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1 Ethical Principles and Business Decisions

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Learning Objectives

After reading this chapter, you should be able to:

• Describe moral objectivism, moral relativism, and divine command theory.

• Explain the theories of moral psychology, including psychological egoism, psychological altruism, and the relation between gender and morality.

• Explain how virtue theory, duty theory, and utilitarianism provide standards of morality.

• Describe the relation between morality and government in social contract theory, human rights theory, and the four principles of governmental coercion.

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Introduction

Chapter Outline Introduction

1.1 Where Moral Values Come From

Moral Objectivism and Moral Relativism

Religion and Morality

1.2 Ethics and Psychology

Egoism and Altruism

Gender and Morality

1.3 Moral Standards

Virtues

Duties

Utilitarianism

1.4 Morality and Government

The Social Contract

Human Rights

Principles of Governmental Coercion

Conclusion

Introduction National surveys are routinely conducted to reveal public attitudes about various profes- sions; some jobs have higher moral reputations than others. One poll asked people to rate the honesty and ethical standards of people in different fields. The results of the survey are shown in Figure 1.1.

It is important to understand that these survey results only report people’s perceptions of pro- fessional ethical behavior and are not evaluations of actual professional behavior. But busi- ness is an area where perception is often everything, and businesspeople in advertising and public relations certainly know this. Figure 1.1 shows a clear pattern: The highest-ranking professions involve helping people, and nurses, who are at the very top, are clear examples. Among the lowest-ranking occupations are those associated with the business world: bank- ers, business executives, advertisers, and, near the very bottom, car salespeople.

What is it that makes us have such low opinions of the moral integrity of the business world? Part of it may be that, in contrast with nurses, businesses have the reputation of caring only for themselves and not for others. Part of it may also be that the competitive nature of busi- ness pushes even the most decent of people to put profits above responsibility to the public. Businesses, of course, respond to these negative perceptions in creative ways. For example,

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Introduction

Costco, Walgreens, Kroger, and other retailers now provide inexpensive flu shots to custom- ers. This performs a genuine social service and at the same time bolsters their ethical reputa- tion by reinforcing their link with health care.

The concept of business ethics is by no means new; in fact, some of the earliest written documents in human civilization wrestle with these issues. The Mesopotamian Code of Hammurabi, from almost 4,000 years ago, had this to say about the responsibility of building contractors:

If a builder builds a house for someone, even though he has not yet completed it, if then the walls seem toppling, the builder must make the walls solid from his own means. . . . If a shipbuilder builds a boat for someone, and does not make it tight, if during that same year that boat is sent away and leaks, the shipbuilder shall take the boat apart and put it together tight at his own expense. (King, n.d., sections 233 and 235)

This book is devoted to understanding the ethical challenges that businesses face and what can be done to meet those challenges. In this chapter, we will explore several basic and time- tested principles of morality. Ethical theory is a complex field of study, and, within the limited space of this chapter, we can only introduce some of the main principles, illustrating them with examples from the field of business.

Figure 1.1: Perceptions of ethical professions, 2014

Numbers indicate the percentage of those surveyed who ranked the respective vocations very high in terms of honesty and ethical standards. Of the 805 adults surveyed, 80% rate nurses highest.

Source: Based on Riffkin, R. (2014). Americans rate nurses highest on honesty, ethical standards. Gallup. Retrieved from http://www .gallup.com/poll/180260/americans-rate-nurses-highest-honesty-ethical-standards.aspx

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Section 1.1 Where Moral Values Come From

Some of history’s greatest minds have reflected on the nature of morality and devised theo- ries of where morality comes from and how moral principles should guide our conduct. As we examine these theories, several will be associated with famous figures like Plato, Aristotle, Kant, and Mill. Although these thinkers may have provided the classic expressions of these concepts, in many cases they did not invent them, nor did they single-handedly integrate them into notions of morality. We find these principles important today because each reflects a way that we naturally think about moral issues. This chapter provides not just a lesson in the history of ethics but an examination of the features that we currently believe are relevant to ethical behavior.

1.1 Where Moral Values Come From A good definition of ethics is that it is an organized analysis of values relating to human conduct, with respect to an action’s rightness and wrongness. Ethics is not the same as etiquette, which merely involves customary codes of polite behavior, such as how we greet people and how we seat guests at a table. The issue in ethics is not what is polite, but what is obligatory. Ethics is closely related to morality, and although some ethicists make subtle distinctions between the two, they are more often used interchangeably, as will be done throughout this book.

One of the most basic ethical issues involves understanding where our moral values come from. Consider the moral mandates that we should not kill or steal, which most of us adopt. If I asked you where you got those values, you’d likely answer that they were passed on to you from your parents, friends, teachers, and religious institutions. Indeed, we are all products of our surroundings: If you hunt, you probably do so because your parents do; if you like coun- try music, that may also be because of your parents. However, when it comes to understand- ing why we have values like “we should not kill or steal,” we need to examine not just our immediate social influences but also ask where society itself got those principles. Are these universal and unchanging truths that are somehow embedded in the fabric of the universe, or are they changeable guidelines that we humans have created ourselves to suit our needs of the moment?

The question of where our moral values come from often involves two issues: The first is a debate between objectivism and relativism, and the second concerns the relation between morality and religion. Let’s look at each of these.

Moral Objectivism and Moral Relativism

Some years ago, the Lockheed Corporation was caught offering a quarter of a billion dol- lars in bribes overseas. A major U.S. defense contractor, Lockheed had fallen on economic hard times. The U.S. government commissioned the company to design a hybrid aircraft, but after one crashed, the government canceled orders. Because of this and other mishaps, Lock- heed believed that the solution to its financial woes was to expand its aircraft sales into for- eign countries. In order to get military aircraft contracts with foreign governments, it made a series of payoffs to middlemen who had political influence in West Germany, Japan, Saudi Arabia, and several other countries. The company was eventually caught and punished with a heavy fine, and its chairman and president were forced to resign.

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Section 1.1 Where Moral Values Come From

A consequence of this event was the creation of the U.S. Foreign Corrupt Practices Act, which includes an anti-bribery provision that involves stiff fines and prison terms for offenders. The message of the law is that, when in Rome, you should not do as the Romans do. There are overarching standards of ethical conduct that businesses are expected to follow, regardless of where they are in the world and what the local business practices are there.

When Lockheed engaged in systematic bribery, did it violate a universal standard of moral- ity that is binding on all human societies, or did it just violate a standard of morality that is merely our personal preference in the United States? On the one side of this question is the theory of moral objectivism, which, in its classic form, has three key components:

1. Morality is objective: Moral standards are not created by human beings nor by human societies. According to many objectivists, they exist in a higher spirit realm that is completely apart from the physical world around us.

2. Moral standards are unchanging: Moral standards are eternal and do not change throughout time or from location to location. No matter where you are in the world or at what point in history, the same principles apply.

3. Moral standards are universal: There is a uniform set of moral standards that is the same for all people, regardless of human differences such as race, gender, wealth, and social standing.

The classic champion of the moral objectivist view is the ancient Greek philosopher Plato (424 BCE–347 BCE), who argued that moral truths exist in a higher level of reality that is spiritual in nature. According to Plato, the universe as a whole is two-tiered. There is the lower physical level that consists of rocks, trees, human bodies, and every other material object that we see around us. All of this is constantly changing, either decaying or morphing into something else. Within this level of the universe, nothing is permanent.

On the other hand, Plato argued, there is a higher level of the universe, which is nonphysi- cal and is the home of eternal truths. He called this the realm of the forms, which are perfect patterns or blueprints for all things. Mathematical principles are good examples. They are completely unchanging and in no way dependent for their existence on the changing physical world. Even if the entire physical universe were destroyed and another emerged, the prin- ciples of mathematics would remain the same, unchanged.

According to Plato, moral principles are just like mathematical principles in that respect, and they also exist in the higher realm of the forms. Just as the principle that 1 + 1 = 2 exists perma- nently in this realm, so too do moral principles of goodness, justice, charity, and many others. The greatest appeal of Plato’s theory is that it gives us a sense of moral stability. When some- one is murdered, we often believe that an absolute and unchanging moral principle has been violated that goes well beyond the shifting preferences of our particular human community.

On the other side of this issue is the theory of moral relativism, which has three contrasting key features:

1. Morality is not objective: Moral standards are purely human inventions, created by either individual people or human societies.

2. Moral standards are not unchanging: Moral standards change throughout time and from society to society.

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Section 1.1 Where Moral Values Come From

3. Moral standards are not universal: Moral standards do not necessarily apply univer- sally to all people, and their application depends on human preference.

