Velasquez

Eighth edition

Chapter 2
Ethical Principles in Business

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Introduction: Ethical Principles in Business

• Key Questions to be Explored:

– Approaches to discussing moral decision-making in the
business world.
– Approaches to discussing how moral judgments form the
basis for ethical principles in business.

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 What is Moral Decision-Making?
• Moral decision-making is about choosing what is right or wrong based on certain ethical
principles. In business, companies use different approaches to make these decisions. These
approaches include looking at people's rights, fairness (justice), the greatest good for the
most people (utilitarianism), and caring for others.

• The Unocal and Burma Case

• Unocal, a U.S. oil company, decided to work in Burma (Myanmar) in the 1990s to help build a
gas pipeline. The project was attractive because Burma had a lot of natural gas, cheap labor,
and a good location for business. Unocal partnered with companies from France, Thailand,
and the Burmese government.

Benefits of the Project The Ethical Problems

•Burma was a very poor country. The The Burmese government was a military
project could bring jobs, better healthcare, dictatorship known for human rights
and more income for the country. abuses. They forced many Burmese
•Thailand needed more energy to support people to work on the project without pay
its growing economy. and used violence to control the
•The pipeline project created jobs for population. Unocal knew about these
Burmese workers and improved living problems but decided to continue the
conditions in some areas. project.
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Different Ethical Views
• People disagreed about whether Unocal did the right thing. The arguments came from
different ethical principles:

• Human Rights: Critics said Unocal supported a government that violated people's
rights by using forced labor and punishing dissent.

• Justice: The project made rich government leaders wealthier while most citizens
remained poor.

• Utilitarianism (Greatest Good): Unocal argued the project benefited many people,
like local communities and Thailand.

• Caring: Unocal said they cared for their workers and supported local development
with health, education, and job programs.

• The Debate Continues

• Unocal's actions sparked an ongoing debate about whether profits should come before
people's rights. Even after another company, Chevron, bought Unocal, human rights
groups continued to report abuses in the pipeline region.

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Ethical Principles in Business
Four basic approaches:
1. Utilitarianism
2. Rights
3. Justice
4. Caring

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Ethical Principles in Business

1
Utilitarianism

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Utilitarianism:
Weighing Social Costs and Benefits
• What is utilitarianism?
• Utilitarianism is an ethical theory that evaluates actions based on the
costs and benefits they produce for everyone affected. It states that the
morally right action is the one that results in the greatest overall benefit
for society. This approach is known as a consequentialist approach
because it focuses on the outcomes of actions.

• Utility” refers to “The result

of combining the beneficial
and costly consequences of
an action.”

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Utilitarianism:
Weighing Social Costs and Benefits
• What is Traditional Utilitarianism? Traditional utilitarianism is a moral
theory developed by Jeremy Bentham (1748–1832) and John Stuart Mill
(1806–1873). It helps people decide what is right or wrong based on the
results of actions.
• Key Idea: The right action is the one that brings the most happiness or the
least harm to the most people. Bentham called this the "greatest good for
the greatest number," while Mill said that actions are right when they
increase happiness and wrong when they cause pain.
• How Does Utilitarianism Work? When faced with a decision,
utilitarianism suggests we should:
• List all possible actions.
• Predict the good (positive utility) and bad (negative utility) results of
each action.
• Choose the action with the highest positive result or the least harm.
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The Ford Pinto Case
• A well-known example of utilitarian thinking in business
is Ford Motor Company's decision regarding the Pinto
car in the 1970s. Ford rushed the Pinto to market to
compete with fuel-efficient Japanese cars, prioritizing
speed and design over safety. The gas tank was
positioned behind the rear axle, making it vulnerable in
rear-end crashes.

• Crash tests showed that the Pinto's gas tank could

rupture in collisions over 20 miles per hour, potentially
causing fires and endangering passengers. Despite
knowing this, Ford decided not to make design changes
for several reasons:
• The design met existing legal safety standards.
• Competing cars had similar safety risks.
• A cost-benefit analysis showed that modifications
would be more costly to society than the potential
damages.

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Utilitarian Analysis at Ford
• Ford used a cost-benefit study to justify its decision. The study estimated that
modifying the Pinto would cost $137.5 million, while the projected costs of accidents
(medical expenses, lost income, and legal settlements) were around $49.5 million.
Based on this analysis, Ford concluded that leaving the design unchanged was better
for society.

• However, critics argued that Ford's analysis reduced human life to monetary terms
and ignored non-economic costs like suffering and loss of life. The Pinto eventually
became infamous for fatal accidents, and Ford faced lawsuits, reputational damage,
and public outrage.

• Strengths: It encourages considering broad societal impacts and weighing multiple

factors.

• Weaknesses: It can overlook individual rights and reduce complex ethical concerns to
financial calculations.

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 Utilitarianism: Weighing Social Costs and Benefits
• Utility Explained:
• Positive Utility: Good results like happiness, health, or knowledge.
• Negative Utility: Harmful results like pain, sickness, or death.

• To find net utility, subtract the negative utility from the positive utility. The
action with the best net utility is the right choice.

• “An action is right from an ethical point of view, if and only if, the net sum of utilities
produced by that action is greater than the net sum of utilities produced by any
other action the agent could have performed in its place.”

• What are some mistakes in thinking about utilitarianism?

• The right action is the one whose benefits outweigh the costs.
• The utility produced is for the agent performing the action.
• Consideration only of direct and immediate consequences.

