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Business Ethics – Deontologically Revisited

Article  in  Journal of Business Ethics · March 2007

DOI: 10.1007/s10551-006-9152-z · Source: RePEc

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Business Ethics – Deontologically

Revisited Edwin R. Micewski

Carmelita Troy

ABSTRACT. In this paper we look at business ethics

from a deontological perspective. We address the theory

of ethical decision-making and deontological ethics for

business executives and explore the concept of ‘‘moral

duty’’ as transcending mere gain and profit maximization.

Two real-world cases that focus on accounting fraud as

the ethical conception. Through these cases, we show

that while accounting fraud – from a consequentialist

perspective – may appear to provide a quick solution to a

pressing problem, longer term effects of fraud and mis-

conduct make ethical implications more apparent. Widely

used compensation schemes also may have the tendency

to fuel unethical behavior. We argue that an ethical

reinvigoration of the business world can only be

accomplished by encouraging the business realm to im-

pose upon itself some measure of self-regulating along the

lines of deontological ethics. Principles of deontology

should guide executive decision-making particularly

when executives are tempted to operate outside of cod-

ified legislation or are bound to act under judicial-free

conditions.

KEY WORDS: Deontological ethics, Business ethics,

Consequentialism, Utilitarianism, Accounting fraud

Introduction

This paper addresses capitalism, at least in its more

drastic neo-liberalist form and discusses the tenets and

guiding principles as well as the violations of ethical

codes that can occur when capitalists’ conduct is,

beyond legal boundaries and the monitoring by reg-

ulating authorities, unchecked by self-guiding moral

principles. The desire for a revision of capitalism on

the macro-level of economics derives mostly from

issues of globalization, regarding for instance the just

or equitable distribution of goods or the combating of

poverty. On the micro-level a need to review capi-

talism may spring from a culture of conspicuous

consumption and spending in the extreme. Capitalist

societies may have reached a postmodern condition

where, as Jean Baudrillard (1998) argues, reality is

filtered through the logic of exchange value and

advertisement, giving identity no longer through

ethnicity, gender, class, or social status, but by con-

sumption. Using two examples of corporate

accounting fraud, out of the increasing number of

cases of business fraud, larceny, and other forms of

illegitimate individual and corporate enrichment, we

provide evidence of the results of capitalism when it is

unconstrained by moral and ethical codes. This article

does not at all intend to question or reject the basic

tenets of capitalism – a largely intervention-free

market that regulates the investment of capital, the

production, distribution and prices of goods and

services by private incentive – however, the potential

subordination of human value and moral dignity to

blind market forces shall be put in question. We

concur with Milton Friedman (1988) that profit-

driven business has to meet its social responsibility by

Carmelita Troy is an Assistant Professor of Accounting in the

Graduate School of Business and Public Policy at the Naval

Postgraduate School, Monterey, California.

Micewski, Edwin R., Dr., Brigadier General, is social philos-

opher and Director of the Institute for Human and Social

Science of the Austrian National Defence Academy, Vienna.

Member of the Science Commission of the Austrian Ministry

of Defence and Visiting Professor at the Department of

National Security Affairs of the Naval Postgraduate School in

Monterey, California. Research and teaching areas: Social

and cultural philosophy, military ethics, (military) profes-

sionalism and leadership, postmodernism and war. Recent

publication: (Ethics and international Politics (2001);

Civil- Military Aspects of Military Ethics (2003/2005);

Terror and Terrorism- History of Ideas and Philo-

sophical-Ethical Reflections (2005); Asymmetry and

Western Society - Culture-critical Reflections(2006).

Journal of Business Ethics (2007) 72:17–25 � Springer 2006 DOI 10.1007/s10551-006-9152-z

accepting the constraints imposed ‘‘by the basic rules

of society, both those embodied in law and those

embodied in ethical custom.’’

Therefore, Adam Smith’s image of the ‘‘invisible

hand,’’ by which all benefit from the self-interest of

entrepreneurs make the business market incompati-

ble with moral interference, or Bernard Mandeville’s

credo that the self-related behavior of stakeholders is

the condition sine qua non of economic prosperity

and the driving force of the civilization process, shall

be critically reflected. While private property and

the accumulation of wealth foster economic pros-

perity and general welfare, they should not go

unconstrained. A striving for profit that is driven by

avarice and greed violates the notion of justice and is

inconsistent with a humanistic and universal concept

of righteousness.

