Desjardins5e ppt ch2

CHAPTER TWO: ETHICAL THEORY AND BUSINESS
Copyright © 2014 by McGraw-Hill Education. All rights reserved.

 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 rights and duty-based ethics
 Introduce the basic concepts of virtue ethics
Copyright © 2014 by McGraw-Hill Education. AAllll rriigghhttss rreesseerrvveedd.. 2-2

 “Inside the Great CEO Pay Heist”, June 15,
2001 – Fortune magazine
 CEO compensation has been increasing
substantially since 1960; the factor difference
between CEO compensation and the average
pay of basic workers has increased to 500.
 There is little correlation between CEO pay and
CEO performance (Forbes, 1998)

 While CEO compensation has increased quickly
over time, the U.S. minimum wage has not.
 The corporate accounting scandals of 2001
and 2002 have not brought CEO compensation
under control.
 CEO compensation includes salary and stock
options.

 Observers believe that stock options create a strong
incentive to increase the company’s share value by
whatever means possible – thus contributing to illegal
and unethical behavior.
 Distribution of wealth in the U.S. – 20 million
households, accounting for 20% of the population, are
classified as “poor”, earning less than $15,000
annually.

 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 the
population and earn between $35,000 and
$75,000 annually.
 Approximately 85% of the U.S. population live in
families earning less than $75,000 annually.

 Bill Gates’ net worth - $66 billion
 Warren Buffett’s net worth - $46 billion
 Median family net worth in the United States
for 1999 - $77,300
 Are such inequalities of income just?
 Sabo’s Income Equity Act would place a limit on
tax deductions that a corporation can claim for
executive compensation.

 The language of ethics is part of business; therefore,
we need to understand the basics of philosophical
ethics just as you understand basic Economics and
Management.
 Debates around CEO pay are debates about ethics:
What do people deserve? What produces beneficial
overall consequences? What is one’s duty? What is
fair or unfair, just or unjust? What is wrong with greed?

 Utilitarianism determines right and wrong in
terms of consequences.
 A second tradition, one based on the
importance of ethical principles and rights,
emphasizes ethics as a matter of principle and
offers ways to think about such ethical
principles as dessert, duty, promises, property,
rights, justice and fairness.

 In Ethics, who’s to say what is right and what is wrong?
 In Ethics the “right” answer is not found in books; it
can not be calculated like a math problem.
 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, and there
seems to be no way to decide between competing
conclusions.

 Ethical issues seem based on personal feelings
and emotions.
 Ethical relativism holds that ethical values and
judgments are ultimately dependent upon, or
relative to, one’s culture, society, or personal
feelings.
 Relativism denies that we can make rational or
objective ethical judgments.

 If relativism is correct, there is no reason to
continue our study of ethics.
All opinions are equally valid.
 If relativism is correct, we can not evaluate the
cultural or social values that underlie our
ethical judgments.
 Consider child labor…

 Some Western businesses have been criticized for
using suppliers who rely on child laborers working
under harsh conditions for long hours and very low
wages.
 Response: Such working conditions are accepted in
the host country, therefore Western critics have no
justification for imposing their own cultural
values/norms on others.

 The relativist would argue that values such as
equality, fairness, integrity, self-respect, and
freedom are all a matter of personal or social
opinion.
 Let’s look at sexual harassment…

 Imagine a male manager telling a female job applicant
that she would be hired IF she submitted 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 is wrong,
the male manager may feel that it is right.
 Each opinion or feeling is equally valid.

Is there any way to defend the claim that
harassment is unethical?

We might argue that sexual harassment would
subject a woman to unfair workplace
discrimination.
The inequality of power in this situation places a
woman in the unacceptable position of having to
choose between her livelihood and her own sexual
integrity.
Such a choice is coercive and threatening.

 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 and
consider the present status of women in the
workplace.
 We would employ rules of logic in our
reasoning.

 The cost of relativism – what you need to 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 reasoning is better than
one that is simply asserted.

 The traps of relativism
 We should be careful not to hold ethics to too high a
standard of proof.
 Do not confuse the fact that there is wide
disagreement about values with the conclusion that
no agreement is possible.
 Do not confuse values such as respect, tolerance,
and impartiality with relativism.

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

 Psychological egoism is a descriptive, factual
claim about how people do act and how they
are motivated.
 Ethical egoism is a normative theory that
prescribes how people should act

 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 egoism to the social good,
i.e. social contracts.

 All ethical theories, including both forms of
ethical egoism, argue that our ethical
responsibilities will sometimes require us to act
in ways that constrain our own behavior in the
interest of others.

 If ethical egoism is to pose a threat to Business
ethics, then ethical egoism has to become
more than merely a tendency of humans.
 Defenders of ethical egoism must claim that
humans always and only act out of self-interest.
 What about parenting and friendship?

 Egoists respond that as parents and friends we
are doing what we want to do – so we are still
acting selfishly.
 As parents and as friends to others, we derive
satisfaction out of these acts and this suggests
that selfishness underlies even the most
beneficent acts.

 These responses fail because
 People do things they don’t necessarily want to do.
 The responses confuse the intention or purpose for
acting with the feelings or reactions that follow from
the act itself.

 Roots of utilitarian thinking can be found in
Thomas Hobbes (1588-1679), David Hume
(1711-1776), and Adam Smith (1723-1790).
 Classic formulations of Utilitarianism are found
in the writings of Jeremy Bentham (1748-1832)
and John Stuart Mill (1806-1873).