Defenders of moral relativism are typi- cally skeptical about the existence of any higher realm of absolute truth, such as Plato’s realm of the forms. Although notions of eternal moral truths are appealing, the fact is, says the moral relativist, we do not have any direct experience of such higher realms’ exis- tence. What we know for sure is the physical world around us, which con- tains societies of human beings that are always changing. The moral values that we see throughout these societies are ones that are created by human pref- erence and change throughout history and with geographical location. Simply put, morality is a human creation, not an eternal truth.

Which is right—moral objectivism or moral relativism? Some philosophical questions are not likely to be answered any time soon, and this is one of them. However, we can take inspiration from both sides of the debate. With the Lock- heed bribery incident, the position of the U.S. government was that there is a standard of integrity in business that applies worldwide, not just within U.S. borders. This is a concession to moral objectivism. On the other hand, some business practices are culturally

dependent and rest on deeply held moral or religious convictions. In Japan, new businesses typically have an opening ceremony in which a Shinto priest blesses the company building. U.S. companies operating in Japan often follow this practice, and this is a concession to moral relativism.

Religion and Morality

An organization called the Center for Christian Business Ethics Today offers a Christian approach to ethical issues in business. According to the organization, God is the ultimate source of moral values: “God’s standards as set forth in God’s Word, the Bible, transcend while incorporating both the law and ethics” (Center for Christian Business Ethics Today, n.d.). This view is by no means unique, and is in fact part of a long history of efforts to ground moral- ity in some aspect of religion. According to the classic view of religious ethics, true morality

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Is stealing something, like a drug, as this nurse is demonstrating, always wrong? Would your answer change if you knew the person stealing the drug needed it for her cancer treatment? What if she were stealing it for her child?

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Section 1.1 Where Moral Values Come From

does not emerge from human thought processes or human society alone. It begins with God establishing moral truths, instilling moral convictions within human nature, and reinforcing those moral truths through scripture. Religious believers who follow God’s path will be moti- vated to follow God’s established moral truths, perhaps more so than non-believers who view ethics as a purely human invention. This classic view of religious ethics raises two questions:

1. Is God the creator of moral values? 2. Do religious believers have better access to moral truth than non-believers?

Regarding the first question—whether God creates moral values—a position called divine command theory answers yes: Moral standards are created by God’s will. In essence, God creates them from nothing, not even basing them on any prior standard of reason or logic. God pronounces them into existence through a pure act of will. There are two challenges that divine command theory faces:

1. It presumes in the first place that God exists, and that is an assumption that non- believers would reject from the start. Many religious believers themselves would hold that belief in God is a matter of personal faith, not absolute proof, and so we must be cautious about the kinds of activities that we ascribe to God, such as creating absolute moral truths.

2. The moral standards that God creates would be arbitrary if they were made purely as an act of the will without relying on any prior objective standard of reason. What would prevent God from willfully creating a random set of moral values, which might include principles like “lying is okay” or “stealing is okay”? God could also will- fully change his mind about which moral principles he commands. Maybe he could mandate that stealing is wrong on Monday, Wednesday, and Friday, but that stealing is okay during the rest of the week.

Many ethicists throughout history—even ones who were devout religious believers—have rejected divine command theory for this reason. To avoid arbitrariness, it seems that moral- ity would need to be grounded in some stable, rational standard, such as with Plato’s view of absolute moral truths. That is, God would merely endorse these absolute moral truths because they seem rationally compelling to him; he does not literally create them from noth- ing. If morality, then, is really grounded in preexisting objective truths, then we humans can discover them on our own and do not need to depend on God for our moral knowledge.

Again, the second question raised by the classic view of religious ethics is whether believers have better access to moral truth than non-believers. The answer to this throughout much of history was yes: Religion is an essential motivation for moral conduct. To behave prop- erly, people need to believe that a divine being is watching them and will punish them in the afterlife for immoral conduct. The French moral philosopher Voltaire (1694–1778) famously stated that if God did not exist, it would be necessary to invent him, precisely because moral behavior depends so much on belief in divine judgment (Voltaire, 1770). In more recent times, this position has fallen out of favor, and there is wider acceptance of the view that believers are not necessarily more moral than non-believers.

One reason for this change in attitude is that our society as a whole has become much more secularized than Voltaire’s was, and, from our experience, non-believers do not appear to be particularly bad citizens. Also, it appears that believers fall into the same moral traps as everyone else.

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Section 1.2 Ethics and Psychology

The upshot is that both components of classic religious ethics are difficult to establish: It is not clear that God creates moral values, assuming that God exists, and it is not clear that believers have a special advantage in following moral rules. It is undeniable that, for many believers, religion is an important source of moral inspiration, and that fact should not be minimized. Undoubtedly, this is true for the above-mentioned members of the Center for Christian Busi- ness Ethics Today.

At the same time, however, there are plenty of nonreligious motivations to do the right thing, such as a fear of going to jail, a desire to be accepted by one’s family and friends, or a sense of personal integrity. In the business world there are additional motivations to be moral, such as the desire to avoid lawsuits, costly fines, or tarnishing the company name.

What Would You Do?

One of the consequences of religious ethics in the workplace is the shaping of company policy in ways that sometimes clash with secular social norms. Retail arts and crafts supply chain Hobby Lobby is a case in point. The company, based in Oklahoma City, opposed on religious grounds a Federal government requirement to provide emergency contraception as part of its employee healthcare benefits. Defending his company’s position, company founder and CEO David Green stated; “We’re Christians, and we run our business on Christian principles . . . Being Christians, we don’t pay for drugs that might cause abortions” (Green, 2012). The case went to the Supreme Court, which, in a landmark decision, ruled in favor of the company on the grounds that the Federal law posed a substantial burden on the company’s exercise of religion (Burwell v. Hobby Lobby Stores, Inc., 2014).

1. Suppose that you were a Supreme Court Justice deciding this case. One factor in the case involved balancing Hobby Lobby’s religious interests against society’s larger interest in allowing women access to emergency contraception. How would this affect your decision as a Supreme Court Justice?

2. One of the issues in this case was whether corporations are entitled to religious freedom in the ways that individuals are. How would this affect your decision as a Supreme Court Justice?

3. In this case, the Supreme Court recognized that its decision in favor of Hobby Lobby could lead to “a host of claims made by litigants seeking a religious exemption” on other religion-related issues. How would that affect your decision as a Supreme Court Justice?

4. Suppose that you are a female cashier at Hobby Lobby and did not share David Green’s religious convictions on the issue of emergency contraception. Would you protest, or quit, or just live with it? Be sure to provide a rationale for your answer.

1.2 Ethics and Psychology An important set of ethical issues involves our psychological makeup as human beings. There is no doubt that our personal expectations, desires, and thought processes have an impact on what motivates us to behave morally. Thus, the question of “where does morality come from?” might be at least partially answered by looking at human psychology. In this section, we will

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Section 1.2 Ethics and Psychology

look at two central issues of moral psychology: One focuses on our psychological inclination to be selfish, and the other on how gender shapes our moral outlook.

Egoism and Altruism

When Hurricane Sandy pounded the U.S. East Coast, the home improvement company Lowe’s teamed up with the Red Cross to deliver financial assistance and disaster relief to stricken areas. Lowe’s CEO stated “Our thoughts are with all the families who have been impacted by this historic storm, and we’re focused on working closely with our partners in the days and months ahead to deliver funding, supplies and volunteer support to the hardest-hit areas. . . . We’re proud to stand by the Red Cross as they continue to respond to the needs of local com- munities” (Business Wire, 2012).

Some years earlier Lowe’s provided similar disaster relief to areas impacted by Hurricane Katrina. Why does it do this? Is it purely from a sense of goodwill towards those in need, or does the company expect to get some benefit out of it, such as free publicity? We can ask this same kind of question about our conduct as individuals: Are we capable of acting solely for the benefit of others, or do we always act in ways that ultimately benefit ourselves? There are two competing theories that address this question:

• Psychological egoism: Human conduct is selfishly motivated and we cannot per- form actions from any other motive.

• Psychological altruism: Human beings are at least occasionally capable of acting selflessly.

Both of these theories are “psychological” in the sense that they are making claims about what internally motivates human behavior.

Psychological egoism maintains that all of our actions, without exception, are motivated by some selfish drive. Even when I am doing something, like donating to charity, that appears to be purely for the benefit of someone else, there are hidden selfish motives at work within me and I am only acting to benefit myself. Maybe through my charitable action I secretly hope that I will receive a Citizen of the Year award; perhaps I desire to hear the recipient of my charity thank me with gushing words of appreciation so that I can feel good about myself.

