Business Ethics HW Please see first attachment for requirement

Business Ethics – Thomas A. Package

Lecture 2

I - Syllabus, Requirements, and Administrative Stuff

A) Call Roll

B) Cover Syllabus & Requirements

1) Papers, Tests. Tests will be open book, but I do not encourage you to copy directly from any texts. It would be particularly unwise to copy from my notes to answer questions or insert passages from the reading into papers. When writing your papers and tests, try to focus on why you think something. I'm not only looking for what you think about some issue, but why you might be taking your position. For example, you may advocate some conclusion about the justification of a certain labor practice from a consequentialist perspective or for consequentialist reasons. It would be advisable to show why you think that sort of reasoning is particularly pertinent to the issue at hand, as well as anticipating objections a reader may have to your position and addressing possible replies to these objections.

2) Class participation expectations. You need to be talking through this material to fully understand what's been said. You need to engage different positions to find their strengths and weaknesses. While I think there are answers to the problems we are considering, they are often things upon which reasonable minds can disagree. In other words, you don't have to agree with the authors we read, the instructor, or even other class members, on all of the issues we will explore this semester. But you do have to understand the points upon which your opinion diverges from others, and justify why someone ought to be convinced by the evidence or arguments which convinced you, or at least give us your best defense. It is best to think of the idea of transparency of positions. We don't merely need to know what you think, but why you think something and why anybody who accepts or believes some of the things you believe should draw the same conclusion. On class participation, you don't need to have something to say everyday, but the less often you speak, the more I will expect cogent and lucid thinking and criticism.

3) Course assignments. Assignments for reading will be made in class. The syllabus will serve as a guide to topics we will cover.

II - Holmes Chapter 1

A) Evaluating

In 1.2 and 1.3, Holmes discusses the genesis of evaluative behavior and he speaks in historical terms about the nature of the activity of evaluating. Humans, at least since we were plausibly called humans, have always had things they valued, be they food, clothing, shelter or just human interaction like love and friendship. Now, what is important for the development of moral philosophy is that we started to think about these things as having value or being valuable to us. Thinking in evaluative terms is one thing which separates us from animals. His most interesting point here is that evaluating and making value judgments is necessary for human action. For instance, the fact that you all signed up to take this class reflects your evaluative judgment about this class, even if you just think the class is only instrumentally valuable for some other end, i.e. you just needed three credits to complete your schedule and to graduate on time. Rational judgments of any kind require some end, or telos if you want, to which the action is aimed. Think about how playing puts or calls demonstrates your evaluative judgment about the quality and price of some stock, or how drinking coffee demonstrates your preference for coffee over tea, water, or drinking nothing at all. Such judgments reflect the idea that you believe the end or aim in question is better than some other end or aim, even if the choice is between your action and refraining from acting.

B) Is v. Ought

In 1.5, Holmes notes the importance of the development of the distinction between what is and what ought to be. Another very useful way to make the distinction is to ask the question "why should I do what is done?" or "why ought I follow some local tradition or practice?" If you want to understand the importance of this distinction in the history of ideas, imagine trying to have a conversation with someone who operated without it! Let's say you were without this distinction and happened upon someone beating a child with a rake. When you ask why they are doing such a horrible thing, they reply that is what you do with an errant child! If neither, or just one, of you have the distinction between 1)what is done, beating children with rakes, and 2)what ought to be done, perhaps merely scolding them, then how would you express your opinion that they ought stop in any meaningful way besides just recoiling in horror or crying or something non-verbal? It is difficult to point to a time in recorded history when we were without this distinction, especially since the ancient Greeks seem so well versed in its use. It has been said that the distinction fell on hard times during the middle and "Dark" ages right up to the Enlightenment. Ask someone why we drive on the right side of the road, why they dress up for football games, or why the university won’t put air conditioning in the old dorms and see how far we've come since the enlightenment development of is versus ought to be!!

C) Holmes employs the scheme of classification for normative judgments we've already covered. Remember that normative judgments are distinguished from purely descriptive statements about the world. Normative judgments can be either value judgments or prescriptive judgments. Both value and prescriptive judgments can be about either moral or non-moral matters, it depends on the perspective or frame of reference for the statement. The frame of reference should be fairly obvious from the content of the statement. The details, the moral principles, which make these statements moral statements are matters we will need to flesh out as we proceed through our readings.