 The theory tells us that we can determine the
ethical significance of any action by looking to
the consequences of that act.
 Maximizing the overall good or The Greatest
Good for the Greatest Number of People
 Utilitarianism provided strong support for
democratic institutions and policies.

 Government and social institutions exist for the
well-being of all people, not to further the
interest of the monarch – or the wealthy elite.
 The economy exists to provide the highest
standard of living for the greatest number of
people, not to create wealth for a privileged
few.

 Utilitarianism looks at the consequences of actions.
 Utilitarianism is pragmatic: no one is ever right or wrong in
every situation. It all depends on the consequences.
 Utilitarians 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
good and bad consequences…There must be some intrinsic
value by which we can judge the consequences of our acts.

 Jeremy Bentham argued that only pleasure, or at least
the absence of pain was intrinsically valuable.
 Happiness must be understood in terms of pleasure
and the absence of pain.
 Unhappiness must be understood to be the presence
of pain and the absence of pleasure.
 Pleasure and pain are the two fundamental
motivational factors of human nature.

Bentham reasoned:
Only pleasure and the absence of pain is valued for its
own sake.
Only pleasure and the absence of pain are good; more
pleasure (or less pain) is better and maximum
pleasure (or minimum pain) is best.
Therefore, maximizing pleasure is the fundamental,
objective, and indisputable ethical principle.

Utilitarianism differs from egoism:
Utilitarian acts are judged by their
consequences for the general and overall good.
The good includes the well-being of each
individual affected by the action.
Egoism focuses only on individual self-interests.

Mill defended a different understanding of
happiness:
There is a qualitative dimension to happiness:
Happiness is not hedonism.
Humans are capable of enjoying a variety of
experiences that produce happiness – social
and intellectual pleasures in addition to
physical.

To decide which pleasures and what type of
happiness is better we should consult with
someone with the experience of both.
Thus Mill acknowledges that not all opinions are
equal. Some people are more competent to
decide what is good than others.

Mill’s utilitarianism does not support an uncritical
majority rule in which every opinion is treated equally.
The best way to develop competent judges is through
experience and education.
Once people are educated and experienced, then
majority-rule democracy is the best way to make
decisions.

Implications for Business and Economics:
Economic transactions occur when people seek their
own happiness. If people make mistakes and buy
products that fail to bring them satisfaction, they
learn from those mistakes and no longer buy the
product. Market forces eventually eliminate
unsatisfactory products.

 Free market economics is a form of “preference
utilitarianism” where the utilitarian goal is the
maximum satisfaction of preferences.
 Efficiency structures our economy.
 We allow individuals the freedom to bargain for
themselves.
 Agreements occur only when both parties believe a
transaction will improve their own position.
 Competition works to improve the overall good.

 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 there are certain rules
we must follow no matter what the consequences.

 Utilitarianism is a social philosophy.
 There are disputes between two versions of
utilitarian policy: expert and market.
 The utilitarian emphasis on measuring,
comparing and quantifying re-enforces the view
that policy makers should be neutral.

 Sometimes the correct path is determined not by
consequences but by certain duties.
 Duties = Obligations, Commitments, and
Responsibilities
 Deontology denies the utilitarian belief that the
ends do justify the means. There are just some
things we should do, or should not do, regardless
of the consequences.

 Principle-based, or rights-based, ethics focuses
on the dignity of individuals. Individuals have
rights that should not be sacrificed simply to
produce a net increase in the collective good.
 Immanuel Kant and the Categorical Imperative:
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?

 Kant: Ethics requires us to treat all people as
ends, not as means to ends.
Humans are subjects that have their own
purposes and ends, and should not be treated
merely as the means to the ends of others.
Our ultimate ethical duty is to treat people with
respect.

 If our duty is to treat every person with respect,
then we can argue that each person has a right
to be treated in a respectful fashion.
 My rights establish your duties and my duties
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.

How would Immanual Kant respond to
child labor?

 Rights are protecting interests.
 Wants and interests are different from each
other. Wants are desires. Interests work for a
person’s benefit and are objectively connected
to what is good for that person.
 People don’t always want what is good for
them.

 What rights do we have?
 What human characteristic justifies the
assumption that humans possess a special
dignity?
 Why would it be wrong to treat people as mere
means or objects, rather than as ends or
subjects?

 Humans make free choices.
 Humans have autonomy.
 Humans originate action for their own ends.
 To treat someone as a means to an end is to
negate their autonomy – their ability to make
free choices.

 Virtue ethics is the tradition within
philosophical ethics that seeks a full and
detailed description of those character traits, or
virtues, that would constitute a good and full
human life.
 Rather than describing people as good or bad,
Virtue ethics encourages a fuller description.

 Virtue ethics is also prescriptive in offering
advice in how we should live.
 Virtue ethics asks us to examine how character
traits are formed and conditioned.
 Look at the actual business practices we find
and ask what type of people are being created
by those practices.

Many individual moral dilemmas that arise in
business can best be understood as arising
from a tension between the type of person we
seek to be and type of person business expects
us to be.

 These theories are attempts to extract and
articulate the basic principles already present
in common ways of thinking.
 Utilitarianism asks us to consider not only the
consequences that our acts might have for
ourselves, but also the consequences of our
acts for all parties affected by them.

 Principle-based, or rights-based, approaches
insist that some things should be done and
some things should not be done – regardless
of the consequences. Respecting individual
rights and fulfilling out ethical obligations can
set limits on decisions aimed at producing
good consequences.

 Virtue ethics encourages us to seek answers 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.

Desjardins5e ppt ch2

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