In this article, we assert that any ethical reinvigo-

ration of the business world can only be accomplished

when the business realm imposes upon itself some

effective measures of self-regulation that go beyond

the increasing number of laws and rules passed by

governing bodies and requirements mandated by the

regulatory authorities. We also suggest that ethical

custom is not enough. Since business has individual-

istic foundations and is real in its individual agents

only, a sense of personal morality needs to be devel-

oped that takes into account deontological principles1

of ethical conduct. While we acknowledge that the

room for pursuing non-commercial forms of social

responsibility is limited in economic enterprise, we

argue that this room, however limited, has to be en-

tirely filled by personal ethical responsibility. Ethical

responsibility in the business world is not all-encom-

passing, but whatever it offers for ethical behavior to

take place, should be exploited to its fullest.

Framing the challenge

If humans have a choice to act, being ethical, to state

the obvious, is about how human beings ‘‘ought’’ to

act; and consequently, business ethics is about how

business agents ‘‘ought’’ to act. For both, the acting

takes place in a social and political human environ-

ment in which mutual constraint, based on custom

and law, guides human interrelations.

Quite naturally, the successful outcome of applied

business policies and strategies depends on achieving

targets and goals. That the business world is profit-

oriented and thus focused on results and outcomes is

a fact – and rightly so. However, when the spotlight

is on the result, there can be an increased potential

that an inappropriate course of action is taken, as can

be observed relating to earnings targets. On the one

hand, earnings targets should motivate management

to conduct business affairs so that earnings goals can

be achieved. On the other hand, reaching earnings

targets at all costs can result in behavior where the

use of any means anticipated to help in achieving this

goal is considered to be justified. Indeed, a review of

Securities and Exchange Commission (SEC)

enforcement releases for accounting irregularities

shows that often earnings are overstated or expenses

understated in order to meet analysts’ or Wall

Street’s targets for revenue or net income.2 Since

Enron, the public has become ever more aware of

instances where corporate executives used dishonest

means in order to meet earnings or growth objec-

tives. One can question whether the focus of

investors as well as management on the end-result

may have justified, at least in the minds of the

corporate executives involved, the ‘‘need’’ to use

whatever means available to meet profitability goals

and hence acquire the rewards so ‘‘earned.’’ Ratio-

nalization of this type considers the outcome,

without an adequate consideration of the means to

achieving the outcome.

Utilitarian ethics, also designated as teleological3 or

consequentialist ethics, focuses on what is considered a

good outcome of an action related to the acting

individual’s (or group of individuals) notion of good

and bad. A thing is done for some personal and/or

collective benefit, and not necessarily because it is

the right thing to do. The standards of right and

wrong, of virtue and vice, are often measured and

decided based on what is in one’s best interest,

without sufficient consideration of the rights and

interests of others. The basic tenet of utilitarianism

defines the ‘‘good’’ (individual or collective happi-

ness) independent of the ‘‘right’’, and introduces

then the right as that thing that maximizes the good.4

Often, and not just in business, self-indulgence, self-

promotion, in short, material selfishness can be

found at the root of human behavior. When the

spotlight is on the result, egotism – be it in its

individual or collective form – is not far away.5

Applying Bentham’s principle of the ‘‘greatest

18 Edwin R. Micewski and Carmelita Troy

happiness of the greatest number of people’’ (1996,

p. IViii) to the level of the business enterprise, the

general result regarding the collective happiness of all

stakeholders,6 would lie both in profit and in effi-

cient business conduct.

According to utilitarian ethics states that the

outcome determines the ethical appropriateness of

any activity. Agency theory (Eisenhardt, 1989; Stroh

et al., 1996) addresses how influence agents (i.e.,

managers or executives) towards those outcome-

based activities that result in what the principal/

owner desires. ‘‘The job of agency theory is to help

devise techniques for describing the conflict inherent

in the principal-agent relationship and controlling

the situations so that the agent, acting from self-

interest, does as little harm as possible to the prin-

cipal’s interest (DeGeorge, 1992). This is often

accomplished by paying the agent based upon the

degree to which he or she achieves the outcomes

desired by the principals. However, it is when the

outcome, such as profit-making, becomes the sole

focus of business behavior that a utilitarian approach

can become problematic and impair the rights of

others.

