Lecture 8

Consequential Ethics and Stakeholder Theory

Dr Nicoleen Johnson
nicoleen.johnson@sbc.USST.edu.cn

Responsible and Ethical Business Practice

With thanks to Dr Jo Watts for the
content in this lecture
 Summary so Far
2

 Principles – Friedman– self interest –Moral issues not the realm of

business
 Virtues – developing good habits -Virtuosity to regulate our emotions
and actions
 Universal principles respect / dignity treat others as you'd like them to
treat you, don't use others to meet your own ends, universality.
 Justice – more equal share in society especially those most
disadvantaged.
 Mills / Bentham - Context most important – consequences /
utilitarianism
 Teleological Ethics - The Ethics of Ends
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 Deontological – from the greek ‘deon’ – binding or obligatory

 Standards of human decency and respect for the worth of others
rules out treating them in certain ways

 Teleological – from Greek word telos or end – the end result of the
action is the sole determining factor of its morality
 Also termed ‘consequentialist’ theories

(Laasch & Conaway, 2015, p. 124)

 Ethical Egoism
4

 If the moral worth of actions or practices are determined by their

consequences what consequences are 'good'?
 Bentham - what is ‘good’ can only be defined as what makes an
individual happy…we all seek happiness. This is called ethical egoism
 We each seek the greatest pleasure (or happiness) for least effort (or
pain)
 What makes you happy? (ethical egoism)
 What pain do you have to take to achieve that happiness?
 When might that pain not become worth it?
 Utilitarianism
5

 What makes us happy is our own preference

 Preferences will clash- what is good (happiness) for you may be bad
(pain) for me
 Therefore, we cannot satisfy everyone’s idea of what is right
 So, the only possible way to define an action as being 'right' is if it leads
to the best possible balance of good consequences over bad
consequences for the most people (the majority). This is called
utilitarianism
 In the utilitarian system of ethics the happiness of minorities is
sacrificed
 Utilitarianism and the Issue of Masks in COVID 19
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 Americans have not always done selfless well. The country’s

vast landmass and frontier history have long made American
culture one that highly prizes personal freedom—often at the
expense of the public good (Kulger, Time Magazine, 2020)
 The Felicific Calculus
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Intensity - How
much will it
hurt?

Extent - How
Duration - How
Many Of Us
Long For?
Will Suffer?

Bentham : Measuring
Pleasure and Pain -
Purity - Is There
The Felicific Calculus
Pleasure to
Offset That
(here applied to pain) Certainty - How
Likely Is That
To Happen?
Pain?

Fecund – Will Propinquity -

additional pain How Close to
come later? Here and Now?
 Act and Rule Utilitarianism
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 An act utilitarian would argue that you should always (in every situation) do
what leads to the greatest good for the greatest number.
 A rule utilitarian would argue that some rules hold a central position in
morality and should not be compromised by the demands of particular
situations.
 PERSONAL FREEDOM V SHARED RESPONSIBILTY
 It is necessary to uphold some rules in order to maximise social utility. For
example if we allowed dishonesty in the securing of a contract, then if this
continued to happen, over time faith in the system of contracting itself would
be eroded which would in the long run cause considerable harm.
 Questions: Utilitarianism
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 How can we measure happiness and utility?

 Is a pig satisfied more worthy than Socrates unsatisfied? (J. S. Mill's concern)
 Can we measure current and future pain and happiness for ourselves or others?
 What about particular relationships, people or roles – are all equal?
 How wide a population should we and can we consider?
 Is it right to harm an individual if this gives greater happiness to the majority than
pain to the individual?
 Utilitarianism treats people as means rather than as ends in themselves
 The minority are sacrificed for the majority
 Isn’t the sum of happiness of the majority often going to be greater than the sum of pain for
the minority?
 Questions: Utilitarianism
10

 Doing what makes the majority happy is not necessarily doing what is ‘right’
 We may be agreeing out of convenience, self-interest, vice, or with a lack of full information
or awareness of the implications

 Is it true that we seek only pleasure and act only in our self-interest? What about
compassion, caring and virtues?
 So how might we
manage this balance
of preferences to
achieve the
happiness of the
majority?
 Requires Application of all Three Levels of Ethics
12

Moral Behavioural Management

Philosophy Psychology Studies

Normative Ethics Descriptive Ethics Ethics Management

Evaluate what should be Apply management tools to

Explain people’s right and wrong
considered right and wrong facilitate morally excellent
actions
decisions behaviour

Normative Ethics: What are our stakeholders 'values'? What is 'right' for each? How might we decide what is
'right' to maximise value?

