10091414Topic1MoralReasoningandEthicalTheory

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INTRODUCTIONWhat comes to your mind when someone mentions the word ethics? Perhapsyour answer is correct. Let us do not waste our time. Let us see what we aregoing to learn in this topic.

In this topic, you will be exposed to the fundamental concepts and theories ofmorals; the history and development of ethical theories; and also the systematicstudy of right and wrong, good and evil. These concepts and theories will then

be applied to contemporary managerial dilemmas.

TTooppiicc

1MoralReasoning andEthical Theory

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By the end of this topic, you should be able to:

1. Explain the five factors involved in the formation of individualethics;

2. Explain normative philosophy and ethical relativism;3. Compare all the major ethical systems; and4. Apply the relevant ethical theories to ethical issues raised by

business and professional practice.

LEARNING OUTCOMES


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TOPIC 1 MORAL REASONING AND ETHICAL THEORY2

MORAL REASONING AND ETHICALTHEORY

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Do you know that ethical problems are truly complex when it comes to themanagement of an organisation? These problems are complex because of thefollowing attributing characteristics (which will be elaborated further in Topic 3):

Extended consequences Multiple alternatives Mixed outcomes Uncertain occurrences

Personal implications

Ethical problems are also pervasive because managers make decisions and takeactions that affect other people. Managerial decisions and actions need to beaddressed and require some degree of moral analysis when:

It affects other people negatively, or It harms or hurts other people in ways beyond their individual controlIn the following sections, you will be given the definition of ethics, business

ethics and professional ethics. You will also find out why business should beethical and the formation of individual ethics.

1.1.1 The Meaning of Ethics

What is ethics?

Ethics can generally be defined as the principles of morally acceptableconduct of individuals. Ethics also means an individuals personal beliefs

about right and wrong behaviours.

Although this simple definition communicates the essence of ethics, threeimplications warrant additional consideration:

(a) Ethics is individually defined. People have ethics, whereas organisations donot have it;

(b) What constitutes ethical behaviour can vary from one person to another;and


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TOPIC 1 MORAL REASONING AND ETHICAL THEORY 3

(c) Ethics is relative; it is not absolute. This means that although whatconstitutes ethical behaviour is in the eye of the beholder, it usuallyconforms to generally acceptable social norms.

1.1.2 The Meaning of Business Ethics

While ethics generally refers to the conception of right and wrong (Lawrence &Weber, 2011), business ethics refers to the application of ethical values and ideason issues that arise in the business context. It is not different from ethics ingeneral. For example, if we consider lying to be unethical, then anyone in

business who lies about his products or financial performance of his company tohis stakeholders is acting unethically as well

1.1.3 The Meaning of Professional Ethics

Do you know what professional ethics is? Let us refer below to know itsmeaning.

Professional ethics indicates the moral values that a group of similarlytrained people develop to control their task performance or their use ofresources.

People internalise the rules and values of their professional culture just as theydo those of their society. They reflexively adhere to professional rules and valueswhen deciding on how to behave.

Some organisations have many groups of professional employees such as nurses,lawyers, researchers, doctors and accountants, whose behaviour is governed byprofessional ethics. Professional ethics help to shape the organisations cultureand determine the values of its members in their dealings with otherstakeholders. Most professional groups are allowed to enforce the ethical

standards of their profession. Professional groups, such as doctors and lawyers,can be banned from practising if they violate their professional rules.


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ACTIVITY 1.1

Answer the following questions on ethics.

(a) How do you define the term ethics?(b) How does ethics affect your life? Give several examples.

1.1.4 Why should Businesses be Ethical?

Ethics plays a prominent role in business as it is required in any kind of businessconduct. Businesses should be ethical for these two main reasons:

(a) Significant Influence on Environment and StakeholdersBusiness actions can affect the natural environment and the organisationsvarious stakeholders such as its customers, employees and the community.Since businesses can have an enormous influence on its stakeholders, theorganisation has to be responsible and ethical in its actions.

(b) Enhance the Business PerformanceBusiness ethics enhances the organisations business performance.Businesses recognise that ethical actions can directly affect theirorganisations bottom line (Lawrence & Weber, 2011). On the other hand,

being unethical can have detrimental effects on an organisation as shownbelow.

