BUSINESS ETHICS AND

NORMATIVE
PHILOSOPHY
1)PHILOSOPHICAL FOUNDATION
OF BUSINESS ETHICS
Philosophical and Moral standards provide tools for
judging the moral value of a decision. Moral
standards are the yardsticks of business ethics.
According to David Fritzsche, ‘’business ethics is the
process of evaluating decisions, either pre or post,
with respect to the moral standards of society’s
culture.” In order to evaluate decisions, we need a
tool box of moral standards.
 INTRODUCTION
 Managers will evaluate the moral
dimensions of a decision before making it.
The moral yardsticks used to evaluate a
decision consist of the moral standards of
a society’s culture. Business ethics
involve the use of moral standards when
making decisions.
 Moral standards consist of specific moral
norms and general moral principle moral
norms prohibit certain types of behaviour
such as lying, stealing and killing. moral
principles provide more general
guidelines for behavior and are applicable
to decision
 normative theory of business
ethics
 we shall use integrative social contracts theory as the foundation for evaluating the
ethical dimenslon 0f decisions.
Integrative Social Contracts Theory is a normative theory of business ethics and it
allows for moral diversity among various cultures while maintaining certain universal
norms.
A social contract is an informal agreement regarding behavioural norms that are
developed from shared goals beliefs and attitudes of groups of people. Corporations
enhance the welfare of society through the satisfaction of consumer and interest of
workers by leveraging corporations· special advantages.This is the moral foundation,
Social Contract also serves as a tool to measure the performance of productive
organisations. When such organisations fulfil the terms of the contract, they are
morally justified. when they do not, they should be condemned. hyper norms are
universal and impose certain conditions on all busines 1”lIfied. When they do not,
they should be condemned. · Hyper- norms are universal and impose certain
conditions on all business activity. The macro-social contract functions at the
global level, provided specific conditions under which micro- -social contracts may
be developed. Micro-social contracts are community Contracts developed o guide
business activity.The essential elements of Social Contracts Theory are shown :
HYPER NORMS
1. Personal freedom
 2. Physical security
 3. Political participation
 4 . Informed consent
 5. Ownership of property
 6. Right to subsistence
 7. Equal dignity to all humans.
 Macro Social Contract
 1. Moral free space
 2. Free consent with right to exist
 3. Compatible with hypemorms
 4. Priority levels.
 Micro Social Contract
 Individual Norms
 1. Do not lie in negotiations
 2. Honour all contracts
 3. Give job preference to natives
 4. Give contract preference to local
suppliers
 5. Provide a safe work place
 Application of hyper norms
 Hypenorms are universal norms that are equally
applicable to all persons worldwide.
 · Hypernorms provide the basis for evaluating all
other norms. They stand for the basic principles
that are fundamental to human existence , e.g.
human rights,
ownership of property, right to live etc.
 Macro-social contract provides global norms
(hypenorms)
 micro-social contracts provide community norms.
 MORAL REASONING
THEORIES
 Moral reasoning deals with determining rightness of the
acts. It tells about what individuals or institutions ought to
do. Moral theories deal with two components :
 I. Theory of value or theory of good : It decides about what
is good or valuable. Though it does not make this explicit.
It focuses on properties that we want to be realised in our
actions. These properties may be compliance with law of
nature. Human freedom’, social solidarity or a combination
of one or more of them.
 2. Theory of the right: It does not tell about which
properties are valuable tells about what individuals and
institutions should do by responding to valuable properties.
 Based on the above, there are two kinds of moral theories:
 I. Consequentialist or teleological theories
 2. Non-consequentialist or non-teleological/deonto!ogical
Theories
 While teleology is the ethics of ends and consequences,
deontology is the ethics of duty and obligations.
 Teleological ethics
 Teleological ethics deals with consequential ism. It is associated with
utilitarianism, ethical egoism and
other goalbased approaches to consequentialism. These theories emhasise
on goals and ends in determining moral quality of conduct and character.
It refers to the rightness of actions or moral ‘values of character. It uses
ends and goals to justify virtues and actions.
· “Teleological theories hold that rightness or wrongness of action is always
determined by its tendency to produce certain consequences which are
intrinsically good or bad”. The assert that right actions are those that
have the best consequences. They give priority to ‘good’ over ‘right’.
According to them, all actions that maximise the good are right actions.
What is good is independent of what is right.