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 Real-World Application: Pollution Memo Controversy In 1991, economist Lawrence
Summers suggested sending pollution from rich countries to poorer countries based on
utilitarian logic:
• Health costs are lower in low-wage countries.
• Clean environments in poor countries could handle pollution better.
• Pollution affects long-living populations more.
• Rich people value clean air more, so poor countries might trade clean air for money.

1.Explain which parts of the reasoning in this

memo a utilitarian would have to accept and
which parts a utilitarian could reject.

2. Assuming that the four arguments are

correct, do you agree or disagree with the
conclusion that those in rich countries should
ship their waste to poor countries (perhaps by
paying poor countries to take them)? Explain
why or why not.

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Utilitarianism:
Weighing Social Costs and Benefits
•2.2.3: The Advantages of Utilitarianism
• Although it can be easily misunderstood and misused, utilitarianism is an attractive
ethical theory in many ways.

• Utilitarianism in Economics:
1. Maximizing Utility: Economists have used utilitarian ideas to explain human
behavior in markets. According to utilitarianism, people make choices to maximize
their "utility," which means getting the most satisfaction or benefit.
2. Measuring Utility: Economists believe that the value or utility of goods can be
measured by how much people are willing to pay for them. This helps explain
things like supply and demand, and why prices in markets tend to balance out.
3. Efficient Markets: In perfectly competitive markets, resources are used in the best
way possible to maximize utility for consumers. This idea suggests that such
markets are better than other alternatives because they lead to more benefits for
everyone.

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 Utilitarianism: Weighing Social Costs and Benefits
• 2.2.3: The Advantages of Utilitarianism
• Cost-Benefit Analysis:
1. Utilitarianism is also the basis for cost-benefit analysis, which is used to decide if a project (like
building a dam or a public park) is worth investing in.
2. How it Works: The goal is to compare the benefits of a project (like improved quality of life or job
creation) with its costs. If the benefits are greater, the project is considered a good investment.
3. Monetary Evaluation: To measure these benefits, economists use money as a way to represent the
value of things, even things that aren't directly priced, like the beauty of a forest or park.

• Efficiency:
1. Utilitarianism is closely related to the idea of efficiency—getting the most benefits with the least
amount of resources. This is what utilitarianism encourages: choose the action that produces the
greatest benefits at the lowest cost.
2. This makes utilitarianism a very practical theory, especially when we want to make the best use of
limited resources.

• Key Points to Remember:

• Utilitarianism is about maximizing benefits and minimizing costs.
• It influences how economists explain behavior in markets and make decisions about investments.
• It values efficiency, meaning doing the most with what we have.

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Utilitarianism: Weighing Social Costs and Benefits
• 2.2.4: Utilitarianism’s Measurement Problems
• Measurement Challenges: One of the biggest problems with
utilitarianism is trying to measure utility or the value of good things.
The founders of utilitarianism, Bentham and Mill, had different ideas
about what makes something good:
• Bentham believed all pleasures were the same, differing only in
quantity (how much pleasure they provide).
• Mill, however, thought there were different types of pleasures, and
some are higher quality than others.
• Over time, other people argued that things like knowledge, truth,
beauty, and love are good in themselves, not just because they lead
to pleasure or happiness.
• This disagreement makes it hard to measure what is truly good, especially when
different people value different things. For example, one group may see enjoyment from
alcohol as good, while another group may think it is harmful.
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Utilitarianism: Weighing Social Costs and Benefits

•2.2.4: Utilitarianism’s Measurement Problems

• Are All Goods Measurable? Utilitarianism assumes that all benefits can be
measured and compared to one another. This idea is called commensurability,
which means we should be able to trade one good for another. For example:

• If you value two slices of pizza the same as 30 minutes of your favorite music,
you should be willing to trade one for the other.

• According to utilitarianism, this idea applies to all goods: you should be able to
measure the value of any good and compare it to the value of another, no matter
what they are.
Criticism of This Idea: Critics argue that this is unrealistic. For instance:
•If you value time with your child or love deeply, would you really be willing to trade that
for beer or money? Most people would say no.

•Some things, like love, health, and family, cannot be measured in the same way as
material goods like money or food. These are incommensurable—they don’t fit on the
same scale as economic goods.

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 Utilitarianism: Weighing Social Costs and Benefits
Why This is a Problem: Critics say this means utilitarianism cannot provide a
solid, objective way to make ethical decisions. There is too much subjectivity in
what people value. Cost-benefit analysis, which uses utilitarianism, can end up
reflecting the biases or preferences of certain groups, which isn’t always fair or
logical.

Key Points to Remember:

•Measuring utility is difficult because people have different views on what is truly
good.
•Commensurability suggests all goods can be traded equally, but critics argue
some things are too valuable to trade.
•This challenge weakens utilitarianism as an objective way to make ethical
decisions because values can’t always be measured on a common scale.

•Challenges of Objective Measurement:

•Critics argue that there is no objective way to measure things like love, freedom, or
health. As a result, decisions based on utilitarian cost-benefit analysis might be
influenced by the subjective biases of the group making the decisions.

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Utilitarianism: Weighing Social Costs and Benefits

• Despite these challenges, utilitarians have responses to these objections:

1.Estimates over exact measurements:

1. When exact measurements of utility are not possible, utilitarians might
estimate the benefits or harms of an action. These estimates could be
based on general knowledge or past experiences, allowing utilitarianism to
make decisions even without precise data.