A study conducted by the University of Washington found that companieswhich had misstated their accounting information lost 41 percent of theirmarket value after their misdeed was discovered. This is becausedishonest firms tend to lose their customers and face higher financingcosts.

Source: Institute for Global Ethics (2006)

1.1.5 The Formation of Individual Ethics

What makes some individuals ethical and some unethical? Why are some peoplehonest, while others are dishonest? Various factors are instrumental in theformation of individual ethics, as shown in Figure 1.2:


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Figure 1.1: Factors that form individual ethics(a) Family Influences

Individuals start to form their ethical standards since their childhood

period in response to their perception of their parents behaviours. Childrenare more likely to adopt high ethical standards if they see that their familymembers adhere to high standards (such as being truthful) and if theyreceive rewards for conforming, and punishment for not conforming, tothese standards.

However, if family members engage in unethical behaviours (such as beinguntruthful) and allow their children to do the same, then the latter is likelyto develop lower ethical standards.

(b) Peer InfluencesWhen children enter school, they are influenced by peers with whom theyinteract every day. For example, if a childs friends engage in shoplifting,vandalism or drug abuse, the child too, may decide to do the same.Conversely, if the childs peers have higher ethical standards and reject thesaid behaviours, he is likely to adopt these standards.

(c) Life ExperiencesDozens of important events, both positive and negative, shape peopleslives and influence their ethical beliefs and behaviour. These events are apart of growing up and maturing.

For example, a person who steals something and does not get caught mayfeel no remorse and continue to steal. However, a person who is caughtstealing may feel guilty enough to change his ethical standards and make ita point not to steal in the future.

(d) Personal Values and MoralsValues and morals also influence a persons ethical standards. For instance,a person who places financial gain and personal advancement as a top


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priority will adopt a personal code of ethics that promotes the pursuit ofwealth.

Thus, he may be ruthless in attempting to gain these rewards regardless ofthe cost to others. A person who gives priority to his family will adopt adifferent ethical standard.

(e) Situational FactorsThe final determinant of an individuals ethics is situational factors.Sometimes, people unexpectedly find themselves in situations that causethem to act against their better judgement.

For example, some people who cheat on their expenses accounts do so

because of personal financial difficulties. Although this does not justifytheir dishonesty, it does provide some context for understanding whypeople may sometimes behave unethically if they have no other choice.

ACTIVITY 1.2

Which of the above-mentioned factors have been most influentialon the formation of your ethics? Give some examples.

NORMATIVE PHILOSOPHY AND ETHICALRELATIVISM

1.2

Moral reasoning requires an understanding of normative philosophy.Philosophy is the study of thought and conduct. Therefore, normativephilosophy is the study of proper thought and conduct; that is, how weshould behave.

Normative philosophers have been looking at the issue of normative philosophyfor more than 2,400 years ago; since the time of Plato. They have attempted toestablish a logical thought process based upon an indisputable principle thatwould determine whether an act is labelled as the following:

(a) Right or Wrong; or(b) Good or Evil; or(c) Fair or Unfair.


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The next issue to be addressed in this description of the techniques of moralreasoning concerns ethical relativism. The question here is very basic. Are thereobjective universal principles upon which one can construct an ethical system of

belief that is applicable to all groups, in all cultures and at all times? Moralstandards of behaviour differ between groups within a single culture, betweencultures and between times. This is obvious. For example, in contemporaryMalaysia, moral standards for decisions on product safety differ between leadersof consumer interest groups and executives of major industrial corporations. It isalso probable that these standards of product safety would differ even moregreatly between Malaysia and the United States, or between the contemporaryperiod and the late 19th century.

SELF-CHECK 1.1

Explain briefly on the following terms:

(a) Normative philosophy; and(b) Ethical relativism.

ETHICAL PRINCIPLES1.3

The universal recognition that we owe something to other people within oursociety, and that we are bound by a concept of right and wrong in our behaviourto those people, has to be made operational. We have to establish some consistentanalytical methods of classifying our action as right or wrong.

