Desjardins3e Ppt Ch2

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AN INTRODUCTION TO BUSINESS ETHICS

CHAPTER TWO

ETHICAL THEORY ANDBUSINESS



McGraw-Hill ©2009 by The McGraw-Hill Companies, Inc. All rightsreserved.

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This chapter seeks to•

Introduce the basic categories and concepts of ethical theory • Identify the errors of ethical relativism and

psychological egoism• Explain the ethical theory of utilitarianism• Explain how utilitarian ethics provides support

for market economics and business policy • Clarify several major challenges to utilitarian

ethics

• Introduce the rights and duty-based ethics of deontology

• Introduce the basic concepts of virtue ethics.




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The Language of Ethics andBusiness

• The language of ethics is part of business,therefore we need to understand the basicsof philosophical ethics just as youunderstand basic Economics andManagement.

• Debates around CEO pay are debates about

ethics: What do people deserve? Whatproduces beneficial overall consequences?What is one’s duty? What is fair or unfair,

just or unjust? What is wrong with greed?




4 The Language of Ethicsand

Business• Utilitarianism determines right and wrong in

terms of consequences.

• Deontological theories emphasize ethics as amatter of principle and offer ways to thinkabout such ethical principles as dessert,

duty, promises, property, rights, justice andfairness.




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Ethical Relativism andReasoning

• In Ethics, who’s to say what is right and whatis wrong?

• In Ethics, the “right” answer is not found inbooks; it can not be calculated like a mathproblem.

• One cannot prove the truth of an ethical judgment in the way that one can offer a

proof in geometry.

• People differ about ethical judgments, andthere seems to be no way to decide between

competing conclusions.




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Ethical Relativism and Reasoning

• Ethical issues seem based on personalfeelings and emotions.

• Ethical relativism holds that ethical valuesand judgments are ultimately dependentupon, or relative to, one’s culture, society, or personal feelings.

• Relativism denies that we can make rationalor objective ethical judgments.


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reserved.

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• If relativism is correct there is no reason tocontinue our study of ethics.

• All opinions are equally valid.

• If relativism is correct, we can not evaluatethe cultural or social values that underlie our ethical judgments.

• Consider child labor…



reserved.

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• Some Western businesses have beencriticized for using suppliers who rely onchild laborers working under harsh

conditions for long hours and very lowwages.

• Response: Such working conditions areaccepted in the host country, therefore

Western critics have no justification for imposing their own cultural values/norms onothers.



reserved.

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• The relativist would argue that valuessuch as equality, fairness, integrity,self-respect, and freedom are all a

matter of personal or social opinion.

• Let’s look at sexual harassment…



reserved.

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• Imagine a male manager telling a female jobapplicant that she would be hired IF shesubmitted to his sexual advances.

• The relativist may argue that criticism of harassment is merely a matter of opinion.

• While a woman may feel that harassment iswrong, the male manager may feel that it isright.

• Each opinion or feeling is equally valid.



reserved.

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Is there any way to defend theclaim that harassment is

unethical?




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• We might argue that sexual harassmentwould subject a woman to unfair workplacediscrimination.

• The inequality of power in this situationplaces a woman in the unacceptable positionof having to choose between her livelihood

and her own sexual integrity.

• Such a choice is coercive and threatening.




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• We could explain the psychological good of self-respect.

• We could point out the crucial importance that

jobs play in our lives.

• We could take a social perspective andconsider the present status of women in the

workplace.

• We would employ rules of logic in our reasoning.




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• The cost of relativism – what you needto give up to maintain it – is very high:every principle, every belief, every

logical reason we proposed.

• A conclusion that is reached through

careful logical analysis and reasoningis better than one that is simplyasserted.




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• The traps of relativism

–

We should be careful not to hold ethics totoo high a standard of proof.

– Do not confuse the fact that there is widedisagreement about values with the

conclusion that no agreement is possible. – Do not confuse values such as respect,

tolerance, and impartiality with relativism.




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Psychological Egoism

Human beings can not act but out of self-interest: a central tenet of

psychological egoism.




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• Psychological egoism is a descriptive,factual claim about how people do actand how they are motivated.

• Ethical egoism is a normative theorythat prescribes how people should act




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• Two forms of ethical egoism:

– People should pursue their self-interest,properly understood. The role of ethics,

then, is to help people understand their best interests.

– We can still arrange social institutions in a

way that would channel individual egoismto the social good, i.e. social contracts.




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• All ethical theories, including bothforms of ethical egoism, argue that our ethical responsibilities will sometimes

require us to act in ways that constrainour own behavior in the interest of others.