The well-publicized accounting scandals of recent

years have drawn the attention of academics and the

general public to the seeming lack of personal ethical

responsibility of executives in a number of public

companies including some of the largest. One result

of these scandals was the passage of the Sarbanes-

Oxley legislation in the United States. Chief Exec-

utive Officers (CEO) and Chief Financial Officers

(CFO) are required to certify the veracity of the

financial statements, clearly placing ethical respon-

sibility on the top management. Corporate officials

should be concerned about pursuing financial

reporting, that is, in the interest of all affected parties;

and not to garner pecuniary ‘‘happiness’’ to them-

selves alone.

The recent history of corporate accounting fraud

could serve as a narrative of the application of util-

itarian ethics to ethical challenges faced by business

executives and, at the same time, could also serve as a

series of examples for the inadmissibility of utilitarian

ethics. One of the reasons why utilitarian ethics, as

an almost exclusive basis for business conduct, has

endured is because harm is usually limited to loss of

material property. In the world of business, stake-

holders face a loss of wealth or fortune, but normally

not loss of life or health. Unlike in medicine or war

where unethical acts can, and often do result in loss

of life, the victims of unethical business practices

may lose employment or capital, but seldom is

unethical business conduct life-threatening. As we

will elaborate on, ethics devoid of deontological

ingredients, that is, ethics that focuses primarily on

the consequences and not on the rightness or

wrongness of the act itself, is, in the end, no true

ethics at all. When the corporate leaders operate

their businesses with a primary interest on the con-

sequences to their personal wealth and reputation,

and devoid of concern for their duty to employees,

investors, the environment and other parties directly

or indirectly affected, capitalism has suffered an

ethical defeat. Self-interest in business should be

tempered by (moral) duty and the rights of the

business executive and his self-interest has to end

where the rights of other stakeholders begin. This is

what our essay attempts to highlight with respect to

the business world and, in particular, to accounting

ethics.

Ethical decision-making – theory

and practice

It lies in the nature of consequentialism that striving

for a desired result at all cost – in other words, setting

a most wanted result as the absolute goal – implies

the use of or justification of the use of any and all

means available in order to achieve the goal. When

this goal is about one’s own benefit, the entitlements

of others might be ignored and left out of the

equation, or in the least might not be given sufficient

recognition.

An ethical situation is a situation between human

agents in the sense of the action of one person or

group having a bearing on another person or group

of persons.7 Breaking a situation of ethical decision-

making into its basic dimensions, we arrive at the

triad of incentive – means – result. Both deontological

and teleological (consequentialist) ethics agree that

any action is triggered by a desired result, making

clear that the reason for acting stems from the outer,

empirical world.8 However, deontological and tel-

eological ethics are at variance regarding the reach-

ing of this result. Teleological ethics argues that

the right thing to do is what produces the best

Business Ethics – Deontologically Revisited 19

consequences. Radical consequentialism, as the

philosophical antithesis to deontological ethics,

would justify the usage of all means necessary, for

one must maximize the good and minimize the bad.

In contrast, under deontology, the ends of any

supposed action can never justify the usage of any or

all means, for one must act out of respect for the

(moral) law. The deontological approach, therefore,

is the way to balance the teleological dualism of

means and ends by adding the regulative dimension

of the concept of moral duty, which manifests itself

in self-imposed constraints regardless of potential

unwanted consequences for the acting entity.

In the business world, executive stock ownership

and contingent compensation based on stock options

have become popular measures to induce business

executives to focus on the desired results. Contin-

gent compensation has increased in popularity, such

that by the late 1990s over 85% of CEOs received

stock option compensation (Chingos and Engel,

1998). Yet, stock option compensation has not

necessary aligned interests as expected (Kosnick and

Bettenhausen, 1992). Stock ownership and stock

options in particular, may lead to extremes in self-

interested behavior. Executives who are privy to

internal information regarding corporate perfor-

mance that is not available to the investing public or

the public in general can be tempted to use that

private information to their personal advantage.

Breaching ethical norms can be the result of having a

large number of highly valued stock options or

shares of stock and the financial gain that can be

acquired from exercising those options or selling the

share.

We use the case Schick Technologies, Inc. to

illustrate how the deontological approach provides

an appropriate synthesis of the parameters of the

ethical decision triangle.

Schick went public in 1997. The initial public

offering (IPO) had been considered such a

resounding success that the company was awarded

the Small Business IPO of the Year Award in May

1998 by the New York City Partnership and the

Chamber of Commerce.9 In June, the company

announced that revenues for the fiscal year (FY)

ending 31 March 1998 were 129% greater than in

the previous FY.10 The company was experiencing

rapid growth and revenue expectations were rapidly

increasing as well. But all was not well on the home

front. The CEO realized that the June 1998 quar-

terly earning targets of the company and the analysts’

forecasts would not be met.