If we cannot, it is not due to lack of trying. As indicated earlier, intellectualhistory over the past 2,400 years is filled with attempts to justify moral standardsand to establish ethical systems. None of it is perfect but there are at least fivemajor systems that do have a direct relevance to managerial decisions. Figure 1.2

shows the five major systems.


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Figure 1.2: Five major systems that do have a direct relevance to managerial decisionsLet us look at the explanations provided for these systems in the following

sections.

1.3.1 Eternal Law

Many religious leaders and some philosophers such as Thomas Aquinas andThomas Jefferson believe that there is an Eternal Law (also known as NaturalLaw) incorporated in the mind of God. The law is apparent in the state of natureand revealed in the Holy Scripture. It would be immediately obvious to anyman or woman who will take time to study either nature or the scripture.Thomas Jefferson, the first of the secular humanists, believed that the truths ofthis law were self-evident. In his famous phrase shown below, the rights wereinalienable and duties could easily be derived from these rights.


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If people have the right to life, liberty and the pursuit of happiness, thenthey also have the obligation to ensure the same right to others. Religiousleaders tend to emphasise the revealed source of the truth more than

the reasoned nature. However, they also believe that the state of the Law isunchanging, and that the rights and duties are obvious: if we are loved,then we must love others. This reciprocal exchange is summarised inChristian theology by the Golden Rule: Do unto others as you wouldhave others do unto you.

What is wrong with Eternal Law or Natural Law (interpreted by either religiousleaders or normative philosophers) being the basis for an ethical system inmanagement? Nothing, except for the number of interpretations. No two Natural

Law theorists and very few religious writers have been able to agree on the exactprovisions of the revealed or reasoned truth. Each religion provides moralstandards for their members and many of the members observe those standardsin daily life. However, the standards differ between groups, and there is noinfallible way to determine which one is right or best or proper for society.Even the Golden Rule, that simple, elegant, sensible guide to life, cannot beapplied universally at all times.

1.3.2 Classical Teleological Ethical Theory:Utilitarianism

Did you realise that the teleological approach to managerial ethics placescomplete emphasis on the outcome and not on the intent of individual actions?Teleology is derived from the Greek term which means outcome or result.

Some of the most influential philosophers in the Western tradition such asJeremy Bentham and J. S. Mill hold that the moral worth of personal conduct canbe determined solely by the consequences of that behaviour. That is, an act ordecision is right if it benefits people. Conversely, it is wrong if it leads to

damage or harm. The objective, obviously, is to create the greatest degree ofbenefits for the largest number of people while incurring the least amount ofdamage or harm.

There is more to life than the acquisition of material benefits alone. Friendships,knowledge, health and other satisfactions we find in life should be taken intoconsideration as well. The aggregate satisfactions or benefits for everyone withinsociety have to be considered. However, the benefits are not all positive. Thereare negative costs and adverse outcomes associated with each action, and theyhave to be considered to establish a balance. The negative costs and adverse


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outcomes (refer to Figure 1.3) include pain, sickness, death, ignorance, isolationand unhappiness. The aggregate harm or costs have to be considered, and then a

balance of the net consequences can be computed.

(a) IsolationSource: http://www.pharmacyescrow.com/blog/index.php/2010/10/25/loneliness-

and-isolation/

(b) UnhappinessSource: http://ilovemyself.net/wp-content /uploads/2010/11/

unhappiness.jpg

Figure 1.3: Adverse outcomesThis teleological ethical system which focuses on net consequences rather thanindividual intentions is termed as Utilitarianism. Utilitarianism is commonlyassociated with Jeremy Bentham (1748 1832), a British thinker. The name of the

philosophy is derived from the word utility which, in the eighteenth century,referred to the degree of usefulness of a household object or domestic animal. Inmicroeconomic theory, it measures our degree of preference for a given good orservice relative to price. In Utilitarian theory, the term refers to our perception ofthe net benefits and costs associated with a given act.

Utilitarianism differs from the economic concept of cost/benefit analysis in thatthe distribution of the costs and benefits has to be included as well. That is, theseare net benefits to society, and each individual within the society has to beconsidered and treated equally in the distribution as shown below.