2.Intrinsic vs. Instrumental Goods:

1. Utilitarians may assign more value to intrinsic goods (things that are
valuable in themselves, like happiness or freedom) than to instrumental
goods (things that are valuable only because they lead to other goods).
This helps narrow down what needs to be measured and makes the
process more manageable.
Intrinsic goods always take precedence over instrumental goods, because they help
to bring about an intrinsic good.

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 Utilitarianism: Weighing Social Costs and Benefits
3. Needs vs. Wants:
1. When considering what is beneficial, utilitarians may prioritize satisfying
people's needs over satisfying their wants. For example, providing
someone with basic necessities (like food or shelter) may be seen as more
important than fulfilling their desires for luxury items.

4. Monetary Values:
1. In situations where it's difficult to measure non-economic goods, utilitarians
may use monetary values as a proxy. For example, measuring the value of
health or environmental improvements in terms of economic costs or
benefits might be used to make comparisons easier.

Goods that bring about needs are more important

than those that bring about wants.

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Utilitarianism: Weighing Social Costs and Benefits

• Bentham created seven criteria to help measure and compare the value of different
pleasures and pains:

1.Intensity – How strong is the pleasure or pain?

2.Duration – How long does the pleasure or pain last?
3.Certainty/Uncertainty – How certain is it that the pleasure or pain will
happen?
4.Propinquity/Remoteness – How soon or far away is the pleasure or pain in
time?
5.Fecundity – Does the pleasure or pain lead to more of the same (i.e., will it
cause more pleasure or pain in the future)?
6.Purity – Is the pleasure or pain mixed with opposite feelings (like pleasure
mixed with some pain)?
7.Extent – How many people are affected by it?

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Utilitarianism: Weighing Social Costs and Benefits
• Problems with Rights and Justice: Utilitarianism has been criticized for not being able to
handle two important moral issues: rights and justice. Critics argue that sometimes
utilitarian decisions, which focus on maximizing happiness or utility, can lead to actions that
are unjust or violate people's rights.

• Examples:

1.Justice and Utilitarianism:

1. Utilitarianism looks at the overall utility (happiness or benefits) produced by an action
but ignores how that utility is distributed among people.
2. For example, in the Pinto case, Ford’s decision not to improve the car design meant
that 180 people could die, but it kept the price lower for everyone else. Critics argue
that this is unjust because the risks were hidden from consumers, and they had no
choice in accepting these risks.
3. People have a right to know what they are buying and to choose whether they want
to accept risks, which utilitarianism might overlook.

2.Utilitarianism and Rights:

1. Critics argue that utilitarianism often ignores people's rights to make choices and be
treated fairly. By focusing only on the overall benefits, it may allow actions that violate
individual rights if they benefit the majority.
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Utilitarianism: Weighing Social Costs and Benefits
• Utilitarian Replies: Rule-Utilitarianism
• To address these criticisms, some utilitarians have proposed rule-utilitarianism as an
alternative approach. This theory focuses on evaluating moral rules rather than individual
actions. The key idea is:

1.Action Evaluation: Instead of asking whether a specific action will maximize utility, we
should ask whether the action follows a moral rule that would produce the greatest utility if
everyone followed it.

2.Unlike act utilitarianism, which assesses each action individually based on whether it
maximizes utility (happiness, well-being), rule utilitarianism focuses on establishing rules
that, when followed by everyone, lead to the best overall outcome. The correctness of an
action is judged based on whether it aligns with these beneficial rules.

3.Correct Rules: A moral rule is correct if, when everyone follows it, it produces more utility
than following any alternative rule.

• Imagine a rule like "people should always keep promises." Rule utilitarians would argue
that this rule leads to a more trusting and cooperative society, which in the long run
maximizes happiness for everyone. Even if, in certain cases, breaking a promise might
lead to more happiness in the short term, following the rule generally is thought to have
better overall consequences.
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Utilitarianism: Weighing Social Costs and Benefits
• Criticism of Rule-Utilitarianism

• Despite its advantages, rule-utilitarianism has faced criticism. Critics argue that it is
essentially just traditional utilitarianism with a twist. Here's why:

1.Allowing Exceptions: Critics say that if a rule allows for exceptions when it will produce
more utility, it ends up being no different from traditional utilitarianism, which evaluates
each action for its utility.
1. For example, a rule like "people should not be executed without due process, except
when doing so would maximize utility" could lead to the same ethical issues as
traditional utilitarianism. It could justify killing someone if it would increase overall
utility.

2.Wage Slavery Example: A rule that allows subsistence wages (the bare minimum
needed to survive) only when it maximizes utility could lead to situations where workers are
exploited, similar to traditional utilitarianism's failings.

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Utilitarianism: Weighing Social Costs and Benefits
• Final Criticism and Other Problems

• Some rule-utilitarians argue that exceptions to rules should not be allowed because
people might take advantage of them, leading to worse outcomes for everyone.

• Others disagree with critics, arguing that if violating rights, like executing someone without
due process, truly produces more utility, then it could be morally acceptable.

• Another criticism is that utilitarianism does not always take into account the opinions of
those affected by decisions. For example, the Ford Pinto case suggests that people
should have a say in decisions that impact their lives, especially when their rights are at
stake.

