Business Ethics

OCR
Ethics

Utilitarianism on capitalism & business ethics

Bentham was influenced by Adam Smith, an economist and philosopher sometimes called the father of capitalism. Smith’s argument is that when people follow their rational self-interest competing in a free market, the result is economic prosperity which benefits society. In a free market, people gain money by providing a product or service that others are willing to pay for. Competition encourages productivity and innovation resulting in economic growth. Free market capitalism harnesses self-interest for societal gain, as if guided by an ‘invisible hand’. This is the origin of the view that good business decisions have positive social results and is thus linked to good ethics.

Smith’s argument was highly influential on Milton Freidman who explicitly claimed that the only responsibility a business is to maximising profit for shareholders and compete in the free market fairly, without deception or fraud.

For example, Bill Gates has a lot of money which satisfies his self-interest, but in return society gained the use of computers that people were happy to pay him for because of the benefit they gained from it.

Bentham and Mill mostly agreed with Smith’s reasoning, accepting that in general happiness is maximised by leaving markets free. However, they both thought that restrictions needed to be placed on the market in some cases to direct it towards maximising happiness where it failed to. For example, Bentham thought the government should guarantee employment and impose a minimum wage. Mill thought that the government should step in to aid in cases of market failure by providing their own products or service, such as education, to encourage competition if the market was failing to do so. Mill also thought that worker-owned co-ops were the best model for ownership structure. These are where the workers jointly own the business and elect its leaders.

Kant on capitalism & business ethics

Kant was influenced by Adam Smith and agreed that the division of labour was important for progress. Capitalism is based on market interactions and contracts between employers and employees. It involves individuals pursuing their rational self-interest. Kant’s ethics accords with this as it depicts the rational individual as the centre of moral responsibility. Contractual arrangements and market interactions involve the treatment of people by each other as ends.

However, when business practices or the macro effects of capitalism result in people being treated as mere means or otherwise violate duty, it seems that Kant would think that immoral, even if it was good for the profit of the business.

The first formulation of the categorical imperative would require that the maxim behind market interactions be universalizable. Lying is always wrong, so fraud or deceptive advertising would be wrong. Whistleblowing seems to be a moral duty. It also requires that contracts be respected and promises kept.

The second formulation would require that market interactions do not involve the treatment of people as mere means. Labour should not be treated merely as a commodity. A basic level of respect must be given to employees and all stakeholders.

  • Avoiding exploitation (community CSR). This includes paying workers enough, perhaps a minimum or even living wage.
  • Providing a safe work environment (community CSR).
  • Avoiding fraud or deceptive advertising (community CSR).
  • Avoiding polluting the environment or having a net negative impact on the environment (environmental CSR).

Globalisation seems problematic for Kant in that it can cause all of these corporate social responsibilities to be violated.

Corporate social responsibility (CSR)

CSR is the theory that a business has ethical responsibilities to towards the environment and the communities it is part of or affects. There are two main types of CSR.

Environmental CSR. The responsibility a business has towards the environment.

  • Reducing negative impact on the environment such as pollution and non-recycled products.
  • Increasing the reliance on ‘green’ renewable and sustainable energy and products.
  • Offsetting negative impact done to the environment for example by donating to pro-environment groups that will make conservation efforts. E.g. a business aiming to be ‘carbon neutral’ might release some carbon dioxide through industry but donate for trees to be planted that might absorb the same amount of carbon their industry released.

Community CSR. The responsibility a business has to its social community, respecting human rights and avoid exploitation.

  • Avoiding being supplied by any business which involves exploitation, sweatshops or child labour.
  • Responsible treatment of employees e.g. minimum wage, health and safety provisions.
  • Donating money to charitable causes.

The benefits of CSR are mainly better public relations (PR). The company appears better in the eyes of the public for the good that it does. It is also an opportunity for greater brand recognition and a form of advertisement. It can inspire greater customer loyalty.

