4Cnsqntlsm, Utilitrnsm, Deon

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

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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. Be familiar about Consequentialism, Ethical
Egoism and Deontological Ethics

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Opening Decision Point: Should
Managers Value Supplier Loyalty?
• How would you describe the decision
faced by the purchasing manager? Is it
an ethical issue at all? Why or why
not?

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The Ethical Question:
How shouldwe live our
lives?

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Decision Point: Who is to say what is
right or wrong?
• An ethical relativist holds that ethical values
are relative to particular people, cultures, or
times.
• The relativist denies that there are can be any
rationally justified or objective ethical
judgments.
• When there are ethical disagreements
between people or cultures, the ethical
relativist concludes that there is no way to
resolve that dispute and to prove that one side
is right or more reasonable than the other.
• Do you believe that there is no way to decide
what is right or wrong?

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Decision Point: Application
• Imagine a teacher returns an assignment to you
with a grade of “F.”
“Who determines what is fair or unfair?”
• Your teacher claims that his view of what is fair
is as valid as any other. Because everyone is
entitled to their own personal opinion, he is
entitled to fail you since, in his personal opinion,
you do not deserve to succeed.

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Theological vs.
Philosophical Ethics
• Many people and cultures across the
world base their ethical views on certain
religious or theological foundations.
• 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.

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CONSEQUENTIALISM
• In moral philosophy, the term
"consequentialism" refers to an approach in
a moral decision-making wherein the prime
consideration is the effect or consequence
of an action or a decision.
• Sometimes, authors also refer to this as
teleological ethics (telos is a Greek word
which means end, intention, or purpose).
• An action is morally acceptable if it leads to
some desirable consequences.

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• CONSEQUENTIALISM
•Ethical Egoism
•Utilitarianism

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ETHICAL EGOISM
• It is founded on psychological egoism.
"Psychological egoism is the doctrine
that everyone is motivated to look after
his or her own perceived best interest."
• It describes human nature as basically
selfish, self-interested, and self-
centered.
• Ofcourse, it is obvious that we show
care and concern toward otherr people
"but this caring is based on how things
affect our own happiness."

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Utilitarianism: Making Decisions based on
Ethical Consequences
• Utilitarianism has its roots in 18th and 19th
Century social and political philosophy and
was part of the same social movement that
gave rise to modern democratic market
capitalism.
• Promulgated by John Stuart Mill & Jeremy
Bentham
• “… “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

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Utilitarianism
• 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.
• 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.

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Utilitarianism: Examples
• Utilitarianism provides strong support for
democratic institutions and policies and
opposes those policies that aim to benefit only
a small social, economic, or political minority
because of its emphasis on producing the
greatest good for the greatest number.
• Therefore, it could be said that the economy
and economic institutions are utilitarian in that
they exist to provide the highest standard of
living for the greatest number of people, not
simply to create wealth for a privileged few.

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Utilitarianism: Examples
• Consider also the case of child labor.
Compare the problematic consequences
of child labor to the consequences of
alternative decisions.
• Then, consider also the consequences to
the entire society.

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Utilitarianism: Examples
• Thus, one might argue on utilitarian grounds that
such labor practices are ethically permissible
because they produce better overall
consequences than the alternatives.

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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.

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Utilitarianism:
Lessons from Examples
• Utilitarian reasoning usually supplies some
support for each competing available alternative,
e.g., ban child labor as harmful to the overall
good or allow child labor as contributing to the
overall good.
• Deciding on the ethical legitimacy of alternative
decisions requires that we make judgments about
the likely consequences of our actions.
• How do we do this? Within the utilitarian
tradition, there is a strong inclination to rely on
the social sciences for help in making such
predictions.

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•DEONTOLOGICAL ETHICS

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Immanuel Kant's Deontological Ethics
• It is a dominant moral theory in
business ethics.
• Deon is a Greek word which means
"duty".
• Roughly speaking, Kant sees that
through the use of reasoning, we (as
human beings) can discover universal
ethical principles and these principles
pose as moral duties that we must obey.

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• "Deontological ethical systems
maintain that an action can be
morally right (a duty or obligation)
even if an alternative action in a
given situation would have better
overall consequences."

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A Decision-Making Model for
Business Ethics Revisited
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

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A Decision-Making Model for
Business Ethics Revisited
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.

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A Decision-Making Model for Business
Ethics Revisited
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
i. beneficial and harmful consequences
ii. Who gets the benefits? Who bears the costs?
b. Duties, rights, principles
i. What does the law say?
ii. Are there professional duties involved
iii. Which principles are most obligatory?
iv. How are people being treated?
v. What is a fair and impartial decision?
c. Implications for personal integrity and character
i. What type of person am I becoming through this decision?
ii. What are my own principles and purposes?
iii. Can I live with public disclosure of this decision?

