3.

0 Business Ethics
MGT503

MAIN THEORIES OF NORMATIVE ETHICS

• Normative study
• An investigation that attempts to reach
conclusions about what things are good or
bad or about what actions are right or wrong.
• Descriptive study is an investigation that
attempts to describe or explain the world
without reaching any conclusions about
whether the world is as it should be.

2
 Relativism Egoism

The 4
Concepts of
Ethics
Utilitarianism Deontologism
 Ethical Theories

A. Consequentialist Theories—

1. Egoism—Adam Smith
2. Utilitarianism—Bentham and Mill
 Utilitarianism
 Rule Utilitarianism

4
 B. Non-consequentialist Theory

• 1. Immanuel Kant
 categorical imperative

• 2. W. D. Ross
 prima facie obligations

5
 Moral Theories-- Organizational
Context

Applications and critique

• Non-consequentialism
 understanding moral rights
• Consequentialism
 finding the optimal code— Act & Rule
utilitarianism

6
 Egoism

• Psychological egoism is a descriptive, factual

claim about how people do act and how they
are motivated.
• Ethical egoism is a normative theory that
prescribes how people should act.
• One ought to act in his or her own self interest
• Ethical behavior is that which promotes one’s
own self interest
• Does not mean should not obey laws - only do
• All ethical theories, including both forms of
ethical egoism, argue that our ethical
responsibilities will sometimes require us to
act in ways that constrain our own behavior in
the interest of others.
• If ethical egoism is to pose a threat to
Business ethics, then ethical egoism has to
become more than merely a tendency of
humans.
• Defenders of ethical egoism must claim that
humans always and only act out of self-
interest. 8
 Egoism
• Two forms of ethical egoism:
– People should pursue their self-interest, properly
understood. The role of ethics, then, is to help
people understand their best interests.
– We can still arrange social institutions in a way
that would channel individual egoism to the social
good, i.e. social contracts.
• What do you think of this concept?
• Problem - Externalities associated with private
actions - OK to dump toxic wastes as long as
don’t get caught
 Utilitarianism
• Roots of utilitarian thinking can be found in
Thomas Hobbes (1588-1679), David Hume
(1711-1776), and Adam Smith (1723-1790).
• Classic formulations of Utilitarianism are
found in the writings of Jeremy Bentham
(1748-1832) and John Stuart Mill (1806-1873).
• The morality of an action can be determined
by its consequences
• An action is ethical if it promotes the greatest
good for the greatest number
• The theory tells us that we can determine the
ethical significance of any action by looking to
the consequences of that act.
• Maximizing the overall good or The Greatest
Good for the Greatest Number of People
• Utilitarianism provided strong support for
democratic institutions and policies

11
• Government and social institutions exist for
the well-being of all people, not to further the
interest of the monarch – or the wealthy elite.
• The economy exists to provide the highest
standard of living for the greatest number of
people, not to create wealth for a privileged
few.

12
• Utilitarianism looks at the consequences of actions.
• Utilitarianism is pragmatic: no one is ever right or
wrong in every situation. It all depends on the
consequences.
• Utilitarian acknowledge two kinds of value:
instrumental value and intrinsic value.
• If we judge our acts in terms of their consequences,
then we must have some independent standard for
deciding between good and bad
consequences…There must be some intrinsic value
by which we can judge the consequences of our acts.

13
• Jeremy Bentham argued that only pleasure, or
at least the absence of pain was intrinsically
valuable.
• Happiness must be understood in terms of
pleasure and the absence of pain.
• Unhappiness must be understood to be the
presence of pain and the absence of pleasure.
• Pleasure and pain are the two fundamental
motivational factors of human nature.

14
 Relativism Egoism

The 4
Concepts of
Ethics
Utilitarianism Deontologism
• Utilitarianism determines right and wrong in terms of
consequences.
• Deontological theories emphasize ethics as a matter
of principle and offer ways to think about such
ethical principles as dessert, duty, promises,
property, rights, justice and fairness.
Utilitarianism differs from egoism:
Utilitarian acts are judged by their consequences for
the general and overall good. The good includes the
well-being of each individual affected by the action.
Egoism focuses only on individual self-interests.

