ETHICAL THEORIES



Ethics VS Code Relativism Kohlberg's Deontological Ethical Decision-

 J’2011 10% Q VS Stages of and Teleological making Model
Human Moral Approach to Ethics
Absolutism Development
Tested once on the
D'2010 tested tested 2 times approach – application
(not imp J'2011) American
Arguments for  J’2011 not yet test
Ethical Conducts  J’2011 application Accounting
of theories Association Model
moral
minimum
lvl 1 - self centered
Tucker's 5 question
4 Theories Model
stage 1 fear of
punishment 1) Egoism more likely
stage 2 fair deal OR will
not be found out
2) Utilitarianism
3) Ethics of
lvl 2 - begin think abt
other ppl duties
stage 3 social group 4) Ethics of rights
stage 4 social contract
and justice
lvl 3 - condemn existing
system
stage 5 wants changes in a
democratic manner
stage 6 wants changes and
don't mind creating chaos
- price to pay

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 Exam : Comment whether code or ethics is more important
CODE VS ETHICS  J’2011 10% Q in ensuring good practices.

1) Both code and ethics are contributing in ensuring good practices

2) However there are limits to regulation reach, given that the regulatory framework is already at world-class
level, but many corporate scandals can still be heard
3) Thus, code and regulation is not the solution to the problem because having the code itself did not actually
solve all the problem
4) Many times, it depends on personal ethics

5) To solve this problem, directors of PLC need to raise professional standards and ingrain integrity into their
corporate cultures and day-to-day operations as investors will not tolerate any misconduct and even
performance shortcomings
6) This is because fraudulent FR and insider trading often involve senior personnel of company who take
advantage of loopholes in law and inherent limitations in the ICs
7) It can be seen that the underlying problem lies with the mentality of human since corporation is controlled
and managed by human
8) Directors and mgnt need to walk the talk which means they must practice what they preach to ensure there
is buy-in across the whole company – this represent tone at the top and also signifies the strength of control
environment which will have an implication on the control procedures

9) The message of regulation is clear, breach the rules and you go to jail – this will only create fear and it will
not work in a long run as some directors are risk taker and some will find way to avoid being caught – this is
due to the rule based approach is not actually making people understand and appreciate what they are
doing
10) Rule-based codes encourage creative, loophole-based accounting and it is impossible to include every
situations that PA will encounter into the rules
11) In contrast, ethical principles are all-embracing, flexible and can be applied in every situation as it uses the
exercise of judgement

12) the target object should not be the corporation but the human being since the soul of corporation is human
13) CG is manifested as an external, outside-in rules and reg to legislate the corporation
14) HG on the other hand is inside-out values-based conviction to guide the human – personal values, ethical
principles which is the beliefs that resulted in the actions – ethics do pay
15) CG is not the solution because the corporation are ultimately run by people who are central to the decision
making process and it is therefore this element that requires most attention

16) At the same time, ethical company will be sincere in maintaining good relationship with investors which will
ensure that the PLC is able to provide the necessary transparency to developments so as to build a LT
relationship of trust and confidence

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ARGUMENTS FOR ETHICAL CONDUCTS / BENEFITS OF ETHICAL BEHAVIOUR / IMPORTANCE OF ETHICS 

1) Can avoid criticisms by external pressure group such as NGO – which can have implications on company’s
reputation

2) Structured ethical decision making is good risk management – the public is more likely to look kindly on a
company that it perceives as doing bis ethically than on one which is not particular about how it makes its
money – this require the company to establish its own code of business ethics voluntarily

3) There is a general tendency that human being would want to associate company with good reputation – this
can helps an orgz to attract and retain talent – reduce recruitment and training cost

4) Ethical company can also attract investment by ethical fund - easier to raise finance

5) Ethics actually do pay even in the corporate world

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ETHICAL RELATIVISM VERSUS ABSOLUTISM D’2010 tested (not imp for J’2011)

Ethical Relativism

- Pragmatic approach
- relativist
- ‘SITUATIONAL’
- Different situations, behave differently
- Flexible – know how to react in different kind of situations
- Respect differences
- What is regarded as ethical, morally acceptable is not up to the person to say, it basically look at the majority
of people – depends on the society (can be family or company)
- If majority (society) accepted something as ethical, then it is accepted as ethical and vice versa
- As long as something is accepted by majority of people, even though it’s against our own personal value and
principles, we cannot actually condemn, have to accept it because it is accepted by the majority of people in
the society, in the community that deem it as moral
- Advantages – in an multi-ethnic, multi-religion society, we need people who are relativist who doesn’t
impose their own set of beliefs on the others
- Disadvantages – people see you as a man with no principles

