Values, Ethics and Business Decisions International MBA - Antai College of Economics & Management, Shanghai Jiao Tong University, Oct 2011

From Ethics to Ethical Rationality Marc Le Menestrel

Economic Rationality

The rational actor (you, a team, a company) 1. Anticipates the consequences of his actions 2. Evaluates these consequences according to his interest 3. Chooses the action that leads to the best consequence.

Interest of the consequence

How do actors behave in the face of such dilemmas?

Ethical Dilemmas: tough choices

Less ethical

More ethical

An Ethical Dilemma arises when the action that best favors the interest of the actor conflicts with the action that is the most

ethical

Best interest of the actor

Worse interest of the actor

What Should you do?

Less ethical More Ethical

Bet

ter

Wor

se

Ethical Values B

usin

ess-

Inte

rest

There is no point of talking about ethics in business if we don’t talk about how much it costs

Ethics vs. Business Interest

First Discourse: Economic Rationality

Less ethical More Ethical

Bet

ter

Wor

se

Ethical Values

Rational

Business interest should be the sole and unique criterion of rational choice

Irrational Bus

ines

s-In

tere

st

Second Discourse: Idealism

Less ethical More Ethical

Bet

ter

Wor

se

Ethical Values

Rational

Ethical values should be the sole and unique criterion of choice

Irrational

Bus

ines

s-In

tere

st

Third Discourse: Corporate Social Responsibility

Less ethical More Ethical

Bet

ter

Wor

se

Ethical Values

Rational

Business interest and ethics should always combine

Bus

ines

s-In

tere

st

Ethical Rationality

Less ethical More Ethical

Bet

ter

Wor

se

Ethical Values

Inte

rest

Ideal

Irrational

Priority

to

interest

Priority

to

ethics

Marc Le Menestrel, UPF & INSEAD, for

Rational choices between interest and ethics are often kept hidden, but they are the most difficult: We can rationally give priority to interest, and sacrifice ethics We can rationally give priority to ethics, and sacrifice interest

What does it mean to be ethical?

Are you an ethical person?

Do you work for an ethical company?

Is business ethical?

You feel good, full of energy

You may not be very credible

And you may be blind to

risks

You are honest

It feels bad

But you are more aware

and anticipate

Looking at the good side

Looking at the bad side

Thinking Ethics as a Grey Zone

Your ethical judgments are bounded and biased by your emotions, your interest, your

mental habits and self-image, your cultural context and work environment, etc.

This psychological phenomenon is not necessarily intentional, but it can have significant

consequences. It can be used by others to influence or even control you.

With training and effort, you can develop, refine and structure your ethical consciousness.

It requires to open your mind and be able to think beyond the justification of your ethical

opinion.

Purely

ethical You are

here!

Purely

unethical

Enlighten your Ethical Blindspot

Which stakeholders can be harmed? How

much? When?

Can this be wrong? According to law? To some ethical principle? If everyone

does the same? All the time?

Am I having bad feelings? A sense of discomfort? An early warning signal

inside?

Would this be better kept secret? Is this taboo? Could it be publicly known?

Which stakeholders can benefit? How

much? When?

Is this right? Is this legal? Is this respecting ethical principles, code of values? Can this be universalized?

What good feelings do I have? What virtue

do I incarnate? Why is this respecting my personal integrity?

What would I like to be known? To be

transparent? is transparent?

To which extent is this unethical?

To which extent is this ethical?

Some Ethical Questions

Are you an ethical manager? Do you work for an ethical company? Is it ethical to close a profitable plant? Is it ethical to influence a government? Is it ethical to compromise on the safety of a

product? Is it ethical to shape customers desires? Is economic progress ethical? Is it ethical to work as hard as possible?

Aristotle: The Stagirite

Born 387 b.c. in Greece.

Student of Plato.

Studied and wrote about a wide range of subjects: logic, mathematics, physics, biology, politics, ethics, metaphysics, …

A Holistic Approach

Nature is a whole that acts upon us

Nature shows the mean, between excess and deficiency

Virtue is the reflect of the natural mean

A Word From Aristotle

Everything aims at the Good

Nicomachean Ethics

A Hedonic Answer:

Good emotions are produced when acting virtuously

A Natural Model:

We should act virtuously, in harmony with the essence of things, without excess nor

deficiency

How to act?

Feel good

Don’t feel good

Good feelings are reflecting virtuous actions

Born 1724 in Prussia. Modernity: emancipation of thought from

nature and religion, the subject becomes central, society is perceived from the point of view of the subject.

Kant’s systematic inquiry How do we think? (pure reason) How do we act? (practical reason) How do we perceive? (faculty to judge) What is a moral act? (metaphysics of morals)

Kant: a Systematic Approach

Reason, Intentions and Norms

Ethics is based on reason alone and not on human nature or emotions.

Intentions count, independently of the consequences.

Norms (principles, rules, rights, duties) are the criterion of right intentions.

A Word From Kant

Everything in nature works according to rules

Logic

An Idealist Answer:

There is no right to do wrong, neither in theory or in practice

A Rational Model:

We should act according to a rule that can be universally applied

How to act?

Subject

Lying

Not Lying

There is no right to lie, in theory or in practice

J.S. Mill: A Science of Liberty

Born in 1806 in London. In search of a science that would reflect the

human dimension of society: System of Logic; Principles of Political Economy; On Liberty; Utilitarianism; The Subjection of Women.