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Ethical Principles in Business

2
Rights

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Rights and Duties
• In contrast to utilitarianism, which evaluates actions based on
consequences and utility, a rights-based approach to ethics focuses on
moral rights and duties.
• This perspective argues that some actions are inherently wrong regardless of
the outcomes if they violate human rights.
• This ethical framework was at the core of the criticisms against Unocal’s
involvement in Burma. Opponents argued that Unocal’s operations supported
the Burmese military regime, which committed human rights violations,
including:
• Suppressing political freedoms
• Forced labor and exploitation
• Rape and imprisonment of dissenters
• The critics maintained that certain moral rights—like the right to free speech,
association, and political participation—must be respected regardless of
the utility produced by Unocal’s investment.
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Case Study: Walt Disney Company's Suppliers in China

• Disney faced a similar ethical investigation • Human rights advocates proposed

for labor practices in its Chinese supply principles for Disney, including:
chain. Investigations revealed:
• Prohibiting forced or bonded labor
1.Child Labor – Workers as young as 15
years old are employed in dangerous • Ensuring fair wages that meet basic
conditions. needs

2.Dangerous Working Conditions – Deaths • Guaranteeing occupational safety

like that of Yiu Wah, who was crushed by a
machine at age 17. • Upholding freedoms of association,
speech, and assembly
3.Poor Wages & Long Hours – Excessive
overtime, poverty wages, and exposure to • Disney opposed these principles, arguing
toxic chemicals. that its existing code of conduct was
sufficient. However, critics claimed the
4.Worker Abuse – Reports of verbal abuse, company’s enforcement was weak and
corporal punishment, and military ineffective, citing recurring violations
intervention to suppress labor movements. across multiple years.
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 The Concept of a Right
• A right is a moral entitlement that imposes duties on others to respect or provide certain protections
or resources.
• Rights-based ethics often references historical documents like:
• The U.S. Declaration of Independence – Inalienable rights to life, liberty, and the pursuit of happiness.
• The U.S. Constitution & Bill of Rights – Legal protections against government interference.
• The Universal Declaration of Human Rights (1948) – Global recognition of fundamental rights, such as:

• Property ownership

• Just working conditions

• Living wages

• Rest, leisure, and union participation

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Rights and Duties
• The Concept of a Right
– A right is an entitlement
• To act in a certain way.
• To cause others to behave in a certain way towards the
rights holder.
• Legal right.
• An entitlement that derives from a legal system that
permits or empowers a person to act in a specified way or
that requires others to act in certain ways toward that
person.
• Moral (or human) rights.
– Rights that all human beings everywhere possess to an
equal extent simply by virtue of being human beings.
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Three Kinds of Moral Rights
1. Negative rights require others leave us alone.
(like; privacy)
2. Positive rights require others help us (others have a duty
not only to refrain from interference, but also to provide you
with what you need to pursue your interests..)
(Rights to food, life, health care)
3. Contractual or special rights require others keep their
agreements.

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 Rights and Duties
• Immanuel Kant (1724–1804) was a philosopher who developed an important moral theory
based on reason and fairness. His theory explains why people have moral rights and duties,
regardless of what benefits society the most. Kant believed that actions are morally right
when they follow principles that everyone should follow.

• Key Concepts:
1.Moral Rights:
1. Moral rights protect individual freedom and dignity.
2. Unlike legal rights, moral rights apply to all people because of their humanity.
• Kant said actions are moral when they come from a sense of duty, not from personal gain or
feelings.
• Morality is about doing the right thing because it is right, not because of the outcome.

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Rights and Duties
1.The Categorical Imperative: Kant introduced the "categorical imperative"—a rule to guide
moral behavior. He gave two main versions:
First Formulation: Universal Law
1. "Act only according to a rule that you would want everyone to follow."
2. Example: If you think about lying, ask yourself: "What if everyone lied?" If this
would cause trust to break down, then lying is wrong.
Key Tests:
1. Universalizability: Would it still make sense if everyone did this?
2. Reversibility: Would you be okay if someone did the same to you?

Second Formulation: Treat People as Ends, Not Means

1. "Treat people as valuable individuals, not as tools for your own gain."
2. Example: Don’t deceive someone for personal benefit because you are using
them, not respecting their choices.
• Helping Others:
• If you see someone in need, consider: "Would I want help if I were in their place?" If
yes, then helping is the moral choice.
• Criticisms of Kant’s Theory:
• It doesn’t consider emotions or the outcomes of actions.
• Sometimes following a rule can cause harm.
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Robert Nozick and the Libertarian Objection
• Libertarian philosophers, like Robert Nozick, believe that personal freedom is always good and any
restrictions on freedom are bad unless they prevent greater harm. Nozick argued that every person has
one fundamental right: the negative right to be free from coercion (force or pressure from others).
• Key Points:
1.Freedom is Essential:
1. People should live without being controlled by others.
2. Forcing someone to do something violates their individuality and dignity.
2.Coercion is Only Justified to Prevent Harm:
1. The only time it's okay to limit someone's freedom is when that person tries to take away
someone else's freedom.
• Simple Examples:
• Freedom to Choose a Job: If Sam wants to be a musician, no one should force him to become
a doctor.
• Stopping Harm: If Alex tries to steal from Jordan, it's acceptable to stop Alex to protect Jordan's
rights.
• Real-Life Applications:
• Limited Government: Libertarians often argue that the government should only protect people from
harm (like preventing crime) and avoid interfering in personal or business decisions.
• Taxes and Property: Nozick opposed heavy taxation for wealth redistribution, seeing it as taking
people's property without consent.
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Ethical Principles in Business

3
Justice

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Concept of Justice
• What is Justice?
– Justice and fairness are key ethical principles that focus on
treating people equally and ensuring fair distribution of
resources, opportunities, and rights.
• Case Study: Unocal and Burma
• Unocal, an energy company, helped build a gas pipeline in Burma
(now Myanmar). Critics argued that this was unethical because:
• The military government unfairly benefited from the project, while
most people remained in poverty.
• The project contributed to an already unjust economic system.
• This highlights a broader ethical issue: When companies make
decisions, they should consider fairness and justice, not just profit.

