Evaluating Business Ethics:

Normative Ethical Theories

Dr. Tanuja Sharma, PhD-FMS (Delhi University)

Professor -Human Resource Management
Management Development Institute (MDI) (
http://www.mdi.ac.in)
Mehrauli Road, Sukhrali,  Gurgaon 122001,
INDIA
Fax: +91-124-2341147;Phone: +91-124-4560304
Mobile: 9910841987
Email: tanujasharma@mdi.ac.in
 Overview
• Locate the role of ethical theory
• Highlight international differences in
perspectives
• Provide critical overview of traditional ethical
theories
• Explore contemporary ethical theories
 Ethics Defined…morality based views
• A study of the standards of conduct and moral
behavior.

• A system or code of morals of a particular

philosophy, religion, group, profession, etc.

• In other words, Ethics is about appropriate

behavior, such as:
What is good and bad; Right and wrong.
Moral duty and obligation; Principles and
values.
 ETHICS
• “SHARED VALUES AND MUTUALLY
AGREED UPON PROCESS FOR DEALING
WITH ADVERSITY AND CHANGE” (page
59)
• Utilitarian approach- Do the greatest
Good for greatest number.
“It ain't what you don't
know that gets you into
trouble. It's what you
know for sure that just
ain't so.–

Mark Twain?
Ethics is a set of rules that define right and
wrong conduct.

Business ethics can be defined as written

and unwritten codes of principles and
values that govern decisions and actions
within a company. In the business world,
the organization’s values and culture sets
standards for determining the difference
between good and bad decision making
and behavior.
 The relationship between morality,
ethics and ethical theory
• Morality is concerned with the norms, values and
beliefs embedded in social processes which define
right and wrong for an individual or a community.
• Ethics is concerned with the study of morality and
the application of reason to elucidate specific rules
and principles that determine right and wrong for
any given situation.
• These rules and principles are called Ethical Theories.
 The relationship between morality, ethics and
ethical theory

… to
Ethics
produce
rationaliz …that can
ethical
es be applied
theory
morality to any
…
… situation.
Potential
Morality Ethics Ethical solutions
theory to ethical
problems
Traditional ethical theories
• Generally offer a certain rule or principle
which one can apply to any given situation
• These theories generally can be differentiated
into two groups

Motivation
/ Action Outcomes
Principles

Non-consequentialist Ethics
Consequentialist Ethics

Source: Crane and Matten (2010)

What are normative ethical theories?

• Ethical theories are the rules and principles

that determine right and wrong for any given
situation Crane and Matten (2010)

• Normative ethical theories are those that

propose to prescribe the morally correct way
of acting

• As opposed to descriptive ethical theories

which seek to describe how ethics decisions
are actually made in business
 A Thesis
•Normative Ethical theories - morally correct
way of acting – Knowing

•Descriptive ethical theories - how it is. Doing

•Virtue ethics-Way of Being

The role of ethical theory
 The role of ethical theory
• Two extreme positions (De George 1999)
• Ethical absolutism claims there are eternal,
universally applicable moral principles
– Right and wrong are objective qualities, can
be rationally determined
– Typically traditional ethical theories
• Ethical relativism claims morality is context-
dependent and subjective
– No universal right and wrongs that can be
rationally determined; depends on person making
the decision & culture in which they are located
– Typically contemporary ethical theories
Normative ethical theories
 North American, European Asian
perspectives; origins and differences
• Differences between Anglo-American and
European approaches based on philosophical
arguments
– Individual versus institutional morality
• US tend to individualistic perspective
• Europe towards wider economic and governing institutions
– Questioning versus accepting capitalism
• US tend to accept the capitalist framework
• Europe tend to question the ethical justification of capitalism
– Justifying versus applying moral norms
• US tend to focus on application of morality
• Europe focus on justification and ethical legitimation of norms
• In contrast, Asian perspectives tend to be
based on religion (e.g. Islam, Hindu, Jain,
Buddhism) or virtues
Western modernist ethical theories
 Traditional ethical theories
• Generally offer a certain rule or principle
which one can apply to any given situation
• These theories generally can be
differentiated into two groups

Motivation
/ Action Outcomes
Principles

Non-consequentialist Ethics
Consequentialist Ethics

Source: Crane and Matten (2010)