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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.

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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.

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Profit Maximization vs.
Public Policy Approaches
• Profit-Maximization Perspective: Based on
the tradition of Adam Smith, claims that
free and competitive markets are the best
means for attaining utilitarian goals.
• Neo-classical free market economics
advises us that the most efficient means to
attain that goal is to structure our economy
according to the principles of free market
capitalism.

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Utilitarianism and Business:
Profit Maximization vs. Public Policy
Approaches
• Profit-Maximization:
– This requires that business managers, in turn,
should seek to maximize profits.
– By pursuing profits, business insures that scarce
resources are going to those who most value them
and thereby insure that resources will provide
optimal overall satisfaction.
– Thus, competitive markets are seen by these
economists as the most efficient means to the
utilitarian end of maximizing happiness.

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Profit Maximization vs. Public Policy
Approaches
• Public Policy Perspective: Turns to policy experts
who can predict the outcome of various policies and
carry out policies that will attain utilitarian ends.

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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?

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Decision Point:
Do the Ends Justify the Means?
• Consider the ethical and political controversy arose in recent
years the treatment of hundreds of prisoners captured during
the fighting in Afghanistan and Iraq.
• The government argued that these were dangerous
individuals who posed a significant threat to the United
States and that this threat justified the treatment they
received.
• Government attorneys even argued that because these
individuals were not members of the military of a recognized
country, they were not protected by international law and
prohibitions against torture.
• The government argued that they were justified in using
severe treatment that bordered on torture to extract
information from these prisoners if this information could
prevent future attacks on the United States. (continued)

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Decision Point:
Do the Ends Justify the Means?
• Critics argued that some actions, torture
among them, are so unethical that they
should never be used, even if the result was
lost opportunity to prevent attacks. Many
critics argued that all people, even terrorists,
deserve fundamental rights of a trial, legal
representation, and due process.
• Do the ends of preventing attacks on the
United States ever, under any circumstances,
justify the means of torture?
• Does utilitarianism work to give us the
answer in this case?

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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

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Deontology: Making Decisions based
on Ethical Principles (insert obj. 5)
• 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.

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Where do we find 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)
– Perhaps the most dramatic example of role-
based duties concerns the work of
professionals within business.
– Many of these roles, often described as
“gatekeeper functions,” insure the integrity
and proper functioning of the economic, legal,
or financial system.

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The Social Contract as Principle
• 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.

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Moral Rights and Duties (insert obj. 6)
• 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.

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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.

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What rights do we have?
• What makes us human is our capacity to
make free and rational choices.
• Humans do not act only out of instinct and
conditioning; they make free choices about
how they live their lives, about their own
ends.
• In this sense, humans are said to have
autonomy.
• To treat someone as a means or as an
object is to deny them this distinctive and
essential human characteristic; it would be

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What rights do we have?
• From this we can see how two related
rights have emerged as fundamental
within philosophical ethics.
• If autonomy, or “self-rule,” is a fundamental
characteristic of human nature, then the
freedom to make our own choices
deserves special protection as a basic
right.
• But since all humans possess this
fundamental characteristic, equal
treatment and equal consideration is

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Universalism - Rights to be
recognized??
(“Notstandsfest” (German) or non-
negotiable)
• Right to privacy
• Right to freedom of
conscience
• Right to free speech
• Right of due process
• Right to freedom of
physical movement
• Right to ownership
of property
• Right to freedom
from torture
• Right to a fair trial
• Right to non-
discriminatory
treatment
• Right to physical
security
• Right to freedom of
association
• Right to minimal
education
• Right to political
participation;
• Right to subsistence.
Do you agree??? Any others?

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Distinguishing between Moral Rights
and Legal Rights (insert obj. 7)
• 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.

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Social Justice: Rawlsian Justice as
Fairness (insert obj. 8)
• 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’s theory of justice consists of two
major components: a method for
determining the principles of justice

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Rawlsian Justice as Fairness:
Application of The Method
• Imagine rational and self-interested
individuals having to choose and agree on
the fundamental principles for their society.
• The image of members of a constitutional
convention is a helpful model for this idea.
• To ensure that the principles are fair and
impartial, imagine further that 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

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Rawlsian Justice as Fairness: Veil of
Ignorance
• They are, in Rawls’s terms, behind a “veil
of ignorance” and must choose principles
by which they will abide 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

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Rawls would contend that:
A fair decision is an impartial decision.
Do you agree? (Always?)

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Rawlsian Justice as Fairness:
The Original Position
• The idea of this “original position,” of having to make
decisions behind a veil of ignorance, is at the heart of Rawls’
theory that fairness is the central element of a just decision
or just organization.
• He contends that our decisions ought to be made in such a
way, and our social institutions ought to be organized in such
a way, that they would prove acceptable to us no matter
whose point of view we take.
• He would argue that the only way we can reach this
conclusion is to seek out this original perspective from
behind a veil of ignorance, to strive towards a perspective of
ignorance with regard to our position and instead to strive
toward impartiality.

