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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Serie: This is Philosophy
- Sprache: Englisch
Take a seat in the boardroom. What will you decide?
Corporations make difficult decisions about the right thing to do every day, but as an organization made up of people with different perspectives and values, how can a business behave ethically? This is Business Ethics offers a dynamic and engaging introduction to the study of corporate morality.
- Offers real-world practical advice for navigating ethical dilemmas in business, developed and explained through illustrative high-profile case studies like the Ford Pinto case, Enron, Walmart and British Petroleum.
- Explores how ethical theory informs business policy and practice.
- Presents unresolved contemporary case studies for consideration, inviting readers to participate in the decision-making and offer their own recommendations.
- The latest in the This is Philosophy series, This is Business Ethics features supplemental online resources for instructors and students at https://www.wiley.com/enus/thisisphilosophy/thisisbusinessethicsanintroduction
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Seitenzahl: 438
Veröffentlichungsjahr: 2018
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Table of Contents
Cover
Preface
Part I: PROBLEMS IN BUSINESS ETHICS
1 ETHICS
Introduction to Ethics
Introductory Case Studies
Evaluating the Case Studies
Reference
2 BUSINESS
Theory of the Firm
Business Decision‐Making: Shareholders and Cost‐Benefit Analysis
Business in Society: Consumers, Employees, and Community
References and Further Reading
3 CLASSIC BUSINESS ETHICS DILEMMAS
Doing Right by Consumers: The Ford Pinto Case
Doing Right by Employees: The Walmart Case
Doing Right by the Community: The B.P. Case
Doing Right by Shareholders: The Enron Case
References and Further Reading
Case Cited
Part II: TOOLS TO SOLVE BUSINESS ETHICS DILEMMAS
4 ETHICAL THEORIES
The Three Major Ethical Theories
Other Bases for Ethics
References and Further Reading
5 THEORIES OF CORPORATE PERSONHOOD
Businesses as Ethical Persons
Businesses as Bureaucracies
Businesses as Collective Persons
References and Further Reading
6 THEORIES OF POLITICAL ECONOMY
Private Property
The Division of Labor
References and Further Reading
Part III: CONTEMPORARY CASE STUDIES
7 BUSINESS ETHICS IN EMPLOYMENT
Employment at Will: The Bechtel Case
Executive Compensation: The A.I.G. Case
Preventing Discrimination and Achieving Diversity: The Google Case
Work‐Life Balance: The Amazon Case
References and Further Reading
Case Cited
8 BUSINESS ETHICS IN ADVERTISING
Manipulative Advertising: The Four Loko Case
Targeted Advertising: The Facebook Case
The Dependence Effect: The Lipitor Case
Discriminatory Advertising: The Abercrombie & Fitch Case
Abercrombie & Fitch’s corporate identity
References and Further Reading
9 BUSINESS ETHICS IN THE FINANCIAL SECTOR
Predatory Lending: The Countrywide Financial Case
Investment Risk: The Lehman Brothers Case
Short Selling: The Herbalife Case
Insider Trading: The Nomura Case
References and Further Reading
10 BUSINESS ETHICS IN THE ENVIRONMENT
Water Supply: The Coca‐Cola India Case
Indigenous Populations: The TransCanada Case
Food Supply: The FieldScripts Case
Emissions: The VW Case
References and Further Reading
11 BUSINESS ETHICS IN GLOBALIZATION
Obtaining Raw Materials: The GlaxoSmithKline Case
Child Labor: The Victoria’s Secret Case
Different Cultures: The Yahoo! Case
Doing Business with Corrupt Regimes: The IKEA Case
References and Further Reading
Part IV: THE FUTURE OF BUSINESS ETHICS
12 PREDICTING AND PREVENTING FUTURE BUSINESS ETHICS SCANDALS
Resolving Conflicts in Ethics
Looking for and Understanding New Cases
Technology and the Future of Business Ethics
INDEX
End User License Agreement
List of Tables
Chapter 04
Table 4.1 Action 1: Use credit card
Table 4.2 Higher and lower pleasures
Guide
Cover
Table of Contents
Begin Reading
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THIS IS BUSINESS ETHICS
Series editor: Steven D. Hales
Reading philosophy can be like trying to ride a bucking bronco—you hold on for dear life while “transcendental deduction” twists you to one side, “causa sui” throws you to the other, and a 300‐word, 300‐year‐old sentence comes down on you like an iron‐shod hoof the size of a dinner plate. This Is Philosophy is the riding academy that solves these problems. Each book in the series is written by an expert who knows how to gently guide students into the subject regardless of the reader’s ability or previous level of knowledge. Their reader‐friendly prose is designed to help students find their way into the fascinating, challenging ideas that compose philosophy without simply sticking the hapless novice on the back of the bronco, as so many texts do. All the books in the series provide ample pedagogical aids, including links to free online primary sources. When students are ready to take the next step in their philosophical education, This Is Philosophy is right there with them to help them along the way.