Major normative theories

Source: Crane and Matten (2010)

 Egoism
• Theory of egoism - an action is morally right if
the decision-maker freely decides an action to
pursue either their (short-term) desires or
their (long-term) interests.
– Adam Smith (1793): pursuit of individual interest
morally acceptable as invisible hand of market
creates benefit for all
– Relies on free competition and good information
– ‘Enlightened egoism’
– However, markets do not function perfectly
• Anti-globalisation movement
• Sustainability debate
 Utilitarianism
• According to utilitarianism, an action is
morally right if it results in the greatest
amount of good for the greatest number of
people affected by the action

– Also called the ‘greatest happiness principle’

– Based on cost-benefit analysis
 Problems with Utilitarianism
• Subjectivity
– This has led to refinement of theory
• Act utilitarianism
• Rule utilitarianism
• Issues around quantification and distribution
of utility
 Act- and Rule-Utilitarianism
Act utilitarianism
– Looks to single actions and bases the moral
judgement on the amount of pleasure and the
amount of pain this single action causes.

Rule utilitarianism
– looks at classes of action and ask whether the
underlying principles of an action produce more
pleasure than pain for society in the long run.
 Ethics of duties
‘Categorical Imperative’ (Kant)
• Maxim 1: Consistency
– Act only according to that maxim by which you can at the same time will
that it should become a universal law.

Maxim 2: Human Dignity

– Act so that you treat humanity, whether in your own person or in that of
another, always as an end and never as a means only.

• Maxim 3: Universality
– Act only so that the will through its maxims could regard itself at the
same time as universally lawgiving (would others agree? Would you be
happy to see your decision reported in the press?)
 Problems with ethics of duties
• Undervaluing outcomes
• Complexity
• Misplaced optimism?
 Ethics of rights and justice
Natural rights
• Certain basic, important, unalienable entitlements that should
be respected and protected in every single action.
– Based on consensus about nature of human dignity
– Strongly based in western view of morality
Justice
• The simultaneously fair treatment of individuals in a given
situation with the result that everybody gets what they
deserve
– Fair procedures (procedural justice)
– Fair outcomes (distributive justice)
 John Rawls’s
‘Theory of Justice’
1. Each person is to have an equal right to the
most extensive total system of basic liberties
compatible with a similar system of liberty
for all.
2. Social and economic inequalities are to be
arranged so that they are both:
a. to the greatest benefit of the least advantaged;
b. attached to offices and positions open to all
under conditions of fair equality of opportunity.
 Limits of traditional theories
• Too abstract
• Too reductionist
• Too objective and elitist
• Too impersonal
• Too rational and codified
• Too imperialist
Alternative perspectives on ethical
theory
 Approaches based on character and
integrity
Virtue ethics
• Contends that morally correct actions are those undertaken
by actors with virtuous characters. Therefore, the formation
of a virtuous character is the first step towards morally correct
behaviour
Acquired traits
• Intellectual virtues
• Moral virtues
 Major Philosophical Ethical Principles (Contd.)

• Virtue Ethics (Aristotle and Plato)

• Character ethics
 Key to good ethics lies not in rules, rights, and
responsibilities, but in the classic notion of character
 Virtue is the habitual, well established, readiness, or
disposition of an individual’s powers directing him to
some goodness of act. It is a habit of character.
 Major Philosophical Ethical Principles

• Virtue Ethics (Contd.)

 Four Cardinal Virtues:
 Courage
 Justice
 Temperance
 Wisdom
 Major Philosophical Ethical Principles (Contd.)
• Virtue Ethics (Contd.)
 Seven Contrary Virtues:
 Humility Pride
 Kindness Wrath
 Abstinence Gluttony/Greed
 Chastity Lust
 Patience Wrath
 Liberality Avarice Envy
 Diligence Sloth
Major Philosophical Ethical Principles (Contd.)
• Virtue Ethics (Contd.)
 Practicing these is said to protect one against
temptation towards the negative behaviors
represented by:
 Pride (Vanity)
 Avarice (Covetousness or Greed)
 Lust
 Wrath
 Gluttony
 Envy
 Sloth
 Secular/Universal Ethics
•Mutual tolerant and respect for All
•Shared humanity and
•Interdependence –Dependent origination
Based on kindness, compassion, forgiveness, patience
and personal integrity.
Culture of tolerance, diversity and debate,
Compassion and question of Justice.