The English philosopher Thomas Hobbes (1588–1679) argued that all acts of charity could be reduced to our private desire to exercise control over

Diane Bondareff/ASSOCIATED PRESS

Do companies like Pfizer Consumer Healthcare, whose employees worked to rebuild homes destroyed by Hurricane Sandy as part of the compa- ny’s Advil Relief in Action campaign, act charitably out of a sense of goodwill towards those in need, or do they expect to get some other benefit out of it?

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Section 1.2 Ethics and Psychology

other people’s lives. For Hobbes (1650/1811), I am the one who decides whether a poor per- son will have enough food to eat today, and I am on a private power trip if I help that person out. A psychological egoist would look at Lowe’s with similar suspicion: The company’s pub- lic acts of charity are great public relations tools that associate their name and products with social responsibility. Through press releases and advertisements, Lowe’s spreads the news of its charitable work far and wide.

The rival theory of psychological altruism concedes that much of our human conduct is indeed motivated by selfish desire. But, according to the altruist, there is more going on with us psy- chologically than just that. We have the capacity to break free of the grip that selfishness has on us and at least occasionally act purely for the betterment of other people. Perhaps we have an instinct of human kindness that exhibits itself when we see people who are truly in need. Our hearts go out to them and we want to help, regardless of whether there is any benefit to ourselves. Maybe some of that is behind Lowe’s charitable programs. Its corporate officers and managers are personally moved by tragedies such as Hurricane Sandy and recognize that Lowe’s has unique resources to help. The public relations benefit it gains from those acts is secondary, and the spark that ignites its charitable response is genuine concern.

Like the dispute between objectivism and relativism, this debate between psychological ego- ism and altruism will not be resolved any time soon. But even if psychological egoists are correct that all of our actions are selfishly motivated, the fact remains that human beings do perform acts of charity, and, morally speaking, it is good for us to do so. Other people still benefit from my charitable actions even if I am motivated by a personal power trip, as Hobbes suggests, and that still counts as moral. In some ways, the theory of psychological egoism is liberating because it does not require us to have purely selfless motives behind all of our actions. Rather, we can admit that our actions are guided by self-interest, yet at the same time direct our self-interest in ways that also benefit others. In the business arena, what matters is that Lowe’s engages in charitable projects, regardless of whether its main motivation is to bolster its corporate image.

Gender and Morality

An area of great interest in the business world today is how having top-level female lead- ers affects company profits and management style. One study suggests that the largest U.S. companies led by women perform three times better than those run by men. An explanation offered by the researcher conducting this study is that women have to work harder than men to become CEOs, and thus represent the cream of the crop (Wechsler, 2015).

Another study suggests that businesses led by women place a higher value on social respon- sibility than do those led by men. According to the study, “women are taking the lead in show- ing that profit and social responsibility can go hand-in-hand” (Renaud, 2011). Women tend to look for a balance between profits and non-economic goals such as environmental sus- tainability, charity, and community involvement. Is this study flawed? That is, do business- men and businesswomen really have differing attitudes about the role of ethics within their companies?

Underlying this question is the issue of whether men and women generally speaking have different ways of thinking about morality. The long-standing assumption about morality has

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Section 1.2 Ethics and Psychology

been that there is only one way of thinking about it, regardless of gender. There are moral rules that guide our conduct; we all need to learn those rules and follow them in our behavior. It is much like any other task that we perform: If I am playing a sport, performing on a musi- cal instrument, or operating a circular saw, there are clear rules for how I should proceed. Regardless of whether I am male or female, if I do not follow those rules, I will not be good at the task. So too with morality: Men and women alike need to understand the rules of ethics and follow them in order to be morally good people.

However, in recent years, this one-size-fits-all assumption about morality has been called into question based on a reexamination of the different psychological tendencies of men and women. Consider the types of college majors that attract men and women, respectively. Some are very male dominated, such as mathematics, physics, and engineering. Others are domi- nated by women, such as psychology, social work, nursing, and education. Perhaps this sug- gests that men have a thought process that emphasizes rules and are thus attracted to those disciplines that emphasize them. Women, by contrast, place greater value on nurturing and caring for others and are thus attracted to those disciplines. It is hotly debated whether this or other possible gender differences are the result of biological instinct or social conditioning, and no resolution may come on these issues any time soon. But it still remains a valid question whether male and female think- ing, as it currently stands, is split between these two tendencies. Thus, it may well be that these gender differences are operat- ing on our conceptions of moral- ity: For men, morality mainly involves following rules, and for women, it mainly involves caring for others.

A recent theory called care ethics, developed by psycholo- gist Carol Gilligan, advances this view, maintaining that women see morality as the need to care for people who are in situations of vulnerability and dependency. For Gilligan, the ethics of care is about connecting with others and being responsive in rela- tionships rather than deducting moral rules with mathematical- type reasoning. Advocates of this view are not suggesting that we should leave the task of caring and nurturing to women, while letting men adhere to their rule- following inclinations. Rather, the task of moral care falls upon all of us.

Anonymous/PepsiCo Inc./ASSOCIATED PRESS

Are female CEOs like PepsiCo’s Indra Nooyi more predis- posed to integrate social concern with profit-driven busi- ness goals?

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Section 1.3 Moral Standards

1.3 Moral Standards So far we have looked at where morality may come from and how it may be shaped by human psychology. Although these theories are important for telling us about the nature of morality, they do not necessarily tell us how we should behave and what the moral standards are that we should follow.

We turn next to that issue and explore three approaches to moral standards: virtue theory, duty theory, and utilitarianism.

Virtues

One of the strangest business stories in recent years is that of Bernard Madoff, who scammed investors out of $65 billion in a Ponzi scheme. He started out as a small-time investment man- ager, but by courting wealthy investors from around the globe, he eventually built his roster of clients up to 4,800. Offering a steady return of about 10% per year, he covered these payouts with money coming in from new investors. However, when his clients rushed to withdraw $7 billion during a major stock-market decline, he could not cover those expenses and he confessed to the fraud.

The humiliation for Madoff ’s whole family was so great that he and his wife attempted suicide, and shortly afterward their son did kill himself. When we look at Madoff as a human being, we see that his immoral busi- ness conduct was a consequence of his flawed character. His desire for money, power, and a lavish lifestyle became so excessive that it created a trap for him from which he could not break free. He had what moral philosophers call vices: bad habits of character that result in a seri- ous moral failing. He was unjust, deceitful, intemperate, overambi- tious, and immodest. What Madoff lacked were virtues—the opposite of vices—which are good habits of character that result in morally

proper behavior. He did not have the virtues of justice, truthfulness, temperance, restraint, and modesty.

Virtue theory is the view that morality is grounded in the virtuous character traits that peo- ple acquire. The ancient Greek philosopher Aristotle (384 BCE–322 BCE) developed the most influential analysis of virtues, which even today is considered the standard view of the sub- ject. It all begins with our natural urges.

Jeff Daly/ Picture Group/ASSOCIATED PRESS

These shoes, once owned by Bernie Madoff, were put up for auction by U.S. Marshals along with many of his other belongings to help repay the victims of his crimes.

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Section 1.3 Moral Standards

For example, we all have natural desires for pleasure, and we automatically gravitate towards pleasurable activities such as entertainment, romance, eating, and even social drinking. With each of these pleasurable activities, though, there are three distinct habits that we can develop. On the one hand, we might eat too much, drink too much, and become addicted to all sorts of pleasurable activities. This is the vice of overindulgence. At the opposite extreme, we might reject every form of pleasure that comes our way, and live like monks locked in their monastery cells. This is the vice of insensibility, insofar as we have become desensitized to the happiness that pleasures can bring us.

There is, though, a third habitual response to pleasure that stands midway between these two extremes: We can enjoy a wide range of pleasures in moderate amounts, and this is the virtue of temperance. In Madoff ’s case, we can say that he was driven by the desire for wealth, habit- ually overindulged in the acquisition of it, and completely lacked the virtue of temperance.

According to Aristotle, most virtues and vices match this scheme:

• There is a natural urge (such as the desire for pleasure), • there is a vice of excess (such as overindulgence), • there is a vice of deficiency (such as insensibility), and • there is a virtue at the middle position between the two extremes (such as

temperance).

Take the virtue of courage, which is driven by our natural fear of danger. If we take courage to excess, we develop the vice of rashness, where we lose all fear of danger and rush into hazard- ous situations that might kill us. If we are deficient in courage, we become timid and develop the vice of cowardliness. The virtuous middle ground of courage is one in which we respect the dangers before us but, when the circumstances are right, we rise above our fears.