This Is Philosophy: An IntroductionSteven D. Hales
This Is Philosophy of Mind: An IntroductionPete Mandik
This Is Ethics: An IntroductionJussi Suikkanen
This Is Political Philosophy: An IntroductionAlex Tuckness and Clark Wolf
This Is Business Ethics: An IntroductionTobey Scharding
Forthcoming:
This is Early Modern PhilosophyKurt Smith
This Is Environmental EthicsWendy Lee
This is EpistemologyClayton Littlejohn and Adam Carter
This is MetaphysicsKris McDaniel
This Is Bioethics: An IntroductionUdo Schuklenk
THIS IS BUSINESS ETHICS
AN INTRODUCTION
TOBEY SCHARDING
This edition first published 2018© 2018 John Wiley & Sons, Inc.
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PREFACE
A company learns that one of its products has a safety flaw, which makes it seriously dangerous to consumers. A large number of these products have already been manufactured, and it will be expensive for the company to repair the products. The company calculates that it would cost them more to repair the safety flaw than to compensate the people who will be injured by it. What should they do?
Another company operates in areas with weak labor markets, in which there are always many workers who are desperate to earn money. The company pays its employees very low wages, denies them employment benefits, such as paid sick leave and health insurance, and requires them to work very hard. Although the workers are miserable, the company’s owners earn huge profits. What should they do?
A third company does business in an environmentally fragile part of the world. Part of its business has the potential to create a large amount of pollution if an accident occurs. In an attempt to lower costs, the company reduces its safety standards to protect against the potential pollution. An accident occurs and the pollution escapes, devastating the fragile environment around it. What should the company do?
A finance company is very optimistic about its business initiatives’ potentials to earn high profits. It is so confident about the potential for profit that it credits those profits to its ledger right away: as soon as the business executives come up with their great ideas. This exposes the business owners to great risk if those profits fail to come through. But the executives are very confident about their ideas. What should they do?
In each of these cases, companies face decisions about what is the right thing to do. For some of the cases, you may have an idea about what the company should do. (Sometimes we think of these internal ideas as our conscience talking to us; ethicists also call these inner thoughts intuitions.) But how do you know if your idea is the right one? What if one of your friends, or the CEO of the company, has a different idea about what is the right thing to do? The point of business ethics is to solve, or work on solving, dilemmas like these. Business ethics offers distinctive decision‐making strategies to recommend what the business should do in problematic circumstances. These decision‐making strategies also provide reasons that it is the right thing for the business to do what the decision‐making strategy recommends.
Students come to business ethics from a variety of perspectives. Some are concerned about unethical practices in the business community. Some are philosophy majors who want to understand how to apply philosophy to concerns that arise in their daily life. Others are business students who want to learn how to run their businesses more ethically or avoid scandals. All of these are good reasons to study business ethics. Students bring different intuitions about right and wrong to their studies. Their diverse perspectives enhance everyone’s experiences by allowing students to argue with one another (in a respectful and friendly way) about the various actions they think the businesses should take.
The curriculum included in this book is designed to navigate through students’ diverse standpoints. The aim is for you to be able to use business ethics to do at least two things: (1) make recommendations about what it is ethical for businesses to do; and (2) convince others (or try to convince them) that your recommendations are the right ones. But there is work to be done before we can start recommending. In particular, we must first understand: (1) how ethics makes its recommendations about what is the right thing to do; and (2) how business make decisions as businesses. These topics are the subjects of our first two chapters. To complete Part I of the book, “Problems in Business Ethics,” we examine four classic business ethics case studies. These case studies, included in Chapter 3, are the kinds of cases people will expect you to be familiar with when they know that you have taken a business ethics class. The case studies also help to set the stage for the 20 case studies that we will examine in Chapters 7– 11.
Before getting there, though, we must lay some additional groundwork. We do this in Part II of the book, “Tools to Solve Business Ethics Dilemmas,” including Chapters 4– 6. In Chapter 4, we offer an overview of some of the most powerful decision‐making strategies available in ethics. These decision‐making strategies, known as ethical theories, will help you to figure out what is the ethical thing to do in any circumstance that you face. We cover three major ethical theories in Chapter 4, along with four other ethical theories that capture important ethical values (though they are not as widely used as the three major theories). In Chapter 5, we address some important theories of political economy. These theories draw out some especially difficult aspects of business ethics controversies, so that we can address them more adeptly. We also address several theories about business organization for the same reason: to isolate important concepts and problems in business that will help us to evaluate business ethical controversies. Theories of business organization are covered in Chapter 6.