Ethical Absolutism

- Dogmatic approach
- absolutist
- Believe in absolute truth, principle that everyone should follow
- What formulate the absolute truth and principle? ‘’MY principle is the absolute truth’’- what they believe is
the absolute truth and they expect all other people to follow them
- Impose their belief on to others
- Regardless of situation – consistency in practices – want same thing to be done – same approach in all
situations
- Very rigid – not flexible – man of principles
- Advantages – consistency expected in practice – behave consistently
- Disadvantages – not respecting differences – so in certain society that is multi-ethnic, multi-religion – can
create conflict – everyone start to think that their own way is the right way – seen to be arrogant – moral
authoritarian

Moral Minimum

- ‘centre’ – not extreme

- Sits midway btw relativism and absolutism
- Provides threshold (limit) for all business activities – self-imposed minimum standards
- Moral minimum can be established by the respective company using its own code of business ethics which
served as a guidelines to the staff as to what are acceptable or not acceptable

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KOHLBERG’S STAGES OF HUMAN MORAL DEVELOPMENT Exam : Quote someone said ‘…..’ or the action – identify the
level and stage – justify
tested 2 times  J’2011

- The reasoning behind the answer - WHY

- 3 level ; 6 stages

Level 1 : Pre-conventional Morality

 Self-centered
 Person’s own interest – justifications persuasive only to the person

 Stage 1 : people at this stage will not commit immoral activities for fear of punishment by the
higher authority (law abiding citizens)
 Stage 2 : people at this stage do not mind committing immoral activities if fair deal (what
rewards do I get?) exist or that the act will not be found out (chances of being caught)

Level 2 : Conventional Morality

 Move out from level 1 - begin to think about others

 Norms of the group – justifications persuasive only to members of the person’s group (social group)

 Stage 3 : people at this level will only undertake activities that are acceptable by his/her social
group in order to be accepted by them
 Stage 4 : people at this level believes that social contract (unwritten) exist btw them and the
society such that they would not undertake activities that are harmful to the society
(care extended to society at large) = equivalent view in corporate citizenship
(law abiding citizens)

Level 3 : Post-conventional Morality

 Unhappy, not contented with the existing law & reg – condemn existing system, current way of doing
things
 They prefer their own rules & reg – more reasonable and adequate
 Believe their intended way of doing things, own set of principles are better than existing law and reg
 Wants change

 Stage 5 : people at this stage wants changes to be made because they do not agree with the
existing system, policies or rules & regulation. However, they would undertake the
change in a democratic manner eg enter into dialogue, through negotiation
 Stage 6 : people at this stage also wants changes to be made but do not mind creating chaos in
the society as a result of making changes because he/she sees them as a price to pay
eg worker strike (dangerous stage)

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DEONTOLOGICAL AND TELEOLOGICAL APPROACH TO ETHICS (FOUR THEORIES)
Tested once on the approach – application not yet test  J’2011 application of theories

Teleological
- Consequentialist approaches
- Based the moral judgement on the outcomes of a certain action
- Relativist – situational
- What is regarded as moral is based on the outcome – if the outcome is moral, then the act itself is moral
- ‘goal’ – outcome – consequences

Deontological
- Non-consequentialist approach
- Based the moral judgement on the underlying principles of the decision maker’s motivation
- Focus on motive & intention – if good, the act itself is ethical
- Absolutist – do not look at outcome/results
- Non-situational - an action is right or wrong is not because we like the consequences they produce but
because the underlying principles is morally right
- ‘duty’ – duty to act ethically

Two Consequentialist Theories

1) Egoism low chance – but better chance than utilitarianism
 Level 1 – self centered
 An action is deemed moral if it is in line with the ST desire and LT interest of the decision maker
 ST desire – urge to do something – whether doing smthg he/she like to do
 LT interest – more important
 In deciding whether an action is moral or not, it is important that focus should be on the LT interest
 If the act is in favour of LT interest then it is considered as ethical
 Invisible hand – referring to law & reg or consumer awareness which can result in action taken
against the individual/orgz concerned
 2 versions
a) Individual egoism – take care of own interest – only help others provided there is a benefit to
gain
(limited view of corporate citizenship – undertake social activities – to reciprocate loyalty –
ensure continual support)
b) Universal egoism – EVERYONE pursuing their own best interest – this version is unlikely to be
practical as one will not be able to achieve his/her best interest without another person
compromising on his/her interest
 Argument against egoism theory
a) Assumes that anything is alright as long as it serves an individual’s best interests – self centered
thinking is not appropriate
b) Renders different approaches to life as being equivalent
c) This theory cannot work if there is no mechanism in place to ensure no individual egoist pursues
his/her own interests at the expense of other egoist such as law and reg, punishment, consumer
awareness
d) Universal egoism is inconsistent or incoherent
 Exam technique to apply
Step 1 who am i making decision
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 Step 2 consider ST desire and LT interest – favourable?
Step 3 conclusion – is the act ethical/appropriate?