A large part of our childhood involves cultivating virtuous habits and avoiding vicious ones, and during our formative years our parents bear much of the responsibility to shape us in virtuous directions. As I become older, though, the responsibility becomes mine alone, and I must think carefully about exactly where that virtuous middle ground is. How much habitual eating can I do before I become overindulgent? How much can I habitually hide from danger before I become a coward? Finding that perfect middle ground, Aristotle says, is not easy, but it is something that the moral person must figure out nonetheless. Madoff did not even come close. His desires for wealth, power, and fame were so all-consuming that the virtue of tem- perance became out of reach for him.

Duties

A small computer software company named Plurk accused the software giant Microsoft® of computer code theft. The product in question was blogging software that Microsoft devel- oped for its market in China and which it hoped would catch hold in that country the way Facebook has in the United States. Around 80% of the computer code for Microsoft’s prod- uct was lifted directly from blogging software created by Plurk. Microsoft apologized for the episode and said that the fault rested with an outside company it had hired to develop the blogging software. It was that outside company that copied Plurk’s computer code (Nystedt,

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Section 1.3 Moral Standards

2009). The irony is that Microsoft zealously guards against software piracy and code theft of its own products, but here it did that very thing, even if only indirectly. In this situation, there was no moral gray area: Theft is wrong, the evidence for code theft was incontestable, and Microsoft had no choice but to immediately admit to it and apologize.

This Microsoft case highlights the fact that there are at least some principles of morality that we all clearly recognize and endorse. One moral theory in particular emphasizes the obvious and intuitive nature of moral principles. Duty theory is the position that moral standards are grounded in instinctive rational obligations—or duties—that we have. It is also called deon- tological theory, from the Greek word for duty. The idea behind duty theory is that we are all born with basic moral principles or guidelines embedded in us, and we use these to judge the morality of people’s actions.

There are two approaches to duty theory. First, some moral theorists hold that we have a long catalog of instinctive obligations. The list of the Ten Commandments is a classic example. Among those listed are obligations not to kill, steal, bear false witness, or covet your neighbor’s things. These are all basic moral principles that cultures around the world have endorsed from the earliest times. If you are thinking about stealing computer code, these principles tell you that it would be wrong to do so. With enough principles like these, we will have some standard for

judging a wide range of human actions. Many moral philosophers have devel- oped and expanded the list of our intui- tive duties beyond the Ten Command- ments to include a few dozen of them.

The second approach is that there is a single instinctive principle of duty that we all should follow; the Golden Rule is the best example of this. That is, I should do to others what I would want them to do to me. If I am thinking about stealing someone’s computer code, I should consider whether I would want someone to steal my code. So too with good actions: When con- sidering whether I should donate to charity, I should consider how I would feel if I were a needy person depen- dent on the charity of others. Like those in the Ten Commandments, the Golden Rule is a time-honored moral principle that we find in cultural tra- ditions around the world, dating back thousands of years.

In more recent times, one of the most influential theories of duty is that developed by the German philoso- pher Immanuel Kant (1724–1804).

Immanuel Kant (1724–1804) developed the cat- egorical imperative, which is a moral principle that we should treat each person as an end, and never merely as a means to an end.

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Section 1.3 Moral Standards

Inspired by the Golden Rule, Kant offered a single principle of moral duty, which he called the “categorical imperative”— a term which simply means “absolute command” (1785/1996). Kant offers four versions of the categorical imperative, but the most straightforward one is this: Treat people as an end, and never merely as a means to an end. His point was that we should treat all people as beings that have value in and of themselves, and not treat anyone as a mere instrument for our own advantage.

There are two parts to his point. The first involves treating people as ends that have value in and of themselves. We value many things in life, such as our cars, our homes, and a good job. Most of the things we value, though, have only instrumental value—that is, value as a means for achieving something else. Our cars are instruments of transportation. Our homes are instruments of shelter. Our jobs are instruments of obtaining money.

Other times, though, we appreciate things because they have intrinsic value: We value them for the special qualities that they have in and of themselves, and not because of any instru- mental value that they have. The experience of human happiness has intrinsic value, and so too do experiences of beauty and friendship. The first part of the categorical imperative, then, says that we should treat all people as beings with intrinsic value and regard them as highly as we would our own happiness. If I steal someone’s computer code, I am not respecting the owner the way I value my own happiness. The second part of the categorical imperative is that we should not treat people as things that have mere instrumental value. People are not tools or objects that we should manipulate for our own gratification. If I steal someone’s com- puter code, I am using the owner for my own gain.

Like the Golden Rule, the categorical imperative provides a litmus test for determining whether any action is right or wrong. It not only detects immoral actions such as lying and stealing, but it also tells us when actions are moral. When I donate to charity, for example, I am thinking of the value of the needy people who will benefit from my contribution; I am not merely thinking of any benefit that I may receive through my charity.

In the business world, there are occasionally times when an action is so obviously wrong that there is no point in defending it. That was true of Microsoft and also of Madoff, who imme- diately admitted to his crime once his company became insolvent. In cases like these, duty theory is at its best.

In other cases, though, morality is a little blurry. Napster is a good example. A decade before BitTorrent, Napster was the first widely used peer-to-peer file-sharing program, and it enabled users to easily pirate MP3 music files, directly violating the copyrights of record companies. While this at first appears to be a clear case of a software product that intentionally enabled users to steal, many people within the music industry itself defended Napster. Record compa- nies had become stuck in their old ways of selling records and CDs and had not developed a good mechanism for consumers to purchase MP3 files at a reasonable price. Napster entered the music market as a rogue competitor and forced record companies to be more responsive to the needs of their consumers. As a consequence, Napster helped jumpstart legal methods of purchasing MP3 files on websites such as iTunes and Amazon.com; in that way, it provided a new and innovative business model for the music industry. Duty theory may not be well suited for making moral pronouncements in complex cases like Napster’s; other moral theo- ries discussed in this chapter may need to be drawn upon. However, duty theory is sufficient to make moral pronouncements against illegally file-sharing music and movies on BitTorrent.

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Section 1.3 Moral Standards

Mechanisms are now in place to purchase these digital products legally, and obtaining them on BitTorrent is blatant theft.

Utilitarianism

CVS Health recently stopped the lucrative business of selling cigarettes in its 7,600 U.S. stores. The reason, it said, is that it “is simply the right thing to do for the good of our customers and our company. The sale of tobacco products is inconsistent with our purpose—helping people on their path to better health” (CVS Health, 2014). Tobacco use is certainly unhealthy, and the Center for Disease Control says that it is responsible for nearly half a million deaths in the United States per year (Centers for Disease Control and Prevention, 2014). But with regards to CVS’s decision, is there more going on than simply doing the right thing?

All businesses make decisions based on a cost-benefit analysis: They research both the costs and the benefits of a particular decision, then determine whether the costs outweigh the benefits or vice versa. We do not know the confidential details of CVS’s cost-benefit analysis of its tobacco decision, but the public relations advantages are clear, and if other pharmacy companies feel pressure to do the same thing, this would level the playing field

for CVS. Ultimately, CVS is gambling that the long-term economic advan- tages of its decision will outweigh the short-term losses.

Cost-benefit analysis is the distin- guishing feature of the moral theory of utilitarianism: An action is morally right if the consequences of that action are more favorable than unfavorable to everyone. When determining the morality of any given action, we should list all of the good and bad conse- quences that would result, determine which side is weightier, and judge the action to be right if the good outweighs the bad.

There are three components to this theory. First, it emphasizes conse- quences. One of the founders of clas- sical utilitarianism was the British philosopher Jeremy Bentham (1748– 1832), who argued that by focusing on consequences of actions we make our moral judgments more scientific (1789/1907). To ground morality in the will of God requires that we have a special ability to know God’s thoughts. To ground morality in conscience or

Nmg/ASSOCIATED PRESS

Jeremy Bentham (1748–1832) developed the moral principle that we now call the utilitarian calculus, which determines morality by numerically tallying the degree of pleasure and pain that arises from our actions.

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Section 1.3 Moral Standards

instinctive duties requires that we have special mental faculties and know how to use them properly. None of this is precise, and it all relies too much on hunches. According to Bentham, a more scientific approach to morality would look only at the facts that everyone can plainly see, and consequences of actions are those facts. If I steal a car, there are very clear conse- quences: I gain a vehicle, but I cause financial harm and distress to the victim and put myself at risk of a long stay in prison. We all can see these consequences and assess their weights. Bentham held that we can even give numerical values to the various consequences and math- ematically calculate whether the good outweighs the bad, a practice that we now call the utili- tarian calculus. Not all utilitarians go this far, but it does highlight the central role that publicly observed consequences play in the utilitarian conception of morality.

