Business Ethics

Concepts & Cases

Manuel G. Velasquez

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 Chapter Two

Ethical Principles in Business

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Whites Only Party – South Africa 1948 - Apartheid Legislation
• Preserve the racial purity and supremacy of the whites by keeping other
races socially and physically from them
• The oppressive laws incited Black resistance movement and many
people died or imprisoned in this struggle. One of their fame leader is
Nelson Mandela and Desmond Tutu.

While the apartheid regime was in power, Caltex, an American oil

company operated a chain of gas station and several oil refineries. The
company is jointly owned by Texaco and Standard oil. Together, their
operations gave access the white only South African government, the oil it
needed.

Many shareholders of these companies are against Caltex operation in

South Arica. In 1983, 1984 and 1985, they introduced shareholder
resolution requiring Caltex to either break their relationship with the South
African government or leave South Arica.

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Caltex’s arguments

The management of Caltex, however did not feel that it

should stop selling petroleum products to the South African
government or leave South Africa.

• The company acknowledged that its operations provided a

strategic resource for South Africa’s government and that
the government was racist.
• Nevertheless, the company claimed that its operations
ultimately helped black South Africans, particularly the
company’s black workers toward whom the company had
special responsibilities.

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 What is the moral debate?
• Whether apartheid laws were morally acceptable
and whether companies should help support the
government responsible for those laws.
• The arguments on both sides of these issues
appealed to moral considerations.
• The four basic kinds of moral standards:
Utilitarianism, rights, justice, and caring
• At several points of this discussion, the debate
also referred to the virtues and vices of various
people involved in the struggle over apartheid.

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 Utilitarianism
Leading theorist: Jeremey Bentham (1748-1832)

• An action is right from an ethical point of view if and

only if the sum total of utilities produced by that act is
greater than the sum total of utilities produced by any
other act the agent could have performed in its place.

The only morally right action in any situation is that

whose utility is greatest by comparison to the utility of
all the other alternatives .

It is important to note that only one action can have the

lowest net costs and greatest net benefits

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To determine what the moral thing to do on any particular
occasion might be, there are four considerations to follow:
• First, determine what alternative actions or policies are
available to me in that situation.
• Second, for each alternative action, estimate the direct
and indirect benefits and costs that the action will
probably produce for all persons affected.
• Third, for each action, subtract the costs from the
benefits to determine the net utility of each action.
• Fourth, the action that produces the greatest sum total
of utility must be chosen as the ethically appropriate
course of action.

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Utilitarianism is attractive because:
• Matches the view we tend to hold when
discussing government policies and public
goods.
• Actions and policies should be evaluated on
the basis of the benefits and costs they will
impose on society - Cost benefit analysis
• Fits nicely with a value that many people
prized: efficiency

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* The Ford Pinto was rushed into production in August
of 1970 by Ford’s new president, Lee Iacocca, insisting
that without a suitable alternative to the VW Beetle the
Japanese would “capture the entire American
subcompact market." He ordered the development of
the Pinto to be designed within an unusually short
production planning period in order to feature the car in
the showrooms with the 1971 models.
* Tooling had an especially short time frame and so the
machines that make the car parts were produced
before the car was effectively tested. Safety was not
mentioned in the product objectives, as Iacocca had no
concern for safety according to his statement that
“safety doesn't sell." Iacocca’s lack of concern for
safety resulted in a faulty gas tank system that cost the
lives of many.
* Crash tests conducted prior to production revealed
that “eight of eleven Pintos had suffered potentially
catastrophic gas tank ruptures on impact. The fuel
tanks of the three other cars had survived only
because they'd been shielded from a set of studs that
did the puncturing."
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A utilitarian could look at Ford’s case from several perspectives:

• Depending on one’s outlook as to what would create “the greatest

happiness or good for the greatest number of people."

• It could be argued that the executive decision to maximize profit

while disregarding safety concerns would produce the greatest
good because more people will own a cheaper vehicle with
greater utility because of the design which outweighs the loss of
relatively few lives compared to those who don’t have catastrophic
accidents.

