Chapter 3

Evaluating Business Ethics

Normative ethical theories: The rules and principles that determine

right and wrong for a given situation.

In locating a place for ethical theory in business, Richard De George (1999)

suggests that two extreme positions can be imagined:

The role of ethical theory

Ethical Absolutism

Ethical Absolutism is the belief that there are fixed, universal moral principles that
apply to everyone, everywhere, at all times. According to this view, actions can be
clearly categorized as right or wrong based on these unchanging principles

.Example:

Imagine a rule that says, "Stealing is always wrong." According to ethical absolutism,
this rule applies to everyone, regardless of the situation or culture. Even if someone
steals to feed their hungry family, it is still considered wrong because the moral
principle is absolute.

Ethical absolutists believe that these principles can be determined through reason
and are not influenced by personal feelings or social contexts.

Ethical Relativism

Ethical Relativism is the idea that what is right or wrong depends on the context
and is subjective. This means that moral principles are not universal but vary based
on individual perspectives and cultural backgrounds.

Key Points:

● Context-Dependent: Morality changes based on the situation and culture.

● Subjective: What is right for one person or culture might be wrong for
another.
● No Universal Right and Wrong: There are no absolute moral rules that apply
to everyone.

Example:

In international business, a practice that is considered ethical in one country might

be seen as unethical in another. For instance, gift-giving in business is normal and
respectful in some cultures but could be viewed as bribery in others.
Ethical relativism argues that both sets of beliefs can be right within their cultural
contexts, unlike descriptive relativism, which simply observes that different cultures
have different ethics.

#Most traditional Western modernist ethical theories tend to be absolutist in nature.

#Our position therefore is one of ethical pluralism. This occupies something of a

middle ground between absolutism and relativism. Pluralism accepts different moral
convictions and backgrounds, while at the same time suggesting that a consensus
on basic principles and rules in a certain social context can, and should, be reached

International origins and difference

Individual vs. Institutional Morality

Individual Morality:

● Focuses on personal ethical behavior and decisions.

● Emphasizes individual responsibility and actions.
● Commonly seen in the US, where ethical theories often apply to personal
conduct.

Institutional Morality:

● Focuses on the ethical design and functioning of organizations and systems.

● Emphasizes the role of institutions, laws, and economic systems in shaping
ethical behavior.
● Commonly seen in Europe, where ethical theories often consider the structure
and policies of institutions.

Simplified Example:

● Individual Morality: An employee deciding whether to be honest about a

mistake they made.
● Institutional Morality: A company designing fair policies to ensure all
employees are treated equally.

Questioning vs. Accepting Capitalism

US Approach:

● Accepts Capitalism: Business ethics in the US often works within the

capitalist framework without questioning it.
● Focus: Solving ethical problems that arise within the system.
European Approach:

● Questions Capitalism: Business ethics in Europe often examines the ethical

basis of capitalism itself.
● Focus: Defending or refining the ethical legitimacy of capitalism and its
institutions.

Simplified Example:

● In the US, business ethics might focus on how companies can behave
ethically within a capitalist system.
● In Europe, business ethics might ask whether capitalism is ethically justified
and how it can be improved.

Justifying vs. Applying Moral Norms

Europe:

● Justifying Moral Norms: Focuses on discussing and legitimizing which moral

values should be applied in business ethics.
● Pluralism: Diverse moral beliefs and values make it necessary to justify and
agree on ethical norms.

US:

● Applying Moral Norms: Focuses on using already accepted moral values to

address ethical issues in business.
● Given Norms: Most business ethics literature assumes certain moral values
and concentrates on how to apply them in business scenarios.

Simplified Example:

● Europe: Imagine a debate about which ethical principles a company should

follow. The discussion is about justifying and agreeing on these principles.
● US: Imagine a company already has a set of accepted ethical principles. The
focus is on how to apply these principles to solve specific business problems.

Ethical Theories and Religion

Sources of Rules and Principles

Religions:

● Source: Based on teachings from a deity or sacred texts (e.g., the Qur’an, the
Talmud).
● Acting Ethically: Requires faith and belief in the religious principles.
Philosophical Theories:

● Source: Based on human reason and logical thinking.

● Acting Ethically: Requires rationality and critical thinking to determine right
and wrong.

Simplified Example:

● Religious Ethics: Following ethical rules because they are written in religious
texts like the Qur’an.
● Philosophical Ethics: Using logic and reason to decide what is ethical.

Consequences of Morality and Immorality

Philosophical View:

● Tangible Effects: Acting ethically is about creating real social benefits or

preventing harm to others. It’s all about the impact on society.

Religious View:

● Social Effects: Still considers the social benefits and harms.

● Spiritual Effects: Also focuses on spiritual outcomes for the person making
the decision, such as:
○ Salvation: Being saved or redeemed.
○ Enlightenment: Gaining deep understanding or spiritual insight.
○ Reincarnation: Being reborn into a new life.
○ Damnation: Facing spiritual punishment.

