2.3.7 Business Ethics (related to Kant and Utilitarianism)

Key issues

Globalisation

Whistle-blowing

Profit motive

Kant's Shopkeeper (Michael Sandel)

Stakeholder Interests

Corporate Social Responsibility (& Stakeholder Theory)

"Corporate Responsibility is about ensuring that organisations manage their businesses to make a positive impact on society and the environment whilst maximising value for their shareholders." Institute of Chartered Accountants in England & Wales

Is Milton Friedman Right?

“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 in the rules of the game, which is to say, engages in open and free competition, without deception or fraud”. Milton Friedman

“A corporate executive … has direct responsibility to conduct business in accordance with [shareholder] desires … [i.e.] to make as much money as possible while conforming to their basic rules of the society, both those embodied in law and those embodied in ethical custom.” Milton Friedman

“There has been the claim that business should contribute to support charitable activities and especially to universities. Such giving by corporations is an inappropriate use of corporate funds in a free-enterprise society.” Miltno Friedman

Exercise: evaluate Friedman’s view in the light of corporate social responsibility. Is this a form of social Darwinism – survival of the fittest? Notice he is not arguing businesses should ignore morality.

Problem

To maximise the welfare (or happiness) of everyone may harm the long-term prospects of the business.

Solution – Argue for Utilitarian Gains

Is ethical business actually good marketing? Here are some possible benefits:

• Improved productivity (output per hour) of the workforce
• Improved community relations (and trade-off of community benefits in exchange for planning consent)
• Improved financial performance may result if…
• Improved image with consumers and hence marketability of products
• Improved share price – of shareholders are looking for ethical elements to a business
• Improved recruitment of top-level staff – eg graduates make be seeking ethical elements
• Improved environmental protection

Kant’s approach

Does globalisation put good business ahead of good ethics?

Duty created by the categorical imperative – the motive of ‘good will’ is the key

A Kantian approach to business is echoed by the Companies Act which talks about ‘fiduciary duties’ or duties of care towards all stakeholders

Exercise: define the categorical imperative (two versions)

‘‘The only good thing is the good will’. Kant rules out a profit motive as the primary motive in business. Discuss

Two Case studies

Trafigura and Toxic Waste 2006

• Profit (shareholders) in conflict with duty of care to Ivory Coast
• Poisonous gas kills 17 people and affects hundreds (by-product of the petroleum waste from tanker)

Enron 2003

Enron had a whistle-blower (finance director Sherron Watkins, 2001)

She put forward her concerns a year before Enron collapsed, to chairman Ken Lay.

Should she have gone to the police?

Bernie Madhoff and Kant – a Ponzi Scheme

Bernie Madoff claimed that the Ponzi scheme wasn’t the original idea. He sought money from investors planning to make big money with complicated financial manoeuvres. He took a few losses early on and faced the possibility of everyone just taking their cash and going home. That’s when he started channelling money from new investors to older ones, claiming the funds were the fruit of his excellent stock dealing (which was a lie). He always intended, Madoff says, to get the money back, score some huge successes, and they’d let him get on the straight and narrow again. It never happened. But that doesn’t change the fact that Madoff thought it would. He was lying temporarily, and for the good of everyone in the long run.

A Ponzi scheme is where you promise very high returns and then need to sell more and more of the assets to finance those returns. When new customers don't match the returns needed the scheme collapses.

Exercise: why is lying always wrong, according to Kant (clue – think ‘perfect duties’)

Conclusions

• Consistency. What Kant’s categorical imperative shows is that lying cannot be universalized. The act of lying can’t survive in a world where everyone’s just making stuff up all the time. Since no one will be taking anyone else seriously, you may try to sell a false story but no one will be buying.
• Dignity. where the first of the categorical imperative’s expressions was a consistency principle (treat others the way you want to be treated), this is a dignity principle: treat others with respect and as holding value in themselves. You will act ethically, according to Kant, as long as you never accept the temptation to treat others as a way to get something else.
• Integrity. This involves motive – if we make a mistake, if our motive is pure we can’t be blamed for making an ‘honest mistake’. If our motive is impure (for profit) we will very likely be blamed.

Remember Bernard Williams’ integrity objection to utilitarian ethics? Kant scores over utilitarianism in all three areas – consistency (and trust is good for business), dignity (no-one is exploited) and integrity (we are true to our beliefs).