• It could also be argued as morally permissible based on an

economical argument that shows how more people benefit than
the number of people who are harmed.

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Ford managers decided to go ahead and manufacture the
Pinto without changing the gas tank design because:

• The design met all the legal and government standards.

• The car was comparable in safety to several other cars
in the market
• Modifying the Pinto would be more costly than leaving
its design unchanged. (cost-benefit analysis)

60 people died in accidents involving the Pinto. But Ford

managers maintain that leaving the design is not to save
money for the company, but also, best for society as well.

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Though utilitarianism offers a superficially clear-cut method of
calculating the morality of actions there are three important
mistakes to watch out for when using utilitarianism.
Because almost everyone makes these mistakes when they first
start thinking about utilitarianism:

1.When the utilitarian principle says that the right action for a
particular occasion is the one that produces more utility than any
other possible action

2.To think that the utilitarian principle only requires us to consider

only the direct and immediate consequences of our actions.

3.The most important mistake is to say that the utilitarian principle

action is right so long as its own outweigh its own costs.

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Though utilitarianism offers a superficially clear-cut method of
calculating the morality of actions, it relies upon accurate
measurement, and this can be problematic. There are five major
problems with the utilitarian reliance on measurement:

1.Comparative measures of the values things have for different

people cannot be made-we cannot get into each others' skins to
measure the pleasure or pain caused.
2.Some benefits and costs are impossible to measure. How much is

a human life worth, for example?

3.The potential benefits and costs of an action cannot always be

reliably predicted, so they are also not adequately measurable.

4.It is unclear exactly what counts as a benefit or a cost. People

see these things in different ways.

5.Utilitarian measurement implies that all goods can be traded for

equivalents of each other. However, not everything has a monetary

equivalent.

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 Criticisms of Utilitarianism
• Critics say not all values can be measured.
– Utilitarians respond that monetary or other
commonsense measures can measure everything.
• Intrinsic goods and instrumental goods
• Critics say utilitarianism fails with rights and
justice.
– Utilitarians respond that rule-utilitarianism can
deal with rights and justice.

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Rights and Duties

*The Walt Disney Factory in China – 2009

* Principles designed to commit a company to a

widely accepted and thorough set of human and
labour rights standards in China.

* Concepts of rights plays a crucial role.

* 1948 United Nations adopted a Universal

Declaration of Human Rights.

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 The Concept of a Right
• Right = an individual’s entitlement to something.
– Legal right = An entitlement that derives from a legal system
that permits or empowers a person to act in a specified way or
that requires others to act in certain ways toward that person.
– Moral (or human) rights = rights that all human beings
everywhere possess to an equal extent simply by virtue of being
human beings.
• Legal rights confer entitlements only where the
particular legal system is in force.
• Moral rights confer entitlements to all persons
regardless of their legal system.

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 Moral Rights
• Can be violated even when “no one is hurt”.
• Are correlated with duties others have toward
the person with the right.
• Provide individuals with autonomy and equality
in the free pursuit of their interests.
• Provide a basis for justifying one’s actions and for
invoking the protection or aid of others.
• Focus on securing the interests of the individual
unlike utilitarian standards which focus on
securing the aggregate utility of everyone in
society.
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 Three Kinds of Moral Rights
• Negative rights require others leave us alone.

• Positive rights require others help us.

• Contractual or special rights require others

keep their agreements.

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 Contractual Rights and Duties
• Created by specific agreements and conferred only on
the parties involved.
• Require publicly accepted rules on what constitutes
agreements and what obligations agreements impose.
• Underlie the special rights and duties imposed by
accepting a position or role in an institution or
organization.
• Require (1) the parties know what they are agreeing to,
(2) no misrepresentation, (3) no duress or coercion,(4)
no agreement to an immoral act.