D) Sources of Moral Conflict and the Moral Point of View

Consider the sorts of tensions and interests at play in the Vioxx recall and try to see how these could present not only legal and economic problems, but moral or ethical quandaries. Holmes offers three possible sources from which moral conflicts can derive:

1)conflict between morality and conventional beliefs.

2)conflict between morality and law

3)conflict arising from competing moral considerations.

A case could be made for applying any or all of these categories to the case of any product withdrawal or recall, though a good case could be made for 1, but the best case could be made for 3. Like the case of the Chinese kindergartner, there are certain conventions and conventional beliefs we have about the limits of corporate responsibility. After all, this isn't the first dangerous product withdrawal or recall, and it probably won’t be the last. As for conflicts arising between morality and law, the law would seem to be decidedly in favor of recalling dangerous products, though only after they are proven dangerous. What if the law required less of the corporation than did moral claims or claimants? And finally, there are competing moral claims at play in the recall. There are stakes or rights to be protected on all sides of the equation. One would want to take into account the interests of employees, shareholders, consumers, and the public at large. Some philosophers in business ethics refer to addressing the claims or interests of people other than just shareholders and employees as a "stakeholder" analysis. We will address that analysis in detail later.

While moral conflict can arise from different spheres, the most important thing to remember is that the moral point of view or frame of reference is a final accounts frame of reference. We all know that the words "right" and "wrong", so to "good" and "bad" and "ought" and "ought not", can be used with reference to lots of different kinds of practice. There are right and wrong ways to play piano or bake a cake. But the moral use of the term stands in a special relation to all the others. Think of the moral frame of reference as a filter through which all decisions and actions flow, restricting the wrong actions and allowing the right or merely permissible actions to flow through. Sometimes the filter functions so well as to be nearly imperceptible in its regulatory actions, but it does function nonetheless. So while not everything is a moral matter, it is true that moral considerations should trump or defeat non-moral considerations, else we fail to understand, much less take up, the moral point of view.

III Sen "Does Business Ethics Make Economic Sense"

A) Sen begins by challenging a conventional interpretation of Adam Smith, often referred to as the father of modern economics. The following passage is often quoted from Smith: "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self-interest. We address ourselves, not to their humanity, but to their self-love". This passage is usually interpreted to indicate Smith's skepticism about the necessity of ethics to economic activity. In other words, Smith is often interpreted as holding the position that self-love, also referred to as self-interest, is both a necessary and a sufficient condition for an economic relationship. Sen wants to deny the all too common interpretation of Smith as a scholar who advocated an ethics free view of economics since such an interpretation has bad historical and contemporary implications. In other words, Sen is arguing that an ethics free view of the science of economics is not sensible, and that only a fool would believe economics in theory and practice can function merely through reference to self-interest. He asks two questions:

1) Did Smith think business activities consist of only such activities?

2) Did Smith think business activities would be just as good, or work just as well, if both parties were trying to swindle and defraud each other in an attempt to maximize benefits to them?

Sen thinks it would be both bad historical scholarship and bad economics to answer either question in the affirmative. Sen argues that for Smith, and for all of us, self-interest can be seen as a sufficient condition for motivating economic transactions. My needs and my desire to meet them can be sufficient for bringing me to the market. So in that sense, it is correct to interpret Smith as saying we should look to the self-love or prudential interest of parties in an exchange to explain and understand the behavior. However, self-interest alone is not a sufficient condition to complete or achieve an exchange or transaction, much less a whole system or repeated iterations of exchange. Another necessary condition is, you guessed it, ethics or moral considerations. Some minimum level of adherence to moral principles is necessary for a complicated system of exchange to function. If you are unconvinced thus far, think about what would conceptually separate a single economic transaction, where we exchange goods or services for money, from an outright theft or "grifting" where there is an attempt to appear as though a just transaction has taken place but no money was exchanged for goods. Note well that the butcher-brewer-baker example deals only with the motivation for a single exchange, not with the supposed necessity of self-interest for a system or institution of exchange or what motivations we might require for a system of production and distribution as well.

