MAJOR ETHICAL THEORIES AND THEIR APPLICATION IN BUSINESS

Introduction to Ethical Theories

Business managers frequently face decisions in which organisational objectives conflict with the interests of employees, customers, investors, communities or other stakeholders. Ethical theories provide systematic frameworks for analysing such situations rather than relying solely on personal intuition or financial considerations.

Ethical theories help managers ask different but complementary questions about a decision.

1. Utilitarianism: Evaluating the Consequences

Utilitarianism is a consequentialist ethical theory that evaluates an action according to its outcomes. Its central principle is generally associated with achieving the greatest overall benefit and minimising overall harm. Jeremy Bentham and John Stuart Mill are important contributors to the development of utilitarian thought.

In business, utilitarian reasoning can be applied to decisions involving product safety, investment, restructuring, resource allocation, risk management and business expansion. Managers should consider not only financial benefits but also consequences for employees, customers, suppliers, communities and the environment.

Business Case: Ford Pinto – Cost–Benefit Decision

In the 1970s, Ford Motor Company faced concerns about the fuel-tank design of the Ford Pinto, which could rupture in certain rear-end collisions and increase the risk of fire. Internal discussions considered the costs of modifying the vehicle against the estimated costs associated with injuries, deaths and vehicle damage.

Ford's decision-making became a major subject of ethical controversy because it raised questions about whether financial cost considerations had been given excessive weight compared with the potential consequences for vehicle occupants. The case later became widely discussed in business ethics as an example of the difficulties involved in applying cost–benefit reasoning to decisions involving human safety.

From a utilitarian perspective, the decision should be evaluated by considering the total consequences for all affected stakeholders, including customers, employees, shareholders, dealers and society. Financial savings alone would not provide an adequate utilitarian justification if a decision created substantial risks of serious injury or death.

The case demonstrates that utilitarian reasoning requires organisations to consider the overall balance of benefits and harms rather than focusing narrowly on financial outcomes.

2. Deontological Ethics: The Importance of Duty

Deontological ethics is a duty-based approach that evaluates actions according to moral obligations and principles rather than primarily according to their consequences. Immanuel Kant is the philosopher most closely associated with modern deontological ethics. Kant emphasised the importance of treating people as ends in themselves rather than merely as means for achieving other objectives.

In business, relevant duties include honesty, obtaining informed consent, protecting confidentiality, fulfilling legitimate promises, complying with appropriate regulations and treating individuals with dignity.

Real Business Case: Wells Fargo – Unauthorized Accounts Scandal

In 2016, the U.S. Consumer Financial Protection Bureau reported that Wells Fargo employees had opened unauthorised deposit and credit-card accounts for customers. The regulator linked the misconduct to sales targets and incentive practices that encouraged employees to increase the number of products sold to customers. (consumerfinance.gov)

From a deontological perspective, the central issue is the violation of duties toward customers. Employees had an obligation to provide truthful information and obtain customer consent before opening financial accounts. Meeting sales targets could not ethically eliminate these fundamental duties.

The case demonstrates that business objectives cannot override basic obligations of honesty, consent and professional responsibility.

3. Virtue Ethics: The Character of the Manager

Virtue ethics focuses on the moral character of individuals rather than primarily on consequences or formal rules. Its philosophical foundations are strongly associated with Aristotle, who emphasised the development of virtues through ethical habits and practical judgement.

Important managerial virtues include integrity, honesty, courage, fairness, responsibility, prudence and compassion. The central question is:

What kind of manager should I be, and what would a person of good character do?

Business Case: Mamaearth – Building a Values-Based Brand

Mamaearth, founded in India by Varun and Ghazal Alagh, developed its brand around concerns about product safety, transparency and responsible consumption. The founders positioned the company as a personal-care brand that would address consumer concerns about ingredients and product safety while also incorporating environmental and social initiatives into its business practices.

The company's early positioning was influenced by the founders' own experience as parents and their concerns about the products available for children. This personal experience contributed to the development of products marketed around safety and ingredient-conscious consumption. The company also introduced initiatives related to recycling, responsible packaging and social causes as part of its broader brand identity.

From a virtue ethics perspective, the case can be examined through the character and values demonstrated by the founders. Rather than asking only whether a particular business decision maximises profit or complies with a formal rule, virtue ethics asks what a person of good character would do. The founders' emphasis on responsibility, honesty, care, transparency and social concern can therefore be examined as examples of managerial virtues.

The case also illustrates how the values of business leaders can influence organisational culture, product positioning and relationships with stakeholders. When leaders consistently incorporate their values into business decisions, those values can become part of the identity of the organisation.

Justice and Rights-Based Ethics: Fairness and Respect

Justice-based ethics focuses on the fair distribution of benefits and burdens and on the fairness of decision-making processes. John Rawls's theory of justice as fairness is an important philosophical foundation for this approach.

In business, justice can be considered through three dimensions:

• Distributive justice concerns whether benefits and burdens are distributed fairly.
• Procedural justice concerns whether decision-making processes are fair and consistent.
• Interactional justice concerns whether individuals are treated with dignity and respect.

Rights-based ethics complements justice by emphasising legitimate rights such as safety, privacy, dignity, freedom of choice and equal treatment.

Business Case: Rana Plaza Disaster

On 24 April 2013, the Rana Plaza building in Bangladesh collapsed, killing more than 1,100 workers and injuring more than 2,500. The disaster exposed serious concerns about workplace safety and labour conditions within global garment supply chains.

The case raises questions about whether the economic benefits generated by global supply chains were being distributed fairly while vulnerable workers were exposed to unacceptable risks. From a rights-based perspective, workers' rights to safety, dignity and humane working conditions are central.

The disaster subsequently contributed to international initiatives aimed at improving workplace safety in Bangladesh's garment sector.

The case demonstrates that cost efficiency and competitive advantage should not be achieved by transferring unreasonable risks to vulnerable stakeholders.

Integrated Ethical Decision-Making Framework

Step 1: Identify the Ethical Problem

Step 2: Identify the Stakeholders

Step 3: Examine the Consequences

Step 4: Examine Duties and Character

Step 5: Examine Fairness and Rights

Step 6: Make and Justify the Decision

References

• Aristotle. (1999). Nicomachean Ethics. Prentice Hall.
• Byars, S. M., & Stanberry, K. (2018). Business Ethics. OpenStax.
• Ferrell, O. C., Fraedrich, J., & Ferrell, L. (2022). Business Ethics: Ethical Decision Making and Cases (13th ed.). Cengage.
• Freeman, R. E. (1984). Strategic Management: A Stakeholder Approach. Pitman.
• Freeman, R. E., Harrison, J. S., Wicks, A. C., Parmar, B. L., & de Colle, S. (2010). Stakeholder Theory: The State of the Art. Cambridge University Press.
• Kant, I. (1993). Grounding for the Metaphysics of Morals. Hackett Publishing.
• Mill, J. S. (1863). Utilitarianism. Parker, Son, and Bourn.
• Rawls, J. (1971). A Theory of Justice. Harvard University Press.
• Treviño, L. K., & Nelson, K. A. (2021). Managing Business Ethics: Straight Talk about How to Do It Right (8th ed.). Wiley.