The ethically relevant situation is defined by the

need to increase the performance of the company so

that it meets the earnings targets. Failing to meet the

earnings targets will reflect negatively on the firm’s

potential and, as Levitt (1998) states result in stock

price decline, therefore, negatively impacting

shareholder wealth and the value of executive stock

options. But the constraints represented by Gener-

ally Accepted Accounting Principles (GAAP) re-

quire that revenue must be earned11 before it can be

recorded in the books.

The awareness that the company’s revenues might

not (at least not in the short-term) be improved by

normal and legal business activities, combined with

the aspiration to bring about the desired result in spite

of the existent calamities, translated into the CEO’s

incentive to deploy illegitimate means. In the case of

Schick, a scheme was devised that would result in the

appearance of increasing sales, though the greater

proportion of those ‘‘sales’’ were revenues that were

not earned, i.e., did not result in actual sales of

product to customers. The company’s CEO ordered

improper booking of sales using schemes that in-

cluded (1) shipping products to a holding-ware-

house at the end of the quarter and recording

these shipments as revenues, (2) recording as rev-

enues that the amounts associated with ‘‘sales’’ that

either were made under a ‘‘loaner’’ or ‘‘try and

buy’’ program where the customer had 30 days to

return the merchandise with no obligation, and (3)

recording sham transactions, i.e., sales that were

bogus.12 In all these cases, the criteria to record

the revenues were not met.

After improperly recording sales the CEO an-

nounced that revenues were up 165% for the quarter

ended June 1998.13 The fictitious sales continued to

be recorded throughout 1998, but in December of

that year, the company announced that it would

write-off $5 million in receivables, claiming that bad

debts had been piling up.14 Upon hearing this news,

the company’s stock price tumbled – by mid-January

1999 stock price was at about $7.06 per share, down

from over $28 per share in 1998.15 It was later dis-

covered that the revenues were overstated by more

than $5.5 million, slightly more than one-third of

the overall company proceeds.16

20 Edwin R. Micewski and Carmelita Troy

What were the particular motives of the CEO and

vice-president in perpetrating this fraud? In this case,

the SEC reports that the ‘‘admitted purpose was to

inflate revenues in order to meet [the company’s]

earnings targets.’’17 The SEC company filings show

that as of July 1998 Schick’s CEO owned over

2 million shares of company stock and its vice-presi-

dent had exercisable stock options worth about

$1,000,000.18 Since their personal, and not insignifi-

cant wealth, that was tied up in the company’s stock

would sharply decline if they reported that the com-

pany did not meet earnings targets, this suggests that

the executives had a personal stake in ensuring that the

company met its earnings targets by hook or by crook.

So then, to what extent were the ethical principles of

the members of the company’s management team

impaired because of their compensation arrangements?

And more generally, how can or how do creative

compensation plans, particularly those plans where

compensation is based on achieving accounting-based

targets (i.e., bonuses) or stock options granted as a part

of executive compensation, affect moral judgment?

The company and executives were prosecuted by

the SEC for the accounting fraud. While they neither

admitted nor denied the charges brought against them

in the litigation, the executives consented to a final

judgment order, which among other things required

payment of civil monetary penalties and in the case of

the vice-president, disgorgement of ill-gotten gains.

By evaluating this case, at this point, from a rather

popular deontological perspective, a deontological

consideration (or insight) could have eased the

CEO’s motivation in the following sense: a ‘‘last

resort’’ to fraud was not necessary if a longer-term

view had been taken; a temporary underperfor-

mance would not have endangered the company’s

existence and may not have put at risk the wealth of

the executives over the long-term; the expected

shortfall could have been used to boost the ambitions

of stakeholders, especially if the executives could

bring expectations to a more reasonable level, and

pro-active business strategies could have been laun-

ched to improve future performance, etc. In this

case, it is worth noting that despite the company’s

troubles, the analysts still maintained a positive

outlook for the company with one of the company’s

analysts stating that ‘‘the underlying technology is

strong and defensible.’’19 So then was the fraud

justifiable? A deontologically balanced evaluation of

the situation and a deontological decision would

have kept the business executives within the

boundaries of what is not only legally, but more

importantly, ethically legitimate and acceptable.