Then, we move on to Part III, “Contemporary Case Studies,” to five kinds of business ethics controversies, related to employment (Chapter 7), advertising (Chapter 8), finance (Chapter 9), the environment (Chapter 10), and globalization (Chapter 11). We examine four cases related to each topic. These cases are more cutting‐edge than the foundational cases examined in Chapter 3. Many relate to some of the most prominent companies doing business in the first quarter of the twenty‐first century. Many of them have occurred recently and are ongoing. Because they have not yet been resolved, they are not yet as classic as the case studies included in Chapter 3. So there is more work to do on these cases and an opportunity for you to play a role.
In our final chapter, Chapter 12 in Part IV, “Predicting and Preventing Business Ethics Scandals,” we reflect on some of the best ways for you to get involved with business ethics in your own life and in the future.
Part IPROBLEMS IN BUSINESS ETHICS
1ETHICS: DOING THE RIGHT THING
Introduction to Ethics
1.1 Ethics is a discipline that answers certain kinds of questions. Unlike science, which answers questions about what is true of the world—how fast does light move? What does one atom of Beryllium weigh?—ethical questions concern right and wrong, good and bad. We begin by addressing the kinds of questions ethics asks and what makes people able—and required—to answer ethical questions.
What are ethical questions?
1.2 Ethics asks what action it is right (or wrong) to take, what kind of person it is right (or wrong) to be, and in what kind of a world it is right (or wrong) to live. Although we could certainly try to answer those three questions abstractly, often the particular circumstances in which we find ourselves will raise the questions for us. For example, we might consider doing an action but worry that the action is wrong (or feel that it is right, even though others disagree). We might observe that a public figure, or a family member or a friend, seems like a good (or a bad) person. We might feel, based on a particular event, that our world is good or bad. Ethical questions can arise in many different circumstances, even those that seem quite ordinary. We will examine some ordinary circumstances in which ethical questions arise later in this chapter.
1.3 Often people’s awareness that they face an ethical question starts with a vague sense that something seems amiss. These vague senses are intuitions: natural sentiments that inform us about what is right or wrong, good or bad. These intuitions are also called people’s consciences.
1.4 If human beings have a natural sense of what is right and wrong, good and bad, it might seem like there is not much for a course in business ethics to do. To know what is ethical in a business context, all students need to do, perhaps, is immerse themselves in the business world: once they are there, their consciences will naturally guide them toward right and good behavior.
1.5 Indeed, students will often rely on their internal senses of right and wrong to recognize the ethical questions that confront them. But you can improve your ethical judgment by studying ethics. By reflecting on various case studies, you will learn to recognize the most important aspects of ethical challenges. The ethical theories we will study in Chapter 4, in turn, will highlight different kinds of ethical values, making them easier to recognize in the situations you confront. After we examine our first set of case studies later in this chapter, we will consider some characteristics that generally characterize ethical questions.
How to answer ethical questions?
1.6 Recognizing that an ethical questions is present is only one of the challenges associated with ethics. We also need to answer ethical questions. In order to figure out how to answer ethical questions, it is helpful to spend a little time thinking about what allows human beings to answer ethical questions in the first place.
1.7 The most important capacity that helps human beings to answer ethical questions is probably their consciences, as discussed above. A famous philosopher of ethics, Immanuel Kant, once said “Two things overwhelm the mind with constantly new and increasing admiration and awe the more frequently and intently they are reflected upon: the starry heavens above me and the moral law within me.” For Kant, conscience was a “moral law within.” Kant did not think that having a conscience was the end of ethics, however. He set out a detailed decision‐making procedure to help people answer ethical questions. We will study his views about how to decide what is the right thing to do, what is the right kind of person to be, and in what kind of world it is right to live, in Chapter 4.
1.8 The second most important capacity is the human capacity to make choices: surveying a range of possible actions and deciding which action they will do. (This capacity might be even more important than consciences. Whereas consciences give us a sense of what is right and wrong, being able to make choices is what allows us actually to do the right thing, not just have a sense of what it might be.) Another important capacity is the capacity to experience benefits and harms, to the extent that these capacities influence the way we answer questions about what to do, what kind of a person to be, and what kind of a world in which to live.
1.9 Of these capacities, though, it is probably people’s consciences that most hold them to meet ethical standards. Even when it is inconvenient, consciences point people toward the right thing to do and will not let them rest until they have met that standard.
Introductory Case Studies
1.10 Now that we have looked into what ethical questions are, and what makes human beings able (and required) to answer ethical questions, it is time to start making some real ethical recommendations. College students face decisions about what to do every day, including:
May I loan my classmate substandard notes?
If I believe that my friend is being exploited in an unpaid internship, should I encourage my friend to quit?
May I skip cleaning up the dorm when it is my turn, forcing my roommates to pick up the slack?
