Evaluating Business

Ethics
Normative Ethical Theories
Introduction
 In everyday life, we have to make a choice between what is right and wrong –
protect a friend’s feeling, driving over speed limit to avoid for being late or
whether to report a classmate you have seen cheating
 Within the scope of what a typical person would be able to decide
 In business, situation is more complex, i.e. a Multinational intending to establish a
subsidiary in developing country – cope with a no. of ethical problems – paying
bribe for planning permission, deciding on wage level or deciding on minimum
wage level
 Variety of people with different views
 In business context, need for the decision to be a systematic, rational and widely
understandable arguments so that they can be adequately defended, justified and
explained to relevant stakeholders
 This is where normative ethical theories comes in
Ethical theories

 Rules and principles that determine right and wrong for a given situation
 Richard De George (1999) suggests two extreme positions:
 Ethical absolutism: Claims that there are eternal, universally applicable moral
principles, right and wrong are objective qualities rationally determined
 Ethical relativism: morality is context dependent and subjective, there are no
universal rights and wrongs
 Relativism occurs in international business issues
 Most traditional “Western modernist” ethical theories tend to be absolutist
 Contemporary ethical theories provide alternative perspective – relativistic position
 Pluralism – middle ground between absolutism and relativism
 Different persons may think in different perspective
 Normative ethical theories
 Dominated by thinking originating in Europe and North America – by Anglo-American view
 Many of the continental European and Asian approaches are less widely received since they
are published other than in English
 Growing debate and literature on African, Asian, and Latin American Perspective
 Relevant differences in the mainstream debate in Europe and North America:
 Individual vs institutional morality: US more focused on individualistic perspective, Europe on
economic system and wider governing institutions (individual behavior vs design of institutions)
 Questioning vs accepting capitalism – mainstream not question the existing framework occurring
within the capitalistic system; in Europe, focus on questioning the ethical justification of
capitalism; defining & redefining the ethical legitimacy of capitalistic system and theorizing a
number of ethical dilemmas in business life (corporate governance, employee rights, and
stakeholders involvement)
 Justifying vs applying moral norms: In Europe, process of secularism (non-religious forms of
organization) have taken place; opened the door for other ideological and philosophical approach
(Sweden, Germany, Netherlands); justification and legitimacy of the norms in addressing dilemmas
in business. In US, such situation does not take place – application of morality is accepted.
 Notwithstanding the differences, it is important to recognize that so single normative theory
can be claimed or attributed to any country or region.
Western modernist ethical theories
 Traditionally regarded as appropriate in Europe and North America
enlightened in the 18th century (the age of modernity)
 These theories (Western modernity) refer to certain rule or principle
applicable to any situation (absolutist in intention)
 These are normative because they start with an assumption of the
nature of the world and nature of human beings – provide unequivocal
solution to ethical problems
 Can be differentiated into 2 groups:
 Theories based on moral judgement of outcomes - desirable outcome means
morally right, if not morally wrong. This consequentialist ethics also referred as
teleological, Greek word for ‘goal’
 Theories based on underlying principles of decision makers motivation – right or
wrong. Non-consequentialist approach linked with Judeo-Christian thinking. Also
called deontological (Greek word for duty) regardless of consequences
 Consequentialist Theories- address right and wrong according to
the outcomes
 Egoism
 Focus on the outcome for the decision maker.
 Oldest philosophical ideas, discussed by ancient Greek philosopher Plato
 Influential in modern economics, particularly in relation to Adam Smith (1723 – 90)
 Following the theory of egoism, “an action is morally right if the decision-maker freely
decides in order to pursue either their (short-term) desires or their (long-term) interests.”
 Adam Smith (1793) argued that in the economic system, this pursuit of individual self-interest
was acceptable because it produced a morally desirable outcome for society through the
individual hands of the market place. End product based on free competition and good
information (egoist practice for utilitarian results)
 Different from selfishness – egoist pity in for others in seeking to remove his own interest
(CSR), selfish insensitive to others
 Enlightened egoism – corporation investing in social environment, supporting schools or
sponsoring new ambulance for local health service (improved social service is in the
interest of workforce retention and satisfaction).
 Utilitarianism
 Most commonly accepted ethical theory
 Linked with British philosophers and economists – Jeremy Bentham (1748-1832) & John
Stuart Mill (1806-1873)
 “An action is morally right if it results in the greatest amount of good for the greatest
amount of people affected by the action”
 Greatest happiness principle – focuses on the consequences of action, weights the good
against bad results, encourage action that results in the greatest amount of good
 Puts at the centre of moral decision commonly used in economics as parameter – “Utility”
 Compatible with quantitative, mathematical methodology in economics
 Close to what we know as “Cost-benefit analysis”
 Assassination of Hitlar in 1944 – justified on the ground that the pain of one person opened
the way to reducing pain to millions of other people.