Teleological theories provide different views on what is good that should be
promoted. According to egoistic theories, good is the good of the person
who is acting. According to universalistic theories. Good is the good of all
those who are affected by an action. Utilitarianism or universalistic is the
best known teleological theory. Jeremy Bentham, Johan Stuart Mill and
Henry Sidgwick were the famous utilitarianists who asserted that actions
should be judged on the basis of the amount of pleasure they produce on
all those who are affected by those actions.
 Features of Teleological
Theories
 I. It gives priority to what is ‘good’ over what is ‘right’. Good is the purpose
or goal of human actions. Human actions should bring greatest happiness
for greatest number of people.
 2. All actions that contribute to ‘good’ are moral actions. An action that
brings happiness for the greatest number of people,is a right action
 3. Results or consequences determine the rightness ; or wrongness of
moral actions.
:One of the important teological theories is that of consequentialism.
Consequentialism, thus, focuses on best consequences of Our actions for all
concerned. It holds that makes an action right or wrong is its
consequences only. This theory became popular in the 18th century.
Forms of Consequentialism (Consequential Theories)
1. Theory of ethical egoism : In this form of consequentialism,the desired is
the long-term self-interest 0f f the individual. It claims that whi1e making
a moral decision one should consider the long term self –interest of the
decision. Short-term Short-tenn self.interest, if any, should be sacrificed
for sake of long-term self-interest. · An action is morally right if the
consequences of that action are more favourable than unfavourable. Only
to the agent performing that action.
2. Utilitarianism: In this form of consequentialism, the desired end is not long-
term self-interest of the individual but, it is greatest happiness to the
greatest number. Any action that brings greatest happiness to the
greatest number of people is a desirable action and should be performed.
Advocates of this thinking are Jeremy Bentham and John Stuart Mill.
 a. Bentham’s Approach to
Utilitarianism
 Bentham advocates adopting an action that brings
happiness or pleasure to the community rather than an
individual. He judges pleasure by quantity. One action is
better than the other if, it brings more happiness or
pleasure than the other. He says that pleasure can
be measured by its intensity, duration, certainty or
uncertainty.
 In determining whether an action is moral or not,
the ‘intention of the doer’ and ‘consciousness of
consequences’ need to be taken into account.
Consequences can be both primary and secondary. For
example, non payment of tax by ‘A’ resulting in loss to the
State revenue is primary consequence of A’s action. If this
leads to nonpayment of tax by others also causing mere
harm to State exchequer, A’s action is assumed to have
secondary consequences which are, in fact, doing more
harm to State exchequer.
 Limitations of the approach
 Bentham’s theory has the following
limitations:
 1. All actions are not followed by
pleasures. A soldier’s action to join army is
because of his ideals and not pleasant
consequences.
 2. He, more or less talks of quantitative
pleasures. Many qualitative factors that
affect moral actions are not taken into
account.
 Mill’s Approach to
Utilitarianism
 J.S. Mill, a political thinker, published his work
‘Utilitarianism’ in 1863,
 1. He said that pleasures differ in quantity as well as
quality. Some pleasures are more desirable than others.
Man should pursue those actions whose pleasures are
noble and dignified. He said, “It is better to be a human
being dissatisfied than a pig satisfied.”
 He views morality as internal and not external. Morality
regards pleasures and pains of others and not just one’s
own self. It is the desire to be in unity with others.
 The principle of utility as outlined by John Stuart Mill is that
one is obligated morally to produce the greatest good for
the greatest number. Mill identified the good with utility. In
calculating whether an action is right or wrong one needs
to project the total consequences for good or ill and
determine the actions in which it is optimised according to
situation.
 Deontology theory of ethics
 Deontology is a theory of ethics advocated by philosophers such as Kant,
Ross and John Rawls.
 This theory considers actions to be right or wrong regardless of their consequences.
Actions that have moral values are right; whether or not they are good. If telling lies
is morally wrong; it remains wrong even if it brings happiness to same people.
Actions are, thus, right or wrong depending on whether they are morally right or
wrong. Irrespective of their consequences. What is ‘right’ has priority over what is
‘good’.
 Deontology is derived from the Greek word ‘deon’, which means obligation or duty.
It stresses on what is obligatory and what one ought to do, whether or not it is good
to do so. Speaking truth may not bring good to some but, one must speak the truth
as it is the moral duty of each good to some but, one must SpeaK the truth.
 There are two approaches to deontology:
 1. Act deontology- ;. For example. ‘In this not break my promise’ is an obligation
that represents act deontology.