May I cheat in a course?
Some of these questions are easy to answer, others not so easy. We will consider cases involving each of these questions, in turn. Try to pay attention to when you see ethical questions arising and take note of how you recognize that they are ethical questions.
Sam and the substandard notes
1.11 Sam is leaving his introduction to geology class one morning after another slack‐off hour of not paying much attention and jotting down notes only haphazardly. It was actually a pretty interesting topic today, he thinks, but for some reason I just can’t seem to get it together to take decent notes.
1.12 As he is passing through the door to the hallway, another student, Maria, approaches him. Sam doesn’t know Maria well but they have chatted a few times before or after class. “Hi Sam,” Maria says. “Hey, Maria,” Sam smiles. “Would you mind lending me your notes for last week?” she asks. “I had to go home for a few days and I missed class.”
1.13 Although Sam is happy to lend Maria his notes, he feels a bit conflicted as he knows that the notes are not very good. Should he tell her the truth? It would be embarrassing to do so. Sam figures that Maria has probably noticed his slack‐off tendencies and is indifferent to them. She would rather borrow notes from someone she already knows rather than try to get better notes from someone she doesn’t know as well. “Sure,” Sam answers, handing over his notebook, “Here you go.” Maria smiles happily and disappears with the notebook.
1.14 After scores are posted for the next examination, though, Maria is not so happy. She confronts Sam after class that day. “Your notes weren’t very good,” she complains. “I studied really thoroughly but half of the stuff on that test didn’t even appear in your notes. The rest of it was barely covered and I think that you might have actually gotten some stuff wrong when you wrote it down.” Sam, who also didn’t do well on the exam, is indifferent to her concerns. “Hey, I guess you should have borrowed someone else’s notes, then,” he replies. “Let the borrower beware.”
Sidebar Exercise
What do you think: should Sam have shared his sub‐standard notes with Maria? What features of the situation seem most important, from an ethical perspective, to you? For example, you might consider whether Sam did anything ethically wrong in not warning Maria that his notes were poor quality. Is he responsible for her low score on the examination? Consider what you would have done in Sam’s situation and how you would feel if someone did to you what Sam did to Maria.
Casey and the overly‐demanding internship
1.15 Now, consider a case related to the second question. Casey’s friend, Fred, was selected for an internship at a prestigious advertising firm in their city. Although the internship was unpaid, Fred was so excited to receive it: he felt that it was the first step toward the successful career in advertising he had always wanted.
1.16 As the internship has worn on, though, Fred’s enthusiasm has waned. “They always ask me to do the most menial things. Getting coffee. Making coffee. Making copies. Work that is almost custodial: emptying waste paper baskets, wiping down the kitchen. I don’t feel that I am learning anything about advertising at all.”
1.17 Initially, Casey was not that sympathetic to Fred’s complaints. Having an internship is an opportunity to learn all aspects of the business, she thought. Fred should be grateful for the opportunity to learn about the firm and learn about working in an office, even if he is not always doing the most glamorous things that you might see on a TV show. Over time, though, she has grown worried about the internship. Fred is working such long hours that she rarely sees him. When she does see him, he appears harried and unhappy. Casey wonders if there is someone that she should call about Fred’s situation but then she realizes that she has no idea whom to call, even if she wanted to call someone.
Sidebar Exercise
What do you think: should Casey call someone? Whom should she call? What would you have done in this situation? If you were Fred, what would you want Casey to do? What features of the situation seem most important, from an ethical perspective, to you?
Tatiana and the fair distribution of chores
1.18 In the third case, we examine an issue between Tatiana and her roommates, Erin and Paul. Tatiana has been working really hard recently. She has been taking a number of advanced classes in her economics major and has been working a part‐time job as a receptionist to help pay the rent. Erin, by contrast, has taken the semester off and is being supported by her parents. Paul is taking a normal course load and relies on loans, rather than a part‐time job, to pay his living expenses.
1.19 Ordinarily, the three roommates split the chores evenly. Each person has a set of chores that they cover for one month and they switch every month. This month, Tatiana’s responsibilities are cleaning the kitchen (once a week) and vacuuming (once every two weeks). Each time she plans to do one of the chores, though, something comes up and she finds herself too busy to complete her responsibilities. Although neither Erin nor Paul has said anything to her yet, Tatiana can tell that they are annoyed. She feigns indifference to their annoyance, however: if they are really bothered by the mess, she figures that they can clean it up themselves. They have enough time, after all. She will get back to her cleaning responsibilities once her classes and work responsibilities ease up a bit.
Sidebar Exercise
Is Tatiana’s behavior ethically acceptable? What would you do in her circumstances? What would you do in Erin or Paul’s circumstances?
