Chapter 3: Ethical Behavior in Accounting: Ethical Theory

This chapter begins by reiterating that ethical dilemmas can be better solved through the
use of ethical theories. Ethical theories support principles with which one uses to predominantly
justify and base ones decisions upon. The current ethical theories are broken down into three
groups, Egoists, Utilitarians, and Deontologists. Boiled down, egoists propose that individual self
interests should be and are given priority over collective interests when discerning a course of
action. Utilitarians assert that the primary determining factor when establishing a course of
action should be what provides the greatest benefit to the greatest amount of individuals.
Deontologists lodge that the consequences of an action should not be taken into account if the
action itself is ethical. Dilemmas give rise to the need to ascertain which ethical theory apply
when determining the proper ethical action.

I. Egoism
Egoism is often seen as fundamentally unethical because it is equated with selfishness
which is collectively considered as an iniquitous trait. Egoists believe that acting in ones self
interest is not necessarily bad but important in terms of self esteem, for example, which is a
theory supported by psychologists. If an action is beneficial to ones own self interest then the
action can be considered good, or just. In a case where applying egoist theory to select an action
that is good for ones self at the expense of another or others then it is selfish. Thus, a
complication for relying entirely upon egoist theory is that at times it promotes selfishness,
which is unethical. Because of that it is not a germane ethical theory in terms of the accounting
profession as accountants must adhere to an ethical code that requires accountants to perform
their duties in ways that “serve the public interest”. Egoism is also not an apropos ethical theory
for friendships, certain business activities, as well as resolving disputes justly. For example, if
two individuals want the same thing and egoist theory is used to settle the dilemma then there
can be no resolution where both individuals act in their own self interest.
Another conundrum with egoist theory is that if it is disseminated by the believer then it
goes against their own self interest since others will be alert to the individuals inability or
unwillingness to either compromise or reach an outcome that benefits others. The informed party
will have no reason to deal with the egoist thus the outcome will not serve the egoists’ self
interest. Egoists view themselves as being the “center of the universe” which is also a quandary
as there is no way to first determine who is the ultimate “I”, and secondly there is no
consequential evidence that supports the notion of a universal “I”. Furthermore, to make an
assumption that one is the “center of the universe”, one must also assume that all others have
little to no meaning, which again, is unprovable and unfounded, or as the author states, “illogical
or absurd”.
Some philosophers believe that humans perpetually and congenitally act in their own self
interest which is considered psychological egoism. Ethical egoism is considered to be separate
from psychological egoism as the former prescribes how one should act and the latter relates to
ones behavior. Psychological egoism can be invalidated through examples of individuals acting
in the interests of others such as sacrificing oneself for another. Some psychologists argue that
even those acts are structurally self interest driven in that the reward to the self is the motivator
to action as opposed to the welfare of the other.
Economist and philosopher Adam Smith believed partially in psychological egoism
asserting that beseeching individuals self interest makes economic since. Economists have based
business models around Smith’s 1759 publication and have developed the apothegm “homo
economicus” or “economic man” to describe the self interested or selfish individual in relation to
economics. Those who believe that “business ethics” are a contradiction base that belief on
selfishness being at variance with ethics assuming that selfishness is the taproot of economics.
Smith stated that “self-interest will lead to societal benefits”, in that individuals may be driven by
the desire to see others happy due to the personal satisfaction they will gain.

II. Utilitarianism
Utilitarians consider that actions can be deemed valid when they provide the most benefit
to the most individuals. John Stuart Mill rebuked Smith’s Egoist theory in 1863 by stating that an
action is only right if it creates happiness for as many individuals as possible including oneself.
In a utilitarians view companies that provide a positive societal impact are lauded and companies
that have a negative societal impact are denounced. A cost-benefit approach is used by
utilitarians when determining the justness of any action in the since that all possible actions for a
dilemma are quantified by how every individual is affected.
The first drawback in the approach of the utilitarians is that the justness of an action is
determined based on the outcome and not the action itself meaning that a utilitarian would justify
a typically unethical action if it produced the greatest good for the greatest number of
individuals. This is known as the problem of illicit means. Another obstacle is the ambiguity of
the theory itself in that there are situations where one must choose between the greatest number
of people affected or the greatest amount of happiness dealt out. In this way utilitarian theory has
limitations when it comes to distributive justice which is the question of how goods and
obligations should be apportioned. This has implications when it comes to how utilitarians justify
capitalism as well.
Establishing what can be considered good is another problem for utilitarian theory. Mill
suggested that good is related to happiness and that happiness was equal to pleasure. There are
intrinsic goods which are things that are desirable because they bring pleasure and there are
extrinsic or instrumental goods which are contributory to the procurement of other goods. The
author gives the example of happiness being an intrinsic good and money being an extrinsic
good. Some individuals known as pluralists believe that there are more intrinsic goods than just
happiness, where as eudaemonists believe that happiness in the only intrinsic good. There are
also hedonists who believe that there is no difference between happiness and pleasure.
Economists more often focus on “satisfiers” or preferences as opposed to empirical goods and
thus fall into neither of the three camps. The different interpretations do not create a precise
definition of “good” as good can be different for different individuals and what satisfies one or
what is preferred is not always what is good for one.
Yet another disadvantage to utilitarian theory is that of predicting the future. It is not easy
to know what the consequences of an action will actually be when considering what action to
take and there may be unexpected repercussions. These unexpected repercussions are known as
externalities by economists. Another problem, which I mentioned above, is that of illicit means
and is when an action is justified based on the consequences and not on whether the action itself
is ethical. Finally a philosopher named Ross proposed the “essential defect” of utilitarian theory
is that it does not give “ethical priority to the duties that arise from special relationships”.

