Utilitarian Ethics, Essay Example

In broad terms, utilitarian ethics is a principle that dictates that the most moral decision is the one that has a positive effect on the greatest number of people (Schneewind 1977). Utilitarianism was developed by moral philosophers, among other moral principles, in an attempt to define ethical behavior. Despite the availability of contrasting moral theories available however, utilitarianism has remained one of the most popular in a variety of fields including politics and economics. In order to understand the influence of utilitarianism on business however, it is useful to fully evaluate the development of the principle and contrast it to other modes of though in order to understand its relevance in the modern world.

Since early times, philosophers have attempted to define what happiness truly is. The first known attempt to do so was introduced in a movement known as Hedonism, which is believed to have been invented by a student of Socrates by the name of Aristippus. He famously noted that a majority of humans derive happiness from pleasure, and therefore concluded that the greatest amount of happiness could result in the greatest amount of pleasure (Feldman 1997). Since pleasure is the route to happiness, he considered that pleasure is the only measurable definition of good or morality. While Aristippus provided an excellent background into the future insight of morality, he failed to question whether the concept of pleasure is similar for every individual. Modern normative ethical principles such as consequentialism, utilitarianism, and deontology build upon Aristippus’ basic belief and attempt to define how and when pleasure is ethical.

The concept of utilitarianism was framed primarily by the modern thinkers Jeremy Bentham and John Stuart Mill (Gay 2002). These philosophers understood that maximal pleasure is desired in a society, but attempted to differentiate personal happiness from societal happiness and determine which concept has the greatest ethical impact. Mill was a religious man, and his opinion on the topic was heavily influenced by biblical tales. In his book, Utilitarianism, he states that proper ethical decisions should be defined as those that offer maximal utility. Specifically, he says, “To do as one would be done by, and to love one’s neighbour as oneself, constitutes the ideal perfection of utilitarian morality” (Mill 1906). In other words, it is essential to consider the happiness of all when defining what is moral. Bentham and Mill were primarily concerned with the consequences of actions in defining the morality of the individual. Therefore, they consider that in order to be maximally moral, it is essential for an individual to weigh all potential actions and consequences before coming to a decision. Once one has considered all of the possibilities, they should take the route of action that will benefit a majority of the people involved, even if it does not provide a benefit to the individual making the choice.

Utilitarianism is an essential principle in the business world. Ultimately, the free market is guided by aspects that will benefit the greatest number of people. In “In Defense of a Utilitarian Business Ethic”, the author argues that “Utilitarianism provides a guiding framework of decision making rooted in social benefit which helps direct business toward more ethical behavior” (Gustafson 2013, p. 325). He explains that many companies and businessmen can benefit from making use of utilitarianism principles because it will help them avoid scandals that could damage business. The primary examples that Gustafson cites are the failures of Enron, Worldcom, and the Wall Street Meltdown. While many businessmen and businesses typically engage in unethical behavior with the hope of gaining profit, it is essential for them to understand that the damage that is being done to others and the repercussions they will personally suffer if they are caught. Businessmen who engage in business scandals such as the sort mentioned above practice the exact opposite of utilitarianism. While they believe they will benefit from these scandals, it hurts their workers, their investors, and eventually themselves; since no one benefits in this situation, it is impossible to argue that these acts are ethical according to any philosophical moral definition.

In order to fully understand why the influence of utilitarianism should be welcomed, it would be useful to examine a case in depth in which a businessman could have used these principles to avoid public embarrassment or bankruptcy as a consequence of a breach of ethics. This example will make use of the Enron scandal in 2001 because analysts believe that it is among the top ten worst corporate scandals of all time (Accounting-Degree.org n.d.). Enron is an energy company based in Houston, and was considered to be extremely successful before the scandal. In order to make more profit however, CEO Jeff Skilling and former CEO Ken Lay decided to hide large amounts of debt from the balance sheet. Many top executives have made this decision in the past in order to make their business appear more successful and to raise the value of their stock. As a consequence, this decision appeared to be worthwhile because it would ultimately result in more pocket money for the CEOs. Ultimately however, Enron’s high stock prices were extremely suspicious and eventually an internal whistleblower gave the company executives away. This charge led to a 24 year long jail sentence of CEO Jeff Skilling and to bankruptcy of the company.

Clearly Jeff Skilling and Ken Lay were not acting on ethical principles when they made the decision to hide their debts. In fact, only Skilling and Lay would have benefitted from this attempt if they have succeeded.  According to the principles of utilitarianism and ethical decision making, Skilling and Lay should have considered all of the potential consequences of their actions before coming to a decision. As CEOs, it was their responsibility to act in a manner that would benefit the greatest number of people. While debts are harmful to the company, there were many ways that they could have either restructured the company to pay off these debts or business agreements with other companies in the industry, such as merger, could have been an option. Ultimately, the options that the two CEOs had before them was to hide the debt and do nothing to resolve it, hide the debt and try to resolve it in secret, not hide the debt and take no action to resolve the financial situation , or to not hide the debt and take an action to resolve the financial situation. In this instance, the action that would create the greatest amount of good for the greatest amount of people would be to not hide the debt and take an action to resolve the financial situation.

Unfortunately, since Skilling and Lay made the business decision that contrasts with utilitarianism the most, the consequence of their decision was harmful to a great number of people. Their employees, shareholders, and customers all felt either a financial impact or service disruption when Enron was declared bankrupt. If these two business leaders had considered ethical values at all, especially those dictated by utilitarianism, the business would have had a chance to survive.