Further reading try this excellent website and the second one, on Business Ethics and Friedman

https://catalog.flatworldknowledge.com/bookhub/169...

https://lucidmanager.org/essays/milton-friedman/

2.3.7 Utilitarian Consequentialism in Business Ethics

The question is, not ‘should I lie?”, but ‘what happens if I lie in this situation?’ Notice this relativistic element to utilitarianism – every decision is made relative to consequences and there can be no absolute rules (eg ‘do not lie’). Utilitarianism is not pure relativism as there is one absolute – the Greatest Happiness Principle.

Bentham’s Hedonic Act Utilitarianism

The balance of pleasure and pain

Bentham asks us to balance total pleasure and pain for any action we take. We should maximise the total balance of pleasure minus pain. Let’s try this for Rana Plaza’ stakeholders

Stakeholders	Plus for pleasure, minus for pain
Workers	-20 low wages -1000 risk of death
Shareholders (suppliers)	+ 550 higher returns
Managers (suppiers)	+250 higher bonuses
Local community	-200 poverty -1500 grief and loss of wage earners when disaster strikes
Customers in UK	+2000 lower prices, cheap goods

This (rather futile) attempt at a calculation illustrates:

• Different stakeholders are gainers or losers
• The poor are overall losers
• The rich countries take none of the risks of poor safety conditions
• The rich countries have the shareholders (poor don’t own shares)
• It is easy to conclude that exploitation occurs in a globalised world

A bigger problem in Bentham’s hedonic calculus is exactly what these ‘hedons of pleasure’ represent. If I can’t say exactly I will end up placing a monetary value on a human life. And human lives in Bangladesh will be valued at less than a human life in Canada or the UK. Put another way, I pay out less money when a worker dies in Rana Plaza.

Mill’s Rule Utilitarianism

Exercise: explain the following

“Mill sought to remedy two defects in Bentham’s thought – Carlyle’s criticism that it is a ‘pig’s philosophy’ and the problem of justice – someone (in the above case , Bangladeshi workers) can be sacrificed to satisfy the happiness of someone else (shareholders, customers and managers in the UK).”

Rules can be broken

Rules are based on past experience. Notice these rules can change. After Rana Plaza, few companies (eg Primark) can risk customer anger if another factory collapses when its their goods that are being supplied.

But rules can be broken. When a tough moral choice is to be made we become Act Utilitarians.

In 2000 Rolls Royce was convicted of offering bribes to secure contracts in… Kant wold say “never accept bribes, it breaks trust and makes all transactions more expensive”. Mill would revert to being an act utilitarian but

• Use the motive of sympathy
• Make sure we calculate consequences as fully as possible. Which may be impossible.

Exercise: here is the Rolls Royce dilemma

If the bribes remain secret, everyone gains (UK workers, UK shareholders, overseas workers and those receiving the bribes). But if it becomes public everyone suffers – profits fall, managers risk prosecution (it’s against UK law), reputation suffers. Even overseas managers receiving bribes may end up in jail.

“The extent of the allegations against Rolls-Royce – and the fact that all indications are that it didn’t actually self-report, but this came from a whistleblower – really raise questions about whether this is being done as a convenient form for Rolls-Royce to carry on getting public contracts.” Susan Hawley, Corruption Watch

Conclusion: utilitarian ethics encourages double standards and secrecy. This is the problem of pragmatism, case by case, decisions in ethics. Because there are no absolutes, it all depends if I can escape with secrecy. The same problem occurs I international affairs with the US decision to ‘render’ (remove) and torture terror suspects in foreign country allowing torture. It’s fine, if no-one discovers.

Essay-writing skill

It’s time to try a full-blown 35 minute essay. Plan it carefully and try not to make it too long. It’s better to write a slightly shorter, very philosophical essay (with detailed analysis and evaluation, and good use of contrasting views) than a longer slightly rambling answer. Make sure you keep the question at the front of your mind.

Question: “Kantian ethics is superior to utilitarianism in creating ethical business practices”. Discuss.

Further reading: the website below is very clear

https://catalog.flatworldknowledge.com/bookhub/1695?e=brusseau-ch02_s03#brusseau-ch03_s02