The second component of utilitarianism is that it focuses on the consequences of happiness and unhappiness. While businesses assess costs and benefits in terms of financial gains and losses, utilitarianism focuses instead on how our actions affect human happiness. Some utili- tarians, like Bentham, emphasize pleasure and pain; others emphasize goodness and bad- ness; and still others emphasize overall benefit and disbenefit. What they have in common, though, is that moral conduct is in some way linked with human happiness and immoral con- duct with unhappiness.

The third component of utilitarianism is that we need to assess the beneficial consequences of actions as everyone is affected. If I am thinking about stealing a car, I need to consider the consequences of my conduct for myself, my family, the victim, the victim’s family, and anyone else who might be affected by my action. This is reflected in utilitarianism’s famous motto that we should seek the greatest good for the greatest number of people. Utilitarianism does not necessarily aim to benefit the majority of people, but rather to maximize the overall amount of happiness resulting from a decision. For example, abolishing racial segregation in the U.S. South may have been unpleasant for the White majority as a whole, but that was counter- balanced by a much greater degree of unhappiness that segregation created for the Black minority as a whole.

There is an important down side to utilitarianism, though, which its critics frequently point out. What if, for example, retaining racial segregation had created more total happiness for the White majority than the total unhappiness for the Black minority? Retaining segregation, then, would have been morally justifiable on utilitarian grounds. More generally, the problem is that sometimes a recognizably evil course of action will produce the greatest amount of happiness. Utilitarians have proposed different strategies for working around this problem, but the problem is nevertheless a lingering one. This does not mean that utilitarianism should be discarded as a moral guideline, and, in fact, utilitarian thinking is so embedded in human moral reasoning that it would be impossible to do so. What it does mean is that utilitarian decisions should sometimes be supplemented with other moral standards, such as duties or virtues.

Because businesspeople are so familiar with financial cost-benefit analysis, utilitarianism is a natural way to make moral assessments for business decisions. If CVS’s decision to stop selling tobacco allows it to better position itself and its stakeholders in the healthcare industry, then its move will be justified on utilitarian grounds. If, on the other hand, the company and its stakeholders reap no future benefits but only incur disbenefits from the decision, then it was not justified. CVS clearly believed that it was worth the gamble, and only time will tell.

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Section 1.4 Morality and Government

1.4 Morality and Government In this final section, we will examine some moral theories that pertain to governments and the laws that they create. From the start, it is important to look at the boundaries that sepa- rate morality and laws. What they have in common is that they both command us to behave in certain ways, and often their edicts are the same. It is immoral to steal, and it is also illegal. It is immoral to assault someone, and it is also illegal.

However, there are many instances where morality and legality do not overlap. Adultery, for example, is immoral, but in the United States it is not illegal in most states. So, too, with cheat- ing on school exams: It’s wrong, but you will not go to jail for it. Similarly, there are some actions that are illegal but not immoral. Driving 36 miles per hour in a 35-mph zone is illegal but not necessarily immoral. Some instances of mercy killing may be morally justifiable, even though they are currently illegal. The lesson here is that morality is often consistent with leg- islation and may even be an important source of inspiration for the law, but it is not the last word on their relationship.

In business ethics, it is sometimes important to consider issues of morality and legality sepa- rately. Perhaps we will find some immoral actions in business that are not illegal but should be. We may find some morally permissible actions that are illegal, but should be made legal.

The three main issues that we will focus on are social contract theory, human rights theory, and theories of governmental coercion. The driving questions here are: What is the origin of governmental authority? What is the main purpose that governments serve? What are the limits to the laws that governments can create?

The Social Contract

Business by its very nature is competitive; one company tries to draw customers away from rival companies, perhaps to the point of putting the rivals out of business. Sometimes efforts to succeed can go too far and involve intentionally sabotaging the competition by stealing trade secrets, publishing misleading attack ads, or even vandalizing property. For example, an owner of a pizza restaurant in Philadelphia was charged with releasing mice into two compet- ing pizzerias. The owner went into the bathroom of one competitor and placed a bag of mice in the drop ceiling. He then crossed the street, entered a second one, and placed another bag of mice into a garbage can. When caught and arrested, he claimed that he was just getting even for his competition doing the same thing to him (Kim, 2011).

Even though competition in business is at times surprisingly vicious, there are still require- ments for civil behavior and limits on how far one can go to defeat the competition. Without those requirements, business competition would descend into gang warfare and ultimately destroy the economic playing field that is required for businesses to even exist.

This is the rationale behind social contract theory: We agree to set aside our hostilities toward each other in exchange for the peace that a civilized society offers. The champion of this view is Thomas Hobbes, who, as we saw earlier, defended the theory of psychological egoism. Hobbes began by having us think about what the world would be like if there were no governments and laws to keep society peaceful. In his words, what would the state of

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Section 1.4 Morality and Government

nature be like, with every person seeking to survive in competition with everyone else, without the protection of the govern- ment? His answer was that it would be a condition of war between each person, and two factors make this so:

1. First, life’s necessities are scarce, and it is a constant struggle for us to adequately supply our basic needs, such as food, clothing, and shelter.

2. Second, we are not by nature generous, and we will not be inclined to share what we have with others.

As a psychological egoist, Hobbes held that we will always be interested in our own personal interests and that we are not capable of acting toward others with true altruism. If we were capable of acting selflessly, then we would peacefully divide up the scarce resources that we all need. If I found an apple, and then saw that you were hungry, I would naturally be inclined to split the apple with you. However, according to Hobbes, we are not naturally selfless and, instead, our natural inclina- tion towards selfishness prevents us from doing this. The result, then, is that the state of nature is really a state of war, which he vividly describes here in a famous passage:

In such condition there is no place for industry, because the fruit thereof is uncertain, and consequently, no culture of the earth, no navigation, nor use of the commodities that may be imported by sea, no commodious building, no instruments of moving and removing such things as require much force, no knowledge of the face of the earth, no account of time, no arts, no letters, no society, and which is worst of all, continual fear and danger of violent death, and the life of man, solitary, poor, nasty, brutish, and short. (Hobbes, 1651/1994)

Within the state of nature, there is no point in my even trying to grow a garden, build a home, or furnish it: Someone would just come along and take it from me by force.

How, then, do we escape from the horrible conditions of the state of nature? The answer for Hobbes was the social contract, which has three steps:

1. First, I must recognize that seeking peace is the best way for me to preserve my life. I will always be selfish, and that will never change. However, I must see that I can bet- ter my own situation by seeking peace with my competition.

Thomas Hobbes (1588–1679) was a British phi- losopher who developed the concept of the social contract, famously claiming that in the state of nature the life of a human is “solitary, poor, nasty, brutish, and short” (1651/1994).

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Section 1.4 Morality and Government

2. Second, I must negotiate a peace settlement with you: I will set aside my hostilities toward you if you set aside your hostilities toward me. If we mutually agree to be civil to each other, then we will both have the hope of living better lives.

3. Third, we must establish a governmental authority that will punish us if we break our agreement. Talk is cheap, and I can verbally agree to a peace treaty with you but then attack you when your guard is down. And you can do exactly the same thing to me. But if we create a policing power to watch over us, then I will be strongly motivated to hold to my agreement with you, and so will you.

In the business world, it is essentially a social contract agreement that keeps us from sabo- taging our competitors. Just like the restaurant owner who put mice in his competitor’s res- taurants, our natural selfish inclination might be to destroy our competition by any means necessary, but doing so would lead to a savage state of war in which we would all be losers. The best business strategy, then, is a negotiated peace settlement where all businesses play by a set of rules. To keep us from cheating, there are governing bodies, such as governments and professional business associations, that can punish us when we break the rules. Business is still motivated by self-interest, but it is now constrained to be civil.

Human Rights

The U.S. Civil War was in many ways the result of a business ethics dispute. The earli- est Spanish settlers of North America brought African slaves with them to help culti- vate the land and build towns, and slavery quickly became integral to business activities throughout the colonies. By the time of the American Revolution, slavery in the North had declined, partly because of a manufacturing economy in which it cost more to own and maintain slaves than the slaves could economically produce. However, in the agricultural economy of the South, slave labor was still considered cost effective. As the antislavery movement took hold, Southern slaveholders asked who would compensate them for their financial investment in their slaves if the slaves were to be freed. There were no clear answers to this question, and so the slaveholders saw abolitionism as a direct threat to their economic rights. They saw the North as posturing to take away what they considered their human property and thereby undermine their capacity to compete in the agricul- tural marketplace.