Deontological ethics – explained and applied

The example hopefully makes clear that the extent to

which an individual can pursue his or her own hap-

piness (profit, benefit, well-being, prosperousness)

without endangering any another person’s happiness is

a norm that is found outside the empirical relations of a

concrete situation. Based on a merely rational effort

that can be replicated by any rationally talented being,

the solution lies in the formal and normative

assumptions that first, the transcendental20 equality of

people has to be assumed; and second, the reconcili-

ation of individual human freedom based on this uni-

versal tenet of transcendental equality of all people has

to be posited as the crux of morality.

Only when freedom is considered to be an

ontological given to all people can the most foun-

dational idea of what is ethically right be grasped. If

the ethical right, then, is what frames the limits for

everything that could ever be considered to be

morally good, the core of justice can be understood

in the sense outlined by the preeminent deonto-

logical philosopher, Immanuel Kant. As a result of

his transcendental analysis Kant (tr. 1996) defines

right as follows: Right is the whole of conditions

under which the voluntary actions of any one person

can be harmonized in reality with the voluntary

actions of every other person, according to the

universal law of freedom (Kant, 1996: 24 [6:230]).

The formality of this approach may be considered

a weakness, but it is, in fact, a strength; it allows for

the application to all possible empirical conditions.

Moreover, it is transformation into positive law is

the core of the art of legislation.

Justice, in a most formal and normative sense, is

therefore, the reconciliation of individual human

freedom and marks the point of intersection where

the freedoms of different individuals meet. At the

core of the ethical question regarding human rela-

tions rests the issue of justice, as the minimal

requirement for ethical behavior.

Injustice or wrongdoing in all its forms takes

place when the action of one person transgresses

Business Ethics – Deontologically Revisited 21

the borderline of right as outlined above. Since

transgressing the ethical demarcation line between

right and wrong constitutes injustice, the degree or

scope of transgression delineates the amount of

injustice done. Transgressing action can be direct

and immediate, such as hitting and injuring some-

body by direct physical contact or stealing some-

body’s physical property; or the transgressing

activity can be indirect and gradual, such as the

calumniation of another’s reputation, perjury or

stealing intellectual property. Moreover, the activity

can relate to material aspects, such as physical

integrity or property; or immaterial aspects of

human relations, like honor and dignity.

Whatever the level of injustice, an individual

commits a wrong against another because of the

following consistent deontological inference:

If my...condition at all can be harmonized with the

freedom of anyone according to a universal law of

freedom, the one who hinders me thereon is unjust;

because this hindrance (this resistance) cannot be rec-

onciled with a universal law of freedom (Kant, tr.

1996: 24 [6:231]).

The awareness about this moral duty results in the

‘‘good will’’ – the pure incentive upon which the act

is based. Kant’s Categorical Imperative (CI) intro-

duces the idea of universalization as the deontological

epitome, the supreme criterion for ultimate ethical

behavior. The first and foremost formula introduces

the CI in utmost rational abstraction: ‘‘Act only

according to that maxim whereby you can at the

same time will that it should become a universal law’’

(Kant, tr.1993: 30 [421]). However, the end-in-itself

formula of the CI, as being more clearly related to

human dignity and practical life, tells us even more

for our context: Act in such a way that you treat

humanity, whether in your own person or in the

person of another, always the same time as an end and

never simply as a means (Kant, tr. 1993: 36 [429]).

Practically, the message here is: Whatever you do,

take into account the equally valid entitlement of

others to enjoy a life in freedom within the bound-

aries of justice that is relevant for all and everyone. Or

for those who like it more drastically: If you want to

be ethical, then become universalizable without

conceptual or consequential contradiction. This may

be too eminent a call for any human being and might

only be met in approximation, but grasping the

guiding idea might certainly help one to act in an

ethically conscious and responsible way.

After this deontological excursion into moral

philosophy let us look at another example of ethical

misconduct in the workplace. Critical Path Inc, a

company that provides outsourced email and web-

messaging services, was founded in 1997 and had its

IPO in 1999.21 This was during the heyday of in-

ternet stocks, and since most companies were not

turning a profit, analysts and investors focused

on revenues, rather than profits, as the basis for

determining how well a company was performing. In

the quarter ended June 2000, the company reported

revenues of $33.5 million and a net loss of over

$20 million. But, since the corporate executives had

determined to sell the company, keeping the com-

pany a darling of Wall Street became the primary

objective (Elgin, 2001). This meant reinforcing the

view that the company was growing rapidly. When

reporting the quarterly results the president an-

nounced that the firm expected to turn a profit by the

quarter ending December 2000, that same year. The

increased revenues were expected to come primarily

from the revenues of acquired companies.

