2. 1-2 3-2 Philosophical Ethics and Business McGraw-Hill/Irwin Business Ethics: Decision-Making for Personal Integrity & Social Responsibility Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 3

3. 1-3 3-3 Chapter Objectives After exploring this chapter, you will be able to: 1. Explain the ethical tradition of utilitarianism 2. Describe how utilitarian thinking underlies much economic and business decision-making 3. Explain how free markets might serve the utilitarian goal of maximizing the overall good. 4. Explain strengths and weaknesses of utilitarian decision- making 5. (continued)

4. 1-4 3-4 Chapter Objectives After exploring this chapter, you will be able to: 6.Explain principle-based, or deontological, ethical traditions 7.Explain the concept of moral rights 8.Distinguish moral rights from legal rights 9.Explain the Rawlsian theory of justice as fairness 10.Describe and explain virtue-based theories of ethical character

5. 1-5 3-5 The Ethical Question: This discussion will suggest a more accessible understanding of ethical theories to shed some light on the practical and pragmatic application of these theories to actual problems faced by business people. An ethical theory is nothing more than an attempt to provide a systematic answer to the fundamental ethical question above. Not only do ethical theories attempt to answer the question of how we should live, but they also provide reasons to support their answer. Ethical theories seek to provide a rational justification for why we should act and decide in a particular way. How should we live our lives?

6. 1-6 3-6 Theological vs. Philosophical Ethics Many people and cultures across the world base their ethical views on certain religious or theological foundations. The biggest practical problem with this approach, of course, is that people differ widely in their religious beliefs. If ethics is based only on religious origins, and if people disagree about those religious starting points, then ethics would never escape the predicament of relativism. Unlike theological ethics, which explains human well-being in religious terms, philosophical ethics provides justifications that must be applicable to all people regardless, of their religious starting points. Philosophical ethics seeks foundations that all reasonable people can accept, regardless of their religious convictions.

7. 1-7 3-7 Utilitarianism: Making Decisions based on Ethical Consequences “… “the ‘greatest happiness principle’ holds that actions are right in proportion as they tend to promote happiness; wrong as they tend to produce the reverse of happiness.” - John Stuart Mill Utilitarianism begins with the conviction that we should decide what to do by considering the consequences of our actions. Utilitarianism tells us that we should act in ways that produce better overall consequences than the alternatives we are considering. “Better” consequences are those that promote human well-being: the happiness, health, dignity, integrity, freedom, respect of all the people affected. If a basic human value is individual happiness, then an action which promotes more of that than does an alternative is more reasonable and more justified from an ethical point of view. A decision that promotes the greatest amount of these values for the greatest number of people is the most reasonable decision from an ethical point of view.

8. 1-8 3-8 Utilitarianism: Lessons from Examples Because utilitarians decide on the basis of consequences, and because the consequences of our actions will depend on the specific facts of each situation, utilitarians tend to be very pragmatic thinkers. No act is ever absolutely right or wrong in all cases in every situation; it will always depend on the consequences. For example, lying is neither right nor wrong in itself, according to utilitarians. There might be situations in which lying will produce greater overall good than telling the truth. In such a situation, it would be ethically justified to tell a lie.

9. 1-9 3-9 Utilitarianism and Business: Profit Maximization vs. Public Policy Approaches Another question remains to be answered: How do we achieve maximum overall happiness? What is the best means for attaining it? Two answers prove especially relevant in business and business ethics. Profit-Maximization Perspective: Based on the tradition of Adam Smith, claims that free and competitive markets are the best means for attaining utilitarian goals. This version would promote policies that deregulate private industry, protect property rights, allow for free exchanges, and encourage competition. In such situations, decisions of rationally self-interested individuals would result, as if led by “an invisible hand” in Adam Smith’s terms, in the maximum satisfaction of individual happiness. Public Policy Perspective: Turns to policy experts who can predict the outcome of various policies and carry out policies that will attain utilitarian ends.

10. 1-10 3-10 Problems of Utilitarian Ethics 1. Comparing and measuring the consequences of alternative actions is very difficult. One problem that follows from this is that, because of these difficulties, there will be a tendency to ignore the consequences, especially the harmful consequences, to anyone other than those closest to us. 2. Do the ends justifies the means? Are there not certain decisions that should follow no matter what the consequences?

11. 1-11 3-11 Benefits of Utilitarian Ethics Liberal (no one’s happiness is more important than another’s) Able to describe much of human decision making Easy to understand Forces us to examine the outcomes of our decisions

12. 1-12 3-12 Deontology: Making Decisions based on Ethical Principles Making decisions based upon the consequences certainly should be a part of responsible ethical decision-making. But some decisions should be matters of principle, not consequences - the ends do not always justify the means. How do we know what principles we should follow and how do we decide when a principle should trump beneficial consequences? Principle-based, or “deontological” ethical theories, work out the details of such questions.

13. 1-13 3-13 The source of these principles The law is one example of a type of rule that we ought to follow, even when it does not promote happiness. Other rules are derived from various institutions in which we participate, or from various social roles that we fill (such as our professional roles) So far we have mentioned legal rules, organizational rules, role-based rules, and professional rules. These rules as part of a social agreement, or social contract, which functions to organize and ease relations between individuals. No group could function if members were free at all times to decide for themselves what to do and how to act. The foremost advocate of this tradition in ethics, the eighteenth century German philosopher Immanuel Kant, argued that there is essentially one fundamental ethical principle that we should follow, no matter the consequences: Respect the dignity of each individual human being.