Simplified Example:

● Philosophical: If you help someone, you make their life better and improve
society.
● Religious: If you help someone, you make their life better, improve society,
and potentially gain spiritual rewards like going to heaven or achieving
enlightenment.

Western Modernist Ethical Theories

In Western societies, ethical theories for business are based on philosophical ideas
that started in Europe and North America during the Enlightenment (18th century),
also known as 'modernity'. These theories, called Western modernist, usually offer
specific rules or principles that apply to any situation, aiming to give clear answers to
ethical problems.
Two Main Groups of Ethical Theories:

1. Consequentialist (Teleological) Theories:

○ Basis: Judge actions by their outcomes. If the result of an action is
good, the action is morally right; if not, it's wrong.
○ Focus: Goals and outcomes of actions.
○ Example: If donating to charity improves lives, the act of donating is
considered morally right.
2. Non-Consequentialist (Deontological) Theories:
○ Basis: Judge actions by the underlying principles and motivations, not
by outcomes.
○ Focus: Moral principles and duties.
○ Example: Telling the truth is right because honesty is a moral principle,
regardless of the consequences.

Key Points:

● These theories assume specific views about the world and human nature.
● The acceptance of these theories depends on how much we agree with their
assumptions.
● They provide clear solutions to ethical issues.

Example:

In a business context, if a company follows consequentialist ethics, it might decide to

implement eco-friendly practices because the positive environmental outcomes
make the action morally right. On the other hand, if it follows deontological ethics, it
might implement the same practices because it believes in the principle of protecting
the environment, regardless of the outcomes.
# Two main consequentialist theories:

• Egoism.

• Utilitarianism

Egoism:-A theory that suggests that an action is morally right if in a given situation
all decision-makers freely decide to pursue either their (short-term) desires or their
(long-term) interests.

# Egoism is the idea that people should act based on their own self-interest and
desires. This concept has been discussed since ancient Greek times and has
influenced modern economics.

Key Points:

1. Self-Interest: Egoism suggests that pursuing our own desires is the best way
to achieve a good life.
2. Economic Theory: Adam Smith believed that if everyone acts in their own
self-interest, it leads to positive outcomes for society through the "invisible
hand" of the market.
3. Free Market: In a free market, everyone can pursue their self-interests,
leading to competition and good information, which benefits everyone.
4. Example: If a company makes bad products, consumers will choose better
alternatives, forcing the company to improve for its own benefit.

Distinguishing Egoism from Selfishness:

● Egoism: Acting in self-interest while still considering others' well-being.

○ Example: A company donates to charity to improve its reputation.
● Selfishness: Ignoring others' well-being for personal gain.
○ Example: A company spends on self-promotion rather than helping the
community.

Enlightened Egoism:

● Long-Term Interests: Acting in ways that benefit long-term well-being.

● Example: Investing in social services to improve employee satisfaction and
retention.

Egoism encourages acting in self-interest, but with a focus on long-term benefits and
the well-being of others, leading to positive outcomes for society.

Utilitarianism:-A theory which states that an action is morally right if it results in the
greatest amount of good for the greatest amount of people affected by the action.
# Utilitarianism is an ethical theory that focuses on achieving the greatest happiness for the
greatest number of people. It was developed by British philosophers Jeremy Bentham and
John Stuart Mill and has had a significant influence on modern economics.

Key Points:

1. Greatest Happiness Principle: The right action is the one that produces the most
overall happiness and the least pain for everyone involved.
2. Consequences Matter: This theory judges actions by their outcomes, not by
individual desires.
3. Utility: The concept of utility involves maximizing pleasure and minimizing pain.
Different interpretations include:
○ Hedonistic View: Focuses on pleasure and pain.
○ Eudemonistic View: Focuses on happiness and unhappiness.
○ Ideal View: Includes all valuable human goods like friendship and trust.

Example:

Imagine a company deciding whether to build a new factory. Utilitarian analysis would
consider all the positive and negative impacts of this decision, such as job creation,
community development, and environmental effects. If the overall benefits outweigh the
harms, the decision is considered morally right.

Practical Use:

Utilitarianism is often used in cost-benefit analysis, where the action with the highest overall
benefit is chosen. For instance, new mining projects undergo social and environmental
impact assessments to determine if they will benefit society as a whole.

Utilitarianism helps ensure that decisions aim to create the most positive outcomes for the
majority.

Core problems with utilitarianism:

Subjectivity:

● Issue: Deciding what counts as pleasure or pain can be very subjective.

● Example: What makes one person happy might not make another person
happy.

Problems of Quantification:

● Issue: It’s hard to measure and compare the costs and benefits for every
situation.
● Example: Comparing the pain of child labor to losing a business contract is
difficult because their values aren’t easily measurable. Similarly, health and
safety issues require us to put a value on life and death, which is inherently
complex and sometimes feels wrong to do so.
Distribution of Utility:

● Issue: Utilitarianism might ignore the suffering of minorities in favor of the

majority's happiness.
● Example: In a business decision, a few children might be harmed while many
people benefit, which raises ethical concerns.