By late September 2000, it had become evident to

insiders that Critical Path would not meet Wall

Street’s expectations for quarterly revenue or earn-

ings. As the company approached the fourth quarter

2000, according to the SEC, Critical Path’s president

and its sales chief concluded there were no legitimate

means by which Critical Path could achieve the

ambitious revenue and earnings goals the company

had announced.22 With the company’s reputation

and ‘‘sale value’’ at stake, the president along with

several other key individuals, including some vice-

presidents, concocted a few bogus sales and other

transactions, all of which made it appear that the

company had reached sales targets. As Business Week

(Aug 6, 2001) reported, the company’s focus was on

increasing the stock price and not strengthening the

business.

At the same time, behind the scenes, the president

and others were quietly selling their shares of Critical

Path. One executive thought that ‘‘Critical Path was

playing with fire and [he] decided to sell 1,300 shares

of his company stock before he got burned’’ (Liedtke,

2002).23 According to a class action lawsuit against the

company filed in early February 2001, top insiders

sold their Critical Path stock for as much as $78 per

22 Edwin R. Micewski and Carmelita Troy

share. Once the irregularities were announced, the

stock price fell to below $4 per share.24 Critical Path

employees in the know avoided losses of over

$900,000 because of illegal insider trading.25

Those unfortunate enough to not have insider

information saw the value of their Critical Path shares

drop from a high of over $300 per share in September

2000 to a low of $3 per share in April 2001. One

investor, who lost her nest egg in the Critical Path

debacle, brought it down to the point: ‘‘I just

don’t think they realized that they were playing

with other people’s money.’’26 Not only were they

playing with the fortunes of their shareholders, they

were also playing with the livelihoods of their

employees. In order to survive under the cloud of

allegations of accounting fraud and an SEC investi-

gation, the company laid off 450 of its employees,

which accounted for about half of the company

personnel.27

As can clearly be seen, an exclusive focus on a

desired outcome of ones action, striven for at all cost,

potentially negates the humanistic entitlement of

others and degrades them to a mere means for one’s

goal, thus violating the end-in-itself formula of the

Categorical Imperative. And with reference to the

basic tenet of the Categorical Imperative the ques-

tion: Could the maxim for Critical Path’s executives’

actions – accounting fraud in order to report that the

company had met revenue targets – serve as a

universal law? has clearly to be answered with a ‘No.’

Conclusion

While a deontological approach to ethical decision-

making is clearly life-affirming and does not at all

deny the transcendental right of every human being

to strive for happiness and well-being – in the world

of business: does not reject the notion of competi-

tion and profit – it leaves no doubt that there are

limits to the pursuit of happiness. Certainly, from an

ethical business perspective, not only are there limits

to how profits should be made, but equally impor-

tant, there is no place for misleading investors by

reporting non-existent revenues and profits.

Ethically speaking, these limits are self-imposed in

the sense that the ethical human being decides to

ought in the right way. At this juncture we also be-

come aware that true freedom means to own the

capacity for self-legislation. Only the one who

becomes ‘‘universalizable’’ in his/her actions in the

sense of acting upon a maxim that could serve as a

maxim for all human beings in comparable situa-

tions, is truly free. If grasped in this sense, making

appropriate use of freedom is identical with making

appropriate use of responsibility (2001).

More practically speaking, when the motivation is

self-interest, decision-making is likely to be reduced to

utilitarian risk–reward calculations. If the risks from

ethical behavior are high, such as loss of reputation and

value in the market for executive talent and the

associated loss of wealth – or the risks from unethical

behavior are low and the reward is high, such as low

probably of unethical activity being caught and if it is,

the consequences are minimal – the moral principles

succumb to expediency. This is no small problem in all

walks of life. People cheat, plagiarize, lie on resumes,

distort or falsify facts at work, commit accounting

fraud and much more, for exactly the reason of utili-

tarian convenience and suitability.

But the real test of our code of ethical conduct is

whether we are willing to do the right thing – the thing

that could serve as a maxim for everybody’s acting –

even when it is not exclusively in our self-interest.