16
Implications Ethics for Business & Economics:

Economic transactions occur when people seek their

own happiness. If people make mistakes and buy
products that fail to bring them satisfaction, they
learn from those mistakes and no longer buy the
product. Market forces eventually eliminate
unsatisfactory products.

17
• Free market economics is a form of
“preference utilitarianism” where the
utilitarian goal is the maximum satisfaction of
preferences.
• Efficiency structures our economy.
• We allow individuals the freedom to bargain
for themselves.
• Agreements occur only when both parties
believe a transaction will improve their own
position.
• Competition works to improve the overall
good. 18
• Problems from within
– Finding ways to measure happiness
– Differing versions of the good and
implications for human freedom
• Problem from outside
– The principle of consequentialism means
that the ends justify the means, but there
are certain rules we must follow no matter
what the consequences.

19
 Benefits and Costs of an Action to
Whom so ever They Accrue

B1 + B2 + B3 + . .+Bn> C1 + C2 + C3 + . . .+Cn

Then the Action is Ethical

B1 + B2 + B3 + . .+Bn< C1 + C2 + C3 + . . .+Cn

Then the Action is Unethical

 Utilitarianism Example

• Harry Truman and Decision to Drop Bomb on

Japan
• Robin Hood case
• Botak Chin
• Golf course and Rumah Rakyat
What do you think of this concept?

• How do you quantify benefits and costs?

• How do you value benefits and costs?
• Can lead to unjust consequences
• Restrictions against the majority to protect a
minority is not utilitarian
 Deontologism
• Derived from the Greek word for Duty
• Actions are not justified by their
consequences. Factors other than good
outcomes determine the rightness of actions.
• Sometimes the correct path is determined not by
consequences but by certain duties.
• Duties = Obligations, Commitments, and
Responsibilities
• Deontology denies the utilitarian belief that the ends
do justify the means. There are just some things we
should do, or should not do, regardless of the
consequences.
 Utilitarianism Vs. Deontologism

• Utilitarianism - The ends justify the means

• Deontologism - It is the means which are

important
• Deontological Ethics focuses on the dignity of
individuals. Individuals have rights that
should not be sacrificed simply to produce a
net increase in the collective good.
• Immanuel Kant and the Categorical
Imperative: Our primary duty is to act only in
those ways in which the maxim of our acts
could be made a universal law.

25
• Kant: Ethics requires us to treat all people as ends,
not as means to ends.
Humans are subjects that have their own purposes
and ends, and should not be treated merely as the
means to the ends of others.

26
Our ultimate ethical duty is to treat people with
respect.
• If our duty is to treat every person with respect, then
we can argue that each person has a right to be
treated in a respectful fashion.
• My rights establish your duties and my duties
correspond to the rights of others.
• Duties establish the ethical limits of our behavior.
Duties are what we owe to other people.
• Others have a claim upon our behavior.

27
• Humans make free choices.
• Humans have autonomy.
• Humans originate action for their own ends.
• To treat someone as a means to an end is to
negate their autonomy – their ability to make
free choices.

28
 Virtue Ethics

• Virtue ethics is the 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.
• Rather than describing people as good or bad,
Virtue ethics encourages a fuller description.

29
• Virtue ethics is also prescriptive in offering advice in
how we should live.
• Virtue ethics asks us to examine how character traits
are formed and conditioned.
• Look at the actual business practices we find and ask
what type of people are being created by those
practices.
• Many individual moral dilemmas that arise in
business can best be understood as arising from a
tension between the type of person we seek to be
and type of person business expects us to be.

30
 Conclusion

• These theories are attempts to extract and

articulate the basic principles already present
in common ways of thinking.
• Utilitarianism asks us to consider not only the
consequences that our acts might have for
ourselves, but also the consequences of our
acts for all parties affected by them.

31
• Deontological approaches insist that some
things should be done and some things should
not be done – regardless of the consequences.
Respecting individual rights and fulfilling out
ethical obligations can set limits on decisions
aimed at producing good consequences.

32
• Virtue ethics encourages us to seek answers to
very profound questions:
– Who am I?
– What type of person am I to be?

Our character is manifest in our habits, dispositions,

and personality.

33