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 Concept of Justice
• Wages in the Fast Food Industry
• In 2014, fast food workers across the U.S. protested against low wages at major companies
like McDonald’s, Wendy’s, and Burger King. Their main arguments:
• Fast food workers earn the lowest wages in any industry (about $9 per hour).
• Most workers get fewer than 40 hours a week, meaning they earn less than $12,000 a
year—far below a livable income.
• Many workers rely on government assistance to afford basic needs like food, housing, and
healthcare.
• Workers demanded a raise to $15 per hour, arguing that fair pay is not just an economic
issue but a matter of justice.

• Are Higher Wages Possible?

• Some argued that raising wages would make fast food more expensive. However:
• A study found that raising wages to $15/hour would increase fast food prices by only 4.3%.
• In Denmark, McDonald's pays over $20/hour, yet a Big Mac costs just 35 cents more than
in the U.S.
• In-N-Out Burger, a popular fast food chain, pays workers $11/hour with benefits, yet its food
is cheaper than McDonald’s.
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 Concept of Justice
• Fairness in Pay Gaps

• A major criticism was the pay gap between workers and executives:

• In 2013, fast food CEOs earned over $23 million a year—1,200 times more than their
employees.

• While CEO salaries increased 400% from 2000 to 2013, workers’ wages grew by only 0.3%.

• Many saw this as an injustice—executives living in luxury while workers struggled to

survive.

• Conclusion: Why Justice Matters

• Justice is about fairness in how people are treated and how wealth is distributed.
The fast food protests and the Unocal case show that ethical business practices
should consider both profits and fairness. Companies must ask: Are we
contributing to inequality, or are we promoting justice?

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Concept of Justice

Comparative treatment given to the members of a group;

when benefits and burdens (duties) are distributed,
when rules and laws are administered,
when members of a group cooperate or compete with
each other,
when people are punished for the wrongs they have
done or compensated for the injuries they have suffered.

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 Justice and Fairness
• Justice and fairness are crucial in resolving disputes, such as
accusations of discrimination, favoritism, or unfair distribution of benefits
and burdens.

• These concepts compare how individuals are treated relative to others,

particularly in the distribution of resources, enforcement of laws,
competition, and compensation.

• Justice generally holds more weight than utilitarianism—wronging

individuals cannot be justified by overall social benefits. However,
extreme cases of economic necessity may justify some inequalities.

• Justice is closely linked to moral rights, which should not be sacrificed

except in exceptional cases. For example, property rights may be
redistributed to correct extreme injustices.

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Justice and Fairness
• Standards of Justice and Fairness
– Justice and fairness in business disputes
• Discrimination, favoritism, and unfair workloads.
– Forms of justice typically deployed to redress or prevent
injustice.
• Distributive Justice
– requires the just distribution of benefits and burdens.
• Retributive Justice
– requires the just imposition of punishments and penalties.
• Compensatory Justice
– requires just compensation for wrongs or injuries.

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Distributive Justice
• Distributive justice deals with allocating society’s benefits (e.g.,
wealth, jobs) and burdens (e.g., labor, hardship) fairly.
• It operates on the principle that equals should be treated equally,
and unequals should be treated unequally in proportion to their
differences.

• The challenge is determining what characteristics (e.g.,

contribution, need, effort) are relevant for fair distribution.
– “Individuals who are similar in all respects relevant to the kind of
treatment in question should be given similar benefits and
burdens, even if they are dissimilar in other irrelevant respects;
and individuals who are dissimilar in a relevant respect ought to
be treated dissimilarly, in proportion to their dissimilarity.”

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 Principles and Theories of Distributive Justice
• Egalitarianism (Justice as • Libertarianism (Justice as Freedom)
Equality)
• Justice is based on individual free choices
• All people should receive equal
shares of benefits and burdens. without external interference.
• No differences between people • People should keep what they earn and be
justify unequal treatment. free to distribute their wealth as they choose.
• Capitalist Justice (Justice Based • Opposes taxation for wealth redistribution, as
on Contribution) it infringes on individual property rights.
• Rewards should be distributed
based on individual contributions to • Critics argue that it ignores social inequalities
society. and historical injustices.
• Commonly used in workplaces • John Rawls’ Justice as Fairness
(e.g., higher wages for greater
productivity). • Justice should be based on fair principles
• Can lead to competition rather than chosen behind a "veil of ignorance" (where
cooperation. individuals do not know their social position).
• Socialism (Justice Based on
Needs and Abilities)
• "From each according to his ability,
to each according to his needs."
• Work should be assigned based on
ability, and resources distributed
based on need.
• Seen in family-like structures but
less common in business settings

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 Principles of Distributive Justice
Rawls’s Key Ideas
1.The Original Position & Veil of Ignorance
1. Imagine people designing society without knowing their own future status
(rich, poor, talented, disadvantaged).
2. This forces them to choose fair principles that benefit everyone, not just
themselves.
2.Three Moral Ideas (From Kant)
1. Reversibility: Choose rules that you'd accept if they applied to you.
2. Universalizability: The rules must apply to everyone equally.
3. Treating People as Ends: Everyone gets an equal say in making the rules.
3.The Three Principles of Justice
1. Equal Liberty: Everyone should have the same basic freedoms.
2. Difference Principle: Inequalities are allowed only if they benefit the least
advantaged.
3. Fair Equality of Opportunity: Jobs and positions should be open to all,
based on talent and effort, not background.
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 Principles of Distributive Justice
Criticism of Rawls
•Some say the original position is unrealistic.
•Others argue people would choose utilitarianism instead (maximizing happiness
rather than focusing on fairness).
•Some think Rawls’s ideas don’t match our common beliefs about justice.