The greatest good for the greatest number takes precedence in Utilitariantheory over The greatest good for a smaller, more elitenumber.

What is wrong with Utilitarianism? Not much, except for the possibility ofexploitation. In the vast majority of cases, where no one is going to be hurt badly,and particularly where it is possible to use financial equivalents for both the costsand the benefits, it is a familiar and useful form of analysis. However, there is


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always the possibility of justifying benefits for the great majority of thepopulation by imposing sacrifices or penalties on a small minority.

Utilitarianism fails because of these factors:(a) In reality, it is about these two principles: the greatest good and the

greatest number. At some point in our decision-making on importantmatters, these two principles come into conflict. Then, we have no singlemeans of determining what is the right or proper act.

(b) We can probably agree that there are some actions that are simply wrong,despite great apparent net benefits for a huge majority. For example, killingan innocent child for the benefit of bringing happiness for the whole humanrace. No one should ever have to accept that kind of cruel act.

(c) It is impossible to balance the benefits of the majority against the sacrificesof a minority.1.3.3 Classical Deontological Ethical Theory:

Universalism

Do you know that the word deontology is a Greek term referring to the dutiesor obligations of an individual? The deontological approach (as shown below) tomanagerial ethics is, in essence, the opposite of teleological theory.

The deontological theory states that the moral worth of an action cannot bedependent upon the outcome because these outcomes are so indefiniteand uncertain at the time of the decision to act is made. The moral worth ofan action has to instead depend upon the intentions of the personmaking the decision or performing the act.

If you wish the best for others, then your moral actions are praiseworthy, eventhough you happen to be an unimpressive and clumsy individual who always

seems to be doing the wrong thing. Therefore, these good intentions willnormally result in beneficial outcomes.

Personal intentions can be translated into personal duties or obligations becauseif we truly wish the best for others, then we will always act in certain ways toensure beneficial results. Those ways become duties that are compulsory upon usrather than choices that are open to us. Our personal duties are universal,applicable to everyone and consequently much of deontological theory is alsotermed as Universalism. The first duty of Universalism is to treat others as endsand not as means. Other people should be seen as valuable ends in themselves,


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worthy of dignity and respect, and not as impersonal means to achieve our ownmeans. No action can be considered right in accordance with personal duty if itdisregards the ultimate moral worth of any other human being.

What is wrong with Universalism?

(a) It is a useful method of moral reasoning but there are no priorities and nodegrees.

(b) It is difficult to treat others as ends and not as means all the time,particularly when many serve as means to our personal ends. Storekeepersare means of procuring our groceries; customers are our means of earningour livelihoods; employees are the means of staffing our factories.

1.3.4 Distributive Justice Theory

Neither of the two classical theories mentioned above, Utilitarianism orUniversalism, can be used to judge all moral actions under all circumstances.Consequently, two modern ethical systems have been developed that are basedupon values rather than principles.

The first of these, the theory of Distributive Justice, was proposed byJohn Rawls and is explicitly based upon the primacy of a single value:justice.

Justice is felt to be the first virtue of social institutions, just as truth is the firstvirtue of systems of thought.

John Rawls proposes that society and the institutions within it are marked bythese two elements:

(a) CollaborationCollaboration comes about since individuals recognise that joint actions

generate much greater benefits than solitary efforts.

(b) ConflictConflict is inevitable because people are concerned with the justdistribution of gained benefits. Each person prefers a greater to a lessershare, as well as a system of distribution that ensures the greater share tohimself. These distributive systems can have very different bases to eachperson equally, or to each according to his need, effort, contribution orcompetence.


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Most modern economic systems make use of all five principles: equal, need,effort, contribution and competence. For instance, public education is,theoretically speaking, distributed equally, welfare payments on the basis of

need, sales commissions on effort, public honours on contribution, andmanagerial salaries on competence.

