2074 Business Ethics
"Lusory attitude":
the psychological attitude required of a player entering into the play of a game; to adopt a lusory attitude is to accept the arbitrary rules of the particular game you are playing
"Moral muteness":
the stripping or avoidance of moral language in business even though moral principles guide decisions
"shareholder primacy":
the view that a business manager's primary responsibility is to the corporation's shareholders
Two types of ethical theories:
utilitarianism, deontology
Is the (revised) Argument from Disagreement a sound argument?
Is premise 2 true? No. People can disagree about lots of things (what temperature it is, who will win the Superbowl, whether it is Wednesday or Thursday,...)
What does John Ladd say about "Is business just a game we play"
John Ladd (Brown): businesses can never do the wrong thing, since there is no independent moral standard by which to judge them "private morality is a personal goal": when managers pursue personal goals in their official capacity, they are doing wrong
Look at the Nevsun Lawsuit
Lecture 3 Slide 3
Levels of Ethics: Metaethics: the study of what ethical language actually means (e.g. "right"/"wrong"/"good"/"bad") Applied ethics: the application of normative principles to actual dilemmas, situations, activities
Levels of Ethics: Descriptive: what people happen to believe is right and wrong Normative: what we should believe is right and wrong, development of moral theories & principles
What is the true purpose of a corporation?
Milton Friedman "there is one and only one social responsibility of business-to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud." Basic idea: corporations exist to generate profit
Does ethics apply to just religion?
Most religions advocate high moral standards But if ethics was confined to religion, then ethics would apply only to religious people. Also, since there are many different religions, it would potentially be impossible to reach agreement on some issues.
Work Life Balance
Paul Krassner: happiness depends on having as little separation as possible "between your work and your play" (the Realist)
Primary stakeholders VS Secondary stakeholders
Primary stakeholders (narrow): "any group [or individual] who [is] vital to the survival and success of the corporation" Secondary stakeholders (broad): "any group or individual who can affect or be affected by the corporation"
Ticking Bomb Scenario
Principle 1: it is wrong to torture a person Principle 2: it is wrong to let thousands of innocents die
A man who really fights for justice must lead a private, not a public, life if he is to survive for even a short time." —Apology, 31d-32a
Random Fact: Machiavel was denounced as the "Evil Machiavel," "a teacher of evil" (Leo Strauss)
Three Views of the corporation: 3) the legal compliance view of corporations (i.e. the Friedmanite view)
corporations (i.e. the Friedmanite view) a corporations only true obligations are its legal obligations
The "problem of dirty hands':
doing the morally superior thing sometimes involves doing something that is morally wrong
Ethics comes from Greek term _____
ethos (habit)
A nonconsequentialist theory:
evaluates actions or behaviours according to something other than their consequences
A consequentilist theory:
evaluates actions or behaviours according to their consequences - Begins with a basic psychological principle: humans act in accordance with two motives: the pursuit of pleasure and the avoidance of pain
First formulation:
"Act only according to the maxim by which you can at the same time will that it should become a universal law."
"stakeholder":
any person, group or organization who has an interest or concern in an organization, i.e. the ability to affect or be affected by the organization's actions
"stockholders" (a.k.a. "shareholders")
any person, or group of persons, who bears ownership shares in the company
Second formulation:
"Act so you treat humanity, whether in your own person or in that of another, always as an end and never as a means only."
Edward Freemans Stakeholders Theory "exist for purposes other than profit"
"Every business creates, and sometimes destroys, value for customers, suppliers, employees, communities and financiers. The idea that business is about maximizing profits for shareholders is outdated and doesn't work very well, as the recent global financial crisis has taught us. The 21st Century is one of 'Managing for Stakeholders.' The task of executives is to create as much value as possible for stakeholders without resorting to tradeoffs. Great companies endure because they manage to get stakeholder interests aligned in the same direction."