We now see slavery as one of the worst chapters in American history, regardless of the eco- nomic arguments of the slaveholders. And even today, we are horrified to hear of slavery-like conditions around the world, where laborers are sometimes kidnapped or otherwise coerced into working in sweatshops or on farms with grueling hours, horrible conditions, and meager pay. We see these as rights violations that can never be morally justified by any economic benefit to the business owner.

The central idea here is that of a right, which is a justified claim against another person’s behavior. For example, I can rightfully claim that you cannot steal from me, torture me, enslave me, or kill me. I am making a claim about what you can and cannot do. When asserting our various rights, it is important to distinguish between two types:

• Legal rights are those created by governments. The government, for example, has established laws that grant me the right to drive when I reach a certain age, or carry certain types of weapons, or visit publicly owned parks.

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Section 1.4 Morality and Government

• Human rights—also called natural rights—are not created by governments but are rights all people around the world have, regardless of the country in which they live. The rights against slavery and torture are commonly listed among these.

There are three distinct features of human rights:

• They are natural in the sense that we are born with them. They are not given to us by the government or any other human institution but are part of our identity by our merely being born as human beings.

• They are universal in that all humans worldwide possess them. No matter who you are or where you live, you have human rights.

• They are equal in the sense that we all have the same list of fundamental human rights, and no one has more or fewer than another person.

The English philosopher John Locke (1632–1704) first developed the concept of human rights, arguing that by nature everyone has the basic rights to life, health, liberty, and posses- sions. God gives us these when we are born, and we retain them throughout life, so long as we do not violate the rights of others. For Locke, the right to acquire possessions was the source of our economic freedom and the ability to conduct business transactions. Once I rightfully acquire possessions, I can keep them or sell them as I see fit. However, just as Hobbes warned, the world is a nasty place, and many out there will want to violate my rights and take what I have. According to Locke, we establish governments specifically for the purpose of protecting our fundamental rights: We sub-contract to the government the job of keeping the peace. If the government adequately performs its task of protecting our rights, then we all benefit. If the government fails in that task, however, we have a right to overthrow the government and replace it with a better one that can more adequately do its job.

Thomas Jefferson, when penning the Declaration of Independence (1776), latched onto this exact part of Locke’s theory:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the pursuit of Happiness. That, to secure these rights, Governments are instituted among Men, deriving their just Powers

John Locke (1632–1704) was a British philosopher who developed the concept of natural rights and the right of citizens to overthrow governments that fail to protect their rights.

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from the consent of the governed. That, whenever any form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government.

Through Jefferson, the concept of human rights has become embedded into the American mind- set, and it has inspired countries around the world to similarly acknowledge human rights.

But the concept of human rights took its modern form through a document called the Univer- sal Declaration of Human Rights, which was adopted by the United Nations General Assembly in 1948. The Universal Declaration reiterates the same core set of human rights as Locke and Jefferson outlined: “Everyone has the right to life, liberty and security of person” (1948, Article 3). However, the document moves beyond these very general rights by listing a range of specific ones, such as these pertaining to businesses:

1. Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment.

2. Everyone, without any discrimination, has the right to equal pay for equal work. 3. Everyone who works has the right to just and favourable remuneration ensuring for

himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection.

4. Everyone has the right to form and to join trade unions for the protection of his interests. 5. Everyone has the right to rest and leisure, including reasonable limitation of working

hours and periodic holidays with pay. (Universal Declaration of Human Rights, 1948, Articles 23–24)

Although not all of the human rights listed in the Universal Declaration have yet become a reality around the world, it is nevertheless the standard toward which all countries within the United Nations have pledged to work.

What Would You Do?

Say you are a midlevel supervisor at a sportswear company that specializes in athletic footwear. You have just found out that some of your manufacturing facilities in Bangladesh hire child workers as young as age 10. They work 14 hours a day, 7 days a week, and receive wages as low as 20 cents an hour. You know that this is a clear human rights violation.

1. Would you discuss your moral concerns with your superiors in the company? Why or why not?

2. Suppose you did discuss your concerns with them and their response was essentially that this was standard practice in Asian countries and that what your company was doing was no different from any other company with textile facilities in those countries. Also, they noted, if your company set higher standards, it would not be able to compete in the marketplace. Would this explanation satisfy you? Why or why not?

3. Suppose that the response of your superiors was that they acknowledged the problem and were working on it, but that it would take several years before this practice could be eliminated. Would this explanation satisfy you? Why or why not?

4. Suppose that your company stated in its advertising and packaging that no child labor was used in manufacturing its products. You knew, however, that this was not true. Would you bring this to the attention of a government agency? Why or why not?

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Section 1.4 Morality and Government

Principles of Governmental Coercion

To effectively compete in the marketplace, businesses are continually pushing the boundaries of tasteful advertising. Presenting shocking and even offensive images in advertisements will attract attention and may generate sales. A quick online image search for “offensive adver- tisement” will reveal a range of troubling ads that are sexually explicit, demeaning to women or minority groups, or offensive to religious groups. A case in point is an advertisement by the Italian clothing company Benetton that contained an altered image of the Catholic pope romantically kissing a Muslim imam. In keeping with the company’s theme of multicultural- ism, a spokesperson said that “the meaning of this campaign is exclusively to combat the cul- ture of hatred in all its forms” (Rocca, 2011). When the Vatican threatened to sue, Benetton removed the ad.

While ads like Benetton’s may be offensive to some people, they nevertheless may be perfectly legal. That raises the question of how bad an action needs to be before the gov- ernment steps in and makes it illegal. All governments are coercive in the sense that they force us to conform to laws under threat of punishment. PepsiCo would not burn down Coca-Cola®’s company headquarters, even if it wanted to, because of how the government would punish it. But governments cannot randomly single out some actions as criminal and allow others to be legal. There are reasons why some actions are prohibited and oth- ers are not. There are four common justifications of governmental coercion: the harm principle, the offense principle, the principle of legal paternalism, and the principle of legal moralism.

The first is the harm principle: Governments may restrict our conduct when it harms other people. What counts as “harm,” though, is a critical question, and for the government to step in and outlaw harmful actions, the injury must be serious, not trivial. For example, the New York City Board of Health proposed a regulation to legally limit the size of sugary soft drinks available for sale in that city to combat rising adolescent obesity. Indeed, almost all fast-food products are harmful in comparison to organic, whole food alternatives. However, serving unhealthy food is far less serious than serving food tainted with salmonella, which causes severe illness and even death. Thus, the government cannot reasonably outlaw fast food, whereas it justifiably can outlaw salmonella-tainted food. In the sugary soft drink case, the New York court of appeals ruled that the proposed regulation exceeded the scope of New York City’s authority.

Second is the offense principle: Governments may keep us from offending others. We cannot walk naked through the streets, be publicly intoxicated, or shout obscenities in playgrounds. As with the harm principle, the offense principle also looks at the degree to which a particu- lar action is objectionable: Is it outrageously offensive or merely a nuisance? Benetton’s ad touches on this very issue. It was certainly offensive to specific groups of Catholics and Mus- lims, but whether it was deeply offensive to society at large is another matter. Benetton’s ad was legal, which means that in our present cultural climate, it was not offensive enough to be illegal.

Third is the principle of legal paternalism: Governments may keep me from harming myself. The term “paternalism” comes from the Latin word for father, which implies that the gov- ernment is overseeing my conduct in the way that parents try to protect their children. This is a sister concept to the harm principle. While the harm principle focuses on the harm our actions cause to other people, legal paternalism looks at the harm that we cause ourselves

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Section 1.4 Morality and Government

through our actions and maintains that the government can restrict such conduct. When the government mandates that I wear a seat belt when driving, the concern is principally with protecting me from my own careless conduct. But does the government have any business in doing this? Yet again, the question is one of degree. I can hurt myself by participating in a dangerous sport such as cliff diving or by working in a dangerous occupation such as tree trimming. But most of us feel that these risks do not go far enough to justify governmen- tal interference. However, with our stupidest and most dangerous actions, such as playing Russian roulette with a handgun, we may want the government to protect us from ourselves and make the action illegal.

Finally, there is legal moralism: Governments may restrict conduct that is especially sinful or immoral. Prime examples of this are laws against blasphemy and some sex acts. The ques- tion here is not whether a type of conduct is harmful to others, publicly offensive, or harmful to oneself. It is a matter of whether an act, even when done privately, crosses some moral boundary that justifies the government’s stepping in. Of all the principles of governmental coercion, legal moralism is probably the weakest. One reason is that many moral and religious standards vary widely, and by outlawing an action solely on moral or religious grounds, the government may be unfairly adopting the standards of one cultural group and applying them to everyone.

