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— Lecture 2: Business Ethics – Normative Theory

Ethics & Governance

Dr Warren Staples

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Recap – Lecture 1

The course structure & assessment

Ethics & Morality

Ethics is important in Bus – cant be separated

Ethics & the Law

Management Morality

Corporate Governance

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Learning overview

Define moral philosophy, moral agency and moral responsibility

Discuss the three normative ethical theories/perspectives (moral philosophy) – consequential/teleological and non-consequential/deontological

Compare and contrast each of the normative ethical theories

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Moral Philosophy

Provides prescriptions i.e. tells us what we should/ought to do, how we should live our life and resolve ethical dilemmas

Provides justifications that are applicable to all people (unlike theological ethics) (Hartman & Desjardins, 2008)

Is primarily concerned with the individual person, not social groups such as business organisations

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Moral Agency & Moral Responsibility (1)

An agent in ethical theory (De George, 1992):

is any entity that acts and is subject to ethical rules,

is a rational being, and

is not an agent for anyone or anything else (e.g. once an agent accepts an ethical theory, he will be self-governing himself and hence will act in his best interests and no one/anything will influence his actions.)

A moral agent’s actions and acts can be evaluated in moral terms.

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Moral Agency & Moral Responsibility (2)

The central concept of moral agency is moral responsibility i.e. we can hold a moral agent morally accountable for his/her behaviour/actions

A moral agent needs to be rational (know what is right and wrong) and autonomous (have the right to choose an action)

Young children are not considered moral agents (the reason advertising to children is unethical)

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Moral Responsibility (1)

Morally responsible when:-

knowingly & freely performed the act

knowingly & freely failed to prevent the act

NOT morally responsible if:-

did not possess all relevant information

were unable to prevent the act

Relativism – actions relative to culture

Just a corporate justification/excuse?

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Moral Responsibility (2)

Harming employees

James Hardie – asbestos (1930’s)

Environmental degradation

Union Carbide – Bophal

BHP – Ok Tedi mine

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Ethical principles in principal-agent relationships

An agent acts for/represents a principal

Agents are not ethically allowed to do what the principals are not ethically allowed to do.

Agents cannot exonerate themselves for unethical actions. Agents are responsible for the actions they perform, whether they are under command or on behalf for another.

The principal is morally responsible for the actions of their agents. Agency involves the delegation of authority but not the complete delegation of responsibility.

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Virtue ethics

Moral philosophy: Three perspectives

School of Management

Teleological

Utilitarianism

Consequence based

Deontological

Kantian ethics

Justice ethics

Non-consequential

Duty based

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Consequential (Teleology or End-based) vs. Non-consequential (Deontology or Duty-based) Theories

Utilitarianism (1)

Utilitarianism: concerned with making decisions that promote greatest overall amount of good in the world.

An ethical decision is one that maximises good consequences over bad consequences for the greatest number of people.

Consequences include happiness (pleasure, health and satisfaction) and pain (sadness, sickness and disappointment).

Best decision is one that yields greatest net benefit.

Utility concerns “greatest good for the greatest number”. The emphasis is “majority”.

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Cost-benefit analysis fits with business decision making

Provides an objective and attractive way of resolving conflicts of self-interest

Fits into people’s intuitive criteria for deciding moral problem

Making ethical decisions based on the greatest good for the greatest number of people seems to have a logical basis

Utilitarianism (2)

Rule utilitarianism – Examine the consequences of having everyone follow a particular rule and calculate the overall utility of accepting and rejecting the rule. E.g. 1st class passengers in airline, 1 child policy.

Act utilitarianism – Examine the consequences of each individual act and calculate the utility each time the act is performed. E.g. firing Gatsby in L1’s exercise because it is in the best interests of Appleberg Electric company

Ferrell et al. (2005)

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Utilitarianism (3) - application

Define the problem

Identify the stakeholders that affected by the problem

List the alternative courses of action for resolving the problem

Identify and calculate the short- and long-term costs and benefits for each alternative courses of action

Select the one course of action that yields the greatest sum of benefits over costs for the greatest number of people.

