Ethics Midterm

2.1 Ethics and Morality

Ethics is about norms and values, about what is right and good, what we ought to do, how we should act and interact with others

Where do we get the information about what is right and wrong

• Norms and values, know how to act in life, what to do and not to do

  • Laws/Rules

  • Family/parents

  • Religion

  • Community/Peers

  • Authority

  • Etiquette

Ethics

• Systematic reflections on values and norms

  • What is the right thing to do?

  • What person do I want to be?

Ethics is the systematic reflection on values and norms: their content and changes, and their meaning, justification, and determination

Classical questions of traditional philosophical ethics

• What are right actions

• What is a good life

• What is a good character

• What are virtues

Empirical Ethics - analysis of existing norms and vlues

• What values and norms exist in a groups or society? Where do they come from? How do they change over time?

  • Psychology, Sociology, Anthropology,; empirical business ethics

Normative Ethics - systematic reflection on the determination and justification of norms and values

• How ought one to live and act? How can one decide what action is ethically right? How can one justify actions? What is a good life?

  • Traditional moral philosophy; normative business ethics

Analytical Ethics - systematic reasoning about the meaning of evaluative and normative concepts and statements

• What is the meaning of "good"? How is this concept used and how is it related to other concepts?

  • Meta-ethics; analytical business ethics

Objective vs. subjective

• Mathematics

  • Objective

  • One right answer

  • Rationally and objectively decidable

• Taste, Belief, Preferences

  • Subjective

    • Not one right answer

    • Not rationally and objectively decidable

• Ethics

  • In the middle

  • Not one disputable right answer, but some answers can be better supported than others

  • Rationally and objectively approachable

    • Search for reasons and argument

Basic types of ethical argumentation

• Argument by consequences of actions

• Argument by principle (motive)

• Argument by character / human excellence

• Argument by relationship

• Argument by rational agreement

Formalizing Ethical Argumentation

• Main methods for ethical decision-making

  • Utilitarian method (Argument by consequence)

  • CI method (Kant) (Argument by principle)

  • Virtue method (Argument by character / human excellence)

• Further methods for ethical decision-making:

  • Care method (Argument by relational role

  • Rawlsian method (Argument by rational agreement)

  • Discourse method (Argument by rational agreement)

2.2 Utilitarianism

Utilitarianism is an ethical theory that evaluates actions by consequences and consider the action that maximizes overall happiness as the ethically best action

• "…it is the greatest happiness of the greatest number that is the measure of right and wrong" (Bentham, A fragment of Government, 1776)

Basic characteristics of utilitarianism:

• Refers to consequences of actions

• Considers all persons (beings) affected by an action

• Considers consequences in terms of resulting happiness (pain and pleasure)

• Evaluates the overall happiness that results from an action

Utilitarian method

• Which action (of the alternatives at hand) maximizes the overall happiness of all affected?

Applying the Utilitarian method

1. Consider all possible actions

2. Consider who is affected by the consequences of those actions

3. Consider how everyone is affected in terms of benefit and harm (quantitative evaluation/numeric scale)

4. Sum up the benefits/harms for each possible action - the action that maximizes overall happiness is the ethically right one

Critique:

• Whom do we need to consider for calculating overall happiness?

• Difficulties with predicting consequences

• Difficulties with measuring, comparing, and summing up happiness

• Ignored other aspects: Intentions, intrinsic motivation, relations

• Difficult to support general ethical standards and rules

  • EX. Utilitarianism might in a certain situation consider stealing as the ethically right action, it would maximize overall happiness in that situation. However, this is ethically counter-intuitive to many people who consider stealing as generally wrong

+ helps to systematically structure a decision problem

What are feasible alternatives?

Who is affected by the decision in what way?

