Business Ethics

Summary of Chapter Three

 CHAPTER THREE
ETHICAL THEORIES
CHAPTER SUMMARY

I. TWO GROUPS OF ETHICAL THEORIES

- Teleological (Utilitarianism)
- Deontological (Immanuel Kant)

II. UTILITARIANISM (Teleological Ethics)

A. Definition
B. The Principle of Utility
C. Forms Of Utilitarianism
D. Act And Rule Utilitarianism
E. Main Problems with Calculating Utility
F. Cost- Benefit Analysis
G. Problems with Assigning Monetary Values

III. KANTIAN ETHICS (Deontological Ethics)

A. The principle of Universalizability
B. Respect for Persons
C. Advantages of Kantian Ethics
D. Criticisms to Kantian Ethics

IV. CASE QUESTIONS

 I. TWO TYPES OF ETHICAL THEORIES

In order to know whether our business acts are right or wrong, we may turn to the main
ethical theories that were developed by major moral philosophers.
The most common two types of these ethical theories are: teleological and deontological
theories.
The most prominent example of a teleological theory is utilitarianism, while the best-known
deontological theory is Kant’s.

II. UTILITARIANISM (Teleological theory).

A. Definition:

This theory holds that the rightness of an action is determined solely by its
consequences.
Teleological moral systems are characterized primarily by a focus on the
consequences which any action might have.
- According to the definition stated above, in order to make correct moral
choices, we must have some understanding of what will result from our
choices. When we make choices which result in the correct consequences, then
we are acting morally; when we make choices which result in the incorrect
consequences, then we are acting immorally.
- Classical Utilitarianism was founded by Jeremy Bentham and amended later
by John Stuart Mill. They used the principle of utility as a guide in all types of
decision making ( legal, social, political & economical).

B. The principle of Utility:

Utilitarianism is a powerful and widely accepted ethical theory that has special relevance to
problems in business. It provides a fairly straightforward decision-making process to assist
in determining the best course of action in many situations. Its application involves
developing a list of available alternatives, following the consequences of each as far into the
future as possible, and selecting the alternative with the greatest balance of benefits
over harms for everyone

Classical utilitarianism states that “An action is right if and only if it produces the greatest
balance of pleasure over pain for everyone”.

Utilitarianism assumes that the amount of pain produced by an action can be subtracted from
the amount of pleasure to get the net amount of pleasure.
Utilitarianism requires us to take into consideration equally our own interests and
the interest of others who are affected by the decision.

C. The Forms of Utilitarianism

1- Consequentialism: an action is right only if it has good consequences
2- Hedonism: utility is identified with the pleasure and absence of pain. [only pleasure is
ultimately good]
3- Maximalism: an action is right if the amount of pleasure produced is, when balanced,
greater than the amount of pleasure produced by any other action.
4- Universalism: The consequences to be considered are those of everyone affected, and
everyone equally.

D. ACT Utilitarianism //and // RULE Utilitarianism.

 Act-utilitarianism (AU) evaluates the rightness of any given act by the

consequences of that act. Act utilitarianism judges each action by virtue of its
consequences only without the need to follow a certain rule.
According to this view, the criterion should be applied to each individual action of a
moral agent when determining the action's moral value (that is, whether the action is
right or wrong, permissible or impermissible).
This procedure of moral judgment can be expressed as follows: “An action is right if
and only if it produces the greatest balance of pleasure over pain for everyone”.

 Rule utilitarianism (RU) determines the rightness of an act by appealing to a

relevant rule of morality, which in turn is justified by the consequences of
observing that rule.
Rule utilitarianism broadens the focus of moral deliberation and ethical discussion
considerably when compared to act utilitarianism. The central concern here is not
the narrow consequences of the particular acts of individual moral agents, but
the more encompassing and long-range consequences of social practices
observed by all moral agents within society. Thus the issue is not what will happen
if I do such and such, but what will happen if everyone as a rule did such and such, as
compared to other forms of accepted practice.

- Act- and rule-utilitarianism each has its merits, and there is no harmony among
philosophers about which is correct.
 E. Main Problems in calculating utility:

1) Utility method requires that we be able to determine both the amount of utility for
each individual affected by an action, and the amount of utility for a whole society.
Thus, a vast amount of information is needed.
2) Interpersonal comparisons of utility raise theoretical problems that challenge whether
the calculations required by utilitarianism are even possible, although we make these
comparisons in practice.