Ethics:
"an area of study that deals with ideas about what is good and bad behaviour; a branch of philosophy dealing with what is morally right or wrong"
credit sense of responsibility:
"owning up to having been the (morally) relevant cause of something's happening or not happening, taking the credit (blame) for it" ("backward-looking")
Business:
"the activity of making, buying, or selling goods or providing services in exchange for money"
managerial responsibility:
"undertaking to size up and organize possibilities comprehensively, deciding which should be realized and how" ("forward-looking")
'moral remainder':
'moral remainder': the left-over "stuff" after a moral problem has been solved (e.g. guilt, resentment, regret) - being left with this moral remainder is what it is to have (ethically) 'dirty hands'
Corporate Greed Examples:
- Bernie Madoff's long-running Ponzi scheme stole >$60 billion from investors - Dennis Kozlowski (then CEO) stole >$600 million from Tyco
Criticisms of Shareholder Theory On utilitarian grounds:
- On utilitarian grounds: shareholder theorists claim that the best way to maximize utility is for managers to aim at maximizing profits - but because of market failures, this will not clearly be the case
Three Views of the corporation: 2) the moral actor view :
- although corporations have legal rights and responsibilities, they do not have moral rights and responsibilities, e.g. a right to life as a person does - corporations have a special moral status because they are limited and organized for certain purposes
Three Views of the corporation: 1) the moral person view:
- like individuals, corporations have moral responsibilities, since they act and affect others e.g. Ford produces cars, builds factories, hires and fires people, pays them, pays taxes, recalls defective models, etc. - these actions follow a rational decision-making procedure - because the results of this procedure--actions--affect people, the actions must be evaluated from a moral point of view
Criticisms of Shareholder Theory On utilitarian grounds:
- using employees, suppliers, etc. to make profits without respecting their autonomy, etc. is a violation of Kantian ethics - deontology actually supports stakeholder theory since it requires managers to think of all parties as autonomous, rational ends-in-themselves, worthy of respect and equal consideration
1)Ethics is good for business 2)Ethics is sometimes good for business 3)Ethics is never good for business
1) The Hobbesian View 2) Lateral Thinking 3) The Kantian View
Example of a sound argument.
1. All men are mortal 2. Socrates is a man. 3. Therefore, Socrates is mortal
The Argument From Disagreement:
1. Different people have different beliefs about morality. 2. Therefore, there are no objective facts about morality.
The (revised) Argument from Disagreement
1. Different people have different beliefs about morality. 2. Whenever people disagree about something, there are no objective facts about the matter. 3. Therefore, there are no objective facts about morality.
Responses to "Dirty Hands" private morality' vs. 'public morality'
1. There is no 'dirty hands' problem because there is always, in principle, one right answer deontology: moral principles will never conflict utilitarianism: the right action is always the utility-maximizing one
Carr's critics:
1. unlike a game, business is conducted by real people (who can cause real harm) 2. unlike a game, "[b]usiness is not a closed society, free to operate by special rules as long as all the players understand them" 3. our work lives are not distinct from our true identity in a way our game persona may be:
Who is George Merck?
1942: penicillin still a new drug; made by Merck for the first time March 14, 1942: Anne Miller, 33 years old, lies dying in a hospital streptococcal septicemia Becomes the first American to be treated with penicillin and makes a full recovery Merck shared the secrets of how to make penicillin with its competitors so they could do so also, saving thousands of lives in WWII Merck: we try never to forget that medicine is for the people, not for the profits Revenue: $42 billion (2015)
Responses to "Dirty Hands" private morality' vs. 'public morality'
2. There is no 'dirty hands' problem because one can always, and must, choose the lesser of two evils - in doing so, one fulfills one's ethical obligations - implication: accepting that competing successfully in international markets sometimes requires sacrificing moral aims
Responses to "Dirty Hands" private morality' vs. 'public morality'
3. These 'dirty hands' dilemmas should be avoided in the first place - their existence points not to unethical business people but to corrupt business environments - ethical companies should identify these environments and remove themselves as much as is possible
"The Trolley Problem" VS. "The Fat Man"
90% of people: pull the lever in "The Trolley Problem"; only 5%: pull the lever in "The Fat Man" What explains the difference? Philippa Foot: in 'The Fat Man," one intends harm (i.e. it is necessary to kill the fat man to save the others) But in "The Trolley Problem," one does not intend harm; it is merely an unintended side-effect Intuition: it is worse to intentionally harm someone (as a means to an end) than it is to merely foresee that harm as a side-effect of one's actions
Albert Carr - Business is a Game
Albert Carr distinguishes between the private and public spheres Business is a form of "gamesmanship"—just like a game of poker, business is about winning and strategies of bluffing, dishonesty, and deception are thus acceptable--in which the aim of the game is winning The end of business--making a profit--justifies the means (any means) to that end Business is a "zero sum game" at which "there can only be one winner"
Criticisms of Stakeholder Theory
Criticism 1: The substance of the theory is mistaken Criticism 2: The theory is too vague
Different Views: Milton Friedman: do a calculation If I provide nutritious meals, x number of workers won't faint, so I'll make y dollars more Instrumental reasoning: nutritious meals are valuable only insofar as they increase profits
Different Views: Simon Marks: consider the effect on employees I'll provide nutritious meals even if it costs because I care about my workers Non-instrumental reasoning: nutritious meals are valuable in themselves Created an employee welfare service, a no-smoking rule, and allowed guide dogs in stores Led to Marks and Spencer's reputation for quality, which in turn increased profits
Should companies conform to local practices in order to be competitive?
Doesn't matter but whichever moral theory we adopt, we should ensure that our beliefs and principles are consistent At the core of principles like fairness, equality, desert
How do we make sure our beliefs are consistent with one another, and our actions are consistent with our beliefs?