+ Particularly useful for analyzing and understanding complex issues in business contexts

2.3 Kantian Ethics

Ethical argument by principle

• Principle

  • Fundamental general rule of action

• Deontology

  • An ethical theory that focuses on rules and principles as binding ethical obligations to act in a certain way

Immanuel Kant (1724-1804)

• Some aspects of Kant's ethics

  • Consequences and inclinations are irrelevant for ethical action

    • What matters in the right motivation - motivation by the good will, that is, the will guided by reason

  • Reason is the only source of ethical insight and motivation

  • Ethics is not about happiness, but about doing the right thing

  • Ethical principles originate in rational beings who, at the same time, recognize that they have to obey to them

The Categorical Imperative (CI)

1. CI (Basic Formula)

1. "Act only according to that maxim whereby you can at the same time will that it should become an universal law." (Groundwork, BA 52)

• CI Method A (universalizability):

• Which way of action (of a given sat of alternatives) can be reasonably be universalized? That is, which way of action (personal principle) could one reasonably want everyone to adopt?

2. CI (Respect-for-persons formula):

2. "Act in such a way that you treat humanity, whether in your own person or in the person of another, always at the same time as an end and never simply as a means" (Groundwork, BA 67)

3. Never treat people as mere objects

4. Respect the dignity of each person as a being endows with reason and an end in themselves

• CI Method B ( respect-for-persons formula)

  • Which action respects the dignity of all persons involved in or affected by it?

  • Potential aspects in business

    • No abuse of power

    • No treatment of people as mere means

    • No exploitation

    • No manipulation

    • No discrimination

  • Critiques:

+ Clear Rules

+ Independent from uncertainty and ignorance of empirical data

+ In accordance with common sense

+ Supports respect for the dignity of each human being

• Is not able to take into consideration specifics of a situation

• Strict moral laws that ignore consequences might be counterintuitive

• Constitutes some conflict between rationality and emotions

• Compare: Categorial Imperative v Golden Rule

  • Golden Rule

    • Treat others in such way as you want to be treated by them

  • Categorical Imperative

    • Act only according to principles that you could reasonably want everyone to adopt

2.4 Virtue Ethics

Definition

• Virtue ethics is a normative ethical theory about the definition and realization of virtues and human excellence

• Crucial questions:

  • What are virtues?

  • What is human excellence?

  • What is a good character?

  • What is a good life?

• Important origin in Aristotle

  • Aristotle (384/3 - 322/1 BC

  • Nicomachean Ethics

Definition

• A virtue in an excellent, durable character trait that a person develops over time by (inter)action, reflection and experience, and the enables a person to act and get along with other people in and exemplary way

  • Ex. Courage, benevolence, generosity, temperance

• Virtues define one's personality and way of acting

• Aristotle argues that the virtuous life is a good life

How does one become virtuous?

• Virtues are not innate but need to be developed over time

• Virtues require internal guidance by reason (practical wisdom) and external guidance by the societal context (feedback)

• Virtues result from the proper interplay of emotions and reason

• Examples:

  • Someone who is by nature rather hot-tempered may develop over time the virtue of being even-tempered

  • Some may be fearful, others rash by disposition - they both can transform their innate disposition by proper practice and guidance into virtue of courage

• Remark: Aristotle specifically argues that virtues generally are the mean between two vices (deficiency and excess)

  • E.g. courage is the mean between cowardice and rashness

• Quote

  • "So [. . .] anyone can get angry, or give and spend money - these are easy; but doing them in relation to the right person, in the right amount, at the right time, with the right aim in view, and in the right way - this is not something anyone can do, nor is it easy. This is why excellence in these things is rare, praiseworthy, and noble"

    • (Aristotle EN 1109a; p 35)

Do virtues matter for business?

• Business virtues:

  • Integrity, honesty, fairness (general business virtues)

  • Toughness [negogiator] (Selomon 1992; 207ff)

  • Attentiveness _service person)

  • Trustworthiness, objectivity, accuracy (Accountant)

  • Reliability (Employee)

  • Courage, responsibility, fairness, care (leader)

Virtue method A:

• Which action/decision is consistent with who is, and wants to be referring to reasonable concepts of excellence?