B) Sen also argues that Smith, as any good economist would be, was not only interested what is necessary for exchange and markets, but also interested in production and distribution. We are also interested in a full system or institution of economic activity which grows and persists over time, not just single transactions. Also, we are not just interested in what would be necessary for an individual or single transactions of exchange, but what would be necessary for an economic system of exchange to grow and persist over time.

1) Systems of Exchange. To explain, Sen thinks it is a necessary condition of a system of exchange that certain moral behaviors adhere over time, namely rules regarding shared trust and mutual confidence in acceptable behavior. Without a minimum level of mutual confidence or shared trust in the behavior of participants, systems of exchange cannot operate. If the baker doesn't trust the brewer to deliver the yeast on time or without pre-payment, they won't continue to make economic exchanges. This also holds for arrangements between baker and truck driver to deliver the bread to market. Without a proliferation of certain business ethical values, unless some threshold of promise or contract keeping is met, the institutional system of exchange cannot get off the ground. Notice that these practices need not be explicit in law or government edict, they can function as effectively if a sufficient number of parties adhere to contracts or agreements.

2) Ethics and Production - Some goods which we want produced would not be produced if we only relied on self-interest in the market. Self-interest and the market are good for producing private goods like pizzas, toilet paper, and clothing, which for the most part, are consumed by one and only one person. Self-interest is not so clearly good for producing what is known as "public" goods such as pollution free environments and a lack of viral threats. These are goods where we do not compete for the benefits of their use and equilibrium prices are hard to come by. All of us have an interest in the maintenance of these goods, though my breathing fresh air does not interfere with you doing so as well. Without the competing demands the profit or self-interest motive does not get much conceptual purchase for producing these public goods. In a related point, some private goods, like my clean home next to a dirty factory, are not easily sorted out by the bare bones self-interest of the market. The waste produced by the factory is external to the price of the factories goods in the market, unless some other principles, such as moral or legal, force the factory to “internalize” these external costs. The means of "producing" or protecting public goods and internalizing such costs can be:

1)addressed by publicly owned enterprises, (not in this life-time)

2)regulate to internalize the cost to business (read: tax or penalize), or

3)socially regulate or sanction and encourage a structure of values to accommodate production, encourage something other than self-interest.

Sen also argues that the overall success of a business firm is itself a public good, one which cannot be encouraged within a simple version of mere self-interest.

3)Distribution Sen addresses distribution in the economist’s sense, where we are thinking about how goods are distributed throughout all levels of a society and whether or not such a distribution would be just, though he talks about distributional equity. He is not talking about how someone like perhaps cola companies distribute and vend their products, but rather, who holds the goods a society produces and how it is distributed differently to different classes within the society. When economists talk about distribution, they are necessarily talking about the intersection of ethics, in this case political theory, and economics.

This is the case in the simplest sense of maximizing wealth or GDP, since the distribution in a scheme, or what groups will receive larger portions of the pie and which will receive smaller portions, will affect the overall size of the distributive pie. If you want to grow the GDP, you should decrease the largest tax bracket. So even those people only instrumentally interested in distributive shares will have to engage something other than mere self-interest and engage in some normative terminology. This is also the case if you are interested in a deeper sense of distributive justice, or what some might call political economics, where economists and others are arguing about distributive shares and who should get what size piece or portion of the pie. That question would not be available to an economist who dealt with only self-interest.

Good distribution makes economic sense if by economic sense you mean achieving a good distribution of stuff in a society. But, if you mean "does a good distribution contribute to my bottom line" or some other self-interested formulation, then you've formulated some instrumental conception of distribution where you only care about distribution insofar as it effects your profits. Now, even this so-called enlightened self-interest regarding distribution will still call for you to treat not only your workers well, but also your actual and potential customers with respect by fostering a just system of distribution. Either way, the sense in which business ethics is involved should be obvious.

