximum overall
happiness? What is the best means for
attaining it? Two answers prove especially
relevant in business and business ethics.

3-16
1-16
 Profit Maximization vs.
Public Policy Approaches
 Profit-Maximization Perspective: Based on the tradition of
Adam Smith, claims that free and competitive markets are the
best means for attaining utilitarian goals.
 Neo-classical free market economics advises us that the most
efficient means to attain that goal is to structure our economy
according to the principles of free market capitalism.

3-17
1-17
 Utilitarianism and Business: Profit
Maximization vs. Public Policy
Approaches
 Profit-Maximization:
 This requires that business managers, in turn, should seek to
maximize profits.
 By pursuing profits, business insures that scarce resources are
going to those who most value them and thereby insure that
resources will provide optimal overall satisfaction.
 Thus, competitive markets are seen by these economists as the
most efficient means to the utilitarian end of maximizing
happiness.

3-18
1-18
 Profit Maximization vs. Public
Policy Approaches
 Public Policy Perspective: Turns to policy experts who
can predict the outcome of various policies and carry out
policies that will attain utilitarian ends.

3-19
1-19
 Benefits of Utilitarian Ethics

 Liberal (no one’s happiness is more important than another’s)

 Able to describe much of human decision making
 Easy to understand
 Forces us to examine the outcomes of our decisions

3-20
1-20
 Deontology: Making Decisions
based on Ethical Principles (insert obj. 5)
 Making decisions based upon the consequences certainly
should be a part of responsible ethical decision-making.
 But some decisions should be matters of principle, not
consequences - the ends do not always justify the means.
 How do we know what principles we should follow and how
do we decide when a principle should trump beneficial
consequences?
 Principle-based, or “deontological” ethical theories, work out
the details of such questions.

3-21
1-21
 Where do we find these
principles?
 The law is one example of a type of rule that we ought to
follow, even when it does not promote happiness.
 Other rules are derived from various institutions in which we
participate, or from various social roles that we fill (such as
our professional roles)
 Perhaps the most dramatic example of role-based duties concerns
the work of professionals within business.
 Many of these roles, often described as “gatekeeper functions,”
insure the integrity and proper functioning of the economic, legal,
or financial system.

3-22
1-22
 The Social Contract as Principle

 So far we have mentioned legal rules, organizational rules,

role-based rules, and professional rules.
 These rules as part of a social agreement, or social contract,
which functions to organize and ease relations between
individuals.
 No group could function if members were free at all times to
decide for themselves what to do and how to act.

3-23
1-23
 Moral Rights and Duties (insert obj. 6)

 The foremost advocate of this tradition in ethics, the

eighteenth century German philosopher Immanuel Kant,
argued that there is essentially one fundamental ethical
principle that we should follow, no matter the
consequences:

Respect the dignity of each

individual human being.

3-24
1-24
 Respecting Human Dignity

 Kant claimed that this duty to respect human dignity could be

expressed in several ways.
 Act according to those rules that could be universally agreed
to by all people.
 This is the first form of the famous “Kantian categorical
imperative.”
 Another, less abstract version, requires us to treat each person
as end in themselves and never only as means to our own
ends.

3-25
1-25
 What rights do we have?

 What makes us human is our capacity to make free and

rational choices.
 Humans do not act only out of instinct and conditioning; they
make free choices about how they live their lives, about their
own ends.
 In this sense, humans are said to have autonomy.
 To treat someone as a means or as an object is to deny them
this distinctive and essential human characteristic; it would be
to deny them their very humanity.

3-26
1-26
 What rights do we have?

 From this we can see how two related rights have emerged as
fundamental within philosophical ethics.
 If autonomy, or “self-rule,” is a fundamental characteristic of
human nature, then the freedom to make our own choices
deserves special protection as a basic right.
 But since all humans possess this fundamental characteristic,
equal treatment and equal consideration is also a
fundamental right.

3-27
1-27
 Distinguishing between Moral
Rights and Legal Rights (insert obj. 7)
 Legal rights may be granted on the basis of legislation or
judicial rulings.
 Legal rights might also arise from contractual agreements.
 One cannot contract away one’s moral rights - moral rights lie
outside of the bargaining that occurs in a contract.
 Moral rights establish the basic moral framework for legal
environment itself, and more specifically for any contracts
that are negotiated within business.

3-28
1-28
 Social Justice: Rawlsian Justice
as Fairness (insert obj. 8)
 The American philosopher John Rawls has developed one of
the most powerful and influential accounts of justice.
 Rawls offers a contemporary version of the social contract
theory that understand basic ethical rules as part of an implicit
contract necessary to insure social cooperation.
 Rawls’s theory of justice consists of two major components: a
method for determining the principles of justice that
should govern society, and the specific principles that are
derived from that method.

3-29
1-29
 Rawlsian Justice as Fairness:
Application of The Method
 Imagine rational and self-interested individuals having to
choose and agree on the fundamental principles for their
society.
 The image of members of a constitutional convention is a
helpful model for this idea.
 To ensure that the principles are fair and impartial, imagine
further that these individuals do not know the specific details
or characteristics of their own lives.
 They do not know their abilities or disabilities and talents or
weaknesses; they have no idea about their position in the
social structure of this new society.

3-30
1-30
 Rawlsian Justice as Fairness: Veil
of Ignorance
 They are, in Rawls’s terms, behind a “veil of ignorance” and
must choose principles by which they will abide when they
come out from behind the veil.
 To ensure that each individual is treated as an end and not as a
means, imagine finally that these individuals must
unanimously agree on the principles.
 These initial conditions of impartiality, what Rawls calls the
“original position,” guarantee that the principles chosen are
fair – the primary value underlying for Rawls’ concept of
justice.