Alex and the too‐easy‐to‐cheat course
1.20 Finally, consider the question that Alex faced when he took a class in which it was all to easy to cheat. He decided to take the course, focusing on Sports Ethics, because he was interested in the topic. When he found out that most of his grade for the class would be determined by in‐class electronic responses to the professor’s questions, and he could simply give this device for making the responses to a friend, who would make the responses for him, Alex realized that he use the class time to do other things that he would like even better.
1.21 Alex decided to give his device to a friend, Tiffany, who was willing to enter responses for him. Everything was going well for a few weeks, until he received an email from the course professor. The email was addressed to all of the students in the class. It said:
Dear Students, I have become aware that some of you have given your electronic devices to other students, who are entering answers on your behalf. I became aware of this because I was receiving hundreds of responses even though the lecture hall was half empty. As it is impossible for me to determine who was absent, who was entering scores on behalf of absent students, and who was present but entering only their own scores, I have decided to lower everyone’s grade for the course by one letter. If students come forward and confess to skipping class or entering scores for other students, I will not lower your grade further. This may, however, allow me to recognize which students were not cheating, and give them the grades they have earned.
Depressed about the lowered grade, Alex contemplates whether he should come forward. Ultimately, he decides not to. In the first place, he does not want to get Tiffany in trouble. She was only being nice to him, after all. In the second place, he does not really trust the professor. It seems unethical for the professor to lower everyone’s scores when not everyone cheated. Given that behavior, Alex does not trust the professor not to take further disciplinary action against him, even though the professor said that he would not take further disciplinary action.
Sidebar Exercise
Is Alex’s decision not to come forward ethically acceptable? Is the professor’s decision to punish everyone ethically acceptable? What would you do in Alex’s circumstances, or the professor’s circumstances? What would you do if you were one of the students in the course who did not cheat?
Evaluating the Case Studies
1.22 Now that we have presented the cases, and started thinking about them from an ethical perspective in a general sense, let us become more precise in our ethical thinking. First, let us try to figure out when we are using ethical guidelines, and when we are using other kinds of guidelines, to think about these cases. Second, let us consider how to use ethical guidelines to evaluate the cases. Finally, we discuss some of the limitations of ethical evaluation. Being aware of these limitations will help us to do our ethical evaluating more effectively.
Non‐ethical guidelines for thinking about the cases
1.23 Return to Sam’s case. In considering whether to loan his friend his shoddy notes, Sam could have consulted a variety of guidelines. Different guidelines might recommend that Sam do different things. Some of these guidelines are ethical—but not all of them. Sam could also have consulted his emotions, his community’s etiquette, the law, or his religion. In order to figure out what guidance ethics can distinctively provide, then, let us separate ethics from these other kinds of guidance.
1.24 First, consider Sam’s emotional response to the question that Maria presented to him. He felt embarrassed that his notes were poor quality and guilt when he loaned Marie the notes without telling her that they were inadequate. When Marie confronted him after the examination, though, Sam felt defensive and was inclined to rationalize Maria’s poor performance as being her fault. In this sense, we can see how Sam’s emotions help to guide his behavior. His embarrassment overcame his guilt, inclining him to conceal the truth from Marie; his defensiveness prevented him from accepting any responsibility for her poor performance on the test.
1.25 If Sam behaved unethically in loaning Maria the substandard notes, then, his emotions seem to have contributed to his unethical action. In some ways, his feeling of embarrassment is what motivated him to keep silent about his notes’ inadequacy. Thus, it is clear that emotional guidance is not the same as ethical guidance (in the sense that Sam did not remain silent because he felt it was the right thing to do). This does not mean, though, that your emotions cannot help to guide you to act ethically. For example, think of Sam’s feeling of guilt in lending Maria the shoddy notes. That feeling might have inspired him to act more ethically. So, we should pay attention to our emotions when trying to act ethically. We should not be completely guided by them, though.
1.26 The same is true of etiquette, or the social norms that guide behavior in whatever part of the world you happen to be acting. Such norms include relatively minor things like how much space people usually leave between themselves and another person with whom they are conversing. They also include potentially more significant things such as whether Marie can be expected to double‐check that Sam’s notes are complete or whether she will be inclined to trust that they are. In this case, Sam was confused about whether Marie would trust that his notes were complete or whether she would be suspicious. It can be difficult to figure out what social norms are involved in our decision making. (This problem will be discussed in greater detail in Chapter 4, with respect to the Kantian ethical theory.) One strategy for figuring out what social norm is in place is asking yourself: what would I expect in the other person’s circumstances? It can be difficult to answer this question honestly, so it is probably better to err on the side of being overly cautious. When Sam was unsure whether Marie would know that he was a poor notetaker, it would have been most honest to tell her that he had some doubts about just how useful his notes would be to her.
