Ethical Theories

Ethical theories in business

Ethics is a normative study, i.e., an investigation that attempts to reach normative conclusions.

Ethical theories in business include

Consequentialist normative theory: Normative themes—Egoism, Utilitarianism, Kantian ethics

Non consequentialist normative theory: Non consequentialist normative themes—duties, moral rights, and prima facie principles

Classification of Normative Theories

(Deontological – Duty-based)Consequentialist

Kantian

Non-consequentialist

Normative Theories

Egoism Utilitarianism Theories

Normative Themes

Egoism• contends that an act is morally right if and only if it best

promotes an agent's long term interests

• makes use of self interest as the measuring rod for actions performed

• is equated with an individual’s personal interest but it is equally identified with the interest of an organization or society

• intends to provide positive consequences to the party's interest without considering the consequence to the other parties

Normative Themes : Egoism (Contd.)

Philosophers distinguish between two kinds of egoism: personal and impersonal.

•Personal egoism: one should pursue his/her long-term interest and not dictated what others should do.

•Impersonal egoism: everyone should follow their best long-term interest.

Utilitarianism

The proponents were:

Jeremy Benthan (1748-1832) John Stuart Mill (1806-1873)

Utilitarian principle: an action is ethically right only if the sum total of utilities produced by that act is greater than the sum total of utilities produced by any other act that could have been performed in its place.

Kantian Ethics

Proponent:

Immanuel Kant (1724-1804)

This theory introduces an important humanistic dimension to business decisions, which is to behave in the same way that one would wish to be treated under the same circumstances and to always treat other people with dignity and respect.

Kant’s Philosophy

Stressed that action must be undertaken for duty's sake and not for some other reason

Opined that the imperatives of morality are not hypothetical but categorical. The core idea of this categorical imperative is that an action is right if and only if it will become a universal law of conduct

Normative theories of Business Ethics: Classification

Normative Theories

Stockholder Theory Stakeholder Theory Social Contract Theory

Normative theories of business ethics

Stockholder theory: expresses business relationship between stock owners and their managers running the day-to-day business of the company. As per the theory, managers should pursue profit only by all legal, non-deceptive means.

Normative theories of business ethics

Stakeholder theory: argues that a corporate’s success in the market place can best be assured by catering to the interests of all its stakeholders (shareholders, customers, employees, suppliers, management and the local community). This objective is achieved when corporations adopt policies that ensure an optimal balance among all stakeholders.

For example, Marico, the makers of Parachute oil, discovered a harmless tint in the oil from one of its production lines. The company withdrew the batch from the market, shut down the production line, but kept the workers on payroll and involved them in the investigation of the cause. In a short time, the workers located the cause, rectified it and resumed production

Normative theories of business ethics

Social Contract theory: is based on the principles of “social contract”, wherein it is assumed that there is an implicit agreement between the society and any created entity such as a business unit, in which the society recognises the existence of a condition that it will serve the interest of the society in certain specified ways.