Business, Ethics and Business, Ethics and Economics IPEconomics IP

Prof. Robert MarksProf. Robert Marks

A/Prof. Damian GraceA/Prof. Damian Grace

The point of this course: 3 skillsThe point of this course: 3 skills

1.1. Ethical recognitionEthical recognition. This is probably . This is probably more of a problem than malice.more of a problem than malice.

2.2. Analysis.Analysis. Why is this an ethical question? Why is this an ethical question? How should I address it?How should I address it?

3.3. JustificationJustification. How could I explain my . How could I explain my decision in terms of principles, norms, decision in terms of principles, norms, procedures, outcomes?procedures, outcomes?

What is ethics?What is ethics?

Let’s look at what some big names thought:Let’s look at what some big names thought: Ethics is the way things are done around here.Ethics is the way things are done around here.

AristotleAristotle Lots of norms and conventions are not ethical.Lots of norms and conventions are not ethical.

Ethics is treating other people as you would be treated.Ethics is treating other people as you would be treated.Confucius, St Paul, KantConfucius, St Paul, Kant

Again, this doesn’t have to apply only to ethical matters.Again, this doesn’t have to apply only to ethical matters.

Ethics is doing whatever brings the best results.Ethics is doing whatever brings the best results.Bentham, Mill, SingerBentham, Mill, Singer

Is just anything that brings good results ethical?Is just anything that brings good results ethical?

Results are integral to ethicsResults are integral to ethics

Ethics is about consequences even if it is not Ethics is about consequences even if it is not only about consequences. only about consequences.

If there were no significance to consequences, If there were no significance to consequences, ethics would matter little. It is because ethics ethics would matter little. It is because ethics guides conduct that it matters.guides conduct that it matters.

It is also because of this that ethics links with It is also because of this that ethics links with economics.economics.

Ethics and economicsEthics and economics

Economics developed as a separate discipline Economics developed as a separate discipline in 18th Century. Closely related to ethics. in 18th Century. Closely related to ethics. Adam Smith and David Hume were Adam Smith and David Hume were philosophers who specialised in ethics. philosophers who specialised in ethics.

But economics studies what is the case - But economics studies what is the case - including including unintendedunintended consequences - in consequences - in making recommendations, while ethics making recommendations, while ethics studies what should be the case given the studies what should be the case given the way things are.way things are.

Ethical boundariesEthical boundaries

Economics can indicate the boundaries of ethics by Economics can indicate the boundaries of ethics by modeling human rationality - as in game theory - modeling human rationality - as in game theory - show the limits of resources - human and natural - show the limits of resources - human and natural - and show how unintended consequences can and show how unintended consequences can thwart the best intentions. thwart the best intentions.

Economics maps regularities in human behaviour Economics maps regularities in human behaviour that limit ethical desiderata. Conversely ethics can that limit ethical desiderata. Conversely ethics can show the limits of economic desiderata.show the limits of economic desiderata.

Justice in market economies. Justice in market economies.

Goods and services are allocated fairly and Goods and services are allocated fairly and without distortion, partiality, fraud or coercion.without distortion, partiality, fraud or coercion.

Applies to fair procedures rather than ‘end states’.Applies to fair procedures rather than ‘end states’. Implies a large degree of freedom- private Implies a large degree of freedom- private

ownership & competition - with government ownership & competition - with government intervening only to correct market anomalies.intervening only to correct market anomalies.

Greed, self-interest and the Greed, self-interest and the invisible handinvisible hand

In US movie, Wall Street, Gordon Gekko says: In US movie, Wall Street, Gordon Gekko says: “Greed is good.” But greed is an excessive desire “Greed is good.” But greed is an excessive desire to acquire. By definition a vice.to acquire. By definition a vice.

Self-interest: basic to survival, maintenance, & Self-interest: basic to survival, maintenance, & flourishing. Not a vice: not to be confused with flourishing. Not a vice: not to be confused with selfishness.selfishness.

