C H A P T E R
4
Business Ethics
“It is not what a lawyer
tells me I may do; but
what humanity,
reason, and justice,
tell me I ought to do.”
Edmund Burke
Lecture One Topics
 Ethical Theories
 Guidelines for Ethical Decision Making
 Resisting Requests to Act Unethically
 Leading Ethically
Ethical Theories
 Rights Theory
 Justice Theory
 Utilitarianism
 Profit Maximization
Rights Theory
 Kant’s Categorical Imperative: An action is
ethical only if it can be applied universally
 Golden Rule: Treat others as you would want
to be treated
 Strength: Strong protection for rights
considered to be “fundamental”
 Weaknesses:
1. Difficulty of agreeing on what rights are
“fundamental”
2. Disregard for costs or benefits
3. Sense of entitlement discourages initiative
and entrepreneurship
Justice Theory
 Rawls’ “Greatest Equal Liberty Principle”
 Each person has an equal right to the same basic
rights and liberties
 Rawls’ “Difference Principle”
 Social inequalities are acceptable only if they can’t be
eliminated without making the worst-off even worse off
 Nozick: Equality of opportunity, not outcome
 Strength: Protection of the least advantaged
 Weaknesses:
1. Disregard for costs or benefits
2. Difficulty of measuring and correcting inequalities
Utilitarianism
 Maximize social utility
 An action is ethical if its benefits outweigh its
costs to society as a whole
 Utility can be defined broadly or narrowly
 “Act” vs. “Rule” utilitarianism
 Strengths:
1. Easy to articulate standard of conduct
2. Maximizes social utility
 Weaknesses:
1. Difficult to measure utility
2. Unequal distribution of benefits and costs
3. Not constrained by law
Profit Maximization
 Maximizing total social welfare by maximizing
long-run profits (within the law) for the actor
or his/her organization
 Strengths:
1. Allocates society’s resources in the most
productive and efficient way
2. Requires conduct constrained by law and
marketplace
 Weaknesses:
1. Inability to judge profit-maximizing acts
2. Disregard for social inequalities
Guidelines for Ethical Decision Making
Apply the Guidelines
To a decision whether:
 To lay off employees to cut costs or incur a
significant decrease in profit
 To use a less expensive component with a 15%
increased risk of defects or use a more expensive
component with less profit
 To violate an environmental law and pay $25,000
in fines or spend $50,000 to comply with the law
 To shred documents that your boss asks you to
shred as part of a “routine document retention
policy” but that you know are important to a
criminal investigation
Resisting Requests to Act Unethically
Leading Ethically
 Be ethical
 Communicate the firm’s core ethical values
 Connect ethical behavior with the firm’s
and workers’ best interests
 Reinforce ethical behavior
Example: Introductory Problem
 Barbara Toffler, “Final Accounting: Ambition,
Greed and the Fall of Arthur Andersen”
 How would the guidelines for ethical
decision-making apply?
 How would each ethical theory view this
situation?
 What steps might the consultant have used
to resist the request to act unethically?
Multiple-Choice Examples
 Raj is considering installing a windmill in his
front yard to save energy. He is thinking
about the effect that this action will have on
his neighbors, and whether the energy
saved will help reduce demand for gas and
electricity. Raj's decisionmaking process
illustrates:
a)
b)
c)
d)
Act Utilitarianism
Rule Utilitarianism
Rights Theory
Justice Theory
Ralph Nader’s Article
 What ethical theories does Nader
seem to be invoking?
 How would you respond to Nader if
you were:
 A rights theorist?
 A justice theorist?
 A utilitarian?
 A profit maximizer?