3-31
1-31
 Rawlsian Justice: Lessons Learned for
Economics and Business Institutions
 Rawls derives two fundamental principles of justice from this
original position.
 The first principle states that each individual is to have an
equal right to the most extensive system of liberties - equal
rights are a fundamental element of social justice.
 The second principle that is derived from the veil of
ignorance holds that benefits and burdens of a society
should generally be distributed equally.

3-32
1-32
 Virtue Ethics: Making Decisions
based on Integrity and Character(insert
obj. 9)

 Ethics also involves questions about the type of person one

should become.
 Virtue Ethics is a tradition within philosophical ethics that
seeks a full and detailed description of those character traits,
or virtues, that would constitute a good and full human life.

3-33
1-33
 A Decision-Making Model for
Business Ethics Revisited
1. Determine the facts. Gather all of the relevant facts. It is
critical at this stage that we do not unintentionally bias our
later decision by gathering only those facts in support of one
particular outcome.
2. Identify the ethical issues involved. What is the ethical
dimension? What is the ethical issue? Often we do not even
notice the ethical dilemma. Avoid normative myopia.

3-34
1-34
 A Decision-Making Model for
Business Ethics Revisited
1. Identify stakeholders. Who will be affected by this decision? What are
their relationships, their priorities to me, and what is their power over
my decision or results? Who has a stake in the outcome? Do not limit
your inquiry only to those stakeholders to whom you believe you owe a
duty; sometimes a duty arises as a result of the impact. For instance,
you might not necessarily first consider your competitors as
stakeholders; however, once you understand the impact of your decision
on those competitors, an ethical duty may arise
2. Consider the available alternatives. Exercise “moral imagination.”
Are there creative ways to resolve conflicts? Explore not only the
obvious choices, but also those that are less obvious and that require
some creative thinking or moral imagination to create. Imagine how the
situation appears from other points of view.
3-35
1-35
 A Decision-Making Model for
Business Ethics Revisited
1. Consider how a decision affects stakeholders. Take the point of view of
other people involved How is each stakeholder affected by my decision?
Imagine a decision that would prove acceptable to all parties. Compare and
weigh the alternatives: ethical theories and traditions can help here.
a. Consequences
i. beneficial and harmful consequences
ii. Who gets the benefits? Who bears the costs?
b. Duties, rights, principles
i. What does the law say?
ii. Are there professional duties involved
iii. Which principles are most obligatory?
iv. How are people being treated?
v. What is a fair and impartial decision?
c. Implications for personal integrity and character
i. What type of person am I becoming through this decision?
ii. What are my own principles and purposes?
iii. Can I live with public disclosure of this decision?
3-36
1-36
 A Decision-Making Model for
Business Ethics Revisited
 Guidance. Can you discuss the case with relevant others; Can you
gather additional opinions or perspectives? Are their any guidelines,
codes or other external sources that might shed light on the
dilemma?
 Assessment. Have you built in mechanisms for assessment of your
decision and possible modifications, if necessary? Make sure that
you learn from each decision and move forward with that increased
knowledge as you are then faced with similar decisions in the future
or to make changes to your current situation.

3-37
1-37
 Discussion of Opening Decision Point:
Should Managers Value Supplier Loyalty?

 One crucial lesson from this decision point is the fact that
very many business decisions implicitly involve a wide range
of ethical issues.
 The purchasing manager may well believe that the decision
to outsource suppliers is simply a financial decision. The
manager is behaving as the business, financial, and economic
system expects.
 But, it should be clear that financial and ethical
considerations are not mutually exclusive. Business
decisions often involve both. One does not avoid ethical
responsibility by making a financial decision. Finance and
business management are not value-neutral.
3-38
1-38
 Discussion of Opening Decision Point:
Should Managers Value Supplier Loyalty?

 If pressed for an ethical rationale, the manager might also cite

an economic justification in terms of overall job growth,
economic efficiency, and lower prices to consumers.
 The manager would also likely refer to the duty to maximize
return for stockholders. But these, too, are clearly ethical
factors.
 At their base, many of these economic justifications are
utilitarian.
 Economic efficiency is the best policy because it will lead to
the greater overall good.
 Managers also have duties to stockholders because of their
ownership rights in the company.
3-39
1-39
 Discussion of Opening Decision Point:
Should Managers Value Supplier Loyalty?

 Implicit within the financial and economic framework taught in

business schools is a very clear ethical perspective. Those who deny
a place for ethics in a business school curriculum often lose sight of
this fact.
 The economic theory of market capitalism, and the theories of
business management, finance, marketing, and accounting implied by
that economic theory, already presupposes a range of ethical values.
 The utilitarian goal of economic growth and economic efficiency,
along with the rights and duties associated with private and corporate
property, are inevitably involved in business decisions.
 Ethical decision-making requires only that such values be made
explicit and that other ethical values also be acknowledged.
3-40
1-40
 Discussion of Opening Decision Point:
Should Managers Value Supplier Loyalty?

 Loyalty surely has a place in personal and social relationships. But does
it have a role in business relationships?
 Some would argue that loyalty is seldom a two-way street in business. A
company may ask for or expect loyalty from employees, by asking them
to sacrifice free time on weekend for work for example. But companies
may not be as willing to sacrifice for employees in return.
 Citizens are expected to be loyal to their own country, but are
corporations citizens? If the law treats a corporation as a legal person,
does this imply that the corporation has a specific duty of loyalty to the
country?
 Should a company sacrifice profits by declining to outsource jobs and
production?

3-41
1-41