• Potential reference points

  • General virtues / business virtues

  • . . . Who someone is as a profession (professional virtues/principles; role in an organization)

  • . . .  What an organization is and wants to be (mission statement / core values)

The virtuous life is the good life

• Aristotle claims that developing and acting according to, virtues is key to a good life, happiness, or human flourishing

• Developing and acting according to virtues means that one achieves to become the person one wants to be and realizes the own potential towards excellence

Virtue method B

• Which action/decision best supports the development of personal or professional potential and ensures thriving of all affected?

• Critique

+ Considers that ethics is concerned with more than single actions: Characters of person, self-identity, and life as a whole

+ Takes into account both: emotions and rationality

+ Considers personal development and societal frameworks

• Is the right action sufficiently defined?

2.5 Applying ethical theory to decision-making in business

Ethical decision-making based on systematic reflection:

• Utilitarian method: Which action maximizes overall happiness?

• CI method A: Which action can be universalized?

• Virtue method A: Which action is consistent with who someone is or wants to be, referring to reasonable concepts of excellence?

• CASE

  • The underperforming friend

2.6 Further Approaches of Ethics

Case - Sinking Boat

• You are on a boat save one person: you mom, spouse or child

• Ethics of Care

  • Focuses on specific ethical aspects of concrete relationships and relational costs

• Care method

  • Is the action/decision taking place within a specific relational context?

  • If so, which action/decision is in line with the moral specifics of the relationship involved?

• Rawls: Fairness - Rational decisions behind a 'veil of ignorance'

  • Rawlsian method

    • Which action/decision would rational (self-interested) persons agree to behind a 'veil of ignorance'?

• Discourse ethics (Habermas): Rational discourse as ethical decision mechanism

  • Discourse Method

    • Which decision would win by rational argument in an open, deliberate discourse?

SUMMARY SLIDE 46 OF ALL METHODS

3.1 Basic Definitions

• The economy is…

  • The sum of all actors, actions, institutions, and organizations dealing with the production, distribution, consumption, and disposal of goods and services to satisfy human needs and desires in a rational way

• Business is…

  • An activity, actor, or organization that intentionally participates in the provision of goods and services in an economy to satisfy human needs and wants (with the purpose of making profits)

• A market economy is an economy in which the production, distribution, consumption, and disposal of goods and services results from the interplay of supply and demand that  meets on a market and defines the prices of goods and services. A market economy is called a capitalist market economy if the means for production are owned privately.

3.2 Adam Smith – Beginnings of Modern Economic Thought

• Adam Smith (1723 - 1790)

  • The Theory of Moral Sentiments (1759)

  • The Wealth of Nations (1776)

• Beginning of modern economic thought

• Crucial influence on the (Western) conception of the economy up to today

Self-Love and Societal Wellbeing

• Reevaluation of self-love: Within the economic sphere self-love is a positive motivation (in contrast to Hobbes)

• Invisible-hand concept: The individuals act in their own self-interest and, by this, automatically serve the public interest without even intending it

• Ideally, a free market results only in win-win situations

• Markets can be perceived as sphere of natural freedom

• Smith even states that by self-love the public good is often more effectually promoted than if one explicitly intends to promote the public good

3.3 Modern Economics – Rational Choice & Systemic Interaction

General Equilibrium Theory

• Standard assumptions about economic actors:

  • Individuals are self-interested rational utility-maximizers

  • Firms are maximizing their profits

• Important result of General Equilibrium Theory (First Theorem):

  • Given certain conditions, market equilibria are Pareto-efficient

• This can be interpreted as a variation of Smith's invisible hand

Remarks

• There might be further criteria for a good economy besides efficiency: e.g., justice, human development, sustainability

• Modern economics provides a theoretical conception which is based ono strong assumptions about human behavior and market properties

