CHAPTER 3

PHILOSOPHICAL ETHICS AND

BUSINESS
• OPENING DECISION POINT
Executive Compensation: Needed Incentives, Justly Deserved, or Just
Distasteful?
[Read in class]
CHAPTER OBJECTIVES
• Explain the ethical framework of utilitarianism.
• Describe how utilitarian thinking underlies economic and business decision
making.
• Explain how the free market is thought to serve the utilitarian goal of
maximizing the overall good.
 CHAPTER OBJECTIVES
• Explain some challenges to utilitarian decision making.
• Explain principle-based, or rights-based framework of ethics.
• Explain the concept of human rights and how they are relevant to
business.
• Distinguish moral rights from legal rights.
• Explain several challenges to principle-based ethics.
• Describe and explain virtue-based framework for thinking about
ethical character.
 ETHICAL FRAMEWORKS:
CONSEQUENCES, PRINCIPLES,
CHARACTER
• Ethical traditions in philosophy reflect common ways to think and
reason about how we should live, what we should do.
• Ethics of consequences, ethics of principles, and ethics of personal
character are the traditions that will be introduced in this chapter.
• An ethical framework is nothing more than an attempt to provide a
systematic answer to the fundamental ethical question: How should
human beings live their lives?
• Ethics not only attempts to answer the question of how we should
live, but it also gives reasons to support these answers. Ethics seeks to
provide a rational justification for why we should act and decide in a
particular prescribed way.
 ETHICAL RELATIVISM
• ETHICAL RELATIVISM holds that ethical values are relative to
particular people, cultures, or times.
• Many people and cultures across the world would answer this “why”
question in religious terms and base their normative judgments on
religious foundations.
• “You ought to live your life in a certain way because God commands
it.”
• The biggest practical problem with this approach, of course, is that
people differ widely about their religious beliefs.
 PHILISOPHICAL ETHICS
• Unlike religious ethics, which explains human well-being in religious
terms, philosophical ethics provides justifications that must be
applicable to all people regardless of their religious starting points.
• Ethical frameworks evolved over time and have been refined and
developed by many different thinkers. The insights of an ethical
framework prove to be lasting because they truly do pick out some
important elements of human experience.
• This chapter will introduce three ethical frameworks that have proven
influential in the development of business ethics and that have a very
practical relevance in evaluating ethical issues in contemporary
business.
 ETHICAL FRAMEWORKS
• UTILITARIANISM is an ethical tradition that directs us to decide based
on overall consequences of our acts.
• PRINCIPLE-BASED FRAMEWORKS direct us to act on the basis of moral
principles, such as respecting human rights.
• VIRTUE ETHICS directs us to consider the moral character of
individuals and how various character traits can contribute to, or
obstruct, a happy and meaningful human life.
 UTILITARIANISM:
MAKING DECISIONS BASED ON ETHICAL
CONSEQUENCES
• Utilitarianism’s fundamental insight is that we should decide what to
do by considering the overall consequences of our actions.
• Utilitarianism has been called a consequentialist approach to ethics
and social policy: we should act in ways that produce better
consequences than the alternatives we are considering.
• What is meant by “better consequences”?
• “Better consequences” are those that promote human well-being: the
happiness, health, dignity, integrity, freedom, respect of all the people
affected.
 CONSEQUENTIALIST APPROACH
• A decision that promotes the greatest amount of these values for the
greatest number of people is the most reasonable decision from an
ethical point of view.
• Utilitarianism is commonly identified with the rule of producing “the
greatest good for the greatest number”.
• Historically, utilitarianism has provided strong support for democratic
institutions and policies.
• Government, social institutions, the economy, and economic
institutions exist to provide the highest standard of living for the
greatest number of people, not to create wealth for a few.
 CHILD LABOR: UTILITARIAN
PERSPECTIVE
• Utilitarian thinking would advise us to consider all the likely
consequences of a practice of employing young children in factories.