 2. Rule deontology-It claims that obligations and moral duties can be
generalised. For example, ‘we must always keep our promises’ is all obligation that
represents rule deontology. These values, actions or duties are fundamental and do
not depend upon circumstances of particular situations. Actions are performed
according to to rules and not circumstances. Kant.
 Kant says That result and consequences should not guide our actions. Our
actions should follow the moral law.
 According to Ross, we should all follow our moral duties regardless of their
consequences. ;. One moral principle can be sacrificed only for another moral
principle:
 Johan Ra.wls says that fairness is prior to goodness. Fairness of society’s rules is
more important than consequences of their rules.
 DEONTOLOGY AT A GLANCE
 1. Rightness or wrongness of an action is
determined by its morality and not its
consequences.
 2 Prominent thinkers are Kant, - Ross and Rawls
 3. They give priority to ‘right’ over . Good’ .
 4. Right action may not necessarily maxi mise
the good.
 5. Right actions may , or may not , bring
happiness.
 6. They are the theories of ethics duty and
obligation.
 Teleological Theories at a
glance
 Rightness or wrongness of an action is
determined by its consequences.
, Prominent thinkers are Bentham and J.S. Mill
 They give priority to ‘good’ over ‘right’.
 Right action is that which maximises the
good.
 5. Right actions bring happiness to individuals
performing the action (egoist theory) or
happiness to greatest number of people
(utili1arianism) .
 6. They are the theories of ethics that deal
with goals and end results of actions.
 Non-consequentialist theory
 The outcome of a specific decision is irrelevant
and what matters is whether the decision is
ethical. The rules provide the guide to ethical
decision-making. Unlike rule utilitarianism, these
rules are based on reason, not consequences.
Non-consequentialist principles are either Rights
Principles or Justice Principles.
 1. Rights Principles
Rights principles grant a person certain moral
or human rights by virtue of being a
human being. These rights are closely associated
with duties. It is one’s duty not to violate the
rights of others just as ‘it’ is the duty of others
not to violate his rights.
 Non-consequentialist theory
 The development of moral rights is generally attributed to Immanuel Kant
(1724-1804),
 He argues that an action is morally right only if you would be willing to
have everyone act the same way in a similar situation.
 Kant’s second principle ·states, ‘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. People should never be treated only as a means to an end but
as ends themselves. Thus when using people to accomplish your purpose
,you have a duty to respect them as human beings’.
 Kant considered this categorical imperative to be a moral law. It is an
unconditional comm · To Kant, they ‘are absolute duties and a moral act is
performed out of duty only.
 Gerald Cavanagh has cited six rights that are basic to business activity.
These include:
 1. life and safety,
 2. truthfulness,
 3. Privacy,
 4. Freedom of conscience,
 5. Free speech,
 6. Private property.
 2. Justice Principles
 Associated with issues of rights,
fairness, and Quality.
 A just act respects your rights. A just
act treats you fairly. Principles of
justice may be divided into three
types-
 distributive justice
 retributive justice
 and compensatory justice.
 (a) Distributive Justice
 Society has many benefits and burdens that must be
distributed among its members · Benefits include income,
wealth, jobs, education and leisure. Burdens include work,
taxes and social and civic obligations. The allocation of
benefits and burdens raises questions of distributive
justice. Allocation can be made on the basis of:
 1. Equal shares to each person,
 2. Based on need,
 3) Based on effort,
 4. Based on merit,
 5. Based on social contribution.
Most proponents agree that equals should be treated
equally and unequals should be treated unequally in
proportion to the degree of their inequality. This inequality
must be based on relative differences among the parties.
This concept is referred to as the formal principle of justice
 (b) Retributive Justice
 · Retributive justice is concerned with retribution
or punishment for wrongdoing. The questions are
when is it just to punish someone and what
should be the nature punishment. According to
Aristotle, a person is morally responsible · for his
actions unless he has been forced to take . That
action or is ignorant of the act’s negative
consequences.A person should not be held
responsible If he is unable to halt the
wrongdoing due to personal inadequacy or
powerful external forces. Just punishment must
also fit the crime. The severity of punishment
should be in proportion to the magnitude of the
crime.
 c) Compensatory Justice:
 Compensatory justice is concerned with
compensating the party injured by the wrongful
act. Most people agree that the injured party
should be returned to the condition that existed
before the injury. This includes necessary
medical treatment and services and goods that
are needed to rectify the injury. The
compensation should be equal o the loss suffered
by the injured party. However, problems occur
when it is not possible to provide complete
compensation, for example, a life lost cannot be
restored.