Philosophical Approaches to Business Ethics

Instructor: Dr. Douglas Hawks

Douglas has two master's degrees (MPA & MBA) and a PhD in Higher Education Administration.

Regardless of where we work or what we do, everyone is involved in 'business' of some sort. For that reason, business ethics are critically important to understand. In this lesson, we'll discuss some common philosophical approaches to business ethics.

Introduction to Business Ethics

Ethics are commonly defined as a set of moral principles someone uses when deciding what is 'right' and 'wrong.' Business ethics are basically the same, but more specific to the situations that arise when conducting business; whether internally, such as hiring and promoting employees, or externally, such as how to advertise or manage competition.

Different people have different ideas about what is considered ethical. This is obvious when you read the news and see stories about investors being misled by executives, or accounting schemes that hide expenses and inflate revenue. Believe it or not, people participating in that behavior often believe their 'ethical' responsibility to maximize shareholder value justifies their actions. Because ethics are based on individual beliefs about 'right' and 'wrong,' ethics can be very subjective, and thus very difficult to define in a way that everyone agrees upon.

One of the primary reasons people have different definitions of ethics is because they approach ethics using different philosophical lenses. There are three primary schools of thought regarding ethics that we will discuss in this lesson: utilitarianism (sometimes called Kantianism), rights theories, and justice theories. Each belief system is a completely legitimate, yet different, way to look at business ethics.

Utilitarianism (or Kantianism)

Utilitarianism is an ethical perspective that focuses on the results or consequences of a decision. Sometimes called Kantianism, after one of its early proponents Emmanuel Kant, utilitarianism is sometimes simply described as 'whatever results in the most good for the most people.'

Whether anyone actually admits to it or not is a separate issue, but utilitarianism is the ethical perspective many people use to justify financial fraud. For example, Enron's famous financial fraud involved the company hiding expenses with 'off-book' companies to make it look like they earned more profit than they really did. This meant Enron's stock price would increase. Expenses were still getting paid, so they claimed no one was 'losing' money or 'being hurt.'

Emmanuel Kant

Management at Enron justified their behavior with the thought that many people (shareholders) would benefit (making money, in this case), while no one was being hurt. Of course, they didn't consider who would get hurt when their plan failed. This is often the problem with utilitarianism: when trying to assess the consequences of our decisions, we either can't - or don't - consider every consequence or every person that can be impacted in the long run.

Rights Theories

Rights theories were developed in the 1900s as a counterbalance to the idea that 'the most good for the most people' was the best definition of ethics. Rights theories suggest that human beings have fundamental rights and those rights should be respected, at all cost. One complexity of rights theories is: Who gets to define those fundamental rights?

For example, in the United States, safe working conditions are considered a fundamental right of works. We even have a government agency, OSHA, enforcing those rights. However, those rights may not be considered fundamental in an emerging economy such as South Africa or Vietnam.

Justice Theories

Justice theories are theories of ethics that seek the fair and equitable distribution of rights, goods, and services. The original justice theory was introduced by a man named John Rawls. Rawls based his idea of justice (ethics), on an idea he called the veil of ignorance. The 'veil of ignorance' is a hypothetical scenario he felt everyone should use to determine if all of their decisions are 'fair and equitable' to society.

This is how the 'veil of ignorance' works: consider the decision you are about to make, and then imagine you are not a part of your current society. Once you make your decision, you will then become part of society, but you don't know what your societal status (whether race, gender, socioeconomic class, intellectual abilities, etc.) will be. Basically, you have a 'veil of ignorance' between the decision you make and how it will impact yourself or others, since you don't know 'what' you will be.

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