Rational self-interest productive of wealth and not Rational self-interest productive of wealth and not contrary to concern for others or ethics. Adam contrary to concern for others or ethics. Adam Smith and the invisible hand.Smith and the invisible hand.

Perfect CompetitionPerfect Competition

The theoretically fair set of conditions for maximising The theoretically fair set of conditions for maximising benefits for buyers and sellers:benefits for buyers and sellers:

1.1. Many buyers and sellers, none dominant.Many buyers and sellers, none dominant.2.2. All can freely enter and leave the market.All can freely enter and leave the market.3.3. Each has perfect knowledge of prices, quantities and quality of Each has perfect knowledge of prices, quantities and quality of

goods traded.goods traded.4.4. Goods are so similar that identities of buyers and sellers are Goods are so similar that identities of buyers and sellers are

indifferent.indifferent.5.5. All costs and benefits of trading are assumed by participants in All costs and benefits of trading are assumed by participants in

the market.the market.6.6. Those buying and selling are utility maximisers.Those buying and selling are utility maximisers.7.7. There is no external regulation of cost, quantity or quality of There is no external regulation of cost, quantity or quality of

goods traded.goods traded.

Why is this ethical?Why is this ethical?

It does not exploit either buyer or seller.It does not exploit either buyer or seller. It respects autonomy and consent (rights).It respects autonomy and consent (rights). It distributes resources in the most efficient and It distributes resources in the most efficient and

effective manner and thereby avoids waste or effective manner and thereby avoids waste or want through over or under-production.want through over or under-production.

Encourages wealth production and this allows a Encourages wealth production and this allows a greater range of human needs to be met and greater range of human needs to be met and human life to flourish.human life to flourish.

Problems with practising the Problems with practising the theorytheory

Pre-dates the era of the modern corporation - Pre-dates the era of the modern corporation - originally a response to mercantilism and originally a response to mercantilism and monopoly privilege. Special interests still have monopoly privilege. Special interests still have power eg. the US military-industrial complex power eg. the US military-industrial complex identified by President Eisenhower.identified by President Eisenhower.

Restricting knowledge in a market gives a Restricting knowledge in a market gives a competitive advantage.competitive advantage.Restricting competition allows stronger profits.Restricting competition allows stronger profits.Globalisation allows corporations to play off Globalisation allows corporations to play off governments - economies - against each other.governments - economies - against each other.

Other aspects of ethics apart Other aspects of ethics apart from consequencesfrom consequences

PrinciplePrinciple

CharacterCharacter

CultureCulture

The good life.The good life.

Is everything a matter of ethics?Is everything a matter of ethics?

Identifying ethicsIdentifying ethics

Some issues are matters for ethics. Such Some issues are matters for ethics. Such matters are either matters are either ethicalethical or or unethicalunethical..

Some matters are neither. They are Some matters are neither. They are non-non-ethicalethical..

How can you tell? What is an How can you tell? What is an ethicalethical opinion? opinion?

Problems and dilemmasProblems and dilemmas

Consider the dilemmas you submitted.Consider the dilemmas you submitted.How are these cases dilemmas rather than How are these cases dilemmas rather than

problems? Are not a number of them about the problems? Are not a number of them about the difficulty of taking hard decisions rather than difficulty of taking hard decisions rather than there being no morally clear choice between there being no morally clear choice between right and wrong?right and wrong?

ProblemsProblems

Problems have correct solutions:Problems have correct solutions: What is the capital city of Chile?What is the capital city of Chile? What happens when you combine sodium and What happens when you combine sodium and

chlorine? chlorine? You are offered $10,000 to guarantee a You are offered $10,000 to guarantee a

successful tender. Should you accept it?successful tender. Should you accept it? A young woman has a flat tyre 30km outside A young woman has a flat tyre 30km outside

Goulburn. Should you stop and help her?Goulburn. Should you stop and help her?