Practical engagement for liberty. Heritage of J. Bentham’s utilitarianism.

Function & Consequences

Right and wrong are a function of the consequences of our actions.

We should act so as to attain the greatest possible balance of good consequences over bad consequences for everyone affected by our actions.

“Good” means happiness and pleasure.

A Word From John Stuart Mill

Of two pleasures, if there is one that all or almost all prefer, by experience of it,

irrespective of any feeling of moral obligation, that is the more desirable

pleasure Utilitarianism

How to act?

Good consequences when lying

Bad consequences without lying

Calculation of consequences drives ethical behavior

A Pragmatic Answer:

When judgments conflict, experienced facts are the sole answer

A Consequentialist Model:

We should act so as to attain the overall best consequences

Three Approaches to Ethics

Holism: Nature as a model Emotions as a criterion Idealism: Reasoning as a model Principles as a criterion Consequentialism: Consequences as a model Preferences as a criterion

Emotions, Principles & Consequences

Looking for a criterion, these ethical perspectives identify the true answer to the tension between

Does it feel good? (Emotions)

Is this right? (Principles) Does it harm others? (Consequences)

Ethical Dilemmas

Is there always a ‘true’ solution to these dilemmas?

A preferred consequence

A not preferred consequence

Lying

Not Lying

An On-going Question?

Maybe ethics is the question itself.

We may learn to accept the tension between how things are and how they should be.

We can structure this tension and mature our

feelings about it.

Then, we may even like this tension, and use it as a source of energy

A Teaching from the Vedantas

Swami Vivekananda Vedanta: its Theory and Practice, XLIII

Materialism says, the voice of freedom is a delusion.

Idealism says, the voice that tells of bondage is delusion.

Vedanta says, you are free and not free at the same time; never free on

the earthly plane, but ever free on the spiritual.

A Word from Swami Vivekananda

XLIII, Vedanta: its Theory and Practice

Do not think that good and evil are two, are two separate essences, for

they are one and the same thing appearing in different degrees and in

different guises and producing differences of feeling in the same

mind.

From the Philosophers

Keep asking you questions, this is ethical thinking Assume your responsibility, this is ethical behavior. Listen to Nature, to Yourself and Others to enrich your

ethical judgment and to better anticipate consequences

Managing the ethical tension is an on-going process source of energy

A Framework of Ethical Rationality

1. Economic Analysis

2. Ethical Analysis

3. Ethical Dilemma

4. Dynamic Analysis

1. Economic Analysis

The rational actor (you, the team, the firm) 1. Anticipates the consequences of the available actions 2. Evaluates these consequences according to their interest for the actor 3. Identify the action that leads to the best consequence

Interest of the consequence

?

Step 1: What is the action that leads to the best consequence for you?

2. Ethical Analysis

To which extent is it ethical? Emotions/Virtue:

Do I feel good? Is this a natural way to act?

Deontology/Idealism: What sort of principle, rule or norm do I

respect? What happens if everybody does the same? What happens if I always act like this?

Utilitarianism/Consequentialism: What are the good consequences for others? Would I like these consequences for myself? What are the good consequences for the

environment? Would the children of my children like these

consequences?

To which extent is it unethical? Emotions/Virtue:

Do I feel bad? Is this an unnatural way to act?

Deontology/Idealism: What sort of principle, rule or norm do I violate? What happens if everybody does the same? What happens if I always act like this?

Utilitarianism/Consequentialism: What are the bad consequences for others? Would I suffer these consequences for myself? What are the bad consequences for the

environment? Would the children of my children dislike these

consequences?

Step 2: What is the ethics of the action that leads to the best consequence for you?

?

Here you raise an ethical dilemma! Here you justify your interest!

3. Ethical Dilemma Step 3: Facing the extent to which there is a dilemma

Prudence: Could the unethical aspects lead to unexpected negative consequences?

?

Unethical aspects of behavior

More ethical alternative

Vision: Can you find a more ethical alternative?

Imagination: If the consequences of the alternative affect your interest, cannot they be improved?

?

?

4. Dynamics Analysis

Ideal

If you are in the ideal position, you may not be lucky for very long

Irrational

Priority to interest

Priority to ethics

Lack of transparency Legal pressure Liabilities Bad Reputation PR costs Negative motivation Managerial inertia

Transparency Social involvement & support New scope of activities New business processes Long term thinking Strategic investment Positive motivation Learning process

Increasing demands (legal, social) Credibility ambiguous Contentment, lack of vigilance Unawareness, rationalization

If you give priority to interest, you will need reactive strategies to survive

If you give priority to ethics, you may find help for your proactive strategies

A Difficult Strategy…

Few ones are going to believe it, Outside or inside the company…

Ideal

Irrational

Priority to interest

Priority to ethics

A Reactive Strategy…

We wait for change to become necessary But it can be very dangerous…

Ideal

Irrational

Priority to interest

Priority to ethics

A Proactive Strategy…

We are likely to be more credible, And more motivated for change… Visionary Leaders Welcome!

Ideal

Irrational

Priority to interest

Priority to ethics

Conclusions

It is easy not to see ethical dilemmas: you just have to find a good justification for the action leading to the best consequence!

It is not easy to see ethical dilemmas: it questions ourselves and it does not look fun…

It can be rational to be ethical sacrificing your interest, or to sacrifice ethics for your interest: the choice remains yours

It is difficult, but helpful, to search for ethical dilemmas beforehand if you want to have a chance not to be trapped by them and anticipate their dynamics