Week 1 - Business ethics & Corporate purpose Flashcards
3 systems of ethics
1. Consequentialism (instrumental / outcomes) - intro
- based on UTILITARIANISM / COST BENEFIT ANALYSIS
» outcomes matter; bring about the outcome which yields “the greatest good for the greatest number” - utilitarianism assumes IMPARTIALITY (we have a moral duty to ALL ppl affected by a decision)
-> everyone should be treated equally
» but we may not have all info, may not know everyone who will be affected - actions may not yield the outcomes expected
eg. trying to do good and offer food before asking about allergic reactions, but end up with -ve outcome
3 systems of ethics
1. Consequentialism (instrumental) - 2 main problems
When might a consequentialist approach not be viable as an option?
Distribution - don’t know TIME HORIZON of INVESTORS; short-term or long-term?
1. largely ignores synchronic distributional issues
» sometimes difficult to trade-off BETWEEN GROUPS
2. problem with diachronic distributional issues
- is it better to have more utility now or later?
- discount future utility? if so, at what rate?
Measurement - hard to compare between diff. cases
^difficulty of measuring potential costs & benefits BEFORE HAPPENING; don’t know EXPECTED OUTCOMES (probabilities & how much harm)
1. difficulty in accessing the information necessary (and cost of doing so)
2. utilitarianism requires causal knowledge; causal models are often flawed
Not viable when CANNOT MEASURE & COMPARE, eg. in the drugs example in slides
Was Ford ethical in the Ford Pinto case?
- Ford relied on cost-benefit reasoning
No, from a Consequentialist POV
- didn’t consider EVERYONE and all consequences
- using govt. estimates was not reasonable b/c thinking of shareholders (and litigation) rather than thinking of ppl who were at risk of harm
3 systems of ethics
2. Deontology (rules-based) - intro
*also the Precautionary approach ~ if it smells bad, it IS bad
- focus on following RULES that are in place irrespective of any cost-benefit analysis
- following the SOCIAL NORM (=how ppl think they ought to behave) - may yield the SAME RESULTS as a consequentialist approach but the ethical reasons are diff.
- complying with legal requirements may be viewed as fulfilling the moral requirements of business (Milton Friedman)
» however, LAWS change all the time & ethicality is NOT always the same as legality!
3 systems of ethics
2. Deontology (rules-based) - 3 problems + 2 limitations in application
- Minimal COMPLIANCE
- Manipulation, incl. subjective descriptions
- Most ppl still have the intuition that OUTCOMES matter
eg. NHS staffing
eg. of unethical actions (breaking rules)
- untruthful; misleading customers
- not treating employees well; safety
Limitations in application
1. How to deal with minimal compliance?
2. Which rules to follow? Using correct rules?
3 systems of ethics
3. Virtue ethics (principles-based)
- behaving as a GOOD PERSON
- honesty, integrity, courage - useful when consequentialism is not feasible (don’t know all the costs) & all rules are not known universally
moral Absolutism vs Relativism – a challenge to ethics
- Absolutism - there are UNIVERSAL moral truths (over time and for all cultures)
- Relativism - morality can only be understood CONTEXTUALLY & should be coherent within a particular CONTEXT
eg. good is relative to the local culture
eg. bribing for a new contract may be the norm in a company culture where everyone bribes, but there is a risk of being caught breaching professional codes of conduct
Milton Friedman’s view - Whose interests should the company serve?
- Principal-agent relationship
- Friedman did not specify that executives cannot engage with other stakeholders
- He only stated that the executives should NOT do that AT THE EXPENSE of the principals/shareholders who hired them
What is the shifting concept of Corporate purpose?
Investors increasingly demand a form of corporate purpose which benefits stakeholders while also generating wealth for shareholders
Who do Directors prioritise if a conflict arises between benefit to Shareholders and benefit to other Stakeholder groups?
Better Business Act criticism of S172 acknowledges that “SHAREHOLDER PRIMACY” is generally the guiding principle when the board makes decisions
Ethical company vs Purposeful company
Ethical company
- maximise good, act according to ethical rules OR just be virtuous
Purposeful company
- main objective is to BENEFIT SOCIETY & wider stakeholder groups / positive social impact
- but profit may result
4 examples of “rules” for Deontological reasoning
[Specimen, Company X scooters]
- Don’t endanger customers and the public
- Comply with safety legislation
- Comply with ADVERTISING STANDARDS legislation
- Don’t lie to customers and regulators (VW Dieselgate)
Limitation in application:
- Which rules?
- How to deal with minimal compliance
How to write “concluding summary” for Consequentialist ethics & Deontological ethics?
*ESG - environmental, social and governance issues that generate negative externalities that will affect the FINANCIAL RISK of stakeholders (primarily investors)
[Scooteroo Q]
- The overall magnitude of costs and benefits will determine the ethics of this issue.
- Compliance with the appropriate rules will determine the ethics of this issue.