People would not normally select absolute equality in the distribution of benefits.This is because they recognise that some of them would put forth greater effort,have higher skills and so on. They would also not agree to absolute inequality

based upon effort, skill or competence because they would not know who amongthem have those qualities and consequently who among them should receivemore or less benefits. Instead, they would develop a concept of conditionalinequality, where differences in benefits have to be justified. They would proposea rule to ensure that these differences in benefits be justified only if they areshown to result in compensating benefits for everyone, particularly the mostdisadvantaged members of their society.

What are the problems with distributive justice? It is entirely dependent upon theacceptance of the proposition that social cooperation provides the basis for alleconomic and social benefits. Individual effort is downplayed, if not ignored.

1.3.5 Personal Liberty Theory

The theory of Personal Liberty is an ethical system proposed by Robert Nozick.This system is based upon the primacy of a single value rather than a singleprinciple: liberty. Liberty is thought to be the first requirement of society. Aninstitution or law that violates individual liberty has to be rejected even if it mayresult in greater happiness and increased benefits for others.

Nozick agrees that society is an association of individuals, and that cooperationbetween these individuals is necessary for economic gains. The holdings of eachindividual (in income, wealth and the other bases of self-respect) are derivedfrom other people in exchange for goods or services, or received as gifts. An

existing pattern of holdings may have come about through application of any ofthe principles of distribution (to each equally, or to each according to need, effort,contribution, or competence). However, these patterns will be changed bytransfers. These transfers, by exchange or gift, can be considered just as long asthey are voluntary.

Personal Liberty can be expanded from a market system for the exchange ofholdings to an ethical system for the evaluation of behaviour. Individuals must

be allowed to make informed choices among alternative courses of action leading


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towards their own welfare. These choices would be considered just, right orproper as long as the same opportunities for informed choices are extended toothers. Justice depends upon equal opportunities for choice and exchange, not

upon equal allocations of wealth and income.

What is lacking in this concept of liberty? It is based on a very narrow definitionof liberty which is limited to the negative right not to suffer from the intrusion ofothers. The right to life, for instance, is the right not to be killed by others.However, it may also include the right to continue living through access to someminimal level of food, shelter, clothing and medical assistance, which come frompersonal initiative, rather than social cooperation.

SELF-CHECK 1.2Using a mind map, summarise these five ethical systems:

(a) Eternal law theory (Natural law);(b) Classical teleological ethical theory: Utilitarianism;(c) Classical deontological ethical theory: Universalism;(d) Distributive justice theory; and(e) Personal liberty theory.

Complete the following exercises to check your understanding.SELF-CHECK 1.2

EXERCISE 1.2

1. Compare and contrast some of the features of Utilitarianismand Universalism in respect of ethical theory.

2. Discuss some of the weaknesses of each ethical theory that youhave studied.


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CONCLUSION ON NORMATIVEPHILOSOPHY AS THE BASIS FOR MORAL

CHOICE

1.4

As elaborated earlier, there are five major ethical systems. Although they do notoutwardly conflict with each other, they cannot be reconciled into a logicallyconsistent whole. Each system expresses only a portion of the truth; and each isincomplete or inadequate as a means of judging the moral content of individualactions or decisions.

What does this mean to managers?The major implication for managers is that there is no single system of belief,

with rationally derived standards of moral behaviour or methods of moralreasoning, that can fully guide them in reaching difficult ethical decisions.

What should we do?Instead of using just one ethical system, we should incorporate all five systemsand think through the consequences of our actions. Moral reasoning, whichutilises all five ethical systems, is not simple or easy, but it does work, especiallywhen combined with economic and legal analysis.

We have looked at all the major systems, now, let us shift our attention to thefollowing two significant ethical perspectives:

Golden rule Kantian rights1.4.1 Golden RuleThe Golden Rule is a Christian principle based on verse in the bible Do untoothers as you would have them do unto you. This principle can also be found inmost, if not all, world religions. It requires identifying various courses of action

and choosing the one that treats others the way you would want to be treated. Interms of business organisation, the others refers to the organisationsstakeholders. Stakeholders include the organisations investors, partners,employees, unions, customers, suppliers and governments.


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1.4.2 Kantian RightsDerived from the view of philosopher, Immanuel Kant, this perspective assumes

that in a moral universe, every person has certain basic rights, as shown inTable 1.2:

Table 1.2: Kantian RightsRights Explanation

Free consent People have the right to be treated only as they knowingly andwillingly want to be treated.