• The practical implementation of the concept of efficient markets is difficult. It requires many rules, e.g., against cartels or monopolies (competition laws). Letting economic actors interact without any rules and regulations would rarely be efficient

• In reality, there are many market failures

Market Failures

• Market Failures

  • Are situations that show some or all characteristics of economic interactions (of a market), but do not produce the results of perfect markets (i.e. Pareto-efficiency)

• External Effect: effect on the utility or profit of an economic actor that is not internal to the market mechanism (has no price)

  • Example: A company A, which is located upstream on a river and uses the river as a dump for toxic waste, negatively impacts the profits of another company B, which is located downstream and uses the water as input factor

  • Problem: inefficiency; overall economic output and profits are sub-optimal

  • Regulation can re-establish efficiency

• Public Goods: Goods that have two specific characteristics: (i) it is difficult of impossible to exclude people from using them, and (ii) one person using them does not reduce their availability to others

  • Examples: defense; highway system; streetlights; atmosphere

  • Problem: Inefficiency, markets provide a sub-optimal level; risk of overuse

3.4 Ethical Underpinnings of Capitalism

(Why) is the Capitalist Market Economy Good?

Classical Reasons (for the ideal, perfect market economy):

• Efficient

• Competitive (fairness, opportunities)

• Balances and satisfies individual self-interests in an optimal way

• Supports individual freedom and equal opportunities

• Benefits society as a whole

  • Stimulates innovation and efficiency gains

  • Stimulates economic growth

3.5 Criticism of Capitalism

Traditional Criticism

• Traditional criticism questions the classical claims about the benefits of the capitalist market economy

• Examples:

  • Henry David Thoreau: The market is not a sphere of individual freedom, but rather a sphere of dependency

  • Karl Marx: Not everyone is better off, but only a part of society

  • Capitalism results in an increasing inequality in wealth and income distribution

  • Not everyone has equal opportunities: discrimination, barriers, and exclusions

Fundamental Ethical Principles and Criticism

• Is capitalism 'good' against the backdrop of basic ethical principles?

  • Utilitarianism: Does the current capitalist economy maximize overall happiness?

  • CI Method B: Does current capitalism respect the dignity of every person?

  • Virtue method B: Does current capitalism promote human flourishing?

New Criticism

• New criticism questions if the existing capitalist market economy can meet the new challenges of the 21st century

• The Anthropocene: the age of human dominance on Earth

• Sustainability

• Globalization

3.6 The Economy in the Anthropocene: New Ethical Challenges

New criteria for a good economy/business as positive force in the world

• Traditional criteria:

  • Positive for individuals

  • Positive for society

• Additional new criteria

  • Positive for people around the world

  • Positive for future generations

  • Positive for nature

Implications for organizational ethics

• The current economy faces fundamental (ethical) challenge that requires involvement of various actors

• The role of business: challenges, responsibilities, and transformative power

• Addressing ethical limitations of the traditional market economy has been a major driver of contemporary business ethics

• Ethics as systematic, encompassing, proactive, and long-term framework to address a company's societal and environmental impacts

• Various approaches in current business practice: Corporate Responsibility, ESG, DEI, sustainability strategies

4.1 What is the moral responsibility of a business?

• Definition: Responsibility is the ability and moral obligation to respond (in action or verbally) to normative questions concerning the rightness and wrongness of actions or state of affairs

• When is someone responsible for something? - Conditions that constitute responsibility:

  • Action Based responsibility

    • Causality

    • Knowledge

    • Free Will

  • Role-based responsibility

    • Position / Function / Relationship

    • Ability and Power

• Definition: Business-specific (company-specific) responsibility means the sum of responsibilities a given business has regarding its specific operations, products, services, and stakeholders. This includes all ethically critical societal, environmental, global, and future effects that result from the business's activities and products

4.2 ELCA (Ethical Life Cycle Assessment) method

• Method: Determining business - specific responsibilities based on an Ethical Life Cycle Assessment (ELCA)

  • Four Steps of Analysis

    • Step 1: Identify societal, environmental, global and long-term impacts that result from the entire product life cycle:

      • Sourcing

      • Production

      • Distribution

      • Use

      • Disposal

    • Step 2: Ethically evaluate those impact - identify ethical issues

      • Criteria

        • Utilitarian Principle: Is overall happiness maximized?

