ETHICAL DECISION MAKING: A TOOLKIT
“Ethical analysis, unlike much quantitative analysis, can be a messy, complex business, without a
clear and definitive outcome. However, we do have tools at our disposal to help us make these
complicated assessments.” (Text, p.13)
The purpose of this section of the chapter is to familiarize students with the different ethical
theories often used to aid in the decision making process.
A discussion of ethical theories can be facilitated using the question posed on page 13 of the text:
“Were the decision made by BP before, during and after the Gulf Spill ethical?” To continue a
discussion that enables students to recognize their default mode of thinking about ethics and to
help introduce ethical analysis, consider the following hypothetical situation:
Assume you are the chief executive officer of a large drug company. You are deciding what
price to charge for a new drug that promises to be effective against lung cancer. Assume that
insurers would be willing to pay a large price for the drug and that some uninsured members of
society could afford to purchase the drug. Some uninsured people, however, would simply be
unable to purchase it. How should you go about deciding how much to charge for the drug and
whether to offer it at a lower price to some members of society?
1. Free Market Ethics
One theory is that of free market ethics. Milton Friedman is a well-known free market
economist and supporter of that view. Under the free market view, the primary responsibility of
a corporation is to improve the value of the investment of shareholders while obeying the law.
Decisions regarding society should be made in the political arena and funded by tax dollars.
Friedman strongly voiced that view in 1970 (as set forth in the text) when he stated, “. . . In a
free society, 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 with the rules of the game,
which is to say, engages in open and free competition without deception or fraud1.” Under this
theory, the drug company, just like BP, should only be concerned with increasing profits and
shareholder value.
2. Utilitarianism
Under utilitarianism, the consequences of an act to all those affected by it are considered. A
proponent of that theory would try to determine the alternative likely to produce the greatest
overall good to all those who would be affected by the decision. Just like the BP example in
which stockholders, workers, coastal residents, fish and other creatures, the ecosystem, and the
public at large are all considered, in the hypothetical all affected would be considered. That
would include stockholders of the company, individuals who need the drug, employees of the
company, and insurers.
1 “The Social Responsibility of Business is to Increase Its Profits,” New York Times,
September 13, 1970.
The BP oil spill demonstrates the difficulty in utilitarian analysis of determining the
consequences – both good and bad – that can be traced to a complex scenario. Comparing BP’s
decision on the back up switch versus their decision to participate in deepwater drilling in the
Gulf illustrates a chief criticism of the utilitarianism – the theory will accept harm, even severe
harm, to a small number of stakeholders as long as there is an overall benefit to the majority.
3. Deontology
Deontology is the name given to an entire area of ethical theories based steadfastness to
universal principles. The most famous deontological thinker, Immanuel Kant, stated that these
principles may be derived through categorical imperatives, one of which states that individuals
should be willing to have the reasons for their actions become universal principles. Under
deontological ethics, other people should not be used merely as a means to achieve a purpose
with no mutual benefit attached. In the BP oil spill, several deontology principles were violated.
The hypothetical may address the confusion that is created with deontology when different
universal rights and duties crop up in the same ethical problem and seem to conflict with one
another.
4. Virtue Ethics
Virtue ethics focuses on what human beings are capable of being and on how they can cultivate
habits of good character that will naturally lead them to their fullest potential. Virtue ethics
focuses on moral characteristics engrained within a community. For businesses this is often
found in the values statements and corporate culture. BP’s corporate culture is discussed in the
text. What would the corporate culture or community be for the hypothetical drug company?
Today’s complex world presents a challenge to the virtue ethics approach. Individuals are
exposed to many different communities that may have very different values. How is virtue
defined? How is integrity maintained? These questions may be especially hard to answer when
the values of different communities do not align.
5. The Ethic of Care
A number of ethicists reject the underlying assumption that ethical decisions are individual
decisions that can be made without concern for relationships. The ethic of care is based on
caring for others and making decisions with that as the top priority. This difference in
assumptions leads the decision maker to consider different perspectives and more heavily rely on
relationships than on other aspects of the situation. What are the relationships at stake? The BP
disaster highlights how the global hunger for energy and oil causes vast problems that go beyond
the oil spill and indicate that we all need to consider relationships as we look for ways to reduce
our carbon footprints. What relationships should be considered in the hypothetical?