Why Rawls’s Theory is Valuable

1.It supports key moral values: freedom, fairness, and concern for the
disadvantaged.
2.It works well with market economies while ensuring fairness.
3.It balances individual freedom with social responsibility.
4.It considers need, ability, effort, and contribution in distributing resources.
5.It provides a moral foundation for justice by ensuring impartiality.
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Summary of
Principles of
Distributive
Justice

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Retributive and Compensatory Justice
• Retributive Justice
• Definition: Retributive justice concerns the fairness of blaming or punishing
individuals for wrongdoing.

• Conditions for Just Punishment:

• Moral Responsibility – A person should not be punished if they were ignorant of
their wrongdoing or lacked free choice.
• Certainty of Guilt – There must be clear evidence that the person committed
the wrongdoing; punishing someone based on weak evidence is unjust.
• Consistency and Proportionality – Punishments should be applied equally to
all and should match the severity of the wrongdoing.
• Example: A manager should not be lenient toward favorites but strict with
others.
• Punishment should not exceed what is necessary to deter or prevent further
misconduct.

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Retributive and Compensatory Justice
Compensatory Justice
• Definition: Compensatory justice focuses on restoring what a person
lost due to another’s wrongful actions.
• Moral Duty to Compensate: If someone wrongfully harms another (e.g.,
destroying property), they are obligated to compensate for the loss.
• Challenges in Measuring Compensation: Some losses (e.g.,
reputation damage, loss of life) are difficult or impossible to fully restore.
• Compensation should aim to make the victim as well-off as they were
before the harm.
• When Is Compensation Required? Not all injuries require
compensation—only those caused by a morally responsible wrongdoer.
• Example: If someone is accidentally pushed in a crowd and falls, the
person who caused the fall may not be responsible for compensation
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Ethical Principles in Business

4
Care

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An Ethic of Care
• Objective:
• Understand how an ethic of care applies to business decisions and
practices.
• What is an Ethic of Care?
• An ethic of care is a moral perspective that emphasizes the importance
of personal relationships, compassion, and responsibility toward those
who depend on us. Unlike traditional ethical theories that focus on
universal rules (such as utilitarianism and rights-based ethics), an ethic
of care prioritizes maintaining and nurturing close relationships. Care
ethics requires we pay attention to concrete, valuable relationships.
– “The moral task is not to follow universal and impartial moral
principles, but instead to attend and respond to the good of
particular individuals with whom we are in a valuable and close
relationship.”
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Case Study: Malden Mills and Aaron
Feuerstein
• In 1995, a fire destroyed Malden Mills, a textile factory in Massachusetts.

• The owner, Aaron Feuerstein, chose to rebuild in the same location and continued
paying his workers while the factory was being reconstructed.

• From a utilitarian or rights-based perspective, Feuerstein had no obligation to do this.

Moving to a country with cheaper labor would have maximized profits.

• However, Feuerstein believed he had a moral duty to support his employees,

demonstrating an ethic of care.

• Key Principles of an Ethic of Care

1.Relationships Matter: We should nurture and protect valuable relationships in
our personal and professional lives.
2.Special Responsibility: We have a moral duty to care for those who depend on
us, considering their specific needs and well-being.

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 An Ethic of Care
• Forms of Caring
• Caring for someone (e.g., a mother caring for her child) – the core of an ethic of care.
• Caring about something (e.g., caring about an issue or cause) – not the same as
personal care.
• Caring after someone (e.g., bureaucratic support without personal connection) – lacks
the deep involvement of true care.

• Balancing Care and Justice

• Sometimes, professional responsibilities require impartiality (e.g., a manager cannot favor a

friend over other employees).

• If personal relationships conflict with professional duties, stepping down may be the ethical
choice.

• Criticisms of an Ethic of Care

• Risk of favoritism: Giving special treatment based on relationships may seem unfair.
• Response: Moral choices always involve conflicts; care should be balanced with
fairness.
• Emotional burnout: Caring too much can be exhausting.
• Response: A healthy approach includes self-care alongside caring for others.
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Integrating Utility, Rights, Justice,
and Caring
In this section, we will explore an approach to business ethics that
combines four key moral standards: Utility, Rights, Justice, and
Caring. These standards are fundamental to how we make ethical
decisions, but no single one is sufficient on its own. We will discuss how to
integrate them effectively.

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 Integrating Utility, Rights, Justice, and Caring
• 1. The Four Moral Standards • C. Justice (Fairness and Equality)

• These four standards represent different ways of • Focus: Ensuring fair distribution of benefits and
thinking about what is right or wrong in decision- burdens.
making. Let’s break down each one:
• Key Question: Does this action result in a fair
• A. Utility (Maximizing Overall Welfare) outcome for everyone involved?

• Focus: The overall happiness or benefit for society. • Limitation: It doesn’t account for overall happiness
or individual rights.
• Key Question: Does this action maximize the
greatest good for the greatest number of people? • D. Caring (Compassion and Relationships)

• Limitation: It doesn’t consider how the benefits or • Focus: Showing care and compassion, especially
harms are distributed among individuals. toward those close to us (family, friends,
dependents).
• B. Rights (Respecting Individual Freedoms)
• Key Question: Does this action show appropriate
• Focus: Protecting individual rights, such as privacy, care for those directly affected?
freedom, and autonomy.
• Limitation: It may not apply the same standards to
• Key Question: Does this action respect the rights everyone, as it focuses on personal relationships.
of those affected?