Although legal moralism may be the weakest of the four principles, some of the others may also be seriously questionable. The British philosopher John Stuart Mill argued that, in fact, only one principle of governmental coercion is justifiable—namely, the harm prin- ciple. The government has no right to restrict our conduct on the other three grounds. In Mill’s words:

The only purpose for which power can be rightfully exercised over any mem- ber of a civilized community, against his will, is to prevent harm to others. His own good, either physical or moral, is not a sufficient warrant. (Mill, 1859/1999)

The reason, according to Mill, is that a wide sphere of personal liberty is essential for a happy society, and that includes the possibility of offending others, harming ourselves, or crossing some traditional moral boundary. Do we want to decide for ourselves what makes us happy, or do we want the government to do so? From Mill’s perspective, I am a better judge of my own happiness than the government ever could be, and society on the whole will be a happier place when we are each allowed that freedom.

All of these principles of governmental coercion apply to businesses just as they do to individual people. For instance, although Benetton’s ad was offensive to some groups, the offense was not serious or widespread enough to justify its being illegal. But with many ad campaigns, merely being legal may not be good enough. Public opinion can be as coer- cive as any government-imposed restriction. If Microsoft, PepsiCo, or any other Fortune 500 company published an ad with the pope kissing a Muslim, the backlash would likely be financially crippling. Catholics and Muslims worldwide might boycott their products. Ben- etton is a much smaller company, with a specialized market niche and a history of using shocking ads to get consumers’ attention. Not so with Microsoft and PepsiCo, which have much broader customer bases worldwide. For them, consumer coercion is as powerful as governmental coercion.

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Conclusion In this chapter, we have looked at a wide spectrum of classic moral theories and showed how they apply to an equally broad spectrum of business ethics issues. These are moral theories that, a thousand years from now, will be just as important as they are today; in a sense, they define the moral thought process for humans. The philosophers who proposed these various theories were not always in agreement with each other; in fact, they rejected many rival moral theories. Bentham believed that all moral and social issues should be decided solely using the utilitarian principle, not through theories about religion, virtue, duty, social contracts, or human rights. Similarly, Kant believed that the categorical imperative was the single moral litmus test.

Exclusive claims like these in philosophy are much like efforts at brand loyalty in the business world. Walmart would like us to shop at only its stores. Coca-Cola would like us to drink only its beverages. ExxonMobil would like us to buy only its gas. However, in the real world, our pur- chasing habits are more diverse, and we are drawn to a range of different stores and products.

So too with moral theories: In the real world, when we reflect on moral issues, some theories will be more relevant or illuminating than others. Bentham’s utilitarianism may be helpful with some types of moral evaluations, but not with others. The same is true for the other theories that we have examined. We are trapped in a morally complex world that demands that we make moral choices. One way or another we will do that, and drawing on all of the various moral theories can help make the job easier.

In the following chapters of this book, all of the issues covered can be analyzed using these classic moral theories. As an author, though, I have not forced that approach. Issues such as price fixing, corporate punishment, consumer advocacy, insider trading, and others are challenging enough in their own right, without the added intricacies of a utilitarian or duty- theory analysis. Nevertheless, classic moral theories are always lurking in the background of most of these discussions. Does a particular government regulation serve the greatest good for the greatest number of people? Do affirmative action policies violate the rights of major- ity groups? Do we have special moral duties to protect the environment? A full evaluation of business ethics issues may greatly benefit from the contributions of classic moral theories.

To be sure, many business ethics issues covered in this book are heavily debated, such as the nature of capitalism, corporate personhood, and workers’ rights. However, these debates teach us that some of our most important social and economic values may not be as firmly established as we might think, and we must show respect toward those on the opposite side of the issue. We cannot be good business colleagues—or good citizens, for that matter—if we are contentious on value issues where reasonable people may disagree.

Summary & Resources

Chapter Summary We began this chapter looking at theories that explain where morality comes from and the debate between moral objectivism and moral relativism. Moral objectivists claim that moral standards are not created by human beings, are unchanging, and are universal. Moral relativ- ists hold the opposite view: Moral standards are created by human beings, change from soci- ety to society, and are not universal. Also relevant to the question of where morality comes

Summary & Resources

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from is the connection between religion and ethics. Divine command theory is the position that moral standards are created by God’s will, but we saw some challenges to this view. Reli- gious ethical theories also commonly hold that religious believers have a special moral abil- ity; we looked at challenges to this view as well.

We next looked at ways in which our human psychological makeup might affect how we view morality. One issue concerns our ability to act selflessly. Psychological egoists hold that human conduct is selfishly motivated and we cannot perform actions from any other motive. By contrast, psychological altruists hold that people are at least occasionally capable of acting selflessly. Also of relevance is how gender shapes our conceptions of morality. Care ethics is the theory that women see morality as the need to care for people who are in situations of vulnerability and dependency.

One of the central concerns of ethical theory is to present and explain the moral standards that guide our behavior. One such approach is virtue theory, which is the view that morality is grounded in the virtuous character traits that people acquire. According to Aristotle, virtues are good mental habits that regulate our urges and stand at a mean between vices of deficiency and vices of excess. Another approach is duty theory, which holds that moral standards are grounded in instinctive obligations. Some duty theories propose a list of obligations, such as the Ten Com- mandments, and others propose a single principle, such as the Golden Rule. Kant offered a single principle that he called the categorical imperative, which states that we should treat people as an end and never as a means to an end. A third approach is the theory of utilitarianism, which holds that an action is morally right if the consequences of that action are more favorable than unfa- vorable to everyone. Bentham developed the idea of the utilitarian calculus, whereby numerical values could be assigned to the positive and negative consequences of actions.

The final component of this chapter explored the relationship between morality and gov- ernment. One major theory how this relationship works is social contract theory. Hobbes described a warring state of nature generated by human selfishness and scarcity of necessi- ties. The solution is the social contract, which holds that we agree to set aside our hostilities toward each other in exchange for the peace that a civilized society offers. A second important theory on the relationship between morality and government is the concept of human rights. These are rights that are not created by government but are held equally by all people around the world, regardless of the country in which they live. The theory was developed by Locke, who held that by nature, everyone has the basic rights to life, health, liberty, and possessions. People establish governments for the purpose of protecting those fundamental rights, and governments can be overthrown when they fail to perform that task. A third theory on the relation between morality and government involves four principles of governmental coer- cion. They are the harm principle, whereby governments may restrict our conduct when it harms other people; the offense principle, which restricts our behavior that offends others; legal paternalism, which restricts an individual’s actions that harm him- or herself; and legal moralism, which restricts especially sinful or immoral conduct. Mill argued that only the harm principle is justified, and the other three are not.

Discussion Questions

1. There are several theories about where moral values come from, including moral objectivism, moral relativism, and divine command theory. Which, if any, of these

Summary & Resources

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theories works best when understanding the moral obligations of businesses? Why do you think this is so?

2. Assume that the theory of psychological egoism is true: All human actions are selfishly motivated. Is there a way that the decision-making process within a large corporation can overcome this fact of human selfishness? Could the corporation, for example, establish a charity program that was designed only to benefit the needy, with no public relations benefit to the company at all?

3. According to virtue theory, to be morally good people we should develop virtuous habits such as courage, temperance, wisdom, and justice. Can there be such a thing as a “virtuous corporation”? If so, what are the virtuous habits that it would need to have?

4. According to duty theory, there are fundamental principles of moral obligation that we all know instinctively, such as “do not kill or steal.” Are there any fundamental principles of business ethics that everyone in business automatically knows they should follow?

5. According to Kant’s theory of the categorical imperative, we should treat people as an end, and never merely as a means to an end. Think of an example in business that violates this principle and explain how it does that.

6. Consider the issue of child labor mentioned in the “What Would You Do?” feature box. Use a utilitarian analysis to determine whether use of such labor would be mor- ally permissible for your company.

7. The U.N. Universal Declaration of Human Rights (1946) lists several rights that per- tain to businesses (see that list in this chapter). Would you agree that all of those are genuine human rights? Explain.

8. There are four principles of governmental coercion that explain why the govern- ment is justified in restricting our actions. It is clear how the harm principle applies directly to businesses: Businesses should not engage in conduct that causes serious harm to others, such as by manufacturing unsafe products, dumping toxic waste, or creating unsafe working conditions for employees. Explain how the other three principles of governmental coercion might apply to business conduct.

Key Terms

care ethics The theory that women see morality as the need to care for people who are in situations of vulnerability and dependency.

categorical imperative The moral prin- ciple proposed by Immanuel Kant that we should treat people as an end, and never merely as a means to an end.

cost-benefit analysis The economic model- ing of a project to check whether the ben- efits outweigh the costs.

divine command theory The view that moral standards are created by God’s will.

duty theory The view that moral standards are grounded in instinctive obligations (duties).

ethics An organized analysis of values relat- ing to human conduct, with respect to an action’s rightness and wrongness.