• There are some harmful consequences: children suffer physical and
psychological harms, they are denied opportunities for education, their
low pay is not enough to escape a life of poverty, etc.
• But these consequences must be compared to the consequences of
alternative decisions. What are the consequences if children in poor
regions are denied factory jobs?
• Thus, one might argue on utilitarian grounds that such labor practices
are ethically permissible because they produce better overall
consequences than the alternatives.
 UTILITARIAN REASONING
• Because utilitarians decide on the basis of consequences, and
because the consequences of our actions will depend on the specific
facts of each situation, utilitarians tend to be very pragmatic thinkers.
• No act is ever absolutely right or wrong in all cases in every situation;
it will always depend on the consequences. For example, lying.
• In general, the utilitarian position is that happiness is the ultimate
good, the only thing that is and can be valued for its own sake.
Happiness is the best and most reasonable interpretation of human
well-being.
 UTILITARIANISM AND BUSINESS
• Utilitarianism’s greatest contribution to philosophical thought has
come through its influence in economics. With roots in Adam Smith,
the ethics which underlie much of twentieth century economics—
essentially what we think of as the free market—is decidedly
utilitarian.
• Utilitarianism answers the fundamental questions of ethics—What
should we do?—by reference to a rule: maximize the overall good.
• But another question remains to be answered: How do we achieve
this goal? What is the best means for attaining the utilitarian goal of
maximizing the overall good?
 ADAM SMITH: THE INVISIBLE HAND
• One movement within utilitarian thinking invokes the tradition of
Adam Smith and claims that free and competitive markets are the
best means for attaining utilitarian goals.
• This version would promote policies that deregulate private industry,
protect property rights, allow for free exchanges, and encourage
competition.
• In classic free market economics, economic activity aims to satisfy
consumer demand. People are made happy—human welfare or well-
being increases—when they get what they desire.
 FREE MARKET ECONOMICS
• Given this utilitarian goal, current free market economics advises us
that the most efficient means to attain that goal is to structure our
economy according to the principles of free market capitalism.
• Thus, competitive markets are seen as the most efficient means to the
utilitarian end of maximizing happiness.
SECOND VERSION OF UTILITARIAN
POLICY
• Experts in predicting the consequences of human action, usually
trained in the social sciences such as economics, political science, and
public policy, are familiar with the specifics of how society works and
they, therefore, are in a position to determine which policy will
maximize the overall good.
• This approach to public policy underlies one theory of the entire
administrative and bureaucratic side of government and
organizations.
 LEGISLATIVE AND ADMINISTRATIVE
BODIES
• The legislative body establishes the public goals that we assume will
maximize overall happiness.
• The administrative side executes (administers) policies to fulfill these
goals.
• The dispute between these two versions of utilitarian policy, what we
might call the “administrative” and the “market” versions of
utilitarianism, characterize many disputes in business ethics.
• Examples: Regulation of unsafe or risky products; worker health and
safety; environmental protection; regulation of advertising.
 ‘ADMINISTRATIVE’ VS ‘MARKET’
VERSIONS
• One side argues that questions of safety and risk should be
determined by experts who then establish standards that business is
required to meet.
• The other side argues that the best judges of acceptable risk and
safety are consumers themselves. A free and competitive consumer
market will insure that people will get the level of safety that they
want.
CHALLENGES TO UTILITARIAN ETHICS
• If utilitarianism advises that we make decisions by comparing the
consequences of alternative actions, then we must have a method for
making such comparisons.
• How do we count, measure, compare, and quantify consequences?
• In practice, some comparisons and measurements are very difficult.
• Imagine trying to calculate the consequences of a decision to invest in
construction of a nuclear power plant whose wastes remain toxic for
tens of thousands of years.
CHALLENGES TO UTILITARIAN ETHICS
• A second challenge goes directly to the core of utilitarianism. The
essence of utilitarianism is its reliance on consequences. Ethical and
unethical acts are determined by their consequences.
• In short, the end justifies the means. But this seems to deny one of
the earliest ethical principles that many of us have learned: the end
does not always justify the means.