DilemmasDilemmas

Dilemmas are dilemmas precisely because Dilemmas are dilemmas precisely because there is no correct solution there is no correct solution even though you even though you do not have the option to do nothingdo not have the option to do nothing.. You could retrench 6 employees or ask all 20 You could retrench 6 employees or ask all 20

staff to take a pay cut.staff to take a pay cut. You inadvertently overhear sensitive and You inadvertently overhear sensitive and

confidential information while in a competitor’s confidential information while in a competitor’s office. Is it morally permissible for you to use office. Is it morally permissible for you to use this information to your firm’s advantage?this information to your firm’s advantage?

Is Ethics subjective and relative?Is Ethics subjective and relative?

Everyone disagrees about ethics. It’s like Everyone disagrees about ethics. It’s like religion, so who is to say what is right?religion, so who is to say what is right?

Ethics is relative to your culture, so it is Ethics is relative to your culture, so it is offensive to impose your values on to offensive to impose your values on to someone else.someone else.

Is this so? Do we not share values?Is this so? Do we not share values?

Isn’t ethics just about following Isn’t ethics just about following rules?rules?

Rules are essential because they allow for Rules are essential because they allow for predictability, the definition of roles and predictability, the definition of roles and responsibilities, and the definition of boundaries.responsibilities, and the definition of boundaries.

ButBut Human conduct cannot be reduced to rulesHuman conduct cannot be reduced to rules Rules date Rules date Rules cannot cover all contingencies Rules cannot cover all contingencies Rules must be tempered by judgmentRules must be tempered by judgment

What is involved in ethical What is involved in ethical justification?justification?

Being accountable in terms ofBeing accountable in terms of the lawthe law professional codesprofessional codes employer’s values statementsemployer’s values statements common moralitycommon morality informed ethical judgment (conscience)informed ethical judgment (conscience)

An ethical opinion is:An ethical opinion is:

Not just self-interestedNot just self-interested Has regard for othersHas regard for others Could apply to anybody - reversibleCould apply to anybody - reversible Takes account of contextTakes account of context Overrides other considerationsOverrides other considerations Has to be ‘lived with’.Has to be ‘lived with’.

But what principles should steer But what principles should steer ethical judgment?ethical judgment?

Two accounts of ethical judgment:Two accounts of ethical judgment:

1. A1. Acts are intrinsically right or wrongcts are intrinsically right or wrong. Ethical. Ethical requirements arerequirements are expressed in duties expressed in duties – – deontologydeontology (Kant)(Kant)

2. R2. Right and wrong ight and wrong means producing ameans producing a surplus of surplus of good over evilgood over evil consequences - consequences - consequentialismconsequentialism, , eg. eg. ‘utilitarianism’‘utilitarianism’ (Mill) (Mill)

These are These are modernmodern views about views about ethicsethics

These views of ethics are not about character These views of ethics are not about character but about but about actsacts..

They are universalist - apply to all without They are universalist - apply to all without discrimination.discrimination.

Are not attached to Are not attached to rolesroles but to human but to human agency.agency.

DeontologyDeontology

CClassic phraselassic phrasess forfor deontology deontology are:are: “ “respect for persons”; respect for persons”; “ “the ends don’t justify the means”. the ends don’t justify the means”.

This theory holds tThis theory holds the worth of persons he worth of persons to beto be infinite infinite -- cannot be traded off for other benefits eg. cannot be traded off for other benefits eg. trialing trialing drugs ondrugs on a minority group because the majority a minority group because the majority will gain.will gain.

Varieties of ConsequentialismVarieties of Consequentialism

Egoism (everybody should follow their own Egoism (everybody should follow their own conception of their good); conception of their good);

Epicureanism (follow the greatest Epicureanism (follow the greatest truetrue pleasure); pleasure);

Utilitarianism:Utilitarianism: The classic phrase still widely The classic phrase still widely used to sum up utilitarianism is “the greatest used to sum up utilitarianism is “the greatest happiness for the greatest number”.happiness for the greatest number”.