        • CI Principle B: All involved in, and affected by, the product life cycle should be treated with respect

          • No one should be treated as a mere object

          • Vulnerable groups should not be exploited

          • The moral rights of all should be respected (e.g. human right)

        • Virtue Principle B: Do all involved in, and affected by, the products life cycle benefit? Do all have opportunities to thrive?

        • No Harm Principle: Others should not be harmed; harm to others and the environment should be minimized

    • Step 3: To what degree can the business be held accountable for the issues identified in Steps 1 and 2

      • Criteria:

        • To what extent did the business cause the issue?

        • To what extent did the business know one could have known that the issue occurs

        • How much ability, expertise, and power does the business have to address the issue?

(Always in comparison to other actors / parties involved)

• Step 4: Identify strategies for the business to assume responsibility and take action

  • Criteria:

    • Activities should effectively address the ethical issues

    • Activities should match the degree of responsibility defined in Step 3

    • Activities should be economically feasible and ideally support the business success

• Case study

4.3 Corporate Responsibility (CR)

·       Definition of Corporate Social Responsibility (CSR)

o   “Corporate Social Responsibility is a management concept whereby companies integrate social and environmental concerns in their business operation and interactions with their stakeholders. CSR is generally understood as being the way through which a company achieves a balance of economic, environmental and social imperatives (“Triple-Bottom-Line-Approach”), while at the same time addressing the expectations of shareholders and stakeholders”

·       Pillar model of CR: The responsibility company

o   Core of CR – ethical implications

§  General Societal Responsibilities

·       Compliance: Know and follow laws and regulations

·       Citizenship: Support societal values; civic engagement

§  Economic Responsibilities

·       Provide goods and services

·       Be profitable

·       Create value for all stakeholders

·       Be sustainable

§  Company-specific Responsibilities

·       Consider environmental, societal, global and future effects of business operations

·       Do no harm; be a positive force

o   Additional Aspect

§  Philanthropy

·       General Philanthropy

·       Business-specific philanthropy

·       Why is CR important for a modern business (Business Case)

o   Improves stakeholder relationships

o   Crucial information for investors and shareholders

o   Attracts highly qualified employees

o   Proactive risk management

o   Contribution to strategic management

o   Innovation and efficiency gains

o   Identification of new markets and products

o   Builds reputation

o   Improved competitiveness

·       Change in Modern Business: Companies Assume Broader Responsibilities

o   Higher expectations from stakeholders: more awareness fro ethical aspects of business operations

o   Businesses are influential societal and global players: more responsibility and civil engagement

o   Businesses can only thrive in stabile societies, a stabile global world, and a healthy environment

o   Businesses broadly recognize their new and expanded responsibilities in today’s world regarding their stakeholders and sustainability challenges (and given the limitations of markets and government regulations)

·       Business Roundtable statement on the purpose of a corporation

o   “While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders . . . Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”

Classical Questions

Types of Ethics

• Empirical

• Normative

• Analytical

Objective v subjective

Ethical Argumentation

Methods of Ethical decision making

Utilitarianism

Kantian Ethics

Categorical Imperative

CI Method A

CI Method B

Virtue Ethics

Virtue Method A

Virtue Method B

Care Method

Rawlsian Method

Discourse Method

3.1 Basic Def.

Adam Smith

General Equilibrium Theory

Why is capitalist good

Criticisms of capitalism

New Criteria for good economy

Responsibility of Business

ELCA method

Corporate Responsibility

 2.1 Ethics and Morality

Ethics examines norms and values—what is right, good, and how we should act. Sources of ethics include: laws, family, religion, community, authority, and etiquette.