F. Cost-Benefit Analysis (CBA)

Utilitarian ideal of a precise quantitative method for decision making is most fully realized
in a cost-benefit analysis. In cost-benefit analysis, monetary units are used to express the
benefits and drawbacks of various alternatives in a decision -making process.
 The main advantages of cost-benefit analysis are the followings
(1) The prices of many goods are set by the market, which eliminates the need to
have knowledge of people's pleasures or preference rankings
(2) The value of different goods is easily summed to produce a figure that reflects
the costs and benefits of different courses of action for all concerned
(3) Money provide a common denominator for allocating resources among projects
that cannot be compared in other ways
(4) CBA is also useful because it allows comparisons to be made between
investments or projects. This comparison is made easier because all investments
are evaluated using the same method. It then becomes easier to exclude obviously
bad projects from consideration.

G. The problems of assigning monetary values.

Not all costs and benefits have an easily determined monetary value; examples include the
enjoyment of family and friends, peace and quiet, police protection, and freedom from the
risk of injury and death. Moreover, the market price of a good does not always correspond to
its opportunity cost. For example, the fact that a yacht costs more than a college
education does not mean that consumers value yachts more highly than education.

 How to solve these problems? Experts in CBA attempt to overcome these problems
through shadow pricing. This approach enables a value to be placed on goods that
reflects people's market and non-market behavior. For example, by comparing the
prices of houses near airports with the prices of similar houses elsewhere, it is
possible to infer the value that people place on peace and quiet. But there are
limitations. Someone who buys a house near an airport may be unable to afford
comparable housing elsewhere or simply may not mind the noise. The application of
 CBA requires in certain cases to put value on human life in order to know the value of
human life. However, people’s decisions are not always rational.

 Should all things be assigned a monetary value? Some argue that placing a dollar
value on certain goods actually lessens their perceived value, since they are valued
precisely because they cannot be bought or sold. Friendship, love, and life itself are
examples of such goods. Such arguments are beside the point, because cost-benefit
analysis requires that a value be placed on goods only for the purposes of calculation.

In the end, we must remember that cost-benefit analysis is only as good as the analyst who
performs it and that this method is not intended to be the sole means for arriving at important
decisions we make as a society.

III. KANTIAN ETHICS (Deontological theory)

Immanuel Kant’s view is a duty based ethics that focuses on moral law or obligations that
are binding on all rational beings. He stated we should ignore the consequences of actions
and focus on the nature of the actions and the rules from which they follow. Kantian Ethics is
a Deontological Ethic.
One of the major features of Kantian ethics is the idea that it is the will of the person, not
necessarily the consequences, that makes an action moral or not. If a person does something
out of a sense of duty to moral law, then his actions have moral value. According to Kant,
this means that if a person cares for his or her child out of the belief that caring for children is
an important duty, he or she is acting ethically. If, however, a person cares for a child
simply because he or she loves the child, this action is out of inclination rather than duty
and not actually of moral value

Kant attempt to universalizes the rule “maxim” (by imagining a world where all people
necessarily acted in this way in the relevant circumstances) Kant's ethics focus then only on
the rule that underlies actions and judges these to be good or bad solely on how they conform
to reason. Kant showed that many of our common sense views of what is good or bad
conform to his system but denied that any action performed for reasons other than rational
actions can be good (saving someone who is drowning simply out of a great pity for them is
not a morally good act). Kant also denied that the consequences of an act in any way
contribute to the moral worth of that act.
  The Formulation Rule of Kantianism: (categorical imperative)

1. Act only according to that maxim by which you can, at the same time, will that it
would become a universal law. (principle of universalizability)
2. Act so that you always treat others as an end, and never as a means to an end only.
(Respect for persons)

A. The principle of Universalizability:

The first principle, for determining whether an act is morally permissible is as follows:

“Act only according to that maxim (rule) by which you can, at the same time, will that
it should become a universal law”

The way someone can know what moral law is, according to Kant, requires testing a
principle against a system to see if it holds up. An example of a principle, known by Kant
as a maxim, might be that if Joe is poor, Joe will rob someone else to get money. To test
this maxim for morality, it must first be generalized, as in any person who is poor should
rob someone else to get money. Kantian ethics argues that this maxim falls apart at this
point, for if everyone engaged in rampant robbery, the idea of personal property would
dissolve, which in turn would be meant that theft would be impossible as no one would
really own anything. If a maxim fails the generalization test, then it can't be used as a
categorical imperative or intrinsic moral law and shouldn't be used.