Deficiencies of these theoriesDeficiencies of these theories

Rules and absolute prohibitions work at the Rules and absolute prohibitions work at the margins of conduct, eg. Do not torture; do margins of conduct, eg. Do not torture; do not kill the innocent. Most conduct is not at not kill the innocent. Most conduct is not at the extreme. Difficult to implement.the extreme. Difficult to implement.

CConsonseequences need some quences need some rranking principle anking principle beside beside qquantity to distinguish what is uantity to distinguish what is important and invimportant and inviiolable from what is olable from what is tradabletradable + a theory of good.+ a theory of good.

An An ancientancient theory theory

Virtue and characterVirtue and characterThere is a human nature that can be perfected There is a human nature that can be perfected

and it is perfected by the acquisition of the and it is perfected by the acquisition of the virtues. These can be learned from masters. virtues. These can be learned from masters.

Not a theory of wrong or corruption or failure Not a theory of wrong or corruption or failure but of vices - eg. cowardice, miserliness, but of vices - eg. cowardice, miserliness, ugliness, stupidity. Often foreign to modern ugliness, stupidity. Often foreign to modern ways of thinking and to egalitarianism and ways of thinking and to egalitarianism and principle-based ethics.principle-based ethics.

Virtue Ethics – Virtue Ethics – ethics as excellenceethics as excellence

FFocuses on character or human virtueocuses on character or human virtue;; stresses the achievement of excellence in stresses the achievement of excellence in human activitieshuman activities..

Can be seen as aCan be seen as a kind of middle way kind of middle way:: Holds that virtues are intrinsically good and Holds that virtues are intrinsically good and

perfect human nature (ie. has elements of both perfect human nature (ie. has elements of both deontology and consequentialism).deontology and consequentialism).

Virtues and Management EthicsVirtues and Management Ethics

Management excellence ranks among the Management excellence ranks among the perfecting human virtues.perfecting human virtues.

All social virtues built on friendship, but All social virtues built on friendship, but professional virtues include:professional virtues include: High practice standardsHigh practice standards Trustworthiness and honestyTrustworthiness and honesty IntegrityIntegrity CompassionCompassion

So: why be ethical? So: why be ethical? Three answersThree answers

““Because it is your rational duty”Because it is your rational duty”

““Because this will increase the sum of good in Because this will increase the sum of good in the world.”the world.”

““Because that is the most fitting (excellent) Because that is the most fitting (excellent) way to be a person”.way to be a person”.

How does ethics extend to How does ethics extend to organisations?organisations?

Should I bring my personal beliefs Should I bring my personal beliefs into my organisatinto my organisatiion?on?SShould not an employer determine hould not an employer determine standards of behaviour for all standards of behaviour for all employees?employees?SShould not ghould not goovernmentvernmentss set set minimum public expectations of minimum public expectations of business?business?

Why Ethics for Business?Why Ethics for Business?

Managers are hired because of knowledge Managers are hired because of knowledge and skills, not their qualifications in ethics. and skills, not their qualifications in ethics. Why is social responsibility a manager’s Why is social responsibility a manager’s concern?concern?

Is it not undemocratic for business Is it not undemocratic for business professionals or professionals or oother individuals to decide ther individuals to decide social issues under the cover of ethics?social issues under the cover of ethics?

Milton FriedmanMilton Friedman

Consider Friedman’s argumentConsider Friedman’s argument

Does it contravene democracy for a business Does it contravene democracy for a business to implement socially responsible policies?to implement socially responsible policies?

Is it unjust to workers, consumers and the Is it unjust to workers, consumers and the State for businesses to use corporate funds State for businesses to use corporate funds for “social” purposes?for “social” purposes?

Does the contractual approach to justice Does the contractual approach to justice over-ride other considerations?over-ride other considerations?

What is so special about business?What is so special about business?

Should business abstain from lobbying in its Should business abstain from lobbying in its own interests?own interests?

Should business abstain from supporting its Should business abstain from supporting its employees; community; special causes?employees; community; special causes?

What issues are at stake in Friedman’s What issues are at stake in Friedman’s position?position?