• When we say that the ends do not justify the means what we are
saying is that there are certain decisions we should make or certain
rules we should follow no matter what the consequences.
 ENDS DO NOT JUSTIFY THE MEANS
• Because utilitarianism focuses on the overall consequences,
utilitarianism seems willing to sacrifice the good of individuals for the
greater overall good.
• If it turns out that slavery and child labor increases the net overall
happiness, utilitarianism would have to support these practices. In the
judgment of many people, such a decision would violate fundamental
ethical principles of justice, equality, and respect.
 AN ETHICS OF PRINCIPLES AND
RIGHTS
• Utilitarian reasoning does not exhaust the range of ethical concerns;
consequences are only a part of the ethical landscape.
• Responsible ethical decision making also involves matters of duties,
principles, and personal integrity. In other words, the ends do not
always justify the means.
• But how do we know what principles we should follow and how do
we decide when a principle should trump beneficial consequences?
• Principle-based, ethical frameworks work out the details of such
questions.
 AN ETHICS OF PRINCIPLES AND
RIGHTS
• The second ethical framework that will prove crucial for business
ethics begins with the insight that we should make some ethical
decisions as a matter of principle rather than consequences.
• DUTIES Rules or principles (e.g., “obey the law,” “keep your
promises,” “uphold your contracts”) create ethical duties that bind us
to act or decide in certain ways.
• For example, there is an ethical rule prohibiting slave labor, even if
this practice would have beneficial economic consequences for
society.
 LEGAL RULES
• Decision making within a business context will involve many situations
in which one ought to obey legal rules even when the consequences,
economic and otherwise, seem to be undesirable.
• As a teacher, I ought to read each student’s research paper carefully
and diligently, even if they will never know the difference and their
final grade will not be affected.
• As the referee in a sporting event, I have the duty to enforce the rules
fairly, even when it would be easier not to do so.
 ROLE-BASED DUTIES
• Perhaps the most dramatic example of role-based duties concerns the
work of professionals within business.
• Lawyers, accountants, auditors, financial analysts, and bankers have
important roles to play within political and economic institutions.
• Many of these roles, often described as “gatekeeper functions,”
ensure the integrity and proper functioning of the economic, legal, or
financial system.
 ENRON - ARTHUR ANDERSEN
SCANDAL
• A fair analysis of the Enron–Arthur Andersen scandal would point out
that Andersen’s auditors failed their ethical duties precisely because
they did not follow the rules governing their professional
responsibilities and allowed beneficial consequences to override their
professional principles.
• Legal rules, organizational rules, role-based rules, and professional
rules are part of a social agreement, or social contract, which
functions to organize and ease relations between individuals.
 HUMAN RIGHTS AND DUTIES
• In the view of many philosophers, there are ethical duties that are
more fundamental and that bind us in a stricter way than the way we
are bound by contracts or by professional duties.
CATEGORICAL IMPERATIVES In the language of many philosophers,
ethical duties should be categorical imperatives rather than
hypothetical.
• I should or must (an imperative) obey a fundamental ethical rule no
matter what (a categorical).
 HUMAN RIGHTS AND DUTIES
• Many ethical traditions agree that each and every human being
possesses an intrinsic value, or essential dignity, that should never be
violated. Some religious traditions, for example, see this inherent
dignity as something “endowed by the creator” or that stems from
being created in the image and likeness of God.
• A common way of expressing this insight is to say that each and every
human being possesses a fundamental human right to be treated
with respect, and that this right creates duties on the part of every
human to respect the rights of others.
 IMMANUEL KANT
• Eighteenth-century philosopher Immanuel Kant expressed this as the
fundamental duty to treat each person as an end in themselves and
never only as means to our own ends.
• In other words, our fundamental duty is to treat people as subjects
capable of living their own lives and not as mere objects that exist for
our purposes.
• Such human rights, or moral rights, have played a central role in the
development of modern democratic political systems. The U.S.