Deontology is another modern ethical belief that considers acts moral based on the intention of the individual who performs the act. Ultimately, people who support deontology as the primary source of morality believe that as long as an individual’s intention is good, they are moral (Broad 1930). While this is an interesting point, it is not applicable to the business world. In business and marketing, results are stressed and what measures success; the intention or the pathway it took to arrive there is somewhat irrelevant. Since utilitarianism defines moral behaviors and actions as those which give rise to the most desirable consequences, it is more applicable to industry.

In order to illustrate deontology’s irrelevance to the business world, it would be useful to revisit the Enron scandal. When the two CEOs were faced with the fact that their business may potentially close, they quickly made the decision to hide their debts. While it was already concluded that utilitarianism principles state that this decision was ethically wrong, deontological principles would disagree with this. For example, it is possible that Skilling and Lay decided to hide their debts because they believed it would protect the company. In this sense, protecting the company would also ensure protection of the shareholders, employees, consumers, and especially themselves. In this sense, if the two CEOs succeeded, they would have taken the most ethical action because the greatest number of people would have benefitted. However, even though the CEOs had good intentions, their plan backfired. Deontology states that since Skilling and Lay tried to protect their company, and they were acting with the best interest of everyone, that they were behaving morally. However, there were clearly other, better decisions that the two could have made. Since at the very minimum, we understand that lying and cheating is immoral to some extent regardless of the situation, we can disprove deontology as a relevant ethical principle in the field of business. In fact, lying and cheating is the primary cause of scandal, and is known to have a negative effect; therefore any attempt to continue this practice in business should not be considered ethical.

Now that we understand that utilitarianism is the ideal ethical approach in business and can typically lead business owners to not only moral, but financially wise decisions, it is essential to understand how to incorporate these principles into daily business thought. Although there is no perfect answer available and individual situations require a degree of flexibility when considering ethical implications, and article entitled “Five Ways to Shape Ethical Decisions: Utilitarian Approach” attempts to provide a basic outline as to how to accomplish this (Hansen 2011). It calls for the business professional to ask his or herself first and foremost who the stakeholders that will be impacted by a particular decision are. This will vary based upon the decision made, but it is very essential to take note of all of the people that will be impacted either directly or indirectly and to detail their relationship to the organization and  the quantity of people that fit in each category. Next, the benefits and harms of the decision should be listed according to the stakeholders involved; it is essential to consider that what is beneficial for one group of stakeholders may be detrimental to another. Next, it is important to consider the ultimate goal of the decision; whether the decision is necessary, what its function will be, what needs to be done to ensure that it is accomplished, etc. Ultimately in doing this exercise, it is important to determine what weight of benefits and harms is acceptable and to ensure that the greatest number of stakeholders will benefit.

One of the major criticisms of utilitarianism in general is that it is difficult to apply value to risks and harms (Velasquez 1989). In the case of business ethics however, this is less of a problem because a majority of decisions can be measured quantitatively. When making an important decision using utilitarian principles, the business professional should use these quantitative values to his or her advantage. For example, the Enron scandal resulted in a large number of individuals who lost their jobs and salary. It is therefore easy to consider a decision in terms of necessary lay-offs or hirings, salary loss and gain, increased or decreased workload, and increase in overall profit for the company or overall decrease in profit for the company. While decisions involving utilitarianism may be difficult outside of business due to an unavoidable grey area in determining the meaning of benefit and harm, business professionals can define benefit and harm simply in financial terms.

Other than its usefulness in making good long-term business choices and preventing bankruptcy, business professionals claim that utilitarianism has other benefits as well. For example, a strong appeal of the utilitarian approach is its cost-benefit character. Managers need not only consider what is the best ethical principle in terms of human interactions; utilitarianism could be applied simply to risks and benefits accrued according to monetary value. What is considered to be “the greatest good” could be considered the best financial decision. Although people are ultimately impacted as a consequence of the financial decision, it isn’t always necessary to consider them as the primary benefactors. This is not to say that stakeholders should be avoided altogether when making a financial decision because this is not the case. Rather, a manager could consider the best outcome of a decision in terms of monetary value and impact on stakeholders separately, and then combine the two approaches when making a final decision.

In conclusion, it is useful to consider utilitarianism as an approach in business because it helps guide many decisions that are difficult to answer objectively otherwise. It requires careful thought and consideration of the question at hand which acts as a check against rash choices in the business world. While many business professionals may be frightened when they incur debts, such as the CEOs of Enron, it is essential that they calm down and consider all of the options available to them. Utilitarianism is extremely beneficial because it offers a systematic process by which this could be accomplished and aids the business professional in determining the best and worst options available to them.

References

Accounting-Degree.org n.d., The 10 Worst Corporate Accounting Scandals of All Time. Available from: <http://www.accounting-degree.org/scandals/>. [6 January 2014].

Broad, CD 1930,Five Types of Ethical Theory. Harcourt Brace and Co, New York.

Feldman, F 1997,Utilitarianism, Hedonism, and Desert: Essays in Moral Philosophy. Cambridge University Press.

Gay, J 2002,Concerning the Fundamental Principle of Virtue or Morality. Cambridge University Press.

Gustafson, A 2013, ‘In Defense of a Utilitarian Business Ethic’, Social Science Research Network, vol. 118, no. 3, pp. 325-360.

Hansen C 2001,’Five Ways to Shape Ethical Decisions: Utilitarian Approach’. Available from:<http://www.capsim.com/blog/2011/five-ways-to-shape-ethical-decisions-utilitarian-approach.cfm>. [6 January 2014].

Mill, John Stuart 1906,Utilitarianism. University of Chicago Press, Chicago.

Schneewind, JB 1977,Sidgwick’s Ethics and Victorian Moral Philosophy. Clarendon Press, Oxford.

Velasquez, M 1989, ‘Calculating Consequences:The Utilitarian Approach to Ethics’. Available from: <http://www.scu.edu/ethics/practicing/decision/calculating.html>. [6 January 2014].