6. Some External Resources on Ethical Theories
Following are some other sources for information on ethical decision making:
Gerald Cavanagh, American Business Values, (Englewood Cliffs, NJ: Prentice
Hall, 1984), on the ideology of business, from John Calvin to Frederick Taylor.
Frances Moore Lappe, Rediscovering America’s Values (New York: Ballantine
Books, 1989). In dialogue form, the libertarian vs. the communitarian, freedom
vs. fairness debate.
Judith A. Boss, Ethics for Life: An Interdisciplinary and Multicultural
Introduction (Mountain View California: Mayfield Publishing Company, 1998).
Thomas Donaldson, Patricia Werhane, “Introduction to Ethical Reasoning,” from
Ethical Issues in Business, 6th Edition (Upper Saddle River, NJ: Prentice Hall,
1999), pp. 1-11.
James Rachels, The Elements of Moral Philosophy (New York: Random House,
1986).
Manuel Velasquez, Business Ethics: Concepts and Cases, 4th Edition (Englewood
Cliffs, NJ: Prentice Hall, 1998), pp. 1-143.
Following are challenges to the formula that would have us teach business ethics by asking
students to apply abstract theoretical principles to a string of case examples, which point toward
alternatives like virtue ethics and the use of uplifting narrative:
Frida Kerner Furman, “Teaching Business Ethics: Questioning the Assumptions,
Seeking New Directions,” 9 J. Bus. Ethics 31-38 (1990). (On use of narrative to
teach business ethics.)
Janet McCracken, William Martin & Bill Shaw, “Virtue Ethics and the Parable of
the Sadhu,” 17 J. Legal Stud. Educ. 25-38 (1998).
On the exclusion of women from “philosophical ideals of such things as human nature and
morality” see Jean Grimshaw, Philosophy and Feminist Thinking (Minneapolis: University of
Minnesota Press, 1986). (See especially Chapter 2, “The `Maleness’ of Philosophy.”)
On feminist ethics of care:
Rita Manning, Speaking from the Heart: A Feminist Perspective on Ethics
(Maryland: Rowman & Littlefield, 1992).
Rosemarie Tong, Feminine and Feminist Ethics (California: Wadsworth
Publishing, 1993
For a readable introduction to the psychological approach to moral development see Kate
Nelson and Linda Trevino, Managing Business Ethics: Straight Talk about How to Do It
Right, Chapter Five, (New York: John Wiley & Sons, 1995). “A Note on the Ethic of
Caring,” a Darden Graduate School of Business Case Study (UVA-E-068) discusses both
Gilligan and Nell Noddings. Gilligan introduces her own work in “Women’s Place in
Man’s Life Cycle,” from In A Different Voice. For a thorough critique of Gilligan see
Linda Kerber, et.al., “On in a Different Voice: An Interdisciplinary Forum,” 11 Signs,
Winter 1986
Why Ethical Theory?
Awareness of the theories provides support in two ways when facing business dilemmas:
1) The decision maker is better able to think broadly and deeply when brainstorming
using multiple frameworks.
2) The decision maker is better able to understand his or her own thinking and articulate
it to others.
CORPORATE GOVERNANCE
Corporate Roles, Rights and Responsibilities
Shareholders: Owners whose legal liability is limited by law to their investment in the
company. They have the right to: receive accurate financial reports and dividends when
declared, attend shareholder meetings, vote on some issues, and hold managers and
directors accountability via shareholder derivative suits.
Board of Directors: Elected by shareholders and held by law to a duty of loyalty and
care towards the corporation. The board sets overall policy, provides financial
information to shareholders, hires and fires management and may file lawsuits on behalf
of the corporation.
Officers and Management: Appointed by the board and held to the same duty of loyalty
and care. They run the company, implement board decisions and prepare reports.
CORPORATIONS, PUBLIC POLICY AND MONEY
Modern corporations are designed to maximize profit and minimize risk. As a separate
entity under the law, corporations can make contracts, lend or borrow, sue or be sued.
Shareholders only risk their investment (limited liability) but have little if any power.
Officers and directors are protected from liability under the business judgment rule unless
there has been “an abuse of discretion.”
In the case in the text, Citizens United’s challenge of the Bipartisan Campaign Reform
Act of 2002 (BCRA) looks at differing interpretations of First Amendment protection of
free speech and the role of corporations in the political process.
Citizens United v. Federal Election Commission, Questions, p. 38
1. What are the primary arguments advanced by Justice Kennedy, writing for the
majority, against the reasoning of the Austin case and against the restrictions of
BCRA? What arguments does the dissent use in defending BCRA?