WISEDOM & COMPASSION-HH Dalai Lama

Normative Ethical theories - morally correct way of
acting - Knowing
Descriptive ethical theories - how it is. Doing
Secular Ethics- Being..
 Approaches based on ethics and
responsibility
Feminist ethics
• An approach that prioritizes empathy, harmonious and
healthy social relationships, care for one another, and
avoidance of harm above abstract principles
Key elements
• Relationships
– Decisions taken in context of personal human interrelations
• Responsibility
– Active ‘taking’ of responsibility, rather than merely ‘having’ it
• Experience
– Learn and develop from experience
 Approaches based on procedures of
norm generation
Discourse ethics
• Aims to solve ethical conflicts by providing a process of norm
generation through rational reflection on the real-life
experiences of all relevant participants
Key elements
• Ultimate goal of ethical issues in business should be the
peaceful settlement of conflicts
• Different parties in a conflict should sit together and engage in
a discourse about the settlement of the conflict, and
ultimately provide a situation that is acceptable to all
• ‘ideal discourse’ criteria
 Approaches based on empathy and
moral impulse
Postmodern ethics
• An approach that locates morality beyond the
sphere of rationality in an emotional ‘moral
impulse’ towards others. It encourages individual
actors to question everyday practices and rules,
and to listen to and follow their emotions, inner
convictions and ‘gut feelings’ about what they
think is right and wrong in a particular incident of
decision-making.
 Postmodern business ethics
• Postmodern business ethics emphasises
(Gustafson, 2000:21)
– Holistic approach
– Examples rather than principles
– ‘Think local, act local’
– Preliminary character

Problems-radical moralistic religious views. Neo-

Hinduism in India. Radicalised Islam etc
 Stakeholder Versus Shareholder
Stakeholder Perspective
Shareholder Perspective
 Stakeholders may include:
 Those who approach ethical employees, suppliers,
decision making from a customers, competitors,
shareholder perspective government agencies, the
focus on making decisions news media, community
that are in the owners' best residents and others. The
interest. Decisions are idea behind stakeholder
guided by a need to based ethical decision
maximize return on making is to make sound
investment for the business decisions that
organization’s shareholders. work for the good of all
affected parties
 Summary

Towards a pragmatic use of ethical

theory
 Warren Buffet’s rule of thumb for ethical
conduct
• “…I want employees to ask themselves (when they
are in doubt about whether a particular conduct is
ethical or not) whether they are willing to have any
contemplated act appear the next day on the front
page of their local paper – to be read by their
spouses, children and friends – with the reporting
done by an informed and critical reporter.” [Berkshire
Hathaway’s code of ethics]
 Stakeholder Versus Shareholder
Shareholder Perspective
 Those who approach ethical
decision making from a
shareholder perspective
focus on making decisions
that are in the owners' best
interest. Decisions are
guided by a need to
maximize return on
investment for the
organization’s shareholders.
Stakeholder Perspective
 Stakeholders may include:
employees, suppliers,
customers, competitors,
government agencies, the
news media, community
residents and others. The
idea behind stakeholder
based ethical decision
making is to make sound
business decisions that
work for the good of all
affected parties
 Typical Perspective

Ethical
Dilemma Single normative consideration
for solving the ethical dilemma

‘Lens’ of ethical theory

Pluralistic Perspective
 Pluralism?
Crane and Matten (2010) argue that for the
practical purpose of making effective decisions
in business:
• Not suggest one theory or one approach as the best or true
view of a moral dilemma
• Suggest that all these theoretical approaches throw light from
different angles on one and same problem
• Complementary rather than mutually exclusive
Advocate position of pluralism
• Middle ground between absolutism and relativism
 Ethics & Globalization?
• According to Scholte (2005) globalization is not:
not
– ‘internationalization’
– ‘liberalization’
– ‘universalization’
– ‘westernization’
Globalization is:
is ‘de-territorialization’.
• It is a process which diminishes the necessity of a common
and shared territorial basis for social, economic, and
political activities, processes, and relations. (vs
Nationalism?)
 Globalization impacts:
 Cultural issues
 Legal issues
 Accountability issues
Globalization can affect all stakeholders of the
corporation
 Ethical impacts of globalization
Stakeholders Ethical impacts of globalization

Globalization provides potential for greater profitability, but also greater risks. Lack of
Stakeholders regulation of global capital markets, leading to additional financial risks and instability.