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• If ethical egoism is to pose a threat toBusiness ethics, then ethical egoismhas to become more than merely a

tendency of humans.

• Defenders of ethical egoism must claimthat humans always and only act out of

self-interest.• What about parenting and friendship?




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• Egoists respond that as parents andfriends we are doing what we want todo – so we are still acting selfishly.

• As parents and as friends to others, wederive satisfaction out of these actsand this suggests that selfishness

underlies even the most beneficentacts.




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• These responses fail because

– People do things they don’t necessarilywant to do.

– The responses confuse the intention or purpose for acting with the feelings or reactions that follow from the act itself.




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Utilitarian Ethics

• Roots of utilitarian thinking can befound in Thomas Hobbes (1588-1679),David Hume (1711-1776), and Adam

Smith (1723-1790).

• Classic formulations of Utilitarianismare found in the writings of Jeremy

Bentham (1748-1832) and John StuartMill (1806-1873).




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Utilitarian Ethics

• The theory tells us that we can determinethe ethical significance of any action bylooking to the consequences of that act.

• Maximizing the overall good or TheGreatest Good for the Greatest Number of People

• Utilitarianism provided strong supportfor democratic institutions and policies.




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Utilitarian Ethics

• Government and social institutionsexist for the well-being of all people,not to further the interest of the

monarch – or the wealthy elite.

• The economy exists to provide thehighest standard of living for the

greatest number of people, not tocreate wealth for a privileged few.




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Utilitarian Ethics•

Utilitarianism looks at the consequences of actions.

• Utilitarianism is pragmatic: no one is ever right or wrong in every situation. It all depends on theconsequences.

• Utilitarian acknowledge two kinds of value:instrumental value and intrinsic value.

• If we judge our acts in terms of their consequences, then we must have some

independent standard for deciding between goodand bad consequences…There must be someintrinsic value by which we can judge theconsequences of our acts.




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Utilitarian Ethics

• Jeremy Bentham argued that only pleasure,or at least the absence of pain wasintrinsically valuable.

•

Happiness must be understood in terms of pleasure and the absence of pain.

• Unhappiness must be understood to be thepresence of pain and the absence of

pleasure.• Pleasure and pain are the two fundamental

motivational factors of human nature.




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Utilitarian Ethics

Bentham reasoned:

Only pleasure and the absence of pain isvalued for its own sake.

Only pleasure and the absence of pain aregood; more pleasure (or less pain) is better and maximum pleasure (or minimum pain) isbest.

Therefore, maximizing pleasure is thefundamental, objective, and indisputableethical principle.




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Utilitarian Ethics

Utilitarianism differs from egoism:

Utilitarian acts are judged by their consequences for the general andoverall good. The good includes thewell-being of each individual affectedby the action.

Egoism focuses only on individual self-interests.




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Utilitarian Ethics

Mill defended a different understandingof happiness:

There is a qualitative dimension tohappiness: Happiness is not hedonism.

Humans are capable of enjoying avariety of experiences that producehappiness – social and intellectualpleasures in addition to physical.




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Utilitarian Ethics

To decide which pleasures and whattype of happiness is better we shouldconsult with someone with the

experience of both.

Thus Mill acknowledges that not allopinions are equal. Some people are

more competent to decide what is goodthan others.




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Utilitarian Ethics

Mill’s utilitarianism does not support anuncritical majority rule in which everyopinion is treated equally.

The best way to develop competent judges isthrough experience and education.

Once people are educated and experienced,then majority-rule democracy is the best wayto make decisions.




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Utilitarian Ethics

Implications for Business and Economics:

Economic transactions occur whenpeople seek their own happiness. If

people make mistakes and buy productsthat fail to bring them satisfaction, theylearn from those mistakes and no longer

buy the product. Market forces eventuallyeliminate unsatisfactory products.




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Utilitarian Ethics• Free market economics is a form of

“preference utilitarianism” where theutilitarian goal is the maximum satisfactionof preferences.

•

Efficiency structures our economy.• We allow individuals the freedom to bargainfor themselves.

• Agreements occur only when both parties

believe a transaction will improve their ownposition.

• Competition works to improve the overallgood.




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Challenges to Utilitarianism

• Problems from within

– Finding ways to measure happiness

– Differing versions of the good and

implications for human freedom

• Problem from outside

– The principle of consequentialism means

that the ends justify the means, but thereare certain rules we must follow no matter what the consequences.




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Utilitarianism and Business Policy

• Utilitarianism is a social philosophy.

• There are disputes between twoversions of utilitarian policy: expertand market.

• The utilitarian emphasis on measuring,comparing and quantifying re-enforces

the view that policy makers should beneutral.