Political speech is the most important, and most protected, speech that exists. It is
Suppressing the speech of corporations prevents their voices and viewpoints from
Finally, BCRA is limited in the technology that is restricted but technology changes
The dissent (written by J. Stevens) focuses strongly on the fact that the corporation is
not a person. The fact that there are many potentially disparate opinions in a
Congress has found the need to continually regulate corporate participation in
2. Summarize the differing views of the corporation that emerge from this case.
Justice Kennedy tends to see the corporation as an aggregate of individuals who
Justice Scalia doesn’t seem to care about the definition of the corporation so much as
the fact that the corporation can emit speech and the First Amendment protects speech
Justice Stevens sees a significant difference between corporations and humans and
3. (a) Does unlimited corporate spending on political advertising affect your faith
in the democratic process?
Questions to consider include the following:
Does it matter that large corporations have tremendous resources (potentially
Do you believe that the corporation (or business in general) has such a
Does the level of transparency matter to you – if it is clear that an ad is being
3. (b) Ninety percent of the ads in the 2012 election cycle were negative, compared
to only 9% of the ad in the pre-Citizens United presidential campaign of 2008.
Why might that be true?
Questions to consider include the following:
4. (a) Why is disclosure of the source of campaign finance money important? (b)
What difference does it make whether or not the public learns who is funding a
political message?
Questions to consider include the following:
5. What qualities in negative political ads are made fun of by Stephen Colbert?
Negative ads suppress voter turnout. What policies could our government
institute that would have the opposite effect?
Colbert made fun of the role of PAC’s in the ads and the rules that govern PAC’s and
advertisements. He also illustrated how ridiculous some of the claims in the ads can
6. Do you think the law should treat corporations as people, with civil rights like
those protected by the First Amendment? Why/why not?
Questions to consider include the following:
Since corporations are treated as individual entities in many respects, should
Corporations are already powerful entities. Would First Amendment civil
7. How did the Court decide McCutcheon v. Federal Election Commission?
The U.S. District Court granted the FEC’s motion to dismiss. McCutcheon appealed
CORPORATE SOCIAL RESPONSIBILITY
Corporate Social Responsibility (CSR) claims that, instead of just focusing on shareholders, all
stakeholder interests are considered. The idea is not new but is subject to debate. Milton
Friedman sees it as an “inappropriate direction for profit-focused companies to pursue” and
University of Michigan business strategy professor says “CSR is either irrelevant or ineffective –
take your pick.”
BENEFIT CORPORATIONS
Approximately 600 companies have joined the Benefit or B Corporation movement which
redefines what business success means and redirects that power of business. B Corporations
focus on the “triple bottom line”: profit, people and planet.
How Benefit Corporations Are Redefining the Purpose of Business Corporations Questions p.
43-44
1. What are the primary market forces favoring the growth of benefit corporations?
A growing number of consumers prefer to make purchases from socially responsible
2. How are traditional corporations and benefit corporations similar? What are the main
differences between them?
Both traditional and benefit corporations are incorporated under state law with the purpose to
Benefit corporations are required to a purpose of creating “general public benefit” and
Traditional corporations owe a fiduciary duty to stockholders. That duty is expanded
3. Research: Find a company that has been certified by B Lab. What kind of business is
it? How does it serve the triple bottom line?
4. Forbes Magazine named Exxon Mobil “Green Company of the Year” in 2009 for its
focus on natural gas (as opposed to coal). In the same year Exxon Mobile was lobbying
against the scientific consensus that climate change was occurring, and that it was
mainly caused by the burning of fossil fuels. If Exxon was a benefit corporation, could
shareholders sue its directors for this inconsistency?
Shareholders of a benefit corporation can bring an action for failure to consider other
5. Milton Friedman wrote that if business executives use corporate resources to benefit
society they are, “in effect, stealing from their shareholders instead of serving their
interests …” How would a proponent of the benefit corporation answer this argument?
Opinions will vary. A proponent could point out the fact that, as consumer demand for
purchasing products from socially responsible companies grow, it is the shareholders of those
6. Research: Find out if your state has passed legislation for B Corps. If so, locate a
company that has been certified by B Lab. What kind of business is it? How does it
serve the triple bottom line?
As of January 2014, fourteen states have effective B Corp legislation and six others have