The downsides of CSR are that it can sometimes involve a reduction in total profits

For example, Innocent smoothie advertises on every bottle that they give 10% of all their profits to charity. Pret-a-manger gave away their left over food away to charities at the end of the day. On the label of each sandwich they sell, they advertised this fact and stated ‘it’s the right thing to do’.

Examples of CSR and critique of CSR as hypocritical window-dressing

CSR is typically a centrist or centre-left position. Those further left often regard CSR as hypocritical window dressing, meaning making something appear good while overall it is bad. A business which engages in CSR for public relations purposes might be doing so to distract from their unethical practices.

This can apply to capitalism in general, because by encouraging a slightly healthier version of capitalism, people might feel less motivation to address the problems of capitalism or they might even be deceived that capitalism is not the cause of the problems to begin with.

Anand Giridharadas summed up this self-serving hypocrisy well in this article title: “Jeff Bezos wants to start a school for kids whose families are underpaid by people like Jeff Bezos.” The subtitle was “A free crash course in why generosity is no substitute for justice”.

Anand’s point is that businesses like Amazon, who don’t pay taxes and bust unions, are the actual cause of the problem that they then give a tiny amount of their profits to ‘address’. Corporate social responsibility is a sham. It’s not businesses giving away their profits for the good of society, it is a cold calculation that it would be more profitable for them to give away a fraction of their profits in order to give a good impression of themselves to the public, purely in order to avoid the greater loss to their profits if the public became more focused on their inequality, tax avoidance and union busting. That ‘class consciousness’ might cause the public to vote for more left-wing political parties which would institute policies that would cause businesses to give far more than they do for corporate social responsibility.

“We don’t need you to do more good. We need you to do less harm.”

It’s not simply gaining PR, it is an attempt to disguise the fact that businesses are part of the cause of economic problems like inequality, by giving the impression that businesses can be part of the solution. The amount ‘given back’ through CSR is nothing compared to the profits gained through avoiding taxes and busting unions.

This hypocritical window-dressing can also simply done for public relations (PR) purposes, to make the business look good, regardless of whether the overall impact of the business is negative.

For example, Tim Cook the CEO of Apple made a speech where he talked about how his platform would be against white supremacy, yet Apple continues to exploit people in third world countries.

This brings into question whether CSR even has a good ethical outcome. However even in cases where it does, some would be sceptical and suggest these businesses only do this so they can advertise themselves attractively to customers. The question is whether those intentions matter ethically.

Utilitarianism on CSR

Free market capitalism is the idea that the only responsibility of a business is to maximise profit for its shareholders. Bentham and Mill think that the free market is generally the best way to maximise happiness. They would likely accept environmental CSR because of how damaging climate change can be to happiness. However, regarding community CSR, they would probably reject philanthropy as a responsibility of business. Bentham did favour some regulations for employees like minimum wage. Ultimately, Mill and Bentham think the free market generally works for producing human flourishing and happiness. They would generally be against restrictions and responsibilities laid on business which would interfere with that.

Kantian ethics on CSR

The second formulation would require that market interactions do not involve the treatment of people as mere means. Labour should not be treated merely as a commodity. A basic level of respect must be given to employees and all stakeholders.

  • Avoiding exploitation (community CSR). This includes paying workers enough, perhaps a minimum or even living wage.
  • Providing a safe work environment (community CSR).
  • Avoiding fraud or deceptive advertising (community CSR).
  • Avoiding polluting the environment or having a net negative impact on the environment (environmental CSR).

Utilitarianism vs Kant on CSR

The issue of intentions applied to business ethics

Utilitarianism only views the consequences of actions as good, not the character (integrity) of the person who performs them. This goes against the intuition that a person can be a good person. Consequentialist theories seem unable to accept that because for them, it is only consequences which are good or bad, not intentions/character.

