Chapter 4 Business Ethics Corporate Social Responsibility Corporate Governance and Critical Thinking Ethical Theories maximization The four ethical theories are rights theory justice theory utilitarianism and profit o Some theories focus on the consequences of a decision and are called teleological ethical theories ex a manufacturing company lays off 5 000 workers because the effect is to keep the price of manufactured goods low and to increase profits o Others focuses on the decision or action itself irrespective of the result it produces and are called deontological theories ex A deontological theory may find unacceptable that any competent employee loses his job even if the layoffs effect is to reduce prices Holds that certain human rights are fundamental and must be respected by other Rights Theory humans Kantianism o the focus is on individual members of society and her rights o The belief that humans as moral actors are free to make choices Act only on a maxim or rule whereby at the same time you can will that it shall become a universal law Always act to treat humanity whether in yourself or in others as an end in itself never merely as a means we may not use or manipulate others to achieve our own Strengths of Rights Theory happiness Criticisms of Rights Theory The major strength is that it protects fundamental rights unless some greater risk takes precedence It is difficult to come to an agreement on which rights are protected Rights for women in America are different than rights in women in Syria The Rights Theory does not consider the damage or benefits it can have for respecting other people s rights Letting the KKK spew hate is a right that they have but is powerful to cause riots and stir hatred Justice Theory John Rawls reasoned that it was right for the government to redistribute the wealth in order to help the poor and disadvantaged Strengths of Justice Theory o the basic premise the protection of those who are least advantaged in society help those in need Criticisms of Justice Theory o Treats equality as an absolute without examining the costs of producing equality including reduced incentives for innovation entrepreneurship and production o An accurate measurement of current wealth is needed to rearrange social benefits Utilitarianism Utilitarianism requires a decision maker to maximize utility for society as a whole o Achieving the highest level of satisfactions over dissatisfactions A utilitarian will act only if the benefits of the action to society outweigh the societal costs of the action o If society as a whole is benefited a utilitarian will do something that harms them Strengths of Utilitarianism o It is easy to articulate the standard of conduct you merely need to do what is best for society as a whole It is capitalist in nature focusing on total satisfactions benefits wealth o Criticisms of Utilitarianism It is difficult to measure all of society s satisfactions and dissatisfactions o o Can foster a tyranny of the majority that may result in horrible behavior o The pains caused by violating the law can bring benefits lawlessness Most people however are rule utilitarian meaning that they decide to obey the law in the long run because it maximizes social utility Profit maximization is when a decision maker maximizes a business s long run profits within the limits of the law Utilitarianism focuses on maximizing everyone s interests while profit maximization focuses on maximizing profits for oneself or an organization Strengths of Profit Maximization o In order to increase profits people use their resources efficiently and productively This maximizes total benefits and social utility o Results in ethical conduct because it requires everyone to act within the Profit Maximization law Criticisms of Profit Maximization o Corporate managers are subject to human failings that make it impossible for them to maximize corporate profits o Profit maximization results in efficient allocation of resources but it does not concern itself with how the wealth is allocated within society Ex 1 of the population owns 75 of the money in America o Executives do not maximize their profits for their firms but maximize their own profits at the expense of the firm and its shareholders Executive greed encourages CEOs and other executives to violate the law Improving Corporate Governance and Corporate Social Responsibility o Even though we cannot stop all fraudulent executives we can modify the corporate governance by educating and supervising executives Ethics Codes o Many large corporations have adopted code of ethics in order to guide executives and other employees o There are two view of codes Ethical Instruction people view the codes as genuine rules that encourage or foster ethical behavior Others view it as a ploy to mislead the public into believing the firm behaves ethically or to prevent the passage of legislation that would impose stricter constraints on business Some corporations require their managers to enroll in classes that teach ethical decision making the idea is so that a manager can take action on unethical conducts before they happen But in practice many managers are resistant to ethical training Most corporations hire an ethics officer who is responsible for ethical instruction but also in charge of ethical supervision The effectiveness of an ethics officer is determined by how much time executives invest in the officer Greater Shareholder Role in Corporations Corporate critics argue that businesses should be more attuned to shareholders ethical values and that the shareholder control of the board of directors and executives should increase But this decentralization of shareholder power is in order to free them from the burden of managing their investments in the company Increasing shareholder democracy by enhancing the role of the shareholders is essential to uniting the interests of shareholders and management So is facilitating the ability of shareholders to bring proposals for ethical policy to a vote of shareholders Proponents of profit maximization argue that more responsible and ethical decisions are made when corporate managers consider the interests of all stakeholders including not only shareholders but also employees customers suppliers and the community A conflict of considering all stakeholders interests is that their interests may conflict so coporate has to come up with a compromise that harms some stakeholders but benefit others Consider All