1.27 Next, consider how the law might guide Sam. It is probably not illegal to lend someone shoddy notes without first revealing that they are incomplete. If Marie were inclined to, though, she might be able to bring a civil lawsuit against Sam, alleging wrongful damages. Even as Sam and Marie hashed it out in court, though, they would not resolve whether what Sam did was ethically wrong. The judge would decide, rather, whether Sam’s actions caused Marie damages for which she was legally entitled to be compensated.
1.28 Similarly, consider an informal law like a student code of conduct. Most student codes of conduct do not specify that students must disclose that their notes are faulty when loaning faulty notes to a classmate. If the code of conduct at Sam and Marie’s school did have such a provision, though, Sam’s action would be in violation of the code but not necessarily unethical.
1.29 Sam’s failure to disclose the shoddy nature of his notes to Marie might violate some of his religious obligations as well. Many religions have a prohibition against lying and Sam’s action could violate that provision. Like the codes of conduct discussed about, though, most religions do not go into great detail about what is required of people in particular circumstances. Studying ethics can help us to address these particular details.
Ethical guidelines for thinking about the cases
1.30 Now that we have set out some other forms of guidance that Sam could have considered in making his decision to lend Maria inadequate notes, let us think about this decision from an ethical perspective. Above, it was suggested that there seems to be something ethically wrong about Sam’s action. Let us now try to be more precise about what (if anything) was ethically wrong about what Sam did. We shall begin by considering what aspects of his decision seem ethically significant.
1.31 Some of the things that seem ethically significant could include:
Maria experienced harm.
Sam was (to some extent) a cause of this harm.
Sam was (in some sense) dishonest.
Sam and Maria’s friendship was damaged.
Sam might have failed to live up to what Maria expected from him.
Sidebar Exercise
Is there anything else about the event that seems ethically significant? Try to say why the things that seem ethically significant to you seem ethically significant. What makes these things important, from an ethical point of view?
1.32 We can consider this problem from several different standpoints:
Sam
Maria
an “impartial observer”
all of society looking in
an ethical hero, who always acts ethically.
In considering what, if anything, was wrong about what Sam did, we should evaluate his action from each of these standpoints. In Chapter 4, we will use this analysis of what seems ethically significant, and what standpoints seem ethically important, to decide what is the right thing to do using three different ethical theories.
Sidebar Exercise
Carry out the ethical consideration of Sam’s actions from each of these standpoints. Do they evaluate Sam’s action in the same way? If there are differences in their evaluations, which one should have priority?
Limitations of ethical evaluation: the problem of controversy
1.33 As you reflected on the case studies and completed the sidebar exercises, you might have come to (tentative) conclusions about who acted rightly or wrongly and what were the most important considerations in determining who acted rightly or wrongly. You might also have a sense that your ideas are correct. In discussing your ideas with a friend or classmate, however, you might be surprised to realize that other people have different views. They might even think that different considerations are more (or less) important than you think. These kinds of controversies in ethical evaluations are actually some of the most important parts of ethics, and they are something with which we will have to get comfortable.
1.34 At the beginning of this chapter, we contrasted ethics with science in order to get a better grasp of what ethics is. Contrasting ethics with science can also illuminate the problem of controversy. Whereas educated people generally agree about what is scientifically true, people can reasonably disagree about many ethical matters—even when they are well informed about the relevant issues. This is in part because of the diverse perspectives that people bring to bear on ethical questions. As noted above, people’s responses to ethical questions draw upon their intuitions: internal ideas they have about right and wrong. People develop their intuitions over many years based on the different experiences they have had, the various people who have influenced them, books they have read, and so on. In short, people’s intuitions can be very different from one another and it is complicated to parse out the reasons for the differences. Because intuitions inform the ethical evaluations people will reach, then controversies are an unavoidable part of ethics. We cannot expect to reach consensus on most of the ethical issues we will discuss in this book.
1.35 This should not be reason for discouragement, however. Whereas consensus is an important part of science, we can do ethics very well without needing to reach consensus. In fact, the lack of consensus can even make our ethical evaluations stronger. People’s different perspectives enhance ethical deliberation in the sense there are many uncertainties in ethics. Discussing your ethical ideas with someone who has different intuitions can help you both to see where there might be a weakness in your ethical reasoning and to work to correct it.
Reference
Kant, Immanuel. 1788.
Critique of Practical Reason
, trans. Philip McPherson Rudisill.
http://kantwesley.com/Kant/CritiqueOfPracticalReason.pdf
2BUSINESS: MAXIMIZING PROFIT
2.1 Now that we have covered some foundational issues about ethical thinking, our next step is to understand how businesses function. Understanding how businesses function, in turn, will allow us to figure out what role ethical thinking can play in business decision making. We will be doing that in detail in Part III of this book (Chapters 7–11). In this second chapter, our topic is business organization. We need to understand both what makes a business a business and what role business plays in society. We begin by setting forth the theory of the firm, including the corporation’s organization and the centrality of the so‐called profit motive to that organization. Next, we examine how business decisions affect many people throughout society: shareholders, suppliers, employees, customers, and the community at large.