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Utilitarianism (4) - limitations

Too much focus on ethical ends can lead to ignoring moral consideration of the means.

The measurability of consequence: difficult to evaluate all consequences. For example, those who are affected in the future.

Stakeholder analysis: rights of some stakeholders are ignored

Fairness: e.g. workers who might be retrenched lack representation or voice in the decision

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difficult to evaluate all consequences

rights of minorities may be sacrificed

too much focus on ethical ends can lead to ignoring moral considerations of means

School of Management

Virtue ethics (1)

A moral virtue is an acquired disposition that is valued as a part of an individual’s character (Ferrell et al. 2005)

Focuses on the integrity of the moral actor rather than the act

Teleological?

(Trevino & Nelson, 2006)

Strengths: Considers actor's character, motivations & intentions.

Limitations: Character defined by one's community, May be limited agreement about standards & Community views may be questionable

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Virtue & Moral Agency

A good human being possesses two core virtues:

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

Constancy – to pursue the same goods (=objective) through extended periods of time.

(MacIntyre, 1999)

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School of Management

Deontology - Duty based theories

The deontological (duty) theories view actions as either right or wrong independent of their consequences.

The moral status of an act, is judged not by its consequences but by the agent's intentions (Etzioni, 1996).

Morality involves a respect for each individual's rights by performing one's corresponding duties (Singer, 1997).

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School of Management

Kantianism (1)

decisions based upon abstract universal principles: honesty, promise keeping, fairness, justice, respect.

focus on doing what is 'right' rather than doing what will maximise societal welfare – what is good (as in utilitarianism)

Two formulations of the categorical imperative

“Always act in such a way that the maxim of your action can be willed as a universal law of humanity.”

“Always treat humanity, whether in yourself or in other people, as an end in itself and never as a mere means” : ethics of respect

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Motive/intention of the act is important than outcome

If you feel comfortable allowing everyone in the world to see you commit an act and if your rationale for acting in a particular manner is suitable to become a universal guiding principle, then committing that act is ethical

Emphasizes moral rights, e.g. treat everyone with respect. Hence, slavery/child labour is wrong under Kantianism though it may be fine under egoism/utility.

Comes up with “categorical imperative” = universal principles such as honesty, integrity, dignity, kindness.

Kantianism (2)

Motive/intention of the act is important than outcome

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Produces universal moral guidelines, e.g. honesty

Motive is always taken to be more important than outcome. At times, this is debatable. E.g. bribery to get job done. But what if everyone starts bribing to get job done?

(Hence, it is often argued that Kantianism should be considered in conjunction with utilitarianism thinking)

Often involves emotions, which can be wrong at times

Difficult to determine which rule, principle, right to follow/takes precedence. E.g. Kantianism may indicate that free speech rights is “good”; but privacy of others is also “good”.

Kantianism (3) - Advantages & Limitations

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Justice Ethics (1)

Justice – fair treatment and due reward in accordance with ethical or legal standards

Managers adopting this theory will provide the same rate of pay to workers who are similar in level of skills, responsibility instead of gender, personality, favouritism

Protects the interests of stakeholders who may be under-represented or lack power

The basic moral question is: How fair is an action?

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Justice Ethics (2)

Distributive – Based on evaluation of outcomes or results. Benefits derived; equity in rewards

Procedural – Based on processes or activities that produce the outcome or results. Decision-making process; level of access, openness and participation

Interaction – Based on evaluation of one’s perception of whether he/she is treated fairly. Communication process

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Justice Ethics (3) - application

Benefits and burdens are identified

Benefits and burdens are assigned to stakeholders

A judgement is made to determine whether the benefits and burdens are distributed fairly

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Protects those who lack voice/influence

Benefits/burdens can be hard to define/quantify

The rights of some may have to be sacrificed in order to ensure a more equitable distribution of benefits

Need to be highly trained (i.e. Judges etc.)

Comparing Utilitarianism with Justice Ethics

Similar in defining costs (burdens)/benefits

But, utility is based on net gain which may not consider the issue of fairness

Justice Ethics (4) - limitations

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Confucian Ethics

Main principles:

Humanity to others and have esteem for yourself

Proper action and social harmony

Sense of right

Respect to/for elders

Emphasizes making profits with human virtue.