 Main problems with utilitarianism
 Subjectivity – pleasure or pain depend heavily on subjective perspective of
the person carrying out the analysis
 Problem of quantification – difficult to assign costs and benefits to every
situation. Is loosing a contract really comparable to forcing children into
labour?
 Distribution of utility – the interest of minorities are overlooked
 Refinement of the theory into ‘act utilitarianism’ vs ‘rule utilitarianism’
 The former looks to a single actions and bases the moral judgement on the amount of
pleasure and the amount of pain this single action causes
 The later looks at classes of action and asks whether the underlying principles of an
action produce more pleasure than pain for the society in the long run.
 Non-consequentialist theories: Two main types:

 1) Ethics of duties, and 2) Ethics of right and justice

 Both stemming from assumption of basic universal principle of right and
wrong
 The former begin by assigning duty to act in a certain way but the later
start with assigning the right to one party and then advocating a
corresponding duty on another
 Right and duty central to many religious perspective on business ethics,
influence in business decisions with rates of religious adherence - Latin
America, US, Middle east, Africa
 Has divine, eternal validity : duties to god vs god given rights whether the
outcome is in anybody’s self interest or result in more pleasure and pain.
Ethics of duties
 Most influencial theory is derived from the work of German
Philosopher Immanual Kant (1724-1804)
 Kant argued that morality and decisions do not depend upon a
particular situation
 A set of priori moral laws – that human should apply to all ethical
problems
 No need of god, church or other superior authority, humans are
rational actors
 Kant subsequently developed a theoretical framework called
“Categorical Imperative”, i.e.:
 Framework to every moral issues regardless of who is involved, who profits,
and who is harmed
Categorical Imperative consists of 3 parts
 Maxim 1: Act only according to that maxim by which you can at the
same time will that it should become a universal law
 Action which could be performed by everybody and reflects the
aspect of consistency (murder, lying etc)
 Maxim 2: Act so that you treat humanity, whether in your own
person or in that of another, always as an end and never as a
means only
 human deserves dignity, employees not to be treated only as means
 Maxim 3: Act only so that the will through its maxims could regard
itself at the same time as universally lawgiving
 scrutinizes the element of universality – principle that could be
followed by every human being.
 Action morally right if it survives all three tests
 Kant’s categorical imperative, particularly maxim 1, comes
closet to a core tenet of many religions, referred to as
‘golden rule’: treat others as you wanted to be treated
yourself
 Core difference: while religion recognizes god as ultimate
source of value’, Kant’s approach reflects different
assumption: if god is the creator of rational human beings,
then these human beings should also be able to rationally
understand and decide whatever is the morally right or
wrong.
Problems with ethics of duty
 Undervaluingoutcomes: Too little consideration
to the outcomes of one’s actions
 Complexity:Kant’s categorical imperative can be
quite complicated to apply
 Optimism: His view of man as a rational actor who
acts according to self-imposed duties seems more
of an ideal than reality
 Ethics of rights and justice
 Citizenship as an individual rights
 Goes back to British philosopher John Locke (1632-1714) – most important rights
conceived were – rights to life, freedom, and property
 Extended to include – rights to freedom of speech, conscience, consent, privacy and
entitle to a fair legal process among others
 In terms of ethical theory, we could define rights as “Natural rights are certain basic,
important, unalienable entitlements that should be respected and protected in every
single action”:
 Rights are seen as related to duties, since the right of one person can result duty to others
 My right to property imposes a duty on others not to interfere with my property or take it
away
 Right to privacy – duty on others to refrain from gathering my personal information without
my consent
 Two sides of the same coin
 Corporations, including MNEs, are increasingly judged with regard to their attitude to human
rights and how far they respect and protect them
 Increasing number of companies have published their policies on human rights
Problem of Justice
 Justice is defined as the simultaneously fair treatment of individuals in a given
situation with the results that everybody gets what they deserve
 The approach to human right has relation to economic and business decisions
 Two parties entering an economic transaction has to agree on fair distribution of
costs and benefits between the parties - This is what the contracts are for.
Problem of distribution:
 How should a company pay its shareholders, executives, office workers, and manual staff
so that everybody gets fair compensation for their inputs?
 How should a company take into account the demands of local communities, employees,
and shareholders when planning an investment with major impacts on environment?
 How should a government allocate money for education so that every section of society
gets a fair chance of a good education?
 Individual rights have to be realized in a certain social context in such a way that
they are addressed and respected equally and fairly
What is fairness
 Beauchamp & Bowie (1997), theories of justice see fairness in two
different ways:
 Fair procedures: Whether everyone has been free to acquire rewards for his or her
efforts. Also called procedural justice
 Fair outcomes: Whether the consequences (positive & negative) are distributed in a just
manner. Known as distributive justice
 Most views of justice ideally seek to achieve both type of justice – but not
possible. Example: access to higher education, reserve certain seats for
under represented groups – unfair procedure because ‘over represented
group’ will be excluded to apply for the reserved seats.