Branches of Ethics:

• Empirical Ethics – Studies existing norms and values (Sociology, Psychology).

• Normative Ethics – Determines how one ought to act (Moral Philosophy).

• Analytical Ethics – Examines meaning of moral concepts (Meta-ethics).

Objective vs. Subjective:

• Objective – Like math, has one correct answer.

• Subjective – Like taste, has no right answer.

• Ethics – In between; not one right answer, but some are better justified.

Types of Ethical Arguments:

• Consequences (Utilitarianism) – Focuses on outcomes.

• Principle (Kantian Ethics) – Focuses on rules/motives.

• Character (Virtue Ethics) – Focuses on virtues.

• Relationships (Care Ethics) – Focuses on relational context.

• Agreement (Rawlsian/Discourse Ethics) – Focuses on fairness and rational agreement.

2.2 Utilitarianism (Ethics by Consequences)

Ethically right action = maximizes overall happiness (Bentham, Mill).

Steps:

1. Identify all possible actions.

2. Consider all affected individuals.

3. Measure benefits and harms.

4. Choose action that maximizes happiness.

Criticism:

• Hard to predict consequences.

• Happiness is difficult to quantify.

• Can justify unethical acts (e.g., stealing for overall happiness).

2.3 Kantian Ethics (Ethics by Principle)

Deontology – Ethics is based on duty, not consequences.

Categorical Imperative (Kant):

1. Universal Law – Act only on principles that could apply universally.

2. Respect-for-persons – Treat people as ends, not means.

Criticism:

• Too rigid; ignores situational factors.

• May lead to counterintuitive moral laws (e.g., no lying even in extreme cases).

2.4 Virtue Ethics (Ethics by Character & Human Excellence)

• Aristotle – Ethics is about cultivating virtues (courage, generosity, honesty).

• Virtues develop over time through experience, reason, and societal feedback.

• Golden Mean – Virtues balance between deficiency and excess (e.g., courage is between cowardice and recklessness).

Business Virtues:

• General: Integrity, honesty, fairness.

• Profession-Specific: Negotiators (toughness), Accountants (accuracy), Leaders (responsibility).

Criticism:

• Lacks clear guidance on specific actions.

2.5 Applying Ethics to Business Decisions

• Utilitarianism – Maximizes overall happiness.

• Kantian Ethics – Follows universal principles.

• Virtue Ethics – Aligns with personal/professional excellence.

Example: The Underperforming Friend – Different ethical theories lead to different solutions.

2.6 Further Ethical Approaches

• Care Ethics – Focuses on relationships.

• Rawlsian Ethics – Rational decisions behind a veil of ignorance (fairness).

• Discourse Ethics – Decisions must survive rational debate.

Case: Sinking Boat – Different ethical frameworks lead to different choices.

3.1-3.3 Economic Foundations

• Economy – Production, distribution, and consumption of goods/services.

• Business – Engages in economic activity for profit.

• Market Economy – Supply and demand determine prices.

• Adam Smith:

  • Invisible Hand – Self-interest benefits society.

  • Free markets lead to efficiency and prosperity.

• General Equilibrium Theory:

  • Markets are efficient if conditions are ideal (Pareto efficiency).

  • Market failures (externalities, public goods) require regulation.

3.4 Ethical Justifications of Capitalism

Pros:

• Efficiency, competition, innovation, individual freedom.

Cons (Traditional & Modern Criticism):

• Inequality (Marx).

• Not truly a sphere of freedom (Thoreau).

• Fails ethical tests:

  • Utilitarianism: Does it maximize happiness?

  • Kantian Ethics: Does it respect dignity?

  • Virtue Ethics: Does it promote flourishing?

• 21st-century issues: sustainability, globalization, climate change.