Lecture 2: Business Ethics – Normative

Theories
Recap – Lecture 1

 The course
 Ethics & Morality
 Ethics is important in Bus: Business can’t be
separated from ethics
 Ethics & the Law
 Management Morality
 Corporate Governance

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 Learning Overview
 Define moral philosophy

 Discuss three ethical perspectives (approaches):

 Consequentialist approach (consequence based),

 Non-consequentialist approach (duty-based), and

 Virtue ethics

 Compare these normative ethical theories with one another

 Apply the ethical theories to resolve ethical dilemmas.

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Moral Philosophy

 Provides prescriptions, i.e. tells us what we

should/ought to do, how we should live our
life and resolve ethical dilemmas
 Provides justifications that are applicable to
all people. Different from religious morality
(Hartman & Desjardins, 2008)
 Primarily concerned with individuals, not
social groups such as business
organisations

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Moral Philosophy: Three Perspectives

Consequentialist
approach II. Non-Consequentialist Virtue ethics
(teleology) approach

1. (Egoism) (deontology) Virtue ethics

2. Utilitarianism
1. Duty-based theories

2. Kantian ethics Focus on

Focus on the
consequences 3. Justice ethics integrity of the

Focus on moral actor

Duties

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I. Consequentialist Approach
1. Egoism
• Egoism views that an act is morally right if and
only if it best promotes an agent/individual’s self-
interests.

• People should make decisions that maximise

their self-interest

• Tom is doing an ethics course at university R.

The library has 20 ethics textbooks. Close to the
final exam, Tom borrows all of these 20 ethics
textbooks. Epicurus
(341-270 BC)
• Is it the right thing for Tom to do under egoism ?

• Is it reasonable and fair ?

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Egoism - Limitations

 Is it a good ethical theory?

 The theory cannot be universalized, what if everyone
only pursues his/her self-interests and does not care
about others ?
 The theory assumes that we live among strangers, we
do not care for anyone or anything.
 The reality is that we need to balance our self-interest
with the interest for others.

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2. Utilitarianism
 Founded by Jereme Bentham(1748-1832) and John Stuart Mill(1806-
1873).

 The theory tells us that in deciding what is right and wrong, we should
focus on the consequences of the decision or action.

 Each action/decision may have both benefits and harms. What matters is
the overall balance of benefits over harms.

 An action is ethically right if the benefits are greater than the harms.

 An action is ethically wrong if the harms are greater than the benefits.

 Benefits/utility/goods = those that promote  Harms:

human well-being, e.g., o sadness,
o happiness, o loss of wealth
o welfare, o injuries
o pleasure, o sickness and
o health, o disappointment...
o freedom,
o dignity, and
o respect… 8
Utilitarianism

 Obviously, utilitarianism focuses on the ‘end’. The

end of an action justifies the means taken to
reach that end. If the end is right, the decision is
morally right.
 Therefore, no action is always right or wrong.
Right or wrong will always depend on the
end/consequence.
 Stealing bread to feed a starving child - Is it ethically
justified under utilitarianism?

 Telling lies to hide an innocent man from gang members

who want to kill him - Is it ethically justified under
utilitarianism?

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Utilitarianism
1. The Trolley Story

• If you apply the utilitarian theory, what should you do ?

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Another version of the trolley story…

• If you apply the utilitarian theory, what should you do ?

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Child labour

 Is it right to use child labour?

 Costs:

 Depriving children of their childhood and educational opportunities

 Mentally and physically harmful to children

 Benefits:

 Providing income.

 Preventing children from involving in crimes, drugs, and prostitution (If not employed, they
may involve in these problems).

 Reducing the labour costs => attracts foreign investment, benefiting the whole society.

 Do benefits outweigh costs ?

 If so, what is the right thing to do under utilitarianism ?

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Utilitarianism: Limitations

 Too much focus on the end can lead to an overlook of the

means.
 Should you kill a healthy young man and take his organs to implant
in 10 other people and save them ?
 Utilitarianism would say yes, but it does not sound right. A good end
does not justify morally bad means. This is where the duty-based
theories discussed later can supplement the utilitarianism.

 Difficult to measure all consequences for all stakeholders who

may be directly or indirectly affected by an action or decision,
particularly those who are affected in the future.
 Rights of a minority group can easily be sacrificed for the
benefit of the majority.
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 Utilitarianism: Advantages

 Extremely practical and helpful in thinking through an ethical

dilemma.

 Indeed, we generally look at the consequences and decide

what’s to do.
 When we decide to destroy some houses to prevent the fire from
spreading to the whole town, do we use utilitarian rationale to reach the
conclusion that the benefits to the whole town outweigh the harm to a few
property holders ?

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 Utilitarianism: Advantages

 Reminds us about the significance of consequences of our

decisions on others.

 Responsible ethical decision making requires us to consider

consequences of our acts or decisions on others.

 The remaining question is whether other considerations are

also important.

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 II. Non-Consequentialist Approach
1. Duty-Based Theories
 Duty-base theories view actions as either right or wrong independent of their
consequences.

 Particularly, these theories propose that there are some duties and responsibilities
that we have to perform, no matter what the consequences are.

