IDENTIFY THE LEGAL AND ETHICAL PERSPECTIVES

IN BUSINESS

Business Ethics

Business decisions are ethical decisions. They have a basis in some understanding of

what ought to be done - what is "right" and "wrong". Theories about the nature of the

firm not only provide some perspective on how we conceptualize the economic objective

of business, but help formulate how we view the choices that business confronts. A

purely economic perspective argues that the business of the firm is paramount. If the firm

pursues its economic, profit maximizing objectives, the social and larger economic

interests of all will be served. If we assume that competing interests are imposed on the

firm. Business management engages not only the interests that are specific to the firm

itself, but also engages interests and issues that have implications beyond the single profit

maximization goal of investors.

We examine five ethical frameworks for consideration of the social responsibility of

business and managers:

• Egoism or Self Interest

• Social Group Relativism
• Cultural Relativism
• Utilitarianism
• Deontology

EGOISM OR SELF INTEREST PERSPECTIVE

Egoism or self-interest ethics assumes that individuals and businesses have an obligation

to guide their conduct by a rational calculation of one’s own interests. For business, it

follows that value creation or profit maximization is paramount to the firm.

The limitation to what is proper or right conduct of self interest is the law. But, the

objective of the law ought to be libertarian - that is, to facilitate the greatest possible

liberty of individuals and of businesses constrained only by the higher need that all be

able to compete fairly and unimpeded by the force of others. There are plenty of cases

that suggest that this reasoning has merit. Peter Drucker cites the case of Union Carbide

which in an attempt to be socially responsible decided to build a plant in a depressed area

of the Appalachian Mountains to bring employment to a chronically unemployed area.

Within a few years the plant proved uneconomic, brought ruin to what was an

environmentally clean and pristine area, and on the closing of the plant, left the

population displaced and as unemployed as before. As Drucker argue: clearly, the

business of business ought to be business. In pursuing this, there is social benefit.

For the individual egoism evaluates an ethical situation as it applies to the self –

me. Conduct is appropriate if it advances my interests and inappropriate if it

harms or conflicts with personal interests. Self interest reasoning can be couched

in statements that are "self-serving" - although self interest intentionally may be

concealed. It is only necessary that the decision-maker be aware of his intent to

pursue what is in his interests. A potential problem with egoism is a situation in

which competing interests are advanced by other individuals, all pursuing self

interests, where cooperative solutions exist and are "better" than non-cooperative,

individual action.
SOCIAL GROUP RELATIVISM

If not the self as the proper referent to "right" conduct, then the reference is the

expectations of others - our social group. Social group relativism is the view that we

assess what is proper conduct by understanding what our social group expects of us.

While the term "relativism" has come to imply that "any thing goes", here the term

simply means that standards of conduct in our personal life and in business are governed

by the expectations of others on our behavior. Pejoratively, "we conform."

We identify with several groups that comprise a larger society. Our personal identity is

crowded with social categories which are assigned to us and to which we assign ourselves

- race, sex, nationality, religion, membership in social groups, political affiliations,

allegiances to colleges and sports teams, age grouping, and the family into which we are

born, to name a few of the social groups in which we have "membership". All of these

social groups or categories identify to others, and to ourselves, who we are. The values or

expectations that each of these "groups" share are varied and are sometimes conflictive.

In business social relativism often takes the form of industry practices. Many small

businesses pay minimum wage and provide no health insurance not only because it may

be in their interests to do so, but because it is an accepted industry practice to do so.

CULTURAL RELATIVISM

Cultural relativism bases ethical judgment on societal norms, or the law. If an action is

not illegal, it is permitted. Here social culture is equated with law because laws are an

expression of national cultural values. They need not be fixed or constant values.

Although not fixed in time, the law as a standard for ethical behavior is an attempt to
forge a national consensus on individual conduct. In the case of child labor laws, the

standard is high. In the case of health care entitlement, the standard in the U.S. is not as

high as, say, most European countries.

Cultural relativism does not lead to a universal sense of "right" conduct. What is "right"

is governed by the national culture to which the decision maker belongs. As business

becomes more international, conflictive cultural norms and laws become problematic in

trying to act "ethically". Until recently most European businesses freely paid "fees" to

agents in third world countries for delivering large government contacts because it made

business sense; it was legal; and, "everyone else paid bribes."

UTILITARIANISM

A contemporary of Adam Smith, Jeremy Bentham offered a political theory that attempts

to resolve conflicts between individual and collective demands on one’s actions –

utilitarianism. The theory’s fundamental proposition is "the greatest good for the greatest

number." The utilitarian ethic requires that a decision-maker assess the choices of all who

are involved in its outcome, then commit to an action that is satisfying to a majority.