2) Utilitarianism unlikely tested

 An action is morally right if it results in the greatest amount of good for the greatest amount of
people affected by the action
 Level 2 – majority of people
 Focuses on collective welfare
 ‘greatest happiness principle’ – majority rules – minority sacrifice
 Argument against utilitarianism theory
a) Subjectivity – the level of pleasure (happiness) and pain (sadness) is judgemental
b) Quantification problem – difficult to assign cost and benefits to every situation since some
pleasure and pain are not quantifiable – difficult to weight pleasure against pain
c) Distribution of utility – interests of minorities are overlooked, sacrifice – majority rules
 Techniques in applying utilitarianism theory in exam scenario :
Step 1 identify the parties involved from the info given in the scenario
Step 2 identify the possible courses of action that are available
Step 3 for each course of action, analyse the pleasure or pain to each party
Step 4 select the course of action that gathered the most no. of pleasures over the pains as the
ethical decision

Two Non-consequentialist Theories

1) Ethics of duties / Kantian theory / categorical imperative  J’2011 greater chance to come out among the 4 theories
 Under this theory, there is a duty for everyone to act ethically
 Maxim 1
Universal law – an act is considered as ethical if we can expect others to follow what we have done,
i.e. consistency in the behavior

Maxim 2
Treat humanity as an end and never as a means only – an act is deemed ethical if you had treated
the people who work for you with respect and dignity recognizing that they have their own set of
needs and wants instead of regarding them as a tool for your success

Maxim 3
Universally lawgiving – an act is regarded as ethical if when known to others will not result in you
being condemned or criticized

 An act is regarded as morally right if it ‘survives’ all three tests

 Argument against ethics of duty
a) Undervaluing outcomes – little consideration of one’s actions
b) Complexity – complicated to apply Kant’s categorical imperative (eg maxim 2)
c) Optimism – Kant’s theory is quite optimistic – view man as a rational actor who acts
consequently according to self-imposed duties – seems more of an ideal than a reality with
regard to business actors (corporate citizens)

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2) Ethics of rights and justice
 Under this theory, there is a duty for everyone to observe the rights of another person and not to
undertake activities that will cause inconvenience or harm to another person
 Should respect and protect human rights
 Respected equally and fairly
 Justice can be defined as the simultaneously fair treatment of individuals in a given situation that
everybody gets what they deserved - no right of an individual is being suppressed as a result of the
action of another person
 Living wage – wages paid is low - exploiting the worker

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ETHICAL DECISION-MAKING MODELS
Hierarchy of ethical decision making
- 3 levels
- Level 1 – law abiding – outside-in – lawful decisions governed by legally binding rules
- Level 2 – compliance with the codes of conduct – not rule-based
a) IFAC code b) Code of business ethics
- Level 3 – AAA model

AAA Model rmb in sequence

- Seven-step
Step 1 – what are the facts of the case?
– you are required to describe the ethical dilemma experienced by the decision maker based on info
given in the scenario

Step 2 – what are the ethical issues in the case?

– who are the key stakeholders & how your decision could affect them?

Step 3 – what are the norms, principles and values related to the case? 
– if the decision maker is a PA, use IFAC fundamental principles to come out with answer
– for non-PA, you may have to consider the ideas learned in egoism, utilitarianism, ethics of duties
and ethics of rights and justice

Step 4 – what are the alternative courses of actions?

– For PA, the courses available are :
1) Follow what you have been instructed to do
2) Consult higher authority such as audit committee
3) Resign from the position
4) Refuse to follow the instruction but did not resign
– For non PA, the decision will be btw pursuing or not pursuing a particular course of action
(depending on scenario given)

Step 5 – what is the best course of action that is consistent with the norms, principles and values identified
in Step 3?
– refer back to step 3

Step 6 – what are the consequences of each possible course of action?

– The consequences can be explained by referring to the stakeholders that you’ve earlier identified in
step 2

Step 7 – what is the decision?

– please take note that a combination of the course of action is possible instead of choosing only one
(combination of several option)

- Advantages of using AAA model

1) Decision maker is better placed to defend their decision
2) Comprehensive – consider decision in detailed
3) Combining deontological and teleological – multiple ethical considerations provides insight from a
number of perspectives
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Tucker’s 5-question Model more likely
- Applicable for use by those who are in business – corporate citizens
- Not suit for PA
- A decision is deemed ethical if it is :
1) Profitable – a decision that can generate profit for the S/H is considered as ethical from narrow view
perspective because S/H returns can be increased accordingly
2) Legal – an action is considered as ethical if it complies with law and regulation
3) Right – an act is deemed right if it is in line with ethical principles
4) Fair / justice – an act is considered ethical if it doesn’t create harm / inconvenience to others affected by
the decision
5) Sustainable / environmentally sound – an act is ethical if it doesn’t create environmental footprint

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