 Example:

o Recall the trolley case, do we have a moral duty to respect the heavy old man’s life ?

o If so, we have to do it (i.e., not to push him off the bridge to stop the trolley), regardless of
the consequences (i.e., five workers may be killed).

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What moral duties we may have ?
 We may have moral duties that are generated by universal moral
principles such as

o honesty;

o promise keeping;

o fairness;

o loyalty;

o respect for persons’ life, security, reputation, and property; and

o caring…

 We may also have moral duties that are generated by our social or
institutional roles such as parent, children, spouse, friend, citizen or
employee.
 Duty-Based Theories

 Duty-based theories thus focus on doing what is 'right‘.

 It differs to utilitarianism – which focuses on doing what is

good (i.e., what will maximize the benefits for the society).

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 Duty-Based Theories

 Is it right to kill a man to save five others ?

 Do we have a duty to respect that man’s life ? Do we have a duty to
treat him fairly ? Why does he has to die to save five others ? Fair ?

 Is it right to use child labour ?

 Do we have a duty to respect children ? Do have a duty to treat
children fairly and justly so that they can enjoy childhood and
education ?

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 2. Kantian Theory

 Kant (1724-1804) is one of the leading founders of the Non-

Consequentialist approach.

 According to Kant, we have a universal moral duty to respect the

dignity of each individual human being.

 There are two versions of this duty:

1. Duty to act in a way that could be universally agreed by all people

2. Duty to treat all persons as ends in themselves and never as means to our
own ends.

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Kantian Theory

1. Duty to act in a way that could be universally agreed by

all people.
 Thus, an act is morally right if you feel comfortable for every one in the
world to do it.

 So, is firing a staff because you do not like his race morally right?

 Perhaps not...

 … because you would not feel comfortable for every one in the world to do
it, and may fire you for the same reason, i.e. dislike your race.

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 Kantian Theory

2. Duty to treat all persons as ends in themselves and never

as means to our own ends.

 So, under the Kantian theory, is it right to kill an innocent man to

save five others? If we do so, do we treat him as a means, not an
end in himself ?
 Similarly, under the Kantian theory, is it right to use child labour? If
we do so, do we treat them as a tool to the end of production and
economic growth ?

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 Duty-based theories & Kantian theory:
Advantages

 These theories reminds us that responsible ethical

decision making must take into consideration

 whether the decision/action is consistent with our

moral duties;

 whether the decision/action respects the basis rights

of individuals.

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 Duty-based theories & Kantian theory:
Limitations

 Where two moral obligations are in conflict, these theories do not

tell us which obligation we should follow.

 Examples:

o Should we steal bread to save a hungry child who is about to

die?

• Duty to respect other’s property v. duty to respect the child’s life.

o Should we tell lies to avoid hurting someone's feelings ?

• Honesty v caring

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 Duty-based theories & Kantian
theory: Limitations

 These theories also do not provide a solution to situations

where complying with a rule/duty will have a devastating
consequence.

 For example, what should we do when we see a man

shooting hundreds of children?

Should we respect his right to life (it means we don’t kill him) ? If
so, he will continue the shooting and many more children will be
killed.

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 3. Justice Ethics

 According to justice ethics, a decision or an action is ethically right if it is

just.

 What is a just decision or action ?

 There are three principal types of justice:

 Distributive justice

 Retributive justice

 Procedural justice 26
 Justice Ethics
1) Distributive justice:
 Under distributive justice, a decision or action is right/just
if it distributes the benefits and burdens fairly.

 Example: sharing a cake

 Distributive justice means that the benefits (the cake)

and the burdens (cleaning the dish, removing rubbish)
should be divided fairly among us.

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Justice Ethics

2) Retributive justice:

 Under retributive justice, a decision or

action is right/just if it fairly punishes a
person for wrong doing.

 The punishment is fair when it fits the

wrong.

 For example, a doctor submitted a fake

resume should be punished, but in a fair
way.

 Is it fair to just slightly reduce the salary ?

 How about dismissing ?

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 Justice Ethics

3) Procedural justice

 Under procedural justice, a decision or action is

right/just if it creates fairness in the procedure to
allocate benefits and burdens.

 For example, when we share a cake, is it a

right/just decision if we do not allow people
to have their voice in the decision making
process (i.e. in deciding how to divide the cake
and who has to clean the dish)?

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 Justice Ethics: Benefits & Limitations

1) Benefits:
 Protects those who lack voice/influence
 Forces us to ask how fairly benefits and costs are distributed in
making decisions.

2) Limitations:
 Benefits/burdens can be hard to define/quantify
 The rights of some may have to be sacrificed in order to ensure a
more equitable distribution of benefits
 Need to be highly trained to apply the theory (e.g., judges).

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Utilitarianism vs. Justice Ethics

 Similarity:
Both theories involve costs (burdens) and benefits

 Differences:
Utilitarianism is based on net gain which may not consider
the issue of fairness (e.g., who gets the benefits).

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 Consequential vs. Non-Consequential

 Consequentialist approach focuses

on benefits vs. Non-consequentialist
approach focuses on rights/duties.