Corporations outsource production to developing countries in order to reduce costs in global

marketplace - this provides jobs but also raises the potential for exploitation of employees
Employees through poor working conditions.

Global products provide social benefits to consumers across the globe, but may also meet
protests about cultural imperialism and westernization. Globalization can bring cheaper prices
Consumers to customers, but vulnerable consumers in developing countries may also face the possibility
of exploitation by MNCs.

Suppliers & Suppliers in developing countries face regulation from MNCs through supply chain
competitors management. Small scale indigenous competitors exposed to powerful global players.

Global business activities brings the company in direct interaction to local communities with
Civil society possibility for erosion of traditional community life; globally active pressure groups emerge
(NGOs, etc) with aim to “police“ the corporation where governments are weak and tolerant.

Globalization weakens governments and increases the corporate responsibility for jobs,
Government & welfare, maintenance of ethical standards, etc. Globalization also confronts governments with
regulation corporations from different cultural expectations about issues such as bribery, corruption,
taxation, and philanthropy.
 International perspectives of BE; Regional
differences: Europe, North America, Asia
Europe N. America Asia
Social control by the
Who is responsible for ethical The individual Top management
collective-ethics as a
conduct in business? part of common
consciousness
Who is the key actor in business Government, trade unions, The corporation Government,
corporate associations corporations
ethics?

What are the key guidelines for Negotiated legal Corporate codes of Managerial
framework of business ethics discretion
ethical behaviour?

What are the key issues in business Social issues in Misconduct and Corporate
organizing the immorality in single governance and
ethics? framework of business decisions situations accountability

What is the dominant stakeholder Formalised Focus on shareholder Implicit multiple

value stakeholder
management approach? multiple approach, benign
stakeholder managerialism
approach
 Sustainability: a key goal for business ethics?
Sustainable development is development
that meets the needs of the present
without compromising the ability of
future generations to meet their own Econ Soci
needs. (World Commission on omic al
Environment and Development 1987).
Defined as: Environmen
tal

Triple bottom line(PPP)-Coined by John Elkington

Bottom line thinking suggests sustainability as a goal
Three dimensions:
1. Economic perspectives (Profit)
2. Social perspectives (people)
3. Environmental perspectives (Planet)
Other Factors Impacting Organizational Ethics
Corporate culture
Existence and application of a written code of ethics
Formal and informal policies and rules
Norms for acceptable behavior
Financial reward system
System for recognizing accomplishment
Company attitude toward employees
How employees are selected for promotions
Hiring practices
Applications of legal behavior
Degree to which professionalism is emphasized
The company’s decision making processes
Behaviors and attitudes of the organization’s leaders
 In conclusion;
• Issues of corporate ethics have taken the form of short-term vs.
long-term
• If businesses are focused on long term stability and growth,
they are ethical: (Triple Bottomline-PPP)
– Short term strategies, aimed at earning per share for the
year in question, compromise on longer interests.
• Investigations into some global cases suggested that the entire
senior management was intensively focused on earnings
guidance.
• Capital market orientation of companies force them to be
tempted by short term targets:
– Increasingly, the entire system of how companies are
evaluated by analysts, investors and stock markets leads to a
short term approach
– McKinsey survey [March 2006] shows that companies are
focused on short term strategies due to market pressures.
– Cases from India for critical resources like ores (Iron,
copper etc. Oil and Gas,).
 Ethical Styles

• Rule bound: obedience to law, rule, principle.

• Loyalist: company (or family or country) first.

• Prudent: our long-term advantage (self).

• Virtuous: character, reputation are all important.

• Intuitive: spontaneous judgment.

• Empathetic: how does the other person feel?

• Darwinian: whoever survives is most righteous.

 Additional resources
• Traveller's dilemma
• https://www.youtube.com/watch?v=x0Jwu-H
my70
• The Prisoners Dilemma - The Most Famous
Problem in Game Theory for negotiations
• https://www.youtube.com/watch?
v=bcUos5ueOhY
https://www.youtube.com/watch?v=cxutDM2r534

Technology &
Morality