Analyzing Business Problems Using Ethics Theories

Analysis of a Business Problem using Various
Normative Theories

Contents

Analysis of a Business Problem using Various Normative Theories .............................................................. i

Contents...................................................................................................................................................... ii

Executive Summery...................................................................................................................................... i

1. Introduction............................................................................................................................................. 1

1.1. Background........................................................................................................................................... 1

1.2. Purpose................................................................................................................................................. 1

1.3. Scope of the Report.............................................................................................................................. 1

2. Discussion and Analysis of Business Problem.......................................................................................... 1

2. 1.Business Problem.................................................................................................................................. 1

2.2. Identify the Ethical Importance of the Business Problem ..................................................................... 2

2.3. Analysis of the Business Problem from Different Perspectives ............................................................. 3

3. Conclusion and Recommendation........................................................................................................... 8

.................................................................................................................................................................... 9

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Executive Summery

This report analyzes the ethical importance of a business problem and describes the best

course of action on ethical and sustainable perspective.

The analysis was made according to the deontological perspective, utilitarian perspective

and egoism. Even though there are many normative theories, analysis was limited to few

theories.

It is find that the considered activity is unethical activity with related to the deontological

perspective and utilitarian perspective while it seems to be ethical in the aspect of egoism.

i

1. Introduction

1.1. Background

Sales Manger of the ABC Company Ltd made a business decision which resulted many

ethical issues which will be discussed in the report.

1.2. Purpose

This report is prepared to evaluate the ethical importance of decision made by the Sales

Manger of ABC Company Ltd. using various normative theories.

1.3. Scope of the Report

The report is limited to discuss business problem from the perspective of few selected

normative theories such as deontological, utilitarianism and egoism.

2. Discussion and Analysis of Business Problem

2. 1.Business Problem

Kamal is working as a sales manager in a foreign owned Sri Lankan company which

mainly deals with agricultural machineries and equipments. He is being working in the company

since 2005 and has proven that he is a highly committed employee and always able to achieve

the targets set by the management. Siva Kumar is a farmer from north area of the country and

just started his farming activities after long time with the finishing of three decade fighting

between government forces and terrorist group. He has purchased a company’s two wheel tractor

for his farming activities from a dealer appointed by Kamal. Later engine of the tractor was

broken due to improper handling as he was no properly trained to operate the tractor. Siva

Kumar reported the incident to Kamal for warranty claim. Kamal inspect the engine with a

company’s technician and find that it cannot be repaired but has to be replaced. He has refused to

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give warranty since the damage was happened not due to a manufacturing fault but farmer’s

improper handling and ask him to purchase new engine. But Kamal has changed his mind after

he realized that the farmer is very poor and a victim of civil war, also a bread winner for 6

members’ family. Further, find that he has borrowed money from money lending person at a

higher interest rate to purchase the tractor and he have no extra money to buy a new engine.

Kamal recommended to issues a new engine on free of charge to farmer without disclosing real

facts to the company. Also he asked technician not to mention anything about this incident to the

company on the humanitarian ground. New engine was issued to Siva Kumar and later company

has sent a warranty claim form to Chinese supplier on the ground of manufacturing defect.

Supplier agreed to reimburse or to replace engine but ask company to keep the broken engine for

their inspection which can be done at their annual visit to the company few weeks time.

2.2. Identify the Ethical Importance of the Business Problem

We can identify many ethical issues in the above scenario. It is very clear that Kamal has

accepted the fact that Siva Kumar has right to get his machine to be repaired to continue his

agricultural activities since he have no any other job to do to feed his family. Kamal made an

ethical choice by changing his mind to give an engine on free of charge. He believed that his

decision was morally right at that moment and asked technician not to mention real fact to their

company. As a result, technician had to put at risk his own work ethic of honesty to the

company. Even though Kamal believed he made a morally right decision he has put at risk of

company’s long relationship with its foreign supplier by sending them a warranty claim form on

the ground of manufacturing defect. If supplier realized that company mislead them, they will

not happy and can take back their authorized dealership which many local companies are

currently asking for. Supplier’s products are very important to the company since the

contribution from those products to the company’s total revenue is very significant.

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2.3. Analysis of the Business Problem from Different Perspectives

The different normative theories discussed and consider a same ethical dilemma in a

different angle and thus work in a complementary rather than mutually exclusive fashion in

making a decision with related to a certain ethical dilemma. We can view an ethical problem

through prism of different ethical theories that provide a variety of consideration pertinent to the

moral assessment of the matter considered.

From a deontological perspective, the Sales Manager felt a sense of duty as an employee

of the company. However, his sense of duty was more centered on selling of the company’s

agriculture machinery to customers and enhances the profitability of the company. The most

influential theory from the perspective of ethics of duty, and this theoretical frame work is

known as “Categorical Imperative”. Kant places the basis of ethics on the obligation, or the duty,

to do what is "right". What is "right" comes from an idealized notion of what a "better world"

ought to be. The duty to make this a better world is something we take upon ourselves.

According to him morality and decisions about right and wrong were not depends a particular

situation and let alone on the consequences of one’s actions. And he has explained three maxims

as needed to make an ethical decision such as consistency, human dignity and universality

applicable in categorical imperative. (Crane and Matten, 2010). Maxim 1 suggests to check

whether the action could be performed by everyone and reflects the aspect of consistency. But

even Kamal’s concern may not consistent with the principle of beneficence or the customers. He

or another sales person may not act in the same manner for every customer of the company who

faces this kind of problem. If all of them are followed this action, that may be more risky for the

existence of the company as well as the industry. He probably would not like this to become

universal law and it suggest that the activity deemed to be immoral. The Maxim 2, human

dignity suggests to act so that you treat humanity, whether in your own person or in that of

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another, always as an end and never as a means only (Crane and Matten, 2010). This humanity

reflects through his response to the kind request of customer, and he compel to replace a new

engine for the damaged one thought the damage caused by the improper handling by the user

rather than a manufacturing defect. The maxim 3, the universality, suggests that the person might

come to a conclusion that a certain principle could be followed consistently by the every human

being (Crane and Matten, 2010). Accordingly, he cannot come to a conclusion that an activity

could be followed consistently by the every human being. According to these facts it can be

stated that his activity is not an ethical activity in the aspects of ethics of duty.