Act vs. Rule Utilitarianism

Act Utilitarianism:

● Focus: Evaluates each single action.

● Moral Judgment: Based on how much pleasure or pain that specific action
causes.
● Example: Deciding whether to help a friend on a single occasion based on
whether it brings more happiness or reduces suffering in that specific
situation.

Rule Utilitarianism:

● Focus: Evaluates classes of actions.

● Moral Judgment: Based on whether the general rule behind the action
produces more pleasure or pain for society in the long run.
● Example: Following the rule “always tell the truth” because, in general, this
rule leads to more happiness and less pain over time.

Simplified Example:

● Act Utilitarianism: If lying in one specific situation makes someone happy

without causing harm, it’s considered morally right.
● Rule Utilitarianism: Always telling the truth is considered morally right
because, as a general rule, it leads to more positive outcomes for society.

Non-consequentialist theories two main types:-

● Ethics of duties.
● Ethics of rights and justice

Ethics of duty:- Ethical theories that consist of abstract, unchangeable obligations,

defined by a set of rationally deduced a priori moral rules, which should be
applied to all relevant ethical problems.

Immanuel Kant (1724–1804) is a key figure in business ethics, particularly

regarding ethics of duty. His ideas focus on unchangeable moral rules that guide
our actions, regardless of the situation or consequences.
Key Points:

1. Rational Decisions: Kant believed humans are rational and can determine
what's right or wrong without relying on God or other authorities.
2. Categorical Imperative: A set of rules that should be applied to every moral
issue, regardless of who benefits or is harmed.

Three Key Principles of the Categorical Imperative:

1. Consistency:
○ Rule: An action is right if everyone can consistently follow the rule
without contradiction.
○ Example: Murder is wrong because if everyone murdered, society
would be unsafe.
2. Human Dignity:
○ Rule: Treat people as ends in themselves, not just as means to an end.
○ Example: Respect employees not just for their work but also for their
own goals and needs.
3. Universality:
○ Rule: The rules guiding our actions should be acceptable to all rational
people.
○ Example: If you're uncomfortable with your actions being public, they
might not be morally right.

Comparison with Religious Ethics:

● Religion: Morality comes from God.

● Kant: Humans can understand and decide what is morally right through
reason.

This framework helps ensure our actions are ethical by checking if they meet these
three principles.

Problems with ethics of duty :

1. Undervaluing Outcomes:

● Issue:
Ethics of duty doesn't focus much on the outcomes of actions.
● Example: It doesn’t help in assessing the consequences of an action; it
only considers if the action follows a moral rule.
2. Complexity:

● Issue:
Applying Kant’s categorical imperative can be complicated.
● Example: Deciding if an action is right and a duty requires abstract
thinking and detailed analysis, which can be hard in every situation.

3. Optimism:

● Issue:
Kant’s theory assumes people are always rational and act
according to self-imposed duties.
● Example: In reality, people in business might not always act rationally
or follow duties, making this idealistic view less practical.

Simplified Example:

1. Undervaluing Outcomes: If you follow a rule without considering if it

leads to good or bad results.
2. Complexity: It’s like trying to solve a complex puzzle to decide if an
action is right.
3. Optimism: It assumes everyone behaves perfectly rationally, which isn’t
always true in real life.
Ethical approaches based on character and integrity

Virtue ethics A theory that contends that morally correct actions are those
undertaken by actors with virtuous characters, and that the formation of a virtuous
character is the first step towards morally correct behaviour.

Virtue ethics focuses on the character and integrity of the decision-maker rather than the
outcomes or rules of a specific action. It is about developing good traits or virtues, such as
honesty, courage, and wisdom, which guide a person's actions.

Key Points:

1. Character and Integrity:

○ Focus: Looks at the character of the decision-maker.
○ Good Actions from Good Persons: Actions are good if they come from a
virtuous person.
2. Virtues:
○ Traits: Includes traits like honesty, courage, and patience.
○ Acquired by Learning: Virtues are learned and developed through
experience and relationships.
3. The Good Life:
○ Holistic View: A good life includes happiness and virtuous behavior.
○ In Business: It means not only making profit but also ensuring employee
satisfaction, good relationships, and ethical conduct.
4. Contextual Application:
○ Community Values: Ethical decisions depend on the values and traditions of
the community.
○ Example: In a business context, a product manager might consider local
customs and values when making ethical decisions.

Example:

A virtuous manager might decide to support local schools and pay fair wages to suppliers,
ensuring children get an education, instead of using child labor. This decision reflects virtues
like compassion and responsibility.

Drawbacks:

1. Which Virtues?: It can be unclear which community's virtues to follow.

2. Translating to Action: It’s sometimes hard to turn virtues into specific actions.

Importance:

Virtue ethics reminds us that ethical behavior is not just about following rules but also about
developing good character and making thoughtful, virtuous decisions.