Declaration of Independence speaks of “inalienable rights” that
cannot be taken away by government.
 EXAMPLE: CHILD LABOR
• The rights-based framework of ethics would object to child labor
because such practices violate our duty to treat children with respect.
• In summary, we can say that human rights are meant to offer
protection of certain central human interests, prohibiting the sacrifice
of these interests merely to provide a net increase in the overall
happiness.
AUTONOMY The Kantian tradition claims that our fundamental
human rights, and the duties that follow from them, are derived from
our nature as free and rational beings. In this sense, humans are said to
have a fundamental human right of autonomy, or ‘self-rule’.
 HUMAN RIGHTS AND SOCIAL JUSTICE
• From these origins, we can see how two related rights have emerged
as fundamental components of social justice.
• Liberty and equality are, according to much of this tradition, “natural
rights” that are more fundamental and persistent than the legal rights
created by governments and social contracts.
• If we acknowledge liberty as the most basic human right, it would be
easy to generate an argument for a more laissez-faire, free-market
economic system.
 HUMAN RIGHTS AND LEGAL RIGHTS
• Employees have legal rights on the basis of legislation or judicial
rulings; rights based on contractual agreements with employers; and
rights / moral entitlements independently of any particular legal or
contractual factors.Legal rights set the basic legal framework in which
business operates.
• Human rights lie outside of the bargaining that occurs between
employers and employees. Unlike the minimum wage, moral rights
are established and justified by moral, rather than legal,
considerations.
• Moral rights establish the basic moral framework for legal
environment itself, and more specifically for any contracts that are
negotiated within business.
 CHALLENGES TO AN ETHICS OF RIGHTS
AND DUTIES
• There appears to be much disagreement about what rights truly are
basic human rights and, given the multiplicity of rights, it is unclear
how to apply this approach to practical situations, especially in cases
where rights seemingly conflict.
• Critics charge that unless there is a specific person or institution that
has a duty to provide the goods identified as “rights,” talk of rights
amounts to little more than a wish list of things that people want.
What are identified as “rights” often are nothing more than good
things that most people desire.
 CHALLENGES TO AN ETHICS OF
RIGHTS AND DUTIES
• A second challenge also points to practical problems in applying a
theory of rights to real-life situations. With a long list of human rights,
all of which are claimed to be basic and fundamental, how would we
decide between one individual’s right to medical care and the
physician’s right to ‘just’ remuneration of her work?
• Perhaps the most important such conflict in a business setting would
occur when an employer’s rights to property come into conflict with
an employee’s alleged rights to work, just wages, and health care.
 VIRTUE ETHICS: MAKING DECISIONS
BASED ON INTEGRITY AND CHARACTER
• Utilitarian and principle-based frameworks focus on rules that we
might follow in deciding what we should do, both as individuals and
as citizens. These approaches conceive of practical reason in terms of
deciding how to act and what to do.
• Virtue ethics is a 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.
• Being friendly and cheerful, having integrity, being honest, forthright
and truthful, having modest wants, and being tolerant are some of
the characteristics of a good and meaningful human life.
 VIRTUE ETHICS
• An ethics of virtue shifts the focus from questions about what a
person ‘should do’, to a focus on ‘who that person is’.
• Implicit in this distinction is the recognition that our identity as
individuals is constituted in part by our wants, beliefs, values, and
attitudes.
• A person’s character —those dispositions, relationships, attitudes,
values, and beliefs that popularly might be called a “personality”—is
not some feature that remains independent of that person’s identity.
 CHARACTER
• Virtue ethics emphasizes the more affective side of our character. It
recognizes that human beings act in and from character.
• Virtue ethics seeks to understand how these traits are formed and
which traits bolster and which undermine a meaningful, worthwhile,
and satisfying human life.
• Virtue ethics reminds us to look to the actual practices we find in the
business world and ask what types of people are being created by
these practices.
• Many individual moral dilemmas that arise within business ethics can
best be understood as arising from a tension between the type of
person we seek to be and the type of person business expects us to
be.