Happiness, both individual and collective, is

legitimate; individual notions of profit and corporate

happiness are not immoral per se; ethics doesn’t de-

legitimize the major stakes of economy – gain,

profit, corporate success. Nonetheless, while not

denying self-interest, an ethics of business commands

respect for everything that could run under the

deontological title of ‘‘social justice.’’ Moral duties

have to transcend profit maximization. While suc-

cess cannot be guaranteed, crime and immorality can

be avoided (Barry, 1997). Personal responsibility,

fairness, trustworthiness need to translate into the

business world in the sense of keeping promises,

protecting justly acquired property, appropriately

administering company assets and ownership rights

and reporting financial results fairly and faithfully.

All of this can, of course, not mean constant rea-

soning and rational deliberation about the categorical

imperative or the universalization of justice and for-

titude; however, it demands the acquisition of a

habitual inclination of the will that need to be in-

stilled, formed, and cultured by way of socialization

and a customization of good business conduct. Not

the least, granting ethical studies an amplified position

Business Ethics – Deontologically Revisited 23

in the curricula of business schools and throughout

the careers of business executives will contribute to

ethical enlightenment and the development of an

appropriate moral consciousness and ethical sense of

responsibility among corporate executives.

Notes

1 Deontological ethics (from the Greek to deon, mean-

ing duty, obligation), is an ethical theory based on con-

cepts of duty and rights that can be demonstrated by

reason alone and exist independent of experience. This

set of unchanging formal and normative moral princi-

ples need to be applied in order to confer moral value

on any ethically relevant deed. 2 See, for example, SEC Accounting and Auditing

Enforcement Accounting and Auditing Enforcement

Release No. 2433, dated May 23, 2006. http://

www.sec.gov/litigation/litreleases/2006/lr19710.htm 3 From the Greek ‘‘telos’’ meaning aim or goal. 4 For more on the analysis and critique of teleological

ethics compare W. K. Frankena, Ethics (Englewood

Cliffs: New Jersey 1963), 13. 5 It is worth noting that utilitarianism – particularly with

Bentham – starts out by describing human nature as

unquestionably hedonistic. On this anthropological pre-

mise, then, Bentham and his followers erect the system of

utilitarianism which argues that only such moral praxis can

be justified that not only serves the happiness of individu-

als but serves, at the same time, the happiness of the great-

est number of individuals. For utilitarianism thus diverts

and expands the natural desire for individual happiness

onto a collective level it could well be denoted as a form

of collective egotism. Although Mill will later on expand

the qualitative meaning of the notion of happiness by inte-

grating humanistic, cultural, emotional and not the least

social dimensions – in a conceivable critical analysis of the

social reality at the time – the claim of a moral principle

that roots in a subjective-ethical hedonism which is trans-

formed in a objective-hedonistic principle remains more

than problematic; particularly regarding issues such as jus-

tice, individual self-determination, conscious decisions,

and many more. 6 These stakeholders include shareholders, creditors,

employees, those living in the communities where the

business operates etc. 7 These situations are apart from ethical duties toward

oneself, such as not taking one’s own life, which is be-

yond the scope of our investigative equation. 8 This is a very decisive point of an ethical discourse

involving deontology and teleology. It appears to be one

of the more profound misunderstandings in the interpre-

tation of deontological ethics to assume that it would be

totally dissociated from results. The truth is that even the

deontological act is triggered by some empirical circum-

stance and desires some result, however, reaching the

result does not determine whether or not the act was

ethical or, in the least, of ethical relevance. 9 Crain’s New York Business on 11 May 1998.

http://www.web.lexis-nexis.com.libproxy.nps.navy.mil/

universe/document?_m=ab9cc1e33989fad3678d13ecd94

1cf8c&_docnum=93&wchp=dGLbVlb-zSkVA&_md5=

ebe8f335126737102c9e67eac172f783. Accessed 2 Nove

mber 2005. 10 PR Newswire, 11 June 1998. http://web.lexisnexis.

com.libproxy.nps.navy.mil/universe/document?_m=89

76c37db9666c9020bee8836bbbc694&_docn um=1&

wchp=dGLbVzz-zSkVA&_md5=234ab259b4755dd6868

271e437b4d042 11 To be technically comprehensive, with few excep-

tions, revenue must be earned and received or earned

and receivable in order to be recorded as revenue on

the books of a company. 12 http://www.sec.gov/litigation/complaints/comp18464.