Law and ethics: a modelLaw and ethics: a model

Law is the floor, ethics the ceiling.Law is the floor, ethics the ceiling.

Ethics is a higher standard, but without law is Ethics is a higher standard, but without law is unlikely to be effective.unlikely to be effective.

Ethics and law are complementary: they Ethics and law are complementary: they cannot substitute for each other.cannot substitute for each other.

If business is contractual or legal If business is contractual or legal does ethics really matter?does ethics really matter?

Reasons that it does:Reasons that it does:1.1. Higher levels of Higher levels of professionalprofessional and and publicpublic responsibility responsibility

and accountability.and accountability.2.2. People accept common values, even if their priorities People accept common values, even if their priorities

differ.differ.3.3. Ethical arguments are still trumps.Ethical arguments are still trumps.4.4. Ethical justifications are standardly demanded.Ethical justifications are standardly demanded.5.5. ‘‘No one’ accepts ethical defeat.No one’ accepts ethical defeat.

“Good ethics is good business”PRO: •reputation and so, more business

•can be a differentiator for an organisation•keep the regulators away•unethical can be illegal if you get caught, it’s trouble

CON:attractive (looks good on letterhead), but ...

• too simple – can be “dangerously simple”

• mighty poor reason for behaving ethically!

• probably just plain false

Good practical reasons for behaving Good practical reasons for behaving ethicallyethically

• provides stability to the marketplace

• encourages repeat business

• good risk management

• adds to the quality of life

• other reasons?

Ethical excellence in businessEthical excellence in business

See Bayer’s article and his example of the See Bayer’s article and his example of the Johnson & Johnson Johnson & Johnson TylenolTylenol case. case.

Consider also Masterfoods withdrawal of Consider also Masterfoods withdrawal of Snickers Snickers and and Mars Mars bars.bars.

Stakeholder theoryStakeholder theory

Stakeholders are any interest group that is Stakeholders are any interest group that is affected by or can affect a business.affected by or can affect a business.

Stakeholders have varying claims upon a Stakeholders have varying claims upon a business, but need to be ranked and taken business, but need to be ranked and taken seriously according to priority.seriously according to priority.

Broadens the notion of “ownership” beyond Broadens the notion of “ownership” beyond stockholdersstockholders..

Cautions about need to consider unintended Cautions about need to consider unintended consequences and effects on third parties.consequences and effects on third parties.

Can we name these goods?Can we name these goods?

LifeLife - health, security - health, security FriendshipFriendship - friends, community - friends, community FreedomFreedom - personal, political, economic - personal, political, economic KnowledgeKnowledge - many forms - many forms AestheticsAesthetics - art, nature - art, nature PlayPlay - spontaneous, organised - spontaneous, organised ReligionReligion - cosmic reference points - cosmic reference points

John FinnisJohn Finnis

Ethics and businessEthics and business

What goods are fundamental in business?What goods are fundamental in business?What values do we need to protect them?What values do we need to protect them?What structures should encourage and protect What structures should encourage and protect

those values?those values?What role does an individual have in What role does an individual have in

safeguarding those values in an safeguarding those values in an organisation?organisation?

What role does business have in protecting What role does business have in protecting those values in society?those values in society?

Ethics costsEthics costs

Not always good for the bottom line.Not always good for the bottom line.

Triple bottom line to account for this.Triple bottom line to account for this.

Business is responsible for social and Business is responsible for social and economic goods and sometimes it costs economic goods and sometimes it costs money and other resources to protect these.money and other resources to protect these.

Merck case.Merck case.

Once more: about excellence.Once more: about excellence.

Do we have to choose an ethical Do we have to choose an ethical theory? How could we?theory? How could we?

In an ethical position (whichever theory):In an ethical position (whichever theory): Look at whether fundamental goods are Look at whether fundamental goods are

protected and supportedprotected and supported Look at human flourishing. Are any goods basic Look at human flourishing. Are any goods basic

to human well-being deliberately compromised?to human well-being deliberately compromised?