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 Immanuel Kant(1724-1804) and
Moral Rights
• Individuals generally must be left equally free to
pursue their interests.
• Moral rights identify the specific interests
individuals should be entitled to freely pursue.
• An interest is important enough to raise to be a
right if:
– we would not be willing to have everyone deprived of
the freedom to pursue that interest
– the freedom to pursue that interest is needed to live
as free and rational beings.

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 Kant’s Categorical
Imperative (First Version)
• We must act only on reasons we would be
willing to have anyone in a similar situation
act on.
• Requires universalizability and reversibility.
• Similar to questions:
– “What if everyone did that?”
– “How would you like it if someone did that to
you?”

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Recycling Example

act: I throw away my plastic bottle in the trash for the sake of minor
convenience
maxim: “When it’s at all inconvenient to recycle a plastic bottle, I’ll throw it in
the trash.”
Question: Is this maxim universalizable?
Answer: NO For I’m not willing to have everyone act on this maxim (thus
violating (ii) above).

Thus, the act is WRONG according to KCI.

Voting example

act: I vote this November

maxim: “When it is election day, I will vote.” Question: Is this maxim
universalizable?
Answer: YES For (i) everyone could act on the maxim, AND (ii) I would be
willing to have everyone act on the maxim.

Thus, the act is RIGHT according to KCI.

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 Kant’s Categorical
Imperative (Second Version)
• Never use people only as a means to your
ends, but always treat them as they freely and
rationally consent to be treated and help
them pursue their freely and rationally chosen
ends.
• Based on the idea that humans have a dignity
that makes them different from mere objects.
• It is, according to Kant, equivalent to the first
formulation.
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Three basic rights that can be defended on Kantian
grounds:

1. Humans have clear interest in being provided with the

work, food, clothing, housing, and medical care they
need to live
2. Humans have a clear interest in being free from injury
or fraud and in being free to think, have privacy, and
associate with whomever as they choose.
3. Humans have a clear interest in preserving the
institution of contracts

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 Criticisms of Kant
• Both versions of the categorical imperative
are unclear.

• Rights can conflict and Kant’s theory cannot

resolve such conflicts.

• Kant’s theory implies moral judgments that

are mistaken.

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 Libertarian Philosophy
• Freedom from human constraint is necessarily
good and that all constraints imposed by others
are necessarily evil except when needed to
prevent the imposition of greater human
constraints.
• Robert Nozick’s Libertarian Philosophy:
– the only moral right is the negative right to freedom
– the right to freedom requires private property,
freedom of contract, free markets, and the
elimination of taxes to pay for social welfare
programs
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 Types of Justice
• Distributive Justice
– requires the just distribution of benefits and
burdens.
• Retributive Justice
– requires the just imposition of punishments and
penalties.
• Compensatory Justice
– requires just compensation for wrongs or injuries.

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 Principles of Distributive Justice
• Fundamental
– distribute benefits and burdens equally to equals and unequally to unequals
• Egalitarian
– distribute equally to everyone
• Capitalist
– distribute according to contribution
• Socialist
– distribute according to need and ability
• Libertarian
– distribute by free choices
• John Rawls
– distribute by equal liberty, equal opportunity, and needs of
disadvantaged.

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Retributive and Compensatory Justice

• Retributive Justice = fairness when blaming or

punishing persons for doing wrong.

• Compensatory Justice = fairness when

restoring to a person what the person lost
when he or she was wronged by someone
else.

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 Ethic of Care
• Ethics need not be impartial.
• Emphasizes preserving and nurturing concrete
valuable relationships.
• We should care for those dependent on and
related to us.
• Because the self requires caring relationships
with others, these relationships are valuable
and should be nurtured.

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Objections to Care Approach in Ethics
• An ethic of care can degenerate into
favoritism.
– Response: conflicting moral demands are an
inherent characteristic of moral choices
• An ethic of care can lead to “burnout”.
– Response: adequate understanding of ethic of
care will acknowledge the need of the caregiver to
care for him or herself.

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Summary of basic moral considerations

• Utilitarian standard

• Standards that specify how individuals

must be treated

• Standards of justice

• Standards of caring

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 Questions?

Thank you

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