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Consequential vs. Non-Consequential

An issue of benefits vs. right

Most people in most situations tend to use both approaches

On the other hand, empirical evidence shows that managers place a greater concern on utility (outcomes) than rights/justice

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Conclusions

Provide alternative perspectives not achievable from a single theory

Likely to improve decision maker’s moral awareness and understanding of the ethical issues involved in the dilemma

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Applying Theory

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Sam, a sales representative, is preparing a sales presentation for his firm, Midwest Hardware, which manufactures nuts and bolts. Sam hopes to obtain a large sales order from a construction firm that is building a bridge across the Missis river. The bolts produced by Midwest have a 3% defect rate, which, although acceptable in the industry, makes it unacceptable for certain projects, such as those subject to sudden, severe stress. The new bridge is located near to the centre of a great earthquake zone. If Sam wins the contract, he will earn a commission of $25,000. But, if Sam tells the construction firm about the defect rate, the construction firm may award the job to a competitor whose bolts are more reliable. Sam is thus in a dilemma on whether to report the bolts’ 3% defect rate to the construction firm.

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1. Utilitarianism

Sam will conduct a cost-benefit analysis to determine which alternative generate the most utility.

Building the bridge – improve roadways, transportation across river; create hundred of new jobs; boost the local economy; increase revenue for Midwest.

In contrast, bridge collapse kill or injure hundreds/thousands of people.

But, bolts only 3% defect rate; earthquake may not occur; few cars/people at time of disaster.

Building the bridge create greater utility than not building. Will Sam report the defect rate? Yes – why?

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2. Virtue Ethics

Sam probably tell the construction firm about the defect rate (honesty) – right thing to do because of the outcome of the potential loss of lives with the bridge collapse.

This action will contribute the most positively to his virtue/integrity as a decision maker

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3. Kantianism

Sam will be morally responsible to inform the construction firm about the defect rate. The motive of moral action is more important than the potential loss of commission.

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4. Justice

Sam will conduct a benefit-burden analysis for the various stakeholders (Midwest, construction firm, local community, government, competitor) and judge whether the benefits/burdens are fairly distributed among the stakeholders.

It is unlikely that with the construction of the bridge will lead to fairness. E.g. a better qualified competitor should be more suitable for the job; Lives may be lost for those using the bridge at the time of the disaster if Midwest’s bolts are used.

Sam will probably inform the construction firm on the bolts’ defect rate.

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Guidant Consultant

Identify the main ethical issues of the case and the affected parties.

Identify the possible consequences of the executives’ actions.

Identify the executives’ obligations to the affected parties.

Do you think the executives of Guidant Corporation acted ethically? (justify your opinion with ethical theories)

What do you think Dr Fogoros statement that the decision of the Guidant executives ‘to withhold such data, while statistically defensible, was questionable’?

Identify the roles Dr Fogoros adopts and the different positions he takes.

Do you think he acted ethically? How can his actions be justified?

Are there other cases like this?

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What is a moral agent, and when is an organisation morally responsible?

What is the difference between consequence (teleological) based and duty (deontological) based ethics?

What is the difference between utilitarianism, Kantianism and virtue ethics?

Why might normative theory be useful in the workplace, and how can we use normative theory to help us make better decisions?

Review Questions

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References

De George, RT 1992, 'Agency theory and the ethics of agency', in NE Bowie & ER Freeman (eds), Ethics and agency theory: An introduction, 3 edn, Oxford University Press, New York, pp. 59-74.

Etzioni, A 1996, 'A moderate communitarian proposal', Political Theory, v. 24, n. 2, pp. 155-71.

Ferrell, OC, Fraedrich, J & Ferrell, L 2005, Business ethics: Ethical decision making and cases, Houghton Mifflin, Boston.

Hartman, LP & Desjardins, J 2008, Business ethics: Decision making for personal integrity & social responsibility, McGraw-Hill irwin, Boston.

MacIntyre, A 1999, 'Social structures and their threat to moral agency', Philosophy, v. 74, pp. 311-29.

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

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

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