Theory of the Firm
2.2 Many of the business ethics controversies that we will examine in this book arise, at least in part, because the size and complexity of businesses make it difficult for any one person to monitor what is going on in every corner of the business at every moment. Before delving into business ethics controversies, then, it is worth understanding why many businesses are so big in the first place. These understandings belong to what economists call the theory of the firm. The theory of the firm explains why the firm, or business, is organized as it is and for what purpose it exists.
Firm organization
2.3 First, let us understand how the firm is organized. At its most basic, the firm is organized into two distinct parts: the people who own the business and the people who run, or manage, the business. Firms are owned by shareholders. Business owners are called shareholders because they hold, or own, shares, or parts, of the business. The shareholders invest money in the firm but do not manage the firm. They typically invest money in the firm because they believe they will earn a return on their investment: when the firm earns a profit, they will receive a part of that profit. Thus, shareholders generally want firms to earn as much profit as possible. Shareholders in publicly traded corporations can be called stockholders if they own the company’s stock, or publicly traded shares of the business. Stocks are traded—bought and sold—in stock exchanges like the New York Stock Exchange (NYSE) on Wall Street in New York City.
2.4 Firms are managed by executives. Executives usually do not own much of the business. Another way of saying that executives do not own many shares of the business is that executives typically have little equity in the corporation. Equity is yet another word for what the shareholders own. We can also say that shareholders own capital in the business. Executive management consists of the firm’s chief executive officer (CEO), along with other executives who assist the CEO, such as the chief financial officer (CFO) or the chief operations officer (COO). The number and kinds of other executives vary from firm to firm. Every firm, though, is run by a CEO.
2.5 The CEO typically provides the firm’s vision. He or she hires teams of employees to carry out this vision, with the ultimate aim of producing profit for the shareholders who have invested funds to create the business. The CFO oversees the firm’s financial performance. The COO is responsible for daily operations, such as advertising and staffing. Both the CFO and the COO report directly to the CEO.
2.6 The CEO, in turn, reports to the firm’s board of directors, who are elected by the shareholders to oversee executive management. One of the main activities of the board of directors is to ensure that executive management is pursuing the shareholder’s wishes to maximize shareholder profits. (This is where the profit motive comes from.) The CEO sometimes serves as the chairperson of the board of directors.
Why the firm exists at all
2.7 Next, let us investigate why the firm exists on a large scale with many permanent employees, rather than on a smaller scale with temporary employees who are hired to do specific work and then move on. According to an early (1937) theory of the firm offered by economist Ronald Coase, it seems as if it would be less expensive for the CEO to hire independent contractors on a job‐by‐job basis rather than employing full‐time workers. With such independent contractors, the CEO would simply pay the contractor for whatever work was to be performed; the business would not be responsible for paying people when their work was not directly needed. Such an arrangement would also keep the size of the firm fairly small, as few permanent employees would be needed.
2.8 Coase observes, though, that contractors are actually much more expensive than permanent employees. If the CEO relies on contractors, he or she must continually engage in expensive activities: locating appropriate contractors, determining that they are appropriate, negotiating their salaries with them, haggling over their share of the firm’s profits, overseeing their activities to ensure that they perform the work correctly, preventing them from disclosing the company’s trade secrets, and so on. Thus, Coase concludes that it will typically be more efficient for the CEO to form a firm with a large team of permanent employees.
2.9 Moreover, without the employment hierarchy created by corporate organization, the CEO would have to find an independent contractor whenever he or she needed any task completed, even a very small one like purchasing a new pen. If the CEO could always count on suitable labor being available, he or she might not need to maintain a large, permanent staff. In conditions of greater uncertainty, however, the firm’s stability can prove to be a major boon. The labor is always available. Indeed, Coase associates the firm very closely with the conditions of uncertainty in which business takes place: “it seems improbable that a firm would emerge without the existence of uncertainty.”
Sidebar Exercise
What do you consider to be the better way of organizing firms: hiring a large staff of permanent employees or hiring independent contractors to perform specific tasks as they are needed? What ethical questions are associated with this choice?