Applying this to business ethics, it looks like Utilitarianism would not care about a business merely engaging in CSR for PR out of greed for profit or even for deception to distract from their other unethical practices. So long as the business and its CSR activities overall have good consequences, Utilitarian reasoning seems to be committed to it being morally good.

Kantian ethics would not have this issue because for Kant good intention is essential. We must act out of duty (“duty for duty’s sake”) in order for our action to be morally good.

Mill responds firstly that a person’s character does matter because it will determine their future actions. The stabber should be condemned for his motive because that will prevent them stabbing others in future. The priest should be forgiven because he’s not likely to do anything bad in the future as his character is good. Secondly, Mill argues that having a good character helps you become happy. Motives and character therefore do matter ethically, though not intrinsically but only insofar as they result in good consequences, in line with consequentialism.

So, Mill might argue that if the intention behind CSR involved greed or deception then that might have bad consequences overall or in the future and therefore can be thought of as morally wrong.

Kant would not be satisfied by this response, however, as he would maintain that it was the greed and deceptiveness itself that should be regarded as morally deficient.

Whistleblowing

Whistleblowing is when someone, usually an employee, leaks information about the wrongdoings of a company. This could be bad business practices regarding employees, customers, society or the environment.

Facebook case study. Frances Haugen worked for Facebook (which owns Instagram) and leaked internal documents which came to be known as ‘The Facebook Files’. One quote from the files in the leak acknowledged that “we make body issues worse for one in three teenage girls”. The leak also shows that the Facebook algorithm promoted posts that caused anger or outrage.

The upside to whistleblowing is that the negative business practice is brought to light which gives it a better chance of being brought to an end.

The downside is that the company might suffer financial losses or even go bankrupt, causing some of or all of its staff to lose their job. In cases where the company was doing good, that could also be stopped.

Kant on Whistleblowing

Kant thinks lying cannot be universalised and is therefore always wrong. So, he would certainly also be against lying to cover up negative business practises, even if that truth being brought to light resulted in the failure of the businesses and employees who may have done nothing wrong nonetheless losing their jobs. It is your duty never to lie.

Kant would also regard the treatment of people as mere means to be wrong due to the second formulation of the categorical imperative. Most if not all cases of whistleblowing seem to involve exploitative or deceptive business practices that treat people as a mere means. This would be another reason that Kant would be in favour of whistleblowing.

Utilitarianism on Whistleblowing

Act utilitarianism holds that whistleblowing is morally right depending on the situation. If whistleblowing causes more happiness than not whistleblowing, then it is morally good; if it causes less happiness then it is morally wrong. For example, if the business is causing a lot of happiness, then whistleblowing about some suffering it is causing, e.g. through exploitation, might be wrong.

Utilitarianism on Whistleblowing

Act utilitarianism holds that whistleblowing is morally right depending on the situation. If whistleblowing causes more happiness than not whistleblowing, then it is morally good; if it causes less happiness then it is morally wrong. For example, if the business is causing a lot of happiness, then whistleblowing about some suffering it is causing, e.g. through exploitation, might be wrong.

Kant vs Utilitarianism on Whistleblowing

The issue of whether consequences have moral value applied to business ethics.

Kant and the issue of failing to appreciate the value of consequences. The murderer at the door example attempts to show the downside of Kant’s rejection of consequences having moral significance.

This can be applied to business ethics. Imagine that a business employed a genius but sadistic scientist who was likely to cure some terrible disease that affected millions. However, they were treating their workforce in some horrible way, but there was no way to gain the valuable research without allowing the exploitation. A Utilitarian might reason that we should allow the exploitation because the happiness gained would far outweigh the suffering, just like lying to the murderer at the door is justified for its good consequences.

Kant’s response: we cannot predict/control consequences.

However: we can to some degree and therefore to that degree we are morally responsible for consequences and they do matter ethically to the rightness or wrongness of an action.

Globalisation

Globalisation is the phenomenon where businesses are now global entities spanning multiple countries and continents and its impact on stakeholders. Globally, economies, industries, markets, cultures and policymaking are integrated (connected).