 The problem of just distribution of wealth has been addressed in numerous
ways, historical answer falls between two extreme positions:
egalitarianism and non-egalitarianism
 Egalitarianism and non-egalitarianism approach
 Egalitarianism approach claims that justice is the same as equality. Burdens and rewards should be
distributed equally.
 Marxist thinking suggests that a just society would be one where the working classes would collectively
own the means of production themselves and thus would be the immediate beneficiaries of the
economic outcomes of their work in the production process.
 Collapse of the Eastern block and China opened up the market at the end of 20the century - Marxist
thinking lost the momentum.
 Problem with egalitarian
 There are differences between people. Should someone working hard earn the same amount as lazy one? Are all
skills worth the same?
 Non-egalitarianism claim that the justice in economic system is ultimately the product of the fair
process of free markets. Justice determined by market forces of supply and demand
 Influential thinkers in business ethics along these lines is Robert Nozick (1974):
 Bill Gates’s personal wealth (one of the richest in the planet) would be perfectly justifiable if the way he had
established Microsoft is without fraud or coercion
 The two extremes are unsatisfactory _ poor compared with rich, bicycle compared with Ferrari.
 Inequalities are unavoidable in a free and competitive society.
 High salary for the corporate leader, may increase salary of employees at the bottom because of performance and
if everybody has the fair chance of ascending to corporate leader regardless of gender, race and appearance.
Alternative perspective on ethical
theory
 Developed
over the past two decades. 4 main
contemporary theories:
 Based on character and integrity
 Based on relationship and responsibility
 Based on procedure of norm generation
 Based on empathy and moral impulse
Based on character and integrity
 Until now we have looked at right or wrong based on particular action
 Looks at character or integrity of the decision maker (Nielsen 2006)
 Strong resonance especially when considering the ethics of
professionals such as doctors, lawyers, and accountants who rely on
their moral probity for maintaining legitimacy and gaining clients
 Drawn on one of one of the earliest ethical theories, i.e. virtue ethics
 Main message is that the good action comes from good persons:
 Virtue ethics contends that morally correct actions are those
undertaken by actors with virtuous characters. Therefore, the
formation of a virtuous character is the first step towards morally
correct behavior
 Based on relationships and responsibility
 Focus not on character but on relationship
 Feminist ethics: starts with the assumption that men and women have fairly
different attitudes towards organizing social life, with significant impact on
the way ethical conflicts are handled (Gilligan 1982)
 While traditional approach focus on ‘fair’ results, feminist perspectives stress
social processes and particularly aim at the achievement of harmony, empathy,
and integration with regards to ethical issues.
 The main goal is to avoid harm and maintain healthy relationships:
 Key elements: relationship (decision taken in a specific context), responsibility
(active taking of responsibility), experience (learn and develop from
experiences in the past rather than applying principles and rules)
 Feminist ethics is an approach that prioritizes empathy, harmonious and
healthy social relationships, care for one another, and avoidance of harm above
abstract principles.
Based on procedures of norm generation
 Normative means right and wrong actions
 However, we may step back for a minute and ask if this starting point
is a very useful way to solve ethical conflicts in business?
 Can not be taken for granted: already problematic in a group of
relatively homogeneous people, say the marketing department
 Even more complicated if there is a meeting of all marketing directors
of the company worldwide – fundamentalist from US, atheists from
Russia, Muslims from Egypt and Buddhist from Japan
 Problem arise from diverging normative perspectives
 Discourse ethics – Discourse ethics aims to solve ethical conflicts by providing
a process of norm generation through rational reflection on the real life
experience of all relevant participants
 More of a recipe for practical conflict solution than an ethical theory
comparable to those discussed above
Based on empathy and moral impulse
 Postmodern business ethics: this school of thought fundamentally questions the link
between rationality and morality that is inherent in all the Western modernist theories
discussed earlier
 Origin in modernism, which emerged roughly during the 18 th century enlightenment era
 Aimed at comprehensive, inclusive, theoretically coherent theories to explain nature, man
and society
 One of the reasons of this is the development of various theories in the form of ‘ism’ –
liberalism, communism, socialism, rationalism, capitalism etc.
 Moral judgement is nullified when people enter organizations & become distanced from
people who are actually going to experience the consequences of their decisions, such as
consumers, investors, suppliers and others. These ideas lead to the following definition
 “Postmodern ethics is an approach that locates morality beyond the sphere of rationality in
an emotional ‘mora impulse’ towards others. It encourages individual actors to question
everyday practices and rules, and listen to and follow their emotions, inner convictions,
and ‘gut feelings’ about what they think is right and wrong in a particular situation”
 Post-modernist suggest “the foolproof-universal and unshakably founded-ethical code will
never be found (Bauman 1993)
Any questions
Thank you