• Limitation: It ignores the overall societal benefits or

fairness in distribution.
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How the Four Moral Standards Interact

• These four standards should not be considered in isolation. They often interact
and sometimes conflict with each other. Here’s how they generally relate:

• Rights usually take precedence over Utility and Justice. For example, it’s not
right to violate someone’s privacy just to increase overall happiness.

• Justice typically weighs more than Utility. Fairness is often more important
than simply maximizing social welfare.

• Caring is especially important in personal relationships (like family and

friends) but may take a back seat to fairness or impartiality in broader
situations.

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 Balancing the Standards in Real-Life Situations
• Sometimes, we face situations where one moral 4. Caring: Does the relationship with
standard might need to give way to another. employees matter in this decision?
Here’s how we can think through these conflicts
using example questions. 2.How many people will be affected?
1. Saving lives will affect a large group of
• Example Situation: Invasion of Privacy to people, while violating privacy only affects a
Prevent Theft small group (the employees).
• Imagine a company leader suspects employees 3.How severe will the harm be?
are stealing life-saving drugs. To stop the theft,
they consider using hidden cameras or tapping 1. If the privacy violation doesn’t cause major
phones, which would violate the employees' harm (e.g., no shame, blackmail, or
privacy. personal damage), the invasion of privacy
may be easier to justify.
• Steps for Ethical Decision-Making:
4.Long-term effects on trust?
1.What’s more important? 1. Will violating privacy damage the
1. Utility: Saving lives is a strong utilitarian company’s trust with employees? If the
argument (benefit to many people). impact on relationships is minimal, the
action might be justified.
2. Rights: Privacy is a fundamental right that
should be respected.
3. Justice: Is it fair to violate privacy for the
greater good?

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Guiding Principles for Balancing Conflicting Standards

• When moral standards conflict, here are some guiding principles to help with the
decision-making process:

• When Utility Conflicts with Rights: If the utilitarian benefit (e.g., saving lives) is
clear and significant, it might justify infringing on individual rights (e.g., privacy).

• When Justice Conflicts with Rights: If a large injustice (e.g., widespread harm or
unfairness) is at stake, it may justify violating certain rights or prioritizing justice over
individual freedoms.

• When Caring Conflicts with Justice or Utility: In close relationships (e.g., family),
caring often takes precedence. However, in broader social contexts, justice or utility
may become more important, especially if there are significant societal benefits at risk.

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The Process of Making a Moral Judgment

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 An Alternative to Moral Principles: Virtue Ethics
• Virtue ethics emphasizes the moral character of the individual rather than focusing
solely on actions.

• This approach values virtues (e.g., honesty, courage, integrity) and vices (e.g.,
dishonesty, greed, ruthlessness) as the foundation for ethical reasoning.

• Virtue ethics asks: What kind of person should I be?

• Case Study: Joe Nacchio and Qwest Communications:

• Background: Joe Nacchio was CEO of Qwest Communications, which inflated its
revenues and stock price through fraudulent activities.

• Ethical Issues: Nacchio's impatience, demand for success at any cost, and fear-
driven leadership led to dishonest financial reporting.

• Outcome: Nacchio’s actions caused investors to lose $90 billion, demonstrating

how an unethical character leads to harmful consequences.

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 An Alternative to Moral Principles: Virtue Ethics
• The Concept of Moral Virtues: • St. Thomas Aquinas’ Perspective:
• Moral virtues are habits or dispositions that make • Aquinas expanded on Aristotle, adding theological
someone a morally good person, such as honesty, virtues like faith, hope, and charity for those pursuing
courage, and compassion. union with God.
• Acquisition: Virtues are developed over time through • He believed virtues enable people to live morally good
conscious effort and practice. They are not innate lives, achieving happiness both in this life and the next.
qualities like intelligence or beauty. • Contemporary Views on Virtue Ethics:
• Aristotle’s View of Virtue: • Alasdair MacIntyre: Virtues enable individuals to
• Moral Virtue as a "Mean": Aristotle argued that virtues achieve the goals of social practices (e.g., medicine,
lie between two extremes (vices of excess and sports) and help navigate challenges in those practices.
deficiency). • Criticism of MacIntyre: Some argue virtues are not
• Courage: The mean between cowardice (too little limited to social practices; they help navigate general
fear) and recklessness (too much fear). human life situations.
• Temperance: The mean between indulgence and • Edmund Pincoffs: Virtues are dispositions that
self-deprivation. generally make a person morally good, not just good at a
• Justice: Giving each person what they deserve. specific task. Examples: courage, fairness, honesty.

• Prudence: Wise decision-making. • Applying Virtue Ethics to Business:

• Goal: A virtuous person makes decisions based on • Virtue-Based Business Decisions: Business leaders
reason and finds the balanced approach in their like Nacchio should be evaluated not only for the actions
emotions and actions. they take (e.g., committing fraud) but for their overall
character and virtues (or lack thereof).
• The Role of Virtues in Business: Integrity, honesty,
and fairness are essential for long-term success and
ethical leadership.
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Key Points
1.Virtue ethics focuses on character—not just actions.

2.A moral virtue is an acquired habit that leads to good behavior.

3.Aristotle’s “Golden Mean” suggests finding a balanced approach between

extremes.