Descriptive & Management Ethics: How do our stakeholders behave? How might we encourage behaviours that
optimise value? (Laasch & Conaway, 2015, p. 124)
 Neo-Marxism: Business and Community
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 The community as a means of ensuring for capitalists the replication of Labour

 Urban society is the means of providing most efficiently the welfare service to support labour
 Business needs from a community:
 efficient infrastructure
 access to raw materials and to labour
 Community needs that may clash with business:
 economy and employment
 environment
 value of other properties
 recreation
 health and safety
 What arrangement of stakeholder influence on business does this suggest?
 Business and Society
14

 Businesses are part of the system – they contribute to and are

affected by the environmental and social problems
 Business leaders need to understand the world as an integrated
system – move away from narrow reductionist thinking to an holistic
world view
 ‘Businesses are part of society, and need to be subject to the
interests of society , not function as the dominant agents of creating
society’
 What prioritisation of stakeholder needs does this suggest?

(Waddock, 2007, p. 544)

 Managing Stakeholders for Responsible Business
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(Laasch & Conway, 2014)

 Defining Corporate Social Value
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 intense and deep understanding of those affected

 integral to business operations, mobilising entire budget to impact
 at level of products & value proposition : many products meet social
as well as economic needs
 building clusters : supporting the field, collaboration
 focus: on areas where your business intersects with social challenges
 businesses acting as businesses (not charitable givers)
 core business that maximises positive benefits

(Porter, 2006)
 Creating Shared Value
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 Nations and Communities of Interest
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 Should we prioritise stakeholders within our Nation (notion of patriotism)?

 Is our political boundary (our country) useful for business?
 A portion of mankind may be said to constitute a Nationality, if they are united among themselves by common
sympathies, which do not exist between them and any others - which make them co-operate with each other
more willingly than with other people, desire to be under the same government, and desire that it should be
government by themselves or a portion on themselves exclusively
 Is the idea of 'common sympathies', 'communities of interest' more helpful?
 What then are our businesses 'sympathies' (goals? values?)
 And who would we then include in our 'community of interest'?
 And then how would we then organise our governance arrangements?
 BUT: who are we then excluding and is that ok?
 My country right or wrong...is not acceptable if the actions to defend this view harm a greater number than
your countrymen

(Mills, 1861)
 Communal Ethics
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 For society we value democracy and deplore dictatorship whereas in business we

value strong single leaders
 Might we need to challenge this difference?

Hegel, the dialectic and interdependence

 Every idea has within it a contradiction which is reconciled in a more superior idea

 Eventually it is argued The State as a means of regulating the instabilities in civil

society is of a higher order than the individuals who compose the State
 If stakeholder interests conflict and ethical dilemmas persist (where all solutions

seem to be ethically problematic) can 'higher order' decision making help?

 What might our process for 'higher order' decision making look like?

(Hegel, 1770-1831)
 Stakeholder Interest and the Characteristics for Ethical Action

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• age, gender, religion, education, national & cultural characteristics,

Demographic Factors employment

Moral Philosophy & ethical • Ethical judgment skills, levels of moral development in private v professional
Judgement life, reasoning mechanisms differ in varying situations

Intelligence and need for • Intelligence negatively correlated with ethical orientation; cognitive enjoyment
cognition positively linked to contextual bias but also to investigation of ethical issues

Locus of control • Internal locus of control positively correlated with ethical action

Values and attitudes • Idealism positively correlated with ethical action

Awareness and Moral • Awareness & creative perception of facets of issues & potential consequences
Imagination positively correlated with ethical action

(Laasch & Conway, 2014, p.134)

 Sources of Power
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Reward Power
HARD POWER

Rewards others for compliance.

Coercive Power Punishes others for failing to comply.

Legitimate Power Invocation of rank, title to compel others to act or gain compliance.

Expert Power Holding special knowledge or expertise on which others depend.

SOFT

Referent Power Ability to inspire people to follow your example, often called charisma.

Information Power Ability to access and use information

POWER

Connection Power Results from personal and professional access to key people inside and outside the organisation

First five from French, J. P. R. Jr., and Raven, B. (1960). The Bases of Social Power.
In D. Cartwright and A. Zander (eds.), Group Dynamics (pp. 607-623). New York: Harper and Row.
22

 Two ways of viewing stakeholder theory

 Based in deontological ethics. Stakeholder theory as the consideration of all affected parties
 Value optimising that is fair in process and outcome (Laasch & Conaway, 2014)
 All stakeholders are important and should be included in the decision making
 duty and values driven: respecting dignity of all
 the intention is as important as the action itself
 Or, more commonly, based in utilitarian ethics? Stakeholder theory as the joint creation of value
 Achieving the maximum possible stakeholder value overall (Laasch & Conaway, 2014)
 Only working together can we secure our own happiness and the happiness of the majority
 happiness driven: meeting the interests of the majority
 the outcome is the important motivation of stakeholder management

(Freeman, 1984)
 Freeman on Stakeholder Theory
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 Freeman v Friedman
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 Using Power to Influence Stakeholder Interest
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 From 1924: ‘power is the probability that one person within a social relationship
will be in a position to carry out his/her own will despite resistance’