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Reality Check: Sharing the pie
• Imagine your favorite dessert. You are cutting a pie before the
arrival of the guests, you don’t know which slice will be yours once
your guests are allowed to choose theirs first. (This is comparable
to having to decide behind the veil of ignorance.)
• So, you are likely to cut each slice the same size so that you will at
least end up with a slice as large as everyone else and, at least, no
smaller. The same will be true, Rawls would argue, with the
distribution of goods and services in a social group.
• If you are not certain in which group you might fall once the
hypothetical veil is lifted, you are most likely to treat each group
with the greatest care and equality in case that is the group in
which you later find yourself.
• See diagrams, next slide.

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Pie distribution without Veil of Ignorance
40%
20%
20%
20%
You
Your Friend
Your Friend
Your Friend
Pie distribution under Veil of Ignorance
25%
25%
25%
25%
You
Your Friend
Your Friend
Your Friend

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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

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Virtue Ethics: Making Decisions
based on Integrity and Character(insert
obj. 9)
• 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.

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Virtue Ethics
• An ethics of virtue shifts the focus from
questions about what a person should do,
to a focus on who that person is.
• Implicit in this distinction is the recognition
that our identity as a person is constituted
in part by our wants, beliefs, values and
attitudes.
• Character is identical to a person’s most
fundamental and enduring dispositions,
attitudes, values, and beliefs.

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Virtue Ethics
• 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.

54. Virtue Ethics
In other words, you might consider
someone you believe to be virtuous
and ask yourself what that person
would do in this situation.
What would a virtuous person do?

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Virtue Ethics: Prescriptions
• Virtue ethics calls on us to reflect on
deeper questions.
• Given a more detailed and textured
description of moral behavior, which set
of virtues are more likely to embody a full,
satisfying, meaningful, enriched, and
worthy human life.
• Business provides many opportunities for
behavior that is generous or greedy,
ruthless or compassionate, fair or
manipulative. Given these opportunities,
each one of us must ask which character
What type of person are we to be?

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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.

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A Decision-Making Model for
Business Ethics Revisited
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
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

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A Decision-Making Model for
Business Ethics Revisited
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
i. beneficial and harmful consequences
ii. Who gets the benefits? Who bears the costs?
b. Duties, rights, principles
i. What does the law say?
ii. Are there professional duties involved
iii. Which principles are most obligatory?
iv. How are people being treated?
v. What is a fair and impartial decision?
c. Implications for personal integrity and character
i. What type of person am I becoming through this decision?
ii. What are my own principles and purposes?
iii. Can I live with public disclosure of this decision?

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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.

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Discussion of Opening Decision Point:
Should Managers Value Supplier Loyalty?
• One crucial lesson from this decision point is
the fact that very many business decisions
implicitly involve a wide range of ethical
issues.
• The purchasing manager may well believe
that the decision to outsource suppliers is
simply a financial decision. The manager is
behaving as the business, financial, and
economic system expects.
• But, it should be clear that financial and
ethical considerations are not mutually

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Discussion of Opening Decision Point:
Should Managers Value Supplier Loyalty?
• If pressed for an ethical rationale, the
manager might also cite an economic
justification in terms of overall job growth,
economic efficiency, and lower prices to
consumers.
• The manager would also likely refer to the
duty to maximize return for stockholders. But
these, too, are clearly ethical factors.
• At their base, many of these economic
justifications are utilitarian.

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Discussion of Opening Decision Point:
Should Managers Value Supplier Loyalty?
• Implicit within the financial and economic framework taught in
business schools is a very clear ethical perspective. Those
who deny a place for ethics in a business school curriculum
often lose sight of this fact.
• The economic theory of market capitalism, and the theories of
business management, finance, marketing, and accounting
implied by that economic theory, already presupposes a range
of ethical values.
• The utilitarian goal of economic growth and economic
efficiency, along with the rights and duties associated with
private and corporate property, are inevitably involved in
business decisions.
• Ethical decision-making requires only that such values be

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Discussion of Opening Decision Point:
Should Managers Value Supplier Loyalty?
• Loyalty surely has a place in personal and social
relationships. But does it have a role in business
relationships?
• Some would argue that loyalty is seldom a two-way street in
business. A company may ask for or expect loyalty from
employees, by asking them to sacrifice free time on weekend
for work for example. But companies may not be as willing to
sacrifice for employees in return.
• Citizens are expected to be loyal to their own country, but are
corporations citizens? If the law treats a corporation as a
legal person, does this imply that the corporation has a
specific duty of loyalty to the country?
• Should a company sacrifice profits by declining to outsource
jobs and production?

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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