There are some problems related to theory of ethics of duty. It may undervalue the

outcomes of one’s action and Kant has only suggests to consider the consequences when you

agree that everyone should act in the same manner in similar situation and it does not provides a

real mean of assessing the consequences of an act. Further, this theory is complex in applying as

its way of evaluating a decision requires a certain amount of abstraction. In addition to that, this

theory is quite optimistic as it assumes that the man is a rational actor according to the self-

imposed duties and it is more than the reality of business actors. But this reality has nicely

explained through the egoism.

Utilitarian ethics require that a decision maker assess the choice of all who are involved

in its outcome, then commit to an action is morally right if its results in the greatest amount of

good for the greater number of people attached by the action (Crane and Matten, 2010). To find

out what we ought to do in any situation, we have to first identify various causes of actions that

we could perform and then we determine all of the foreseeable benefits and harm that would

results from each cause of action for everyone affected by the action.

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When we apply above theory to our problem we have to identify the stakeholders to the

problem and how they were benefited or affected by the action taken by the Kamal. We can

summerize those as follows.

Stakeholder Pleasure Pain

Kamal − Mental happiness on help − put at risk his work ethics of honesty
to farmer

Technician − − put at risk his work ethics of honesty

Company − − Possibility of withdrawal of dealership
by supplier

− Possible decrease in revenue and
profit

− Other customer also may Claim
warranty on same manner

Farmer − can continue his farming −
activities without problem

Supplier − − Reimburse engine at free of charge
without reason

We can see that pains on stake holders are greater than pleasures to be experienced and the

company is going to have a big impact by the action. If the supplier cancelled the dealership,

company will lose substantial amount of its revenue and profit which may result company opt to

send all casual workers home and will consider going for voluntary retirement plan for its

permanent employees. So the number of people going to be affected is considerably high.

Therefore Kamal’s action is ethically wrong.

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But Kamal and technician could have explained the real situation to the company and could

have requested the management to replace an engine free of charge. In this case company also may

have a chance to exercise its corporate social responsibility by helping to the poor farmer. We can

summarized pleasure and pain of this action as follows.

Stakeholder Pleasure Pain

Kamal − Mental happiness on helping the farmer -

− Appreciation by the management about his attitudes

Technician − Mental happiness on helping to the farmer -

Company − No risk of losing its dealership -

− Company have a chance to show its Commitment towards CSR

Farmer − can continue his farming activities without problem -

Supplier − Continue the long relationship with the company -

We can see that if Kamal and technician was able to follow the second option all the

stakeholders are happy and no body get pain. Therefore according to utilitarianism perspective,

Kamal’s action is unethical.

According to the theory of egoism, an action is morally right if the decision-maker freely

decides in order to pursue either their (short term) desires or their (long term) interest. Further,

Adam Smith (1793 as cited in Crane and Matten, 2010) has emphasized that in the economic

system, pursuit of individual interest is ethically acceptable as invisible hand of market produced

morally desirable outcome for society as a whole. Thus, people are likely to have moral

outcomes as the end-product of an economic system based on the free completion and good

information. Through this concept the seller or the producer compel to provide a good, quality

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product to the customer or provide a quality and better service to the customer at a reasonable

price in order to increase the customer base and retain those customers with them for a long

future. Thus the act of Kamal is in line with the egoism concept and it can be identified as an

ethical activity by providing better after sales services to customers in order to make a loyal

customer base. Further, we can apply the enlightened self-interest concept in this matter.

Companies may involve in social responsibility in order to promote its own self-interest.

Instances where the companies rewarded customers with extra and /or more satisfaction can be

identified as socially responsible behaviors of organizations whilst perceived irresponsibility

may results in boycotts or other undesirable consumer actions. Thus the activity of Kamal

rewarded the customer with extra and /or more satisfaction, and it can be identified as an ethical

behavior as it may promotes the company’s self-interest by enhancing the corporate reputation

and customer loyalty.

There are some limitations of egoist theory. Egoism explains that no individual egoist

peruses his or her own interest at other egoist expense. Similarly this has been explained through

the Adam Smith’s Theory where the market is functioning perfectly. But there are some

situations where market perfection is not a reality and some individual’s acts leads to

unfavorable results. The current anti globalization movement is largely influenced by the fact

that on a global level markets are not functioning perfectly and people thus witness a deliberately

unequal distribution of wealth across globe (Crane and Matten, 2010). Further, the victims of

today’s resources depletion or global climate change are future generations, which are not yet

present to take part in any kind of market.

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3. Conclusion and Recommendation

This report has analyzed the ethical importance of the business problem which arose due to a

decision of Kamal of ABC Company Ltd. using different normative theories. According to the

deontological perspective and utilitarian perspective the Kamal’s decision is immoral and from the

egoism perspective it is ethical. According to the complementation of these perspectives it can be

concluded that the Kamal’s decision cannot be accepted from an ethical and sustainable

perspective. Thus, Kamal should not handle this type of problem with his own judgment but with

the approval of the management.

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Analyzing Business Problems Using Ethics Theories

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