In other words, when you’re considering doing something, ask yourself the following:
1) What rule would you be following were you to go through with the act? This would be
the “maxim” or guideline for said action.
2) Would you be willing to have this rule becomes a universal law, to be practiced
by everyone else around you at all times?

- If the action you’re considering meets these requirements, then you’ve devised a
categorical imperative – a sound moral rule for which you must oblige yourself to
follow absolutely.
- If not, however, then this action is not moral and therefore not permissible. So if I’m
thinking about making a categorical imperative that states “you ought to lie,” I must
measure it against the first formulation: would this be a maxim that I’d want to
become universal? Would I want to live in a world where everyone has a duty to be
dishonest in every circumstance? If I’m a reasonable person, I would most certainly
be opposed to this.
 B. Respect of persons:

The second formulation of the categorical imperative states the following:

“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.”

What this basically means is that we should treat people as intrinsically valuable. Indeed,
Kant held that human beings are valuable “above all price,” because unlike objects, a person
is irreplaceable.

Objects can only serves as a means; people, however, have an intrinsic value to them that is
beyond serving anyone else’s means. Humans have dignity. Furthermore; humans have
free will and the ability to guide their actions.; therefore, we are innately valuable.

It is because of this that we should never be used as mere instruments for another’s ends.
People must be respected as the rational, independent actors that they are, and must not be
reduced to the roles of objects.

C. Main Advantages of Kantian Ethics:

1) One of the advantages of this approach to morality is that it is a duty-bound theory: it

depends on the good motives instead of the good consequences: it looks more closely
at the individual and his choices, rather than the actual consequences of what he does
(which, after all, he has no control over).
- Take this example; a scientist decides that he is going to find a cure for a particular
sort of cancer, and spends years trying to accomplish this. Look at his intent – it’s
highly moral. But imagine that he accidentally invents some sort of super weapon
instead, which eventually leads to the total destruction of entire civilizations. This is
not a positive result, but it was not what he wanted to achieve. The utilitarian would
say that he is a bad person nevertheless, as he has caused massive amounts of
suffering. But it’s not what he wanted to do. Kant’s approach here seems preferable,
and much fairer.

2) Among the greatest feature of Kantian ethical theory is its consistency: because this
theory is rules-based and absolute, it requires us to be consistent in our morality.
Recall that the first formulation of the categorical imperative obliges us to follow
rules only if we’d want everyone else to do so too. Similarly, if one accepts
considerations as reasons to do (or not do) something in one case, then you must
accept those reasons in others “moral reasons, if they are valid at all, are binding on
all people at all times.” All this makes for a moral system that is as stable as it is
rational.
 3) Another advantage of Kant’s view is that it respects human rights and Justice,
everyone is treated equally.

4) It is rational and impartial: Kantian Ethics is not influenced by emotion. It does not
allow us to show favoritism for friends.

D. Main criticisms to Kantian Ethics:

1. On the other hand, this same absolutism is a major weakness as well, for it leads to a
possible conflict of rules. What happens when we face a scenario that forces us to
choose between two or more obligatory moral rules? Consider the two imperatives
“never tell a lie” and “never allow innocents to die if you can help it.” Within the
Kantian framework, both these moral rules would be unconditional. Absolutism in
such circumstances can be very troubling and arguably irrational: shouldn’t a rule be
broken if following it would lead to harmful consequences?

2. Another main Criticism of Kant's principle of categorical imperatives usually comes

against the idea that a moral law must be universal and it allows NO exceptions to
moral rules: In reality; every situation is unique – Universal rules aren’t helpful in
the real world where every situation is different. If no two situations are the same,
morality should be relative not absolute.
- For example, Kant claims that murder is universally wrong. Critics claim that this
principle then suggests that a person should allow his wife to be beaten and raped
rather than murdering her attacker. Kant's theory of imperatives, though quite rational,
seems to be a utopian concept that cannot be fully realized in a complex society.

3. It totally ignores the Consequences : There are some cases where consequences are
so severe that many think it is better to break a rule than allow awful things to happen.

IV. CASE QUESTIONS

Case 3.2- (PAGE 66): Exporting Pollution

Discussion Questions
1. Why does the memo trouble Rebecca Wright?
2. Would the memo be less troubling if the question were whether to place a toxic waste
dump in a large urban area or a largely unpopulated area of the United States? Does the fact
that the proposal involves the export of pollution from the first world to the third world make
a difference?
3. Is the memo troubling because the people of the third world do not have an opportunity to
take part in the decision? Would the case be different if the people affected recognized the
benefits and consented to the location of the plant in their country?