Weber M (1947) theory of social and economic organization Oxford University Press

 From 1950: ‘power is the ability to employ force not its actual employment; the
ability to employ sanctions, not their actual application’

Bierstedt R (1950) An analysis of social power American Sociological Review 15:6

 From 1974: A may exercise power over B by getting him to do what he does not
want to do, but he also exercises power over him by influencing, shaping or
determining his very wants...The most effective and insidious use of power is to
prevent such conflicts arising in the first place’ Lukes S 1974 Power: a radical view Macmillan
 Questions: The Ethics of Stakeholder Theory
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 If an action is morally right should it be applied uniformly to all and irrespective of

other opposing interests?
 If all people have equal moral worth, should business seek never to use people
solely as a means to profits?
 If business should seek to achieve the happiness of the majority, how widely should
its responsibilities be drawn?
 Who counts as a ‘stakeholder’? Community? Society? Non-human life forms?
 How are groups of interest represented? Nation? Global society? Environment?
 What when stakeholder interests collide?
 Is there a priority order?
 Questions: The Ethics of Stakeholder Theory
27

 When might the ends justify the means?

 Supporting the disadvantaged may come at a cost (or opportunity denied) to the advantaged
Rawls Theory of Justice

 If people have been exploited or manipulated/cheated, actions to right that wrong may be
justified
Marxist Theory of Exploitation

 To satisfy the needs of the majority, some (the minority) may need to forego their needs
(happiness)
Utilitarianist Theory of The Happiness of the Majority

 Pain now is justified in order to achieve something worthwhile (happiness) in the future
Bentham’s Deferred Happiness

 A small amount of pain for some to achieve greater happiness for others can be justified,
particularly if the pain is short-lived or the pleasure long lasting
Bentham’s Felicific Calculus
 Questions: Theories of Ethics
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 So, we have now introduced a range of theories that might be used to tackle moral dilemmas and
ethical decision making:
 Ethical Egoism – self-interest
 Virtues – developing habits consistent with the ‘good life’
 Duty – upholding universally ‘rightness of action’
 Rights – to property & freedom from interference
 Justice – refusal to contribute to disadvantage
 Utility – balancing pleasure with pain for the majority
 What value do you see in each of these theories for you? And for business practice? Why?
 Where are the problems with each un/acceptable to you?
 How might we use the three together to provide a framework for business to 'make the least worst
decision' and manage the fallout of decisions on those negatively affected by it
 Questions: Managing Stakeholders
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 How might we manage each stakeholder to encourage responsible business

practice ?
 Where interests clash which stakeholders should we prioritise and why?
 How can higher order decision making help us solve dilemmas?
 What are our 'sympathies' (values?) and how can we develop communities of interest
around these?
 How might we identify, support and encourage characteristics of ethical action in our
stakeholders?
 How else might we influence and shape stakeholder 'wants'?
 How might we equalise the power and interests of the stakeholders and increase the power
of the disadvantaged to better support responsible practice?
 Summarising the Three Bases
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 What would a virtuous person do?

 Pattern of behaviour
 Developed over time
 Judged and reinforced by community

 Duty to respect all always

 Treat others how you would want to be treated
 Respect all and the ambitions/happiness of all, equally, always
 Facilitate justice to, development of & freedom of all

 Balance of consequences for all

 Happiness of the majority
 Measure pleasure versus pain
 Sacrifice minority
31
 References and Further Reading
32

 Bierstedt R (1950) An analysis of social power American Sociological Review 15:6

 Bower, M. (1996) The will to Manage, New York: MacGraw-Hill
 Burns, J.M. (1978) Leadership, New York: Harper & Row Burnes, B. (2004) Kurt Lewin and the Planned Approach to Change: A Re-appraisal,
Journal of Management Studies, Vol. 41, Issue 6, pp. 977–1002.
 Burnes B (2009), Managing Change, 5th Ed, Pearson Education Ltd
 French, J. P. R. Jr., and Raven, B. (1960) The Bases of Social Power in D. Cartwright and A. Zander (eds.), Group Dynamics (pp. 607-623). New
York: Harper and Row
 Gilbert P (2010) The Compassionate Mind, Constable
 Hofstede, G. (1991) Culture and Organizations—Software of the Mind, McGraw-Hill, London (1991)
 Laasch O & Conaway RN, 2015, Principles of Responsible Management, Cengage
 Johnson, G. Scholes, K and Whittington, R. (2011) Exploring Corporate Strategy' 9th ed. Prentice Hall
 Lukes S (1974) Power: a radical view Macmillan
 Schein, E.H. (1985) Organizational culture and leadership, San Francisco: Jossey-Bass Schwartz, HS, (1990), Narcissistic Process and Corporate
Decay: the theory of the organizational Ideal. New York: New York University Press.
 Weber M (1947) theory of social and economic organization Oxford University Press
Any Questions?