htm. Accessed 17 July 2006. 13 PR Newswire, 29 July 1998. http://www.web.lexis-

nexis.com.libproxy.nps.navy.mil/universe/document?_m

=ab9cc1e33989fad3678d13ecd941cf8c&_docnum=78&

wchp=dGLbVlb-zSkVA&_md5=f05297201135977a7d9

28b36ae8ac9f9. Accessed 2 November 2005. 14 PR Newswire, 21 December 1998. http://www.we-

b.lexis-nexis.com.libproxy.nps.navy.mil/universe/docum

ent?_m=ab9cc1e33989fad3678d13ecd941cf8c&_docnum

=78&wchp=dGLbVlb-zSkVA&_md5=f0529720113597

7a7d928b36ae8ac9f9. Accessed 2 November 2005. 15 Crain’s New York Business, 11 January 1999.

http://www.web.lexis-nexis.com.libproxy.nps.navy.mil/

universe/document?_m=82970900ae0f836ba8573ae1175

d1cad&_docnum=64&wchp=dGLbVlb-zSkVA&_md5=

5efa145d014b5df45295faf2de0f6c73. Accessed 2 Nov-

ember 2005. 16 PR Newswire, 21 December 1998. http://www.we-

b.lexis-nexis.com.libproxy.nps.navy.mil/universe/docum

ent?_m=ab9cc1e33989fad3678d13ecd941cf8c&_docnum

=78&wchp=dGLbVlb-zSkVA&_md5=f 0529720113597

7a7d928b36ae8ac9f9. Accessed 2 November 2005. 17 http://www.sec.gov/litigation/complaints/comp184

64.htm. Accessed 14 December 2005. 18 http://www.sec.gov/Archives/edgar/data/1014507/0

000950123-98-006964.txt. Accessed 2 November 2005. 19 Crain’s New York Business, 11 January 1999.

http://www.web.lexis-nexis.com.libproxy.nps.navy.mil/

universe/document?_m=82970900ae0f836ba8573ae1175

d1cad&_docnum=64&wchp=dGLbVlb-zSkVA&_md5=

24 Edwin R. Micewski and Carmelita Troy

5efa145d 014b5df4529 5faf2de0f6c73. Accessed 2

November 2005. 20 By this is meant independent of all experience, while at

the same time constitutive for all empirical circumstances. 21 AAER #1503, http://www.sec.gov/litigation/ad-

min/34.45393.htm, Accessed 15 November 2005. 22 http://www.sec.gov/litigation/admin/34-45393.htm.

Accessed November 2006. 23 Liedtke, Michael. 2002. Former Critical Path execu-

tive pleads guilty to insider trading crime. The Associated

Press. April 10, 2002. http://www.web.lexis-nexis.com/

universe/document?_m=5b01fe1b80c945f63 517eb44e7

3cd127&_docnum=1&wchp=dGLbVtb-zSkVb&_md5=

560181066628a177973e21fc018ab3a3. Accessed 15

November 2005. 24 Business Wire. 2 February 2001. Law firm Faruqi &

Faruqi, LLP announces update on class action lawsuit against

Critical Path, Inc. Accessed 15 November 2005. 25 http://www.sec.gov/litigation/litreleases/lr17701.htm.

Accessed 15 December 2005. 26 Elgin, B. 2001. Critical errors at Critical Path; The

e-mail handler focused on building the stock price, not

the business. Business Week, Issue 3744, August 6. Pg.

EB12. http://www.libproxy.nps.navy.mil/login?url= htt

p://www.proquest.umi.com/pqdweb?did=76958863 &s

id=1&Fmt=3&clientId=11969&RQT=309& VName=

PQD. Accessed 16 November 2005. 27 Akin, David. Critical Path lays off close to half of its

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445d7db4. accessed 15 December 2005.

References

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Baudrillard, J.: 1998, The Consumer Society: Myths and

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Bentham, J.: 1996(1789), An Introduction to the Principles of

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Chingos, P. and M. Engel: 1998, �Trends in Stock Option

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DeGeorge, Richard T.: 1992, �Agency Theory and the

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Carmelita Troy

Graduate School of Business & Public Policy,

Naval Postgraduate School,

555 Dyer Road,

Monterey, CA, 93943,

U.S.A.

E-mail: [email protected]

Edwin R. Micewski

Institute for Human and Social Sciences,

National Defence Academy, Veinna,

Stiftgasse 2a, A – 1070 Veinna,

Austria

Department of National Security affairs,

Naval Postgraduate School,

1411 Cunningham Road,

Monterey, CA, 93943,

U.S.A.

Business Ethics – Deontologically Revisited 25

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