14. 1-14 3-14 Respecting Human Dignity Kant claimed that this duty to respect human dignity could be expressed in several ways. Act according to those rules that could be universally agreed to by all people. This is the first form of the famous “Kantian categorical imperative.” Another, less abstract version, requires us to treat each person as end in themselves and never only as means to our own ends. In other words, our fundamental duty is to treat people as subjects capable of living their own lives and not as mere objects that exist for our purposes.

15. 1-15 3-15 Distinguishing between Moral Rights and Legal Rights Legal rights may be granted on the basis of legislation or judicial rulings. Legal rights might also arise from contractual agreements. One cannot contract away one’s moral rights - moral rights lie outside of the bargaining that occurs in a contract. Moral rights establish the basic moral framework for legal environment itself, and more specifically for any contracts that are negotiated within business. Thus, as described in the United States Declaration of Independence, governments and laws are created in order to secure more fundamental natural moral rights.

16. 1-16 3-16 Social Justice: Rawlsian Justice as Fairness The American philosopher John Rawls has developed one of the most powerful and influential accounts of justice. Rawls offers a contemporary version of the social contract theory that understand basic ethical rules as part of an implicit contract necessary to insure social cooperation. Rawls’ theory has proven influential in political theory, economics, and the law. Rawls’s theory of justice consists of two major components: a method for determining the principles of justice that should govern society, and the specific principles that are derived from that method.

17. 1-17 3-17 Rawlsian Justice as Fairness: Application of his method Imagine: rational and self-interested individuals choose and agree on the fundamental principles for their society. To ensure that the principles are fair and impartial, these individuals do not know the specific details or characteristics of their own lives. They do not know their abilities or disabilities and talents or weaknesses; they have no idea about their position in the social structure of this new society. They are, in Rawls’s terms, behind a “veil of ignorance” and must choose principles to which they will agree when they come out from “behind the veil.” To ensure that each individual is treated as an end and not as a means, imagine finally that these individuals must unanimously agree on the principles. These initial conditions of impartiality, what Rawls calls the “original position,” guarantee that the principles chosen are fair – the primary value underlying for Rawls’ concept of justice.

18. 1-18 3-18 Rawlsian Justice: Lessons Learned for Economics and Business Institutions Rawls derives two fundamental principles of justice from this original position. The first principle states that each individual is to have an equal right to the most extensive system of liberties - equal rights are a fundamental element of social justice. The second principle that is derived from the veil of ignorance holds that benefits and burdens of a society should generally be distributed equally. An unequal distribution could be justified only if it would benefit the least advantaged members of society and only if those benefits derive from positions for which each person has an equal opportunity.

19. 1-19 3-19 Virtue Ethics: Making Decisions based on Integrity and Character Ethics also involves questions about the type of person one should become. Virtue Ethics is a 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. Virtue ethics recognizes that human beings act in and from character. By adulthood, these character traits typically are deeply ingrained and conditioned within us. Virtue ethics seeks to understand how our traits are formed and which traits bolster and which undermine a meaningful, worthwhile, and satisfying human life. Rather than simply describing people as good or bad, right or wrong, an ethics of virtue encourages a fuller description. Faced with a difficult dilemma, we might ask what would a person with integrity do? What would a virtuous person do?

20. 1-20 3-20 A Decision-Making Model for Business Ethics Revisited 1.Determine the facts. Gather all of the relevant facts. It is critical at this stage that we do not unintentionally bias our later decision by gathering only those facts in support of one particular outcome. 2.Identify the ethical issues involved. What is the ethical dimension? What is the ethical issue? Often we do not even notice the ethical dilemma. Avoid normative myopia. 3.Identify stakeholders. Who will be affected by this decision? What are their relationships, their priorities to me, and what is their power over my decision or results? Who has a stake in the outcome? Do not limit your inquiry only to those stakeholders to whom you believe you owe a duty; sometimes a duty arises as a result of the impact. For instance, you might not necessarily first consider your competitors as stakeholders; however, once you understand the impact of your decision on those competitors, an ethical duty may arise.

21. 1-21 3-21 A Decision-Making Model for Business Ethics Revisited 4.Consider the available alternatives. Exercise “moral imagination.” Are there creative ways to resolve conflicts? Explore not only the obvious choices, but also those that are less obvious and that require some creative thinking or moral imagination to create. Imagine how the situation appears from other points of view. 5.Consider how a decision affects stakeholders. Take the point of view of other people involved How is each stakeholder affected by my decision? Imagine a decision that would prove acceptable to all parties. Compare and weigh the alternatives: ethical theories and traditions can help here. a. Consequences b. Duties, rights, principles c. Implications for personal integrity and character

22. 1-22 3-22 A Decision-Making Model for Business Ethics Revisited Guidance. Can you discuss the case with relevant others; Can you gather additional opinions or perspectives? Are their any guidelines, codes or other external sources that might shed light on the dilemma? Assessment. Have you built in mechanisms for assessment of your decision and possible modifications, if necessary? Make sure that you learn from each decision and move forward with that increased knowledge as you are then faced with similar decisions in the future or to make changes to your current situation.

23. 1-23 3-23 Chapter Three Vocabulary Terms After examining this Chapter, you should have a clear understanding of the following Key Terms and you will find them defined in the Glossary: Autonomy Categorical Imperative Character Consequentialist Theories Deontological Ethics Duties Egoism Ethical Relativism Loyalty Morality Rights Social Contract Theory Social Ethics Utilitarianism Veil of Ignorance Virtue Ethics