Offshore outsourcing – where businesses build products in factories in third world countries. This moves jobs from western countries to those countries which has made many industry workers unemployed.

The issue of monopolies. If a business gains enough power over a market, they can essentially fix or rig the system, altering the way the market functions, to reduce or eliminate competition and ultimately benefit themselves. This is called a monopoly, when a business has such dominance or power over a market that the market ceases to have competition. Without competition, a market no longer creates innovation and economic progress.

Even Freidman accepted that “It’s always been true that a business is not a friend of a free market”.

Corporations, power, globalisation and monopolies. Since money = power, and some businesses can be so large thanks to globalisation, perhaps they are becoming more powerful than governments, which could be problematic since they aren’t accountable to anyone as they aren’t democratically elected. This gives corporations the power to affect laws by financing the election campaigns of politicians. They can also make offers or threats to a government or state to change regulations and laws in ways that would favour their business. Example of amazon and new York.

This allows businesses to manipulate a market for its own benefit, turning it into a monopoly. Adam Smith may have been right that free market competition is generally good for the progress and prosperity of society. However, a particular corporation would rather not have to compete and if it can use its massive profits to simply buy other companies or affect laws that would give it an unfair advantage, then it will do so. E.g. Facebook acquiring Instagram. Amazon copying products that do well. Uber temporarily lowering its prices, running at a loss in cities it wants to expand into, in order to put other cab companies out of business at which point it can increase its prices and not face competition.

Corporations that are global tend to take over or overrule the culture of third world countries. Lots of the world is now covered in McDonalds.

Essentially, globalisation seems to result in Businesses corrupting markets and violating all of their corporate social responsibilities. Kant and Utilitarianism would therefore be against globalisation.

Utilitarianism on globalisation

Kant on globalisation

Utilitarianism vs Kant on Sweatshop exploitation: CSR, whistleblowing & globalisation

A sweatshop is a shop or factory which employs workers, sometimes children, for very low pay, long hours in unsafe conditions. They are seen as a classic case of exploitation. This is because they exploit the lack of choice and opportunity many people have, giving them little choice but to accept terrible working conditions.

Sweatshops & CSR. It is typically considered the responsibility of a business to ensure that none of the products or services in its supply chain are sourced from or make use of sweatshops (community CSR).

Sweatshops & whistleblowing. If a company is discovered to source products from sweatshops without that being public information, it might be thought to be a valid reason to whistle blow.

Sweatshops & globalisation. Sweatshops are often a result of offshore outsourcing which is a consequence of globalisation.

The Utilitarian defence of sweatshops as having good consequences

William MacAskill argues that although sweatshops are ‘horrific’, thinking that boycotting western companies which sell products produced in sweatshops will help the workers there assumes that they have a better opportunity to make a living elsewhere, but “sadly that’s just not the case”. If you boycott sweatshop produced goods ‘all you are doing is taking away the best working opportunity that these people in very poor countries have’.

The argument is that many people in third world countries are in danger of starvation. If a sweatshop opens then they will at least earn some money. Even though the working conditions are terrible and dangerous, it is still better than nothing. It is a step up on the economic ladder.

If we demanded that businesses sacrifice profit to treat their sweatshop employees non-exploitatively, then businesses will lose their profit incentive to open a sweatshop and will simply stop opening them in third world countries. Then, people in the third world will lose a potential step up the economic ladder. The only reason a business opens a sweatshop in a third world country is because it is cheaper than opening a properly regulated factory in a developed country. In many cases a Utilitarian would therefore be in favour of globalisation, against CSR and against whistleblowing.

Primark case study. Primark were found to be supplied by exploitative factories in the third world that used child labour and paying people very little for extremely long hours. In response to this, Primark cut ties with those suppliers.

In some cases, sweatshops provided a better quality of life to its workers than they previously had