Problems for firm organization
2.10 Even when the firm is in place as a stably organized, hierarchical organization, though, problems still remain. Perhaps most seriously, the firm must find ways to assure that all employees perform their jobs properly, pursuing the firm’s interests. Difficulties arise at every level of employment, beginning with the CEO. Like other employees, CEOs may be inclined to put their own interests ahead of the firm’s. As economist Oliver E. Williamson (1964) highlights, CEOs are naturally inclined to seek maximal salaries, security, and prestige for themselves. These inclinations can conflict with their responsibilities to perform well for the firm, such as by earning maximal profits. Of course, CEOs must achieve some profits to satisfy shareholders. After a minimal sufficient level has been reached, however, CEOs appear to have wide discretion to pursue their own interests. The problem for shareholders in monitoring CEOs is that CEOs tend to know far more about the businesses than shareholders do. Thus, it is difficult for them to guarantee that the CEO’s activities always pursue firm interests above the CEO’s personal interests.
2.11 Lower‐ranking employees can also be inclined to pursue their personal interests over the firm’s. Here, though, the firm’s organization can help to mitigate the problem: by providing a way to centralize monitoring activity. Shapiro and Stiglitz (1984) show that paying employees a slightly higher wage than they could command based on the productivity of their work alone helps to secure compliance with the firm’s profit‐seeking activities. Paying employees a slightly higher wage than they are really “worth” to the market gives them an incentive to do what they need to do to preserve their jobs, such as pursuing the firm’s interests over their own. The slightly‐higher‐than‐merited wages that the firm pays to secure its interests are sometimes called wage rents. Williamson, Wachter and Harris (1975) add that the possibility of being promoted in virtue of good works offers additional incentives to employees to perform well.
Business Decision‐Making: Shareholders and Cost‐Benefit Analysis
2.12 We have seen that businesses have complicated organizations, in which many different people most be motivated to put their own interests aside and pursue the firm’s interests (typically, as discussed above, maximal profits for the firm’s shareholders). In this section, we see how businesses attempt to simplify their decisions in order to assure that maximal profits are pursued. We will discuss three theories of business decision making: (1) the Dominant Model (DM); (2) the Shareholder Theory (ShareT); and (3) cost‐benefit analysis (CBA).
2.13 Let us begin by defining our terms. In ethics, we will always be discussing controversial decisions, as discussed above: in the sense that people will disagree about what is the right thing to do. So, when discussing ethical matters it is especially important to ensure that the aspects of the discussion about which people can agree are clearly stated. One important thing about which people can agree are the definitions of the terms that they are discussing. By explicitly defining these terms at the start of the discussion, everyone participating in the discussion can make sure that they are using the words in the same way. If they need to diverge from that common understanding for some reason, discussion participants can say clearly when they are diverging. This helps to organize the discussion and pinpoint exactly where disagreements arise.
2.14 People affected by the business’s decisions include shareholders, employees, suppliers, customers, and the community in which the business is located. We defined shareholder in the last section. The shareholders of the firm are the firm’s owners. They provide the money, or capital, that the firm needs to get started and to conduct business once it is established. In a fitness club, for example, the shareholders might own the exercise equipment. The value of their share of the company increases when the company makes a profit and decreases when it loses money. Their ownership is different from that of a sole proprietor, who both owns and runs a business, in that the shareholders do not direct day‐to‐day business activities; the firm’s board of directors and executive management handle those responsibilities. Shareholders do, however, elect the board of directors.
2.15 The employees are people who work for the firm and are paid salaries in exchange for their work. Unlike the shareholders, who earn money only when the firm produces a profit, employees receive their salaries regardless of how much profit the firm earns or even whether it earns a profit. Because they are subject to a hierarchy of power, such that each reports to a boss, who ultimately reports to the board of directors, which responds to shareholders, however, employees also experience pressure to make the firm produce a profit.
2.16 The suppliers of a firm sell the firm its raw products. They continually negotiate with the firm about the price the firm pays for the materials out of which it manufactures its finished products. Both sides typically seek an agreement that most benefits them.
2.17 The firm’s customers buy its products. They are interested in paying low prices and receiving high quality goods. They do not directly haggle with the business over prices and quality. Their choices to buy or not to buy the business’s products, though, give the business information about what price they should charge and what quality of goods they should provide.
2.18 The community refers to the other people living where the firm does its business, who may be affected by the firm’s activities. For example, they may be benefited if the firm creates jobs or pays tax revenue; they may be harmed if the firm pollutes the local environment.
The Dominant Model
2.19 The Dominant Model (DM) is a business decision‐making strategy invented by R. Edward Freeman, an American business ethicist. The DM is not the actual decision‐making strategy that any particular firm uses. Rather, it is a simplified model of corporate decision‐making that seeks to explain how many firms decide what to do. The DM assumes that there is a conflict of interest among the parties discussed above. For example, customers want inexpensive products, which conflicts with the shareholders’ interest in earning maximal profits. Employees have interests in high salaries and suppliers have interests in high prices for their supplies, which also conflict with the shareholders’ desires for maximal profits.