C) Let's give Sen what he wants and agree that Smith has been misinterpreted and business ethics makes economic sense. Of course, he has drawn a distinction between 1) the science of economics and how business ethics makes sense in that discipline and what you may have thought he was going to talk about, namely 2) how the profit motive, or self-interest, is best served by ethical behavior. This point is addressed in A) above when we note the conceptual necessity of ethics to continued economic transactions. Sen’s thesis is that something other than mere self-interest is required or necessary for the economist to do her work – ethics, moral principles, and other regarding behavior is also necessary to make sense of the academic discipline of economics.

In Section 5, Sen also talks a little about 2) the profit motive, or a company’s values and how they can affect the bottom line. This might be the interpretation of the title you were expecting Sen to concentrate upon for the majority of the article – how does ethical behavior affect profits? He intimates that doing good things, like treating one’s employees with respect and rewarding or properly compensating good work, can lead to profits and rewards in the markets. In other words, being a good person or acting in the right manner can increase one’s profits – good business is good business. Sometimes a good reputation in the market can allow you to increase your profits. That much seems reasonable. Sen also says that such behaviors should also lead us to a better society, economically and otherwise.

This is a very interesting position, one we will revisit in future readings. Note well what Sen is NOT saying. Sen does not say that profits will be maximized by morally good and principled behavior with your customers, employees, etc. Sen is making the qualified and more reasonable claims. On one hand, a better society wherein all parties treat each other with dignity, respect, and fairness is a good or a good thing in itself. This is an axiological claim not just about profits, but about the virtues of a business and a society comprised of such businesses and individuals. On the other hand, he is asserting, quite reasonably, that a reputation for having and living by certain values and principles in business can be an avenue to profits. Some firms are able to trade on their, morally speaking, good names or brand image – Ben & Jerry’s, The Body Shop, Benetton, green or ethical investment funds. These firms can compete in the market environment where not all parties play by the rules or have the same values. Again, Sen does not say “Be good or do the right thing in business because such behavior will benefit you in the long run.” People who read this article and even those who write other works are tempted to advocate the position of “Profit Maximization through Proper Moral Principles.” Do it because it’s right and because it makes more money. Is that really plausible? Does proper behavior put you at the top of the profits curve?

But what if it wasn't the case that “enlightened” self-interest required ethical behavior? In other words, what do you do when you can get away with it and make more money by violating? Is it possible to make more money by doing the wrong thing? Better still, what ought you do when you can get away with it? What if profits can be maximized by shaving a point here or fudging a number there? And nobody's looking? In other words, what should you do when maximizing profits or economic gain conflicts with only ethical or moral constraint?

IV. Plato – Why Should I be Moral?

Introduction This dialogue is attempting, in this selection, to explore some possible answers to that question. Is it better in every way to be just than to be unjust? Socrates says yes! So if justice is good, then there are at least three options: Justice is 1) good for its own sake, like joy, 2) good for its own sake but also for the consequences from it, such as health and sight, or 3) good only as the means to some other ends, like going to the dentist or physical training. Socrates says that justice and rightness is 2) good for its own sake and good for what comes from it as well. The wearisome class says justice is like dentistry – unpleasant, but necessary for other goods. Glaucon is prepared to defend injustice or the unjust way of life as better than the just. But, Glaucon realizes that others may be orienting their life this way as well, so a cagey player will take the moral gambit and see most of what morality requires as a series of commands towards rational self-interest. The smart player interested in having a good life will compromise or check the quest for self-enrichment and play by mutually agreed upon and mutually beneficial rules, like refraining from lying, cheating, stealing, etc.

A) Glaucon on the Nature of Justice. To do wrong is naturally good, and to be wronged is bad. Stealing gets you goods without paying the price, and to be victimized by the thief is bad since you lose your stuff! But in the land of thieves, your stuff will eventually and often be stolen. Glaucon asserts that the badness of getting ripped off is much worse than the good you derive from occasionally stealing. That's too high a price to pay for the pleasure of taking from others – it's also too risky. So the wise person enters into a compact or contract with other people to refrain from stealing willy-nilly. Justice is this mean between two extremes: splitting down the middle the best, taking freely without paying, and the worst, being a victim of a thief.