Privacy People have the right to do what they want in their private lives, andthey have the right to reveal the extent of their private activities.

Freedom ofconscience People have the right to refuse to do what violates their moral beliefsas these beliefs reflect commonly accepted norms.Freedom ofcriticising People have the right to conscientiously criticise an organisationsethics, as long as their criticisms do not violate the rights of

individuals in the organisation.Fairness If people believe their rights are being violated, they have the right to

a fair and impartial hearing.

Under this view of ethics, the morally correct action is the one that minimisesviolations of these rights. To resolve an ethical dilemma from this viewpoint, onewould have to consider which stakeholders are affected by the action and towhat extent their rights may be violated.

ACTIVITY 1.3

In your view, are the personal rights expounded by Kant upheld inyour organisation? Discuss with your coursemates.


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EXERCISE 1.2

1. What are ethics? How is individual ethics formed?2. Elaborate on some of the personal rights as indicated by

Immanuel Kant.

3. Do you agree with the Golden Rule? How does it contrastwith Islamic teaching?

4. In your opinion, what is the most important factor thatinfluences the formation of individual ethics?

5. Read this case study:

You are a senior analyst in a corporation that evaluatescompanies for possible mergers and acquisitions. If you juggled thefigures on a certain companys financial statement, it would look likethe company has the potential for a takeover. Your firm would receivea hefty fee from the acquiring company and your own outlook forincreased salary and advancement would improve significantly.

Here are some key points of the good and bad consequences to beweighed:

Your companys profits will be enhanced, allowing it to payhigher salaries to employees and higher dividends toshareholders.

Your own financial and career interests will be enhanced. The acquiring company may find itself with a company that is not

financially viable and may incur severe losses as a result.

Your companys reputation and long-term prospects would beaffected if your deception became known.

Your own personal reputation and future would be jeopardised aswell.

By applying any relevant ethical theories that you have studiedin this topic, how would you go about evaluating and deciding onthis case?


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Ethics refers to an individuals personal beliefs about right and wrongbehaviour.

An individuals ethics is shaped by a combination of factors such asinfluences of family and peers, life experiences, personal values and moralsand situational factors.

Moral reasoning provides reasons and grounds for determining whether anaction is morally right or wrong. Some theorists argue that there is oneuniversal moral standard for everyone (moral absolutism), while others arguethat no such standard exists (moral relativism).

Some moralists hold that certain actions are wrong in themselves. Othersbelieve that no action can be judged immoral in itself since circumstances andsocial conditions play the decisive role in determining whether or not a givenaction is right or wrong.

Utilitarianism states that the outcome of a decision or action is of primeimportance and that it is the results that truly matter in our treatment of otherpeople. The principle to be followed is that of beneficiency: a decision or act isright, proper and good only if it generates the greatest amount of benefit forthe largest number of people at the lowest cost or harm to others.

Meanwhile, Universalism states that it is the intent behind a decision oractionthat is important, for we can never accurately foresee and evaluate allpossible results. The principle to be followed is that of consistency: a decisionor act is right, proper and good only if we can convince everyone facing thesame set of circumstances to make the same decision or perform the same act.

Distributive Justice is based upon the primacy of a single value (justice)rather than a single principle. Belief in the primacy of justice will lead us tomake decisions and take actions that are expected to result in compensating

benefits for all, especially the least advantaged members of our society.

Personal Liberty is also based upon the primacy of a single value (liberty)rather than a single principle. Belief in the primacy of liberty will lead us tomake decisions and take actions that will result in greater happiness andincreased benefits for all.

The Eternal Law refers to moral standards that are revealed in scripture ornature to religious leaders or human philosophers. The belief is that law isunchanging and valid for all times.


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Business ethics

Distributive justice

Eternal law

Ethical relativism

Ethics

Golden rule

Individuals ethics

Kantian rights

Moral reasoning

Normative philosophy

Personal liberty

Professional ethics

Universalism

Utilitarianism

10091414Topic1MoralReasoningandEthicalTheory

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