Foreign Corrupt Practices Act A U.S. Federal law regulating the operation of U.S. companies in foreign countries, which includes an anti- bribery provision.

harm principle The view that governments may restrict our conduct when it harms other people.

Summary & Resources

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human rights Rights that are not cre- ated by government, but held by all people around the world regardless of the country in which they live.

legal moralism The view that governments may restrict conduct that is especially sinful or immoral.

legal paternalism The view that govern- ments can restrict the conduct of an indi- vidual who harms him- or herself.

legal rights Rights that are created by governments.

moral objectivism The theory that moral standards are not created by human beings, are unchanging, and are universal.

moral relativism The theory that moral standards are created by human beings, change from society to society, and are not universal.

offense principle The view that governments may keep us from offending others.

psychological altruism The theory that human beings are at least occasionally capable of acting selflessly.

psychological egoism The theory that human conduct is selfishly motivated and we cannot perform actions from any other motive.

right A justified claim against another per- son’s behavior.

social contract theory The moral and political theory that, to preserve our indi- vidual lives, we agree to set aside our hostili- ties towards each other in exchange for the peace that a civilized society offers.

utilitarianism The theory that an action is morally right if the consequences of that action are more favorable than unfavorable to everyone.

virtue theory The view that morality is grounded in the virtuous character traits that people acquire.

virtues Good habits of character that result in morally proper behavior.

Summary & Resources

Business Ethics Case Study 1.1: The Business of Teaching Business Ethics

Business leaders, politicians, and journalists express concern over regularly occurring ethical scandals in business. What can be done, they ask, to end this seemingly endless cycle? Frequently they point the finger at business schools for failing to teach future entrepreneurs even the basic elements of ethical business conduct. The place where students learn their business skills should also be the place where they learn ethics, they argue. Universities with business programs invariably agree with this judgment and for years have been integrating business ethics into their curriculum. Furthermore, for accreditation purposes, they must do this. The premier accrediting agency of business degree programs around the world is the Association to Advance Collegiate Schools of Business—better known as the AACSB. Its accreditation standards clearly mandate the inclusion of a strong ethical component in business degree programs:

• The school must encourage and support ethical behavior by students, faculty, administrators, and professional staff.

• [Curriculum content must include] ethical understanding and reasoning (able to identify ethical issues and address the issues in a socially responsible manner).

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• I will manage my enterprise with loyalty and care, and will not advance my personal interests at the expense of my enterprise or society.

• I will understand and uphold, in letter and spirit, the laws and contracts governing my conduct and that of my enterprise.

• I will refrain from corruption, unfair competition, or business practices harmful to society.

• I will protect the human rights and dignity of all people affected by my enterprise, and I will oppose discrimination and exploitation.

• I will protect the right of future generations to advance their standard of living and enjoy a healthy planet.

• I will report the performance and risks of my enterprise accurately and honestly.

• I will invest in developing myself and others, helping the management profession continue to advance and create sustainable and inclusive prosperity.

Summary & Resources

• [Curriculum content must include] social responsibility, including sustainability, and ethical behavior and approaches to management.

In addition, once students make their way through business programs, there is a special oath that several dozen universities now incorporate into ceremonies for their business graduates. Modeled after the Hippocratic Oath in medicine, this oath focuses on the ethical responsibility of graduates entering the business world. Its central components are shown in Figure 1.2.

The big question remains: What are students learning about ethics in their university business programs, and will any of that make them more ethical business people? There are rival techniques for teaching business ethics in universities, and this is the focus of much of the debate. The standard way of teaching the subject is that business students take a single class in business ethics, and not much else is said about ethics in the remainder of their courses. Within the business ethics class, the textbook covers some classic ethical positions, such as utilitarianism; some common abuses, such as insider trading; and some case studies, such as Enron. The instructor largely teaches from the textbook and embellishes the content with his or her own examples.

Figure 1.2: Sample business ethics oath

A number of universities in the United States incorporate an oath like this one into their business school graduation ceremonies.

Source: MBA Oath. (n.d.). Sign the oath. Retrieved from http://mbaoath.org/take-the-oath/mba-graduates-and-alumni /sign-the-oath/

• I will manage my enterprise with loyalty and care, and will not advance my personal interests at the expense of my enterprise or society.

• I will understand and uphold, in letter and spirit, the laws and contracts governing my conduct and that of my enterprise.

• I will refrain from corruption, unfair competition, or business practices harmful to society.

• I will protect the human rights and dignity of all people affected by my enterprise, and I will oppose discrimination and exploitation.

• I will protect the right of future generations to advance their standard of living and enjoy a healthy planet.

• I will report the performance and risks of my enterprise accurately and honestly.

• I will invest in developing myself and others, helping the management profession continue to advance and create sustainable and inclusive prosperity.

Business Ethics Case Study 1.1: The Business of Teaching Business Ethics (continued)

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http://mbaoath.org/take-the-oath/mba-graduates-and-alumni/sign-the-oath

Summary & Resources

Not good enough, critics say. If the goal of a business ethics class is to actually make business people more ethical, then the scandals in business show that this approach is a dismal failure. First of all, a single and isolated class on the subject will not create a permanent and proper habit of ethical thinking. According to Kabrina Chang, a Boston University business professor, “We need to hit the students hard when they first get here, remind them of these principles throughout their core classes, and hit them once again before they leave.”

Second, critics say, students need to grapple with specific issues using an “ethical decision- making framework”—that is, a step-by-step flowchart that lays out

1. the relevant known facts, 2. factors that remain unknown, 3. all the stakeholders and their respective concerns, 4. the possible solutions, and 5. the final decision.

Jared Harris, a business ethics professor at the University of Virginia, says of his course: “This isn’t a course in enumerating ‘good’ and ‘bad’ business practices. Rather, its focus is on helping students build their ethical decision-making frameworks by confronting difficult, nuanced cases where values play a role.”

Third, critics say, instilling a sense of moral responsibility in business is really all about moral leadership. According to the AACSB, research shows that most working adults are at a low level of moral development, in which they simply conform to the rules of the majority. What they need is a strong moral leader to show them how to behave properly. Thus, business programs should be training their students to be ethical leaders who will be “the greatest motivating force behind ethical conduct in business organizations.”

There are other suggested ways for universities to improve their approaches to business ethics. Perhaps universities should tighten up admissions policies for business programs by weeding out arrogant applicants. The University of California at Berkeley’s business school gives priority to applicants who have “confidence without attitude.”

Perhaps universities should create alumni networks that will enable business people to consult with their college study group friends on tough moral issues. According to a group of Yale University business professors, “Alumni often mention that the hardest decisions they make occur when job demands conflict with their values. And, importantly, that they are isolated when making them.”

Many of these new approaches to business ethics draw on research in cognitive psychology and behavioral economics. Rather than just guessing at the best way of teaching business ethics, maybe social science can tell us. The question for us is whether these methods actually succeed better than the old standard method. Here is a pessimistic answer: No classroom simulation of ethical decision making can duplicate actual on-the-job ethical experience. Real ethical situations have a level of complexity that classroom training can never approach.

For all we know, the most effective method of teaching business ethics is for a professor to simply yell non-stop for the entire semester: “Don’t break the law or be a selfish jerk!” While that might drive students a little crazy, it would certainly leave a lasting impression.

Business Ethics Case Study 1.1: The Business of Teaching Business Ethics (continued)

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Summary & Resources

In the absence of doing that, here is a more optimistic answer: Try everything, including ethical theories, case studies, ethical decision-making frameworks, and tightened admissions policies. As the examples throughout this book show, the stakes are high, lives depend upon it, and perhaps even civilization itself is at stake.

Discussion Questions

1. Which, if any, of the above methods of teaching business ethics do you think would be most effective, and why?

2. Discuss which of the above methods of teaching business ethics is used at your school. Do you believe your school teaches ethics effectively? Why or why not?

3. Think of a moral virtue that you have (such as not cheating on exams) and reflect on how you developed that virtue over the years. How might that type of moral development shed light on the best way of teaching business ethics?

4. The discussion here focused on the responsibility of universities to teach business ethics. How much blame is it fair to place on universities for the ethical failings of businesses? What should businesses themselves be doing about it?

Sources: AACSB International (2004), Association to Advance Collegiate Schools of Business (2013), Canales, Massey, & Wrzesniewski (2010), Gloeckler (2012), Korn (2013), MBA Oath (n.d.), Wishnoff (2012).

Business Ethics Case Study 1.1: The Business of Teaching Business Ethics (continued)

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