 Most people in most situations tend

to use both approaches.

 Empirical evidence shows that

managers place a greater concern on
utility (outcomes) than rights/justice. 32
 III. Virtue ethics
 Virtue ethics focuses on the character of the
moral actor rather than the act itself.
 An action is morally right if in carrying out of
that action, the actor exercises, promotes, and
develops a morally virtuous character.
 So, telling the truth is morally right because it promotes
the actor’s morally good character, e.g., honesty.
 An action is morally wrong if in carrying out of
that action, the actor exercises, promotes, and
develops a morally bad character.
 So, stealing is morally wrong because it promotes the
actor’s morally bad character, e.g., disrespect to other’s
property.
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 Morally Virtuous Characters vs
Morally Bad Characters

 Honest  Dishonest
 Integrity  Disloyal
 Loyal  Unkind
 Devoted  Mean
 Caring  Rude
 Kind  Disrespectful
 Devoted  Impatient
 Ambitious  Greedy
 Faithful  Cruel
 Patient  Grumpy
 Determined  Selfish
 Courage
 Unforgiving …
 Considerate
 Cooperative
 Optimistic…

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 Virtue

A good human being possesses two

core virtues:

1. Integrity: to have educated

oneself so that one is unable to be
one kind of person in one social
context, while quite another in
other contexts.

2. Constancy: to pursue the same

goods (i.e. objective) through
extended periods of time.
(MacIntyre, 1999)

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Steps to Sound Ethical Decision
in Business
1) Gather the facts

2) Define the ethical issue

3) Identify the affected parties

4) Identify the consequences

5) Identify the duties and responsibilities

6) Consider your character

7) Think about potential actions

8) Check your gut – if something doesn’t seem right, give more

thoughts

9) Make the decision

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 Conclusions

 No single theory is capable of resolving all ethical

dilemmas.

 Responsible ethical decision making requires

consideration of all of these theories.

 Likely to improve decision maker’s moral awareness

and understanding of the ethical issues involved in a
dilemma.

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Applying Theory

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 Sam, a sales representative of Midwest Hardware which manufactures
nuts and bolts. Sam hopes to obtain a large sales order from a
construction firm that is building a bridge across the Missis river.

 The bolts produced by Sam’s company have a 3% defect rate, which,

although acceptable in the industry, makes it unacceptable for certain
projects, such as those subject to sudden, severe stress. The new bridge
is located near to the centre of a great earthquake zone.

 If Sam wins the contract, he will earn a commission of $25,000. But, if

Sam tells the construction firm about the defect rate, the construction firm
may award the job to a competitor whose bolts are more reliable.

 Sam is thus in a dilemma on whether to report the bolts’ 3% defect rate to

the construction firm. 39
 1. Utilitarianism
 Sam will conduct a cost-benefit analysis to determine which alternative would produce more utility.
 Reporting:
1. Benefits
• Saving thousands of people
2. Costs
• Sam will lose $25,000 commission
• His company will lose a contract
 Not reporting:
1. Benefits
• Sam will have $25,000 commission
• His company will have a contract
2. Costs
• If the bridge collapses, hundreds/thousands of people would be killed or injured.
• Being sued
 Which action would produce more utility ?
2. Non-Consequentialist approach

 Does Sam have any moral duty ?

 Honesty ?

 Fairness ?

 Respect others’ life, safety, and property ?

 Loyalty to his company ? but does loyalty loose its

weight if the act is immoral ?

 Should he report the bolts’ defect rate ?

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3. Kantianism

 Would Sam be comfortable for every

one in the world to do the same thing,
i.e. telling the truth ?

 Does doing so also reflect the respect

to others’ life and safety?

 Should Sam inform the construction

firm about the defect rate ?

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 4. Justice Ethics

 If the defective bolts are used,

 Sam will get 25,000 commission, and Midwest can sell the bolts,

 but if the bridge collapses, many innocent bridge users would suffer
and the construction firm may be in trouble, e.g., to be sued, has to
compensate victims.

 Is it a fair allocation of benefits and burdens ?

 Unlikely a fair allocation.

 Should Sam inform the construction firm on the bolts’ defect rate? 43
 2. Virtue Ethics

 Should Sam be honest and tell the construction firm about the defect
rate ?

 Perhaps yes. Why ?

 This action will promote Sam’s morally good characters such as

honesty, fairness, and courage.

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 References

Etzioni, A 1996, 'A moderate communitarian proposal', Political Theory, v.

24, n. 2, pp. 155-71.

Ferrell, OC, Fraedrich, J & Ferrell, L 2005, Business ethics: Ethical

decision making and cases, Houghton Mifflin, Boston.

Hartman, LP & Desjardins, J 2008, Business ethics: Decision making for

personal integrity & social responsibility, McGraw-Hill irwin, Boston.

MacIntyre, A 1999, 'Social structures and their threat to moral agency',

Philosophy, v. 74, pp. 311-29.

Singer, M 1997, Ethics and justice in organisations, Avebury, Aldershot.

Trevino, LK, & Nelson, KA 2006, Managing business ethics: Straight talk
about how to do it right, 4 edn, John Wiley & Sons, New York.

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