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Ethical Framework

Ethical framework is perspectives that can be used to determine which course of action will result in the best moral outcome. In many cases, a person may not use a reasoning process and may simply do what they believe is best at the time. Others may apply a principle learned from their family, peers, religious teachings, or personal experiences as a reflex.

Under capitalism, corporations must make a profit in order to survive and prosper. Philosophers, ethicists, and economists generally agree that businesses have a duty to obey the law in pursuing that profit. This obligation to lawful behavior is typically called the moral minimum.

However, observing the letter of the law still may leave business leaders facing unresolved moral and ethical questions. When they do, most scholars argue that they must take account of the ethical obligations their companies bear to employees, customers, and society at large.

It should be noted that this is not a universally held position. Some free market economists and others argue that ethical preoccupations distract business from its primary aim of maximizing profitability. One of the leading apostles of the free market model was the Nobel Prize-winning economist Milton Friedman, who argued that corporations should focus on increasing profits for shareholders, not on ethical concerns such as social responsibility or philanthropy. Friedman stated his position in plain terms:

“There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud.”1

Friedman contended that a free market approach often promotes the interests of society more effectively than any deliberate attempt to advance the public good. In his judgment, when unfettered market forces deliver needed goods and services, “Good business results in good ethics.”

Others argue that traditional moral precepts about right vs. wrong apply to business and commerce and must govern conduct in the business world. Proponents of this perspective turn to moral teachings of the world’s major religions or other belief systems for guidance. Many base their ethical principles on scriptural authority (for example, the Torah, New Testament, or Quran) or on their faith tradition. There is a rich history of Jewish, Christian, and Muslim thought centered on the moral accumulation and use of wealth.

Ethical Systems

There are a number of different ethical systems (or moral philosophies) that people govern their behavior by. These systems provide guidelines or frameworks for making ethical decisions.

Utilitarianism

Utilitarianism* is a pragmatic philosophical approach that seeks the “greatest good for the greatest number of people.” In the business arena, then, it operates from a cost-benefit perspective. (Most famous proponent: 18th-century English philosopher John Stuart Mill).

Utilitarianism can encourage ethical behavior because of its potential for pragmatic benefit: Companies that abide by ethical rules and principles are rewarded by consumer loyalty, enthusiastic employees, and sustainable profits.

Concerns: Pure utilitarianism can lead to the tyranny of the majority, where the rights of an individual are sacrificed to “the greatest number of people.” In practice, utilitarianism is often moderated by a consideration of rules (for example, seeking the greatest good for the greatest number unless it violates predetermined boundaries).

Question Asked When Facing Ethical Issue

“How can I act so I do the greatest good for the greatest number of people?”

Duty-based ethics

Duty-based ethics* (“Deontology”), which maintains that ethical conduct is adhering to a rule or rules that are universally regarded as moral, regardless of the consequences. (Most famous proponent: 18th-century German philosopher Immanuel Kant).

In a business context, this would mean that decisions would be made based on these moral laws without regard to their impact on the enterprise.

Concerns: It can be difficult to get agreement on what rules should be followed; simply adhering to the law is clearly not enough.

Question Asked When Facing Ethical Issue

“How can I act so I meet obligations under absolute universal moral law?”

Virtue Ethics

Virtue ethics is a philosophical approach to ethics that focuses on moral character as the basis for moral action. Its origins are generally attributed to Aristotle and the ancient Greeks, although there has been a revival of interest in virtue ethics over the past 50 years. When confronted with an ethical question, virtue ethics considers how someone of moral character would respond.

Concerns: It can be difficult to get agreement on what represents virtuous behavior and on what constitutes moral character.

Question Asked When Facing Ethical Issue

“How can I act in the way someone with high moral character would?”

Relativism

Relativism is the view that morality is not absolute and ethical standards should be adjusted according to societal norms or the law. It assumes an action is ethical if it conforms to those standards.

Concerns: In essence, the argument for relativism is: “We’re behaving the way everybody else is.” But if “everybody else” is taking bribes or fixing prices, then it is easy to fall into unethical or illegal behavior.

Question Asked When Facing Ethical Issue

“How can I act in the way someone in this society or culture would?”

Justice

Justice Ethics maintains that ethical decisions should be made on the basis of equity, fairness, and impartiality. In a business context, this would mean assessing all decisions based on whether they were fair and treated people equally.

Concerns: It can be difficult to get agreement on a definition of “fairness” and “equity.” Should we seek equality of opportunity or equality of outcome?

Question Asked When Facing Ethical Issue

“How can I act so I treat others equally and fairly?”

Egoism

Egoism maintains that the pursuit of self-interest should be the basis of morality. (Most famous proponent: 20th-century libertarian philosopher Ayn Rand).

In the business context, this would mean making decisions that benefit the enterprise regardless of their impact on others. (Most of those advocating egoism argue for obeying societal laws.)

Concerns: An ethical system based on self-interest will encourage greed and selfishness, which in the long run will not prove effective because of how others (customers) are likely to react.

Question Asked When Facing Ethical Issue

“How can I act so I benefit my own self-interest?”

Recommended for you Ethical Wrongdoing

Review Checkpoint

To test your understanding of the content presented.

1. True or false?

Relativism maintains that the pursuit of self-interest should be the basis of morality.Choose only one answer below.

a. True

b. False

Correct. This is a false statement. Egoism, not relativism, maintains that the pursuit of self-interest should be the basis of morality.

2. True or false?

Milton Friedman believed that good ethics resulted in good business.Choose only one answer below.

a. True

b. False

Correct. This is a false statement. Milton Friedman believed that good business resulted in good ethics, not the other way around.

Note

1 “Milton Friedman Responds.” Business & Society Review, 5, 1984.

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