98 riteartantem theory which Seton & meray ont itrente Pathe ones Srount of good rahe gree prope ected UNDERSTANDING BUSINESS ETHICS these issues around egoism in the context of the movie Margin Call, which explores the ‘events leading up to the financial meltdown of the late 20008. Utilitarianism ‘The philosophy of utilitarianism has been one of the most commonly accepted ethical theories in the Anglo-Saxon world, It is linked to the British philosophers and econo: ‘ists Jeremy Bentham (1748-1832) and John Stuart Mill (1806-73) and has been influ ential in modern economics in general. The basic foundation of utilitarianism is the ‘greatest happiness principle’, This is the ultimate consequentialist principle as it focuses solely on the consequences of an action, ‘weighs good outcomes against bad outcomes, and encourages the action that results in the greatest amount of good for everyone involved. Unlike egoism, it does not only look af each individual involved, and ask whether theit individual desires and interests are ‘met, but it focuses on the collective welfare that is produced by a certain decision. The underlying concept in utilitarianism is the notion of utility, which Bentham sees as the ultimate goal in life. Humans are viewed as hedonists, whose purpose in life Is to ‘maximize pleasure and minimize pain. In this hedonistic rendition of utilitarianism, utility is measured in terms of pleasure and pain (the ‘hedonistic’ view). Other interpreta- tons of utility look at happiness and unhappiness (the ‘eudemonistic’ view), while others take a strongly extended view that includes not only pleasure or happiness, but ult ‘mately all intrinsically valuable human goods (the "ideaY' view). These human goods would typically include aspects such as friendship, love, trust, etc. The latter view in particular ‘makes utilitarianism open to a great number of practical decision situations and prevents, it from being rather narrowly focused on pleasure and pain only Utilitarianism has been very powerful since it puts at the centre of the moral decision 4 variable that is very commonly used in economics as a parameter that measures the ‘economic value of actions: ‘utility’. Regardless of whether one accepts that utility really is quantifiable, it comes as no surprise to find that utilitarian analysis is highly compat ble with the quantitative, mathematical methodology of economics. So, in analysing ‘two possible options in a single business decision, we can assign a certain utility to each, action and each person involved, and the action with the highest aggregate utility can be determined to be morally correct. Ultimately utilitarianism then comes close to what ‘we know as cost-benefit analysis ‘Typical situations where utilitarian analysis can be very helpful are analyses of pro- posed initiatives, such as social and environmental impact assessments of mining or infrastructure projects. These assessments take into consideration all of the likely post tive and negative impacts of a given project, including the impact on employment, com: ‘munity development, and environmental quality with a view to determining whether the project will have an overall benefit to society, For example, in most developed coun: lules new mining projects have to undergo extensive social and enviconmental impact assessments before they can get permission to begin operations. Such permitting long, prevented the opening of Europe’ largest proposed gold mine around the town of Rosia ‘Montana in Romania since studies had demonstrated the likelihood of significant so: cial, environmental, and cultural damage. In 2013 a mass protest movement arose in the country after the Romanian Government proposed a new law that would enable the Rosia Montana Gold Corporation to finally start operations after years of failing to acquire the necessary environmental permits,EVALUATING BUSINESS ETHICS Action 1: doing the deal ‘Action 2: not doing the deal Pleasure Pain’ Pleasure Pain Product Good dealfor the Bad conscience; Good consclence; Loss of a good deal manager business; potential possible risk ess rk for personal bonus for company reputation Thaldealer Good deal Loss of a good dea search for a new customer in Europe Parents Secure the family’s Limited Search for other income prospects for sources of income eileen Children Feeling of being Hard work; no Nohard work, Potentially forced needed, being chance of ——_timeto play and to doother, more ‘grown up school gotoschool painful work approval of the education parents Grandmother Family is able to Loss of economic support her support Figure 3.3 Example ofa utilitarian analysis If we apply this theory to the situation described in An Ethical Dilemma 3, we frst have a look at all the actors involved and analyse their potential utility in terms of the pleasure and pain involved in different courses of action, say either going ahead with the Geal (action one) or not doing the deal (action two). We could set up a simple balance sheet, such as that depicted in Figure 3.3. After analysing all of the good and bad effects for the persons involved, we can now add up ‘pleasure’ and ‘pain’ for action 1, and the result will be the utility of this action, After having done the same for action 2, the moral decision is relatively easy to identify the greatest utility ofthe respective actions is the morally right one. In our hypothetical case, the decision would probably go in favour of action 1 (doing the deal) as it involves, the most pleasure forall parties involved, whereas in action 2 (not doing the deal), the pain seems to dominate the analysis. This example demonstrates some of the complications with utilitarian analysis. Proponents and critics of proposed practices can both summon a host of benefits and. ‘harms to support their cases, making any comparative assessment difficult. Case 3, for example, elaborates the controversies around the exploration of the oil sands in Canada where a longstanding debate on the pros and cons of development has so far not led to a conclusive outcome. This points to some core problems with utilitarianism: + Subjectivity. Clearly when using this theory you have to think rather creatively, and assessing such consequences as pleasure or pain might depend heavily on the subjec- tive perspective of the person who carries out the analysis. + Problems of quantification. Similarly, it is quite difficult to assign costs and benefits to every situation. In the example, this might be quite easy for the persons directly involved with the transaction, but it ts certainly difficult to do so for the children100 UNDERSTANDING BUSINESS ETHICS involved, since their pleasure and pain is not quantifiable. Especially in these cases, it ‘might be quite difficult to weigh pleasure against pain: is losing a good contract really. ‘comparable to forcing children into labour? Similarly, under utilitarianism, health and safety issues in the firm require ‘values’ of life and death to be quantified and calculat- ced, without the possibility of acknowledging that they might have an intrinsic worth beyond calculation. Distribution of utility. Finally, it would appear that by assessing the greatest good for the greatest number, the interests of minorities are overlooked. In our example, a minor- lty of children might suffer so that the majority might benefit from greater utility. Of course, utilitarians were always aware of the limits of their theory. The problem of subjectivity, for example, led to a refinement of the theory, differentiating between what has been defined as ‘act ulilitarianism’ versus ‘rule utilitarianism’ Act utilitarianism looks to single actions and bases the moral judgement on the amount of pleasure and the amount of pain this single action causes, Rule utilitarianism looks at classes of action and asks whether the underlying prin- ciples of an action produce more pleasure than pain for society in the long run, (ur utilitarian analysis of Ethical Dilemma 3 used the principle of act utilitarianism by asking whether just in that single situation the collective pleasuce exceeded the pain inflicted, Given the specific circumstances of the case, this might result in the conclusion that itis morally right, because the children’s pain is considerably small, given the fact, {or instance, that they might have to work anyway ot that school education might not be available to them. From the perspective of rule wiltarianism, however, one would have to ask whether child labour in principle produces more pleasure than pain. Here, the judge- ‘ment might look considerably different, since it is not difficult to argue that the pains of child labour easily outweigh the mainly economic benefits of it, Rule utilitarianism then relieves us from examining right or weong in every single situation, and offers the possibility of establishing certain principles that we then can apply to all such situations. © Skill check Utilitarian analysis. You should now be able to conduct a basic utilitarian analy. sis, often referred to as a cost-benefit analysis in business. To be a true utilitarian, analysis you have to include all relevant stakeholders and the likely impacts on them, Non-consequentialist theories ‘The other main branch of traditional ethical theory is non-consequentialism. Here we shall look at the two main types of non-consequentialist ethical theories that have been, traditionally applied to business ethics: + Ethics of duties, + Ethics of rights and justice