4.Virtues like honesty, courage, and fairness are essential for ethical decision-
making in business.

5.A virtuous leader creates a positive ethical environment, while a leader like Nacchio
demonstrates the harm of vice-driven decision-making.

• This approach encourages individuals to ask, "What kind of person do I want to be?"
rather than just "What should I do?"

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Virtue Ethics and Action
• Key Question: Does virtue ethics offer guidance for actions or just the kind of person
we should be?

• Criticism: Critics argue that virtue theory lacks specific advice for decision-making
(e.g., abortion).

• Defense: Virtue theory evaluates actions based on virtuous character traits and
provides criteria to assess social institutions and practices, like economic systems that
promote greed.

• 2. Moral Virtues

• Virtues: Dispositions needed to overcome temptations, such as courage, honesty,

and self-control.
• Instrumental Virtues: Help achieve goals (e.g., persistence).
• Non-Instrumental Virtues: Valued for their own sake (e.g., grace, tolerance).
• Cognitive Virtues: Wisdom and prudence guide moral understanding.
• Virtues in Action: Traits like benevolence and justice guide morally good
actions.

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 Virtue Ethics in Practice
• Psychological Studies: Studies suggest behavior is influenced by external factors, not just
character (e.g., Princeton study).
• Response: More recent research supports virtue theory, showing that virtues influence
behavior, especially in familiar situations. People’s actions align with their moral identity, like
being caring or fair.
• 4. Virtue Ethics vs. Ethical Principles
• How They Relate:
• Principles-Based Ethics focus on actions (e.g., utilitarianism, rights).
• Virtue Ethics emphasizes character traits needed to uphold these principles.
• Complementing Principles: Virtue ethics supports moral principles by focusing on the kind
of person one should be, not just the actions they perform. It also considers emotional
factors that influence decisions.
• Key Takeaways
• Virtue ethics provides guidance on actions and evaluates institutions based on character
development.
• It complements principles-based ethics by focusing on the virtues needed to act ethically
and managing emotions that affect moral decisions.
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Unconscious and Conscious Moral
Decision-Making
• The Two Types of Moral Decision-Making

• Moral reasoning involves applying principles to situations and making judgments on

what should be done. However, many daily ethical decisions are made automatically
and unconsciously. For example, telling the truth or respecting property often happens
without deliberation.

• Studies show that we have two ways of making moral decisions:

1.Unconscious Decision-Making (X-System): Automatic, based on stored prototypes

or past experiences.

2.Conscious Decision-Making (C-System): Deliberate reasoning that involves

evaluating principles and new situations.

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The X-System and C-System
• X-System (Unconscious): This system works through "prototypes"—stored
memories of past situations. When we encounter a new situation, the brain compares
it to these prototypes and guides behavior without conscious thought. For example, we
know how to behave in a conversation based on prior experiences.

• C-System (Conscious): This system is engaged when situations don’t match a

prototype or when complex reasoning is needed. It involves deliberate thinking, such
as when deciding whether to lie or tell the truth in a tricky situation.

• The X-system makes moral decisions efficiently, while the C-system provides deeper
reflection when necessary.

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 Unconscious and Conscious Moral Decision-Making
• The Legitimacy of Unconscious Decision-Making
• The unconscious use of prototypes is not irrational. It's similar to casuistry, a legitimate
form of reasoning based on past paradigms, or legal precedent, where past decisions
guide current ones. Both are acceptable and rational methods of decision-making. The X-
system’s use of prototypes is a kind of unconscious casuistry, drawing on accumulated
knowledge from past experiences.
• Cultural and Intuitive Influences
• Prototypes are shaped not just by reasoning, but also by culture and intuition:
• Cultural Influence: Our moral beliefs are influenced by family, peers, media, and
culture. These beliefs become part of our prototypes.
• Intuition: Some moral beliefs seem to be instinctive, like the moral wrongness of
incest, which feels wrong even when no logical reason can explain why.
• The Interplay of Both Systems
• Moral decisions rely on both unconscious and conscious processes:
• Unconscious (Prototypes): Guide automatic, everyday moral choices.
• Conscious (Moral Reasoning): Applied when new situations arise or when we need
to evaluate cultural or intuitive beliefs.
• Although we often rely on unconscious prototypes, conscious reasoning helps correct and
refine these prototypes when they fall short.

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Key Points
• Moral decisions arise from both unconscious processes (X-system) and conscious
reasoning (C-system).

• Prototypes are an unconscious version of casuistry and other forms of legitimate

decision-making.

• Cultural influences and intuitions shape the prototypes we rely on for moral decisions.

• While we make many moral decisions automatically, conscious reasoning helps refine
our moral beliefs and decisions over time.

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Case Study 3: Drug Testing in Employment
Drug testing is becoming an increasingly accepted method for
controlling the effects of substance abuse in the workplace. Since
drug abuse has been correlated with a decline in corporate
profitability and an increase in the occurrence of work-related
accidents, employers are justifying drug testing on both legal and
ethical grounds.
Drug testing has become increasingly used to maximize corporate
profits by minimizing the economic impact of employee substance
abuse, numerous arguments have been advanced which draw the
ethical justification for such testing into question, including the
position that testing amounts to a violation of employee privacy by
attempting to regulate an employee's behavior in her own home,
outside the employer's legitimate sphere of control.
• Drug Testing in Employment, Joseph DesJardins, Ronald Duska, Business &
Professional Ethics Journal, Vol. 6, No. 3 (Fall, 1987), pp. 3-21.
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