Ethical Reasoning Reflective Equilibrium
True or False: The two parts of an argument are Beginning and Conclusion.
False. The two parts are: Premises: statements in an argument that provide support for the conclusion Conclusion: a statement that indicates what the arguer is trying to prove
Good argument are ________
Good arguments are: sound, i.e.: (1) valid: the conclusion follows logically from the premises (i.e. there is no way for the premises to be T and the conclusion F) (2) the premises must be true
Example of the Trolley Problem in business? The Ford Pinto
Rushed into production in 1970 by Lee Iacocca (Ford President) Pre-production crash tests: 8/11 Pintos suffered "catastrophic gas tank ruptures on impact" Cost-benefit analysis: the cost of tank improvement ($5-8/vehicle) outweighed the benefits of a new tank design ("Fatalities Associated with Crash-Induced Fuel Leakage and Fires") Costs (of future lawsuits): assuming 180 burn deaths @ $200, 000/death = $49.5 million Costs (of tank improvement): 12.5 million vehicles @ $11/car = $137.5 million
What is professional ethics?
The study of situations, activities and decisions where issues of right and wrong arise involving the application of ethical principles to professional practice "Business ethics" is a kind of professional ethics
Ethical Relativism:
The view that moral codes differ from one society, or from one person, to the next - Allows for genuine moral disagreement, i.e. 2 people can legitimately disagree about what is right and there is no objective moral standard independent of these beliefs
T or F: Societal standards of behaviour often conform to what is ethical (e.g. politeness, honesty, care for fellow citizens), but they can also deviate from what is ethical.
True
True or False: Deontology is the study of the nature of duty and obligation.
True
True or False: Economics students and professors are more likely to act on self-interest
True
True or False: Moral principles are universal evolving, imperfect and necessary
True
a political realist:
analyzed right and wrong in terms of power
moral intuition:
a belief/feeling we have as to whether a certain action is right/wrong in some situation, e.g. victims of genocide
Milton Friedman's 'Shareholder Theory
a corporation's owners, including its stockholders, should "be the primary beneficiaries of business decisions" - when making important decisions (e.g. about which products to manufacture, how much to pay employees in salaries and benefits, whether to engage in philanthropic activities), executives should make it their top priority to benefit the company's owners
Business cases of "dirty hands":
a dilemma is generated between the competing demands of business and ethics - Rooted in thinking of the business manager as having feet planted in 2 distinct realms: the 'private realm' (ethics) and the 'public realm' (business)
Oxymoron:
a figure of speech in which apparently contradictory terms appear side by side
"corporation":
a group of individuals legally authorized to act as a single entity; "the basic unit of commerce today"
John Rawls described a method known as "reflective equilibrium" for striving towards consistency in our moral beliefs:
a state of balance or coherence among a set of beliefs arrived at a process of deliberative mutual adjustment among general principles and particular judgments
Sustainable enterprise":
a way of doing business that makes profits through means that impact the "triple bottom line" (people, planet, profit)
Is the Argument From Disagreement a sound argument?
i.e. Does the conclusion follow logically from the premises? No, the fact that people disagree about morality doesn't necessarily mean that morality is subjective
Self-integration view of integrity (e.g. Harry Frankfurt):
integrity is a matter of integrating the various parts of our personality into a harmonious, intact whole
Polls shows the qualities of an effective leader:
intelligent, motivated, dynamic, strong, charismatic
Millenial demand:
interest in companies that 'do good' even if they earn less
Based on the ethical theory of Immanuel Kant:
our choices are to be measured against an independent moral standard called the categorical imperative
The approach to ethics which states that the interplay between particular judgments and general principles is what drives moral reasoning is called:
reflective equilibrium
"Seeing green":
studies show money cues increase the likelihood of unethical intentions and behaviour
"corporate social responsibility" (CSR) Can measure CSR by employee well-being
the basic idea: the corporation is a member of the moral community with moral obligations that are analogous to other members of the moral community 1) Economic responsibility (to make money) 2) Legal Responsibility (to follow the letter and spirit of the law) 3) Ethical responsibility (to do the right thing even when law doesn't apply) 4) Philanthropic responsibility (the responsibility to "contribute to society's projects even when they're independent of the particular business")
Neuropsychological evidence:
the difference between the two cases is that the 'fat man' engages people's emotions in the way the former does not; the thought of pushing someone to his death is more emotionally powerful than the thought of hitting a switch that will cause a trolley to produce similar consequences
What is Utilitarianism?
the doctrine that "we ought to act so as to promote the greatest balance of pleasure over pain."
Stakeholder theorists claim that those with a stake in a business' activities have corresponding rights, which create obligations to them But do stakeholders have these rights? "Interest theorists":
the function of a right is to further the rights-holder's interests; having a right makes someone better off
The Ethics Quotient (EQ):
the objective, standardized measure of a company's performance re corporate governance, risk, sustainability, etc