III. Kant and Deontology

Deontologist and philosopher Immanuel Kant was one of principle deontologists.
Deontological theory asserts that an action itself should be weighed ethically when deciding
upon an action. Kant believed that acting on proclivity or desire was to act immorally or as
animals do where as acting on moral obligation, or duty, is intrinsically human. The author gives
an example of comparing a beaver and their activities to a human to support Kant’s statements. I
felt this to be outdated and almost ethnocentric because it rests on the assumption that animals
are inferior to humans which is only a theory humans can have. Furthermore, to assume that we
as humans are truly free from instinct is to not entirely understand ourselves. Humans are
animals and are driven by the same primary needs as animals and therefore exhibit behaviors that
act accordingly, just like a beaver or a spider. Although we may not preform the exact same tasks
we perform them for the same reasons as any other animal and that is to survive. I do agree with
his notion that humans have the ability to chose either alternative courses to achieve a goal and
the power to abandon goals tied into basic instincts but to say animals don’t have that ability is
problematic for me. Why does an animal wander off to die, why does an animal of an apex
species adopt a prey animal as their own, why do dogs understand human emotions, why do
animals of many species feel emotions, are emotions not part and parcel with morality.? Kant, I
think I just can’t.

IV. Deontological Ethics

Qualified questions are what one asks oneself when deciding what to do based on ones
predisposition. An unqualified question is a question of what one should do based on ones duty
or moral obligations. When there are no “ifs, ands, or buts” in the answer, meaning that there is
no doubt about what the ethical action to take is, then the answers to theses dilemmas are
considered imperatives, or rules. Kant considered all practical judgements, deciding what one
should do, to be imperatives and broke them down into two categories. Categorical imperatives
are where the should in what one should do is unqualified. Hypothetical imperatives are when
the should is qualified meaning that it is based on preceding proclivities, and gauging the value
of the outcome is based on the ability to fulfill the goal. Hypothetical imperatives are what
utilitarians focus on, where as Kant really felt that to act morally one must act out of duty, and
that actions based on desire fulfillment were not truly moral. To determine what the duty is with
a given categorical imperative Kant provides two statements of advice.

V. The First Formula of the Categorical Imperative

“Act so that you can will the maxim of your action to become a universal law.”
The first formula Kant gives can be better understood through breaking it down into
parts. First the “maxim” is ones reason for acting, why one decides to act in a dilemma.
Secondly, “universal law” refers to making the action a universal rule, in that one or others
would act in a way that would be applied to other dilemmas. The “will” is ones practical reasons
behind the action, meaning that there can not be a contradiction of wills. He called this “will-
contradiction” and it refers to the conundrum of universalizing what we consider to be negative
actions. For example, lying is an action and if one wills lying to be a universal rule then no one
will trust anyone else thus creating a contradiction and a rational for why lying is not ethical.
Kant shows that in this way any unethical action creates the contradiction, and with a
contradiction equals can not be treated equally and there can be no rule of justice.

VI. The Second Formula of the Categorical Imperative

“Act so as never to treat another rational being merely as a means”.
The second formula operates under the assumption that humans have free will and can
self regulate, or as Kant says humans are “ends in themselves”, meaning that the rule of justice
applies to them. The formula states that one individual should never use another individual for
personal or societal gain and thus is an answer to the utilitarian problem of illicit means. As an
example, slavery is wrong because it does not treat equals equally, the slave is used for the
slavers personal gain. One opprobrium to this aphorism is the question of what justifies the
means if it is not the ends? Kant’s elucidation is that virtue will be rewarded but that can be
interpreted as simply egoism or utilitarianism. Another more complicated criticism is when there
are conflicts of duties. Ross endorses the idea that there are “prima facie” duties such as keeping
promises, doing good, and doing no harm which should be carried out if they do not conflict. In
situations where they do conflict utilitarians believe that deontologists must allow for
consequences to take precedence over actions. Lastly, Kant is not specific enough in what he
means by “merely”. There can be a dispute between what is seen as exploitive and what is seen
as use, for example an employee is being used for a business to function but when does that
become exploitation?

VII. Virtue Ethics

Virtue ethics, or the ethics of virtue or character looks not at what an individual should
do, but how an individual should be. Aristotle believed that well-being was achieved through an
individuals “excellent capacities” meaning virtuous activities. Aristotle and Plato proposed that
“a thing should fulfill its potential,” which can be related to an individuals goals and aspirations
being good if they are accomplished. Ethical theories can be seen as furnishing principles to
better settle ethical issues, and/or contributing principles with which to suffuse the process of
making ethical decisions. These principles help resolve discrepancies between what an
individuals feelings and protocols as they allow for an individual to analyze and evaluate.