Business Ethics

1. 4 Business Ethics C H E A P T R “It is not what a lawyer tells me I may do; but what humanity, reason, and justice, tell me I ought to do.” Edmund Burke

2. Lecture One Topics • Ethical Theories • Guidelines for Ethical Decision Making • Resisting Requests to Act Unethically • Leading Ethically

3. Ethical Theories • Rights Theory • Justice Theory • Utilitarianism • Profit Maximization

4. Rights Theory • Kant’s Categorical Imperative: An action is ethical only if it can be applied universally • Golden Rule: Treat others as you would want to be treated • Strength: Strong protection for rights considered to be “fundamental” • Weaknesses: • Difficulty of agreeing on what rights are “fundamental” • Disregard for costs or benefits • Sense of entitlement discourages initiative and entrepreneurship

5. Justice Theory • Rawls’ “Greatest Equal Liberty Principle” • Each person has an equal right to the same basic rights and liberties • Rawls’ “Difference Principle” • Social inequalities are acceptable only if they can’t be eliminated without making the worst-off even worse off • Nozick: Equality of opportunity, not outcome • Strength: Protection of the least advantaged • Weaknesses: • Disregard for costs or benefits • Difficulty of measuring and correcting inequalities

6. Utilitarianism • Maximize social utility • An action is ethical if its benefits outweigh its costs to society as a whole • Utility can be defined broadly or narrowly • “Act” vs. “Rule” utilitarianism • Strengths: • Easy to articulate standard of conduct • Maximizes social utility • Weaknesses: • Difficult to measure utility • Unequal distribution of benefits and costs • Not constrained by law

7. Profit Maximization • Maximizing total social welfare by maximizing long-run profits (within the law) for the actor or his/her organization • Strengths: • Allocates society’s resources in the most productive and efficient way • Requires conduct constrained by law and marketplace • Weaknesses: • Inability to judge profit-maximizing acts • Disregard for social inequalities

8. Guidelines for Ethical Decision Making

9. Apply the Guidelines To a decision whether: • To lay off employees to cut costs or incur a significant decrease in profit • To use a less expensive component with a 15% increased risk of defects or use a more expensive component with less profit • To violate an environmental law and pay $25,000 in fines or spend $50,000 to comply with the law • To shred documents that your boss asks you to shred as part of a “routine document retention policy” but that you know are important to a criminal investigation

10. Resisting Requests to Act Unethically

11. Leading Ethically • Be ethical • Communicate the firm’s core ethical values • Connect ethical behavior with the firm’s and workers’ best interests • Reinforce ethical behavior

12. Example: Introductory Problem • Barbara Toffler, “Final Accounting: Ambition, Greed and the Fall of Arthur Andersen” • How would the guidelines for ethical decision-making apply? • How would each ethical theory view this situation? • What steps might the consultant have used to resist the request to act unethically?

13. Multiple-Choice Examples • Raj is considering installing a windmill in his front yard to save energy. He is thinking about the effect that this action will have on his neighbors, and whether the energy saved will help reduce demand for gas and electricity. Raj's decisionmaking process illustrates: • Act Utilitarianism • Rule Utilitarianism • Rights Theory • Justice Theory

14. Ralph Nader’s Article • What ethical theories does Nader seem to be invoking? • How would you respond to Nader if you were: • A rights theorist? • A justice theorist? • A utilitarian? • A profit maximizer?