B) Glaucon on the (IN)Voluntariness of Justice. People only follow justice, the ones who do actually end up being just, because they are too weak or too unskilled at injustice. They lack the power to do wrong. But the real man, the powerful man, would be crazy to do that since he can steal at will and defend himself. Even the justice folks follow the commands of so called morality against their will, since if they could lie, cheat, and steal with impunity, they would! If they had the ring of Gyges, they all, and we all, would act as Gyges did. Even the so-called just man would behave badly if you gave him the ring, because the only thing holding him back from lying, cheating, and stealing is the possibility of being caught and the possibility that others will do the same to him. If you had two rings and gave one to the just man and another to the unjust man, they would act in identical ways – robbin, killin, and stealin!

C) Gloucon on the Life of the Unjust Man. Put the most unjust man next to the most just man and make a comparison. By that he makes clear he means somebody really good at injustice, or someone that approaches the Gyges limit of without reprisals. Maybe he doesn't hit every opportunity to cheat or steal, but he certainly recognizes the times he can do it and get away with it, and takes those opportunities and his reputation is unsullied! Compare him to the perfectly just man, and that's also a perfectly just man that is the obverse of Gyges – nobody knows he is just so he gets no reputational benefits from that justice. And worse, he goes to his grave knowing that the rest of the world thinks he's a lying, thieving, murdering bastard. In other words, the just man endures much if not all of the punishment, and none of the ill-gotten rewards of injustice, save the actual justice itself. Now, which one is happier? The first guy who everybody thinks is a real standup prince of a guy, but is actually enjoying all the trappings and rewards of the life of Tony Soprano, or the second guy who everybody thinks is the biggest scumbag around, but is actually a very principled and just fellow? Who has a more pleasant life? Who has a better life might be a better question. For Glaucon, justice is a means to an end, not an end in itself. The end is a good, perhaps peaceful, life. However, if you can get a good and peaceful life in other ways, then it is so much the worse for morality and ethics.

D) The Socratic Reply. Justice for cities and states is to have all of the parts of the city functioning well. Justice for a person is also to have all his constituent parts functioning well – the soul (I think we can say "will" or "theory of mind" here and nothing is lost or changed). The soul has to be functioning well to say you are living well and having a good life. The problem with our rapscallion is that his mind and soul are out of natural well functioning alignment – he's got mental problems! He is feeding the beastly part of himself, but not the better more human parts (p. 66). Ask him if our traditions of greater things, even the rapscallion's ability to pilfer, didn't they come from us pushing down our more animal like qualities of the war of all against all, "subordinate the beastlike parts of our nature to the human…can it benefit anyone to acquire gold unjustly if when he takes the gold he enslaves the best part of himself to the most vicious (animal) part?" Right actions have the same aims that laws do in cities, it allows us to live a better life. And even Glaucon agrees with that as the point of law; it got started to allow us to live a life without fear of others and without having to nail all of your belongings to the floor! The law keeps us in check. To maneuver around Glaucon, Socrates analogizes from laws of man to the laws of virtue and the soul. It seems like an outright denial of the point raised by Glaucon, that the rapscallion is better off than his counterpart. At best Socrates has an assertion that the virtuous character gained by acting appropriately is more worthy than all of the riches of this world. But I'm not sure Plato can say that given what we know about his view on the priority of Character to Conduct. I think he's saying that what's wrong with Glaucon's powerful man as rapscallion is that his actions are either decreasing his virtue and his better nature, or they are not allowing him to express those better natures. Either that, or Socrates is merely asserting that it's better to be Socrates unsatisfied than a pig satisfied. But does this seem fair? Does Glaucon's point still hold if we restrict the analysis to just bank accounts? How about bank accounts and friends? How about bank accounts, friends, and love? The more we pack in to what might be missing in the rapscallion's life, the more we want to side with Socrates. But again, is that fair or are we changing Glaucon's hypothetical?

Questions to Answer

1. What sources of moral conflict does Holmes consider?

2. What does the title of Sen's article mean? Does he intend to show that acting according to moral principles while doing business will make or return profits – that business ethics makes economic sense because good people make more money than bad people? Or, does Smith intend to show something more complicated about the discipline of economics and the necessity of moral terms and concepts to that discipline.

3. Does behaving properly in business maximize profits?

4. What is the Ring of Gyges in Plato's Republic and how does it relate to the question above?