When a decision harms the greatest number of people involved, it is "wrong". Individuals

sacrifice their personal interests when these do not serve the general welfare.

For example, excessive over-fishing of the Chesapeake threatens to destroy the resource

of fish. The waterway cannot be "privatized" or parceled. The obvious solution, then, is

that fishermen must cooperate to preserve fishing. However, fishermen refuse to

cooperate as each is attempting to maximize individual economic self interest and maybe

distrustful of rivals’ attempt to gain an advantage. Each buys larger fleets and hasten the
extinction of fish in an effort to increase yields with a diminishing supply of fish. Adam

Smith’s theory of the social contract does not work. Bentham’s utilitarian solution of

trying to maximize some common good cannot be enforced in a community that is

distrustful of other’ actions and a majority cannot be formed.

John Stuart Mill argued for a more complex utilitarian philosophy that equates utilitarian

with "practical". Mill argued that the greatest number do not always know the common

good. Nor for that matter would an individual pursuing his own interest, necessarily

contribute to the common good, as Adam Smith had argued. What is discernible as

socially good arises from experience, practice, trial and error. Most, importantly, the

social good emerges from the creation of the kind of society that engenders competing

interests and ideas of the "good". Because all must be consider equal, the greatest good

lies in the greatest liberty for individuals to pursue their own self expression of what is

good. The utilitarianism of Mill attempts to balance the rights of minorities with the

rights of the majority by limiting majoritarian actions through the requirement that

minority interests are to be protected. But, Mill is also arguing that the common good is

served by allowing conflict among competing interests. The common good is worked out

through a shared experience of what is beneficial to the community. The fishermen of the

Chesapeake Bay should learn that their actions are interdependent and that individual self

restraint may be the most prudent action.

DEONTOLOGY

The deontological perspective is sometimes stated simply as: "Do unto others as you

would have them do unto you." The root word "deon" is from the Greek meaning

"obligation" or "commitment". The philosophical theory of deontology is formalized in

the writing of Immanuel Kant in the early 1800’s. Kant places the basis of ethics on the

obligation, or the duty, to do what is "right". What is "right" comes from an idealized

notion of what a "better world" ought to be. The duty to make this a better world is

something we take upon ourselves. Kant argued that not everyone in all cases is capable

of this. And, in certain circumstances there may be a compulsion to act otherwise. But, if

you ask "What is the ‘right’ thing to do?", image the world or the circumstance as it

should be - then act on the merits of this Ideal. By raising the very question: "Is this

action or decision "right", "good" or "bad"?", we raise the question of whether this is

something we are willing to do, irrespective of the number of others who may do it. One

test, then, of what is "right" is: Is this action something that that would be universally

applicable to all people in all situations - or, as Kant terms is it a "categorical

imperative"?

While this may sound like a religious commandment, deontology as a field of ethics

attempts to forge a concept of "right" that is more universal than one religion. Telling the

truth, for example, is a moral obligation, but not because it may be instructed by religion.

Truth telling is a duty because we understand what it is like to be lied to. Falsehoods

create distrust, undermine relationships, and if acted on, can lead to disaster. To the

deontologists, this is not a utilitarian value - tell the truth only when it serves "good"

purposes. Truthfulness is simply right as an ideal, and we assume the obligation to

commit to the Ideal as something of value in, and of, itself. Unlike most of the ethical

theories in which actions or decisions are evaluated as to their consequences: in egoism

the issue is the consequence to me; in social group and cultural relativism the issue is the

consequence to and expectations of my group or country; in utilitarianism the issue is the

consequence to all involved - in deontology, the issue is doing the right thing, simply

because it is the right thing to do.

As suggested in the five ethical frameworks presented, we do not all see "right" in the

same way. Deontology suggests that there is some universal Ethic that is available to all

of us. This is an empirical problem that in Kant’s reasoning is not especially a problem.

As it is not possible to "prove" the existence of God, it is not possible to "prove" the

existence of universal truths that cannot be rooted in scientific inquiry. But, I can

conceive of a better way, a higher level of conduct; and, it is faith or belief in the value of

this Ideal that connects me to an obligation to act accordingly - and, nothing else.

There are many cases of business decisions based simply on doing the "right" thing. A

few years ago when a New England textile mill burned down, the owner opted to

continue paying the salaries and benefits of workers while the plant was being re-built.

Companies such as Johnson and Johnson and Dayton Hudson spend large amounts of

money for community services in the areas in which they operate as part of their desire to

be good citizens. And, many small businesses spend the money to provide health

insurance for their employees, simple because its the right thing to do.