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Utilitarian Ethics as Discussed in “ The Ethics of Corporate Downsizing” by John Orlando.

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Presentation on theme: "Utilitarian Ethics as Discussed in “ The Ethics of Corporate Downsizing” by John Orlando."— Presentation transcript:

1 Utilitarian Ethics as Discussed in “ The Ethics of Corporate Downsizing” by John Orlando

2 Utilitarian ethical theory Utilitarian ethics = “the ethical action is the action that maximizes the welfare of the maximum number of people.” –Can be applied to individual actions – “Should I cheat on my Business Law exam tomorrow night?” –Can be applied to a general rule – “Should Clarkson prohibit cheating?” –Or to an ethical principle – “Is cheating unethical?” The focus is on the overall consequences for the total group of people. –The person wanting to take the action does not count more than anyone else.

3 The decision procedure in Utilitarian ethics Identify all possible options for the action (rule, or ethical principle). Identify the groups and individuals on which these possible options will have an impact. Evaluate the benefits and negative consequences (costs) that each possible option will have on ALL of these groups and individuals. Choose the possible option with the greatest net benefit.

4 Utilitarian analysis of a specific “white lie” Should I tell my wife what I think about her new hairdo? –Options – 1) Yes, tell the truth that it’s awful. 2) Lie through my teeth and say it’s the greatest thing ever. 3) Use a “white lie” – “It’s interesting,” or “Wow, a new look.” –Parties at interest – My wife and me. –Consequences – Option 1) Hurt feelings for her and big trouble for me. Entirely negative. Option 2) Happy feelings for her but possible trouble for me if I can’t keep my mouth shut while talking with friends. Some positives, but some possible negatives. Option 3) Happy feelings for her and safety for me. Entirely positive. –Choice – Option 3.

5 Utilitarian analysis of a general rule about “white lies” Should I avoid telling “white lies?” –Options – 1) Yes, never tell a white lie. 2) No, tell them when they help ease a difficult situation, for example, sparing someone’s feelings, or relieving someone’s anxiety. 3) No, tell them whenever it’s easiest for me. –Parties at interest – Me and the various individuals and groups with which I interact. –Consequences – Option 1) I develop a reputation for honesty and integrity, but other people might sometimes experience hurt feelings, heightened anxiety, etc. Option 2) If my white lying becomes known, some relationships might be undermined because of diminished trust. Option 3) …. –Choice – Probably Option 1).

6 Now back to Orlando’s article about corporate downsizing….

7 Corporate downsizing is an important issue in business ethics. It has major impact on the laid-off workers. –15% lose their homes. –Suicide rate is 30 Xs higher than national average. –Psychological symptoms increase. Entire communities are negatively affected. It tends to widen the gap between rich and poor.

8 The argument for downsizing based on Utilitarian ethical theory. The argument is that downsizing maximizes welfare because the benefit to the majority of the population is greater than the costs to a minority. Orlando shows that this is unknown; –Downsizing does not automatically improve a corporation’s economic health. –There are many negative consequences that have never been quantified, so nobody knows how they balance against economic benefit. Consequently, that most accurate statement is that the Utilitarian case for downsizing has not been proven.

9 Arguments against the Utilitarian analysis of downsizing. The argument that great harm cannot be justified by lesser benefit. The argument based on legitimate expectations. The argument from fairness.

10 The argument that great harm cannot be justified by lesser benefit. Utilitarianism implies that great harm to a few is justified if the accumulated small benefits to many are greater. Orlando says this goes against our moral intuitions. –For example, most people would say it would be immoral to randomly arrest and execute suspicious people, even if they are not guilty, because this practice would scare potential criminals and thus slightly increase each of our safety. More formally, Kantian theory places a limit on Utilitarianism. –Using someone as means is never right, no matter how large the benefit to others.

11 The argument based on legitimate expectations. Orlando points out that employees frequently base important life choices on expectations about their jobs, and these expectations are generally legitimate. Corporate investors rarely base life choices as important on their expectations, and these expectations are relatively modest compared to those of the employees. Consequently, employees expectations have to be taken into account in calculating costs.

12 The argument from fairness. Orlando’s fundamental point is that downsizing often unfairly penalizes employees for management’s incompetence. He mentions Rawls’ theory about fairness. We will examine this theory later, but in general Utilitarianism has a difficult time taking fairness into account. –But fairness is one of our earliest and most deep- seated moral intuitions.

13 Orlando also discusses other arguments for (and against) downsizing.

14 The argument based on the property rights of the shareholders in the company. The argument is that as the legal owners, the shareholders of a corporation can do whatever they want with it in the pursuit of profit. Orlando appeals to our moral intuitions to show that legal ownership does not establish an absolute moral right to do whatever owners want with their property for profit (the apartment example). Consequently, shareholders’ property rights have to be balanced against the moral rights of other groups.

15 The argument based on the fiduciary duty of corporate managers. The argument is that the managers of a corporation have a fiduciary duty to put the interests of the shareholders above the interests of all other groups and individuals. Orlando shows that the legal purpose of fiduciary duty is to protect the shareholders from the managers. –The managers are obliged to put the best interests of the shareholders above their own interests. Consequently, corporate managers can take other groups’ interests into account without violating their fiduciary duty to the shareholders.

16 The argument based on risk. The argument is that shareholders have risked money in their investment in the corporation and therefore are owed special concern. Orlando lists various kinds of real risks that are taken on by employees of corporations. Consequently, while risk needs to be taken into account by corporate managers, this should involve an evaluation and balancing of the competing relative risks.

17 The argument based on contract theory. The argument is that there is an implied contract among corporate investors, managers, and employees that includes the shared understanding that the investors’ profits always take precedence over employees’ well-being. Orlando says “baloney.” –No such understanding exists – certainly for employees. –Such an implied contract would require a balance of power that does not exist. Consequently, this argument fails.

18 What is Orlando’s final conclusion about downsizing? There is no universal, automatic conclusion about the ethics of downsizing. Each case stands on its own, and the ethics should be evaluated as such. –Some cases will be morally permissible. –Some will not be. –And even some that are will need to be done in a particular way in order to be ethical.


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