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Deontological Ethics

• Sometimes the correct path is determined notby consequences but by certain duties.

• Duties = Obligations, Commitments, and

Responsibilities• Deontology denies the utilitarian belief that

the ends do justify the means. There are justsome things we should do, or should not do,regardless of the consequences.




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• Deontological Ethics focuses on thedignity of individuals. Individuals haverights that should not be sacrificed simplyto produce a net increase in the collective

good.

• Immanuel Kant and the CategoricalImperative: Our primary duty is to act only

in those ways in which the maxim of our acts could be made a universal law.

• Maxim = Intention: What am I doing?




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• Kant: Ethics requires us to treat all peopleas ends, not as means to ends.

• Humans are subjects that have their ownpurposes and ends, and should not betreated merely as the means to the endsof others.

• Our ultimate ethical duty is to treat peoplewith respect.




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• If our duty is to treat every person withrespect, then we can argue that eachperson has a right to be treated in arespectful fashion.

• My rights establish your duties and myduties correspond to the rights of others.

• Duties establish the ethical limits of our

behavior. Duties are what we owe to other people.

• Others have a claim upon our behavior.




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How would Immanuel Kantrespond to child labor?




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• Rights are protecting interests.

• Wants and interests are different fromeach other. Wants are desires.Interests work for a person’s benefitand are objectively connected to whatis good for that person.

• People don’t always want what is goodfor them.




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• What rights do we have?

• What human characteristic justifies theassumption that humans possess aspecial dignity?

• Why would it be wrong to treat peopleas mere means or objects, rather than

as ends or subjects?




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• Humans make free choices.

• Humans have autonomy.

•

Humans originate action for their ownends.

• To treat someone as a means to an endis to negate their autonomy – their ability to make free choices.




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Virtue Ethics

• Virtue ethics is the tradition withinphilosophical ethics that seeks a fulland detailed description of those

character traits, or virtues, that wouldconstitute a good and full human life.

• Rather than describing people as good

or bad, Virtue ethics encourages afuller description.




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Virtue Ethics

• Virtue ethics is also prescriptive inoffering advice in how we should live.

• Virtue ethics asks us to examine howcharacter traits are formed andconditioned.

• Look at the actual business practices

we find and ask what type of people arebeing created by those practices.




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Virtue Ethics

Many individual moral dilemmas thatarise in business can best beunderstood as arising from a tension

between the type of person we seek tobe and type of person businessexpects us to be.




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Conclusion

• These theories are attempts to extractand articulate the basic principlesalready present in common ways of

thinking.• Utilitarianism asks us to consider not

only the consequences that our actsmight have for ourselves, but also theconsequences of our acts for all partiesaffected by them.




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Conclusion

• Deontological approaches insist thatsome things should be done and somethings should not be done – regardless

of the consequences. Respectingindividual rights and fulfilling out ethicalobligations can set limits on decisions

aimed at producing goodconsequences.

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Conclusion

• Virtue ethics encourages us to seekanswers to very profound questions:

– Who am I?

– What type of person am I to be?

Our character is manifest in our habits,

dispositions, and personality.

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Discussion Case: Executive compensation

• “Inside the Great CEO Pay Heist”, June 15,2001 – Fortune magazine

•CEO compensation has been increasingsubstantially since 1960; the factor difference between CEO compensation andthe average pay of basic workers hasincreased to 500.

• There is little correlation between CEO payand CEO performance (Forbes, 1998)

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52Executive Compensation(cont.)

• While CEO compensation has increasedquickly over time, the U.S. minimum wagehas not.

• The corporate accounting scandals of 2001and 2002 have not brought CEOcompensation under control.

• CEO compensation includes salary and stockoptions.

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• Observers believe that stock options create astrong incentive to increase the company’sshare value by whatever means possible –

thus contributing to illegal and unethicalbehavior.

• Distribution of wealth in the U.S. – 20 million

households, accounting for 20% of thepopulation, are classified as “poor”, earningless than $15,000 annually.

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54Executive Compensation(cont.)• 30% of the population are classified as “lower

middle” class and earn between $15,000 and$30,000 annually.

• Middle class families comprise 34% of thepopulation and earn between $35,000 and$75,000 annually.

• Approximately 85% of the U.S. population livein families earning less than $75,000 annually.

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• Bill Gates’ net worth - $85 billion

• Warren Buffett’s net worth - $31 billion

•

Median family net worth in the United Statesfor 1999 - $55,000

• Are such inequalities of income just?

• Sabo’s Income Equity Act would place a limit

on tax deductions that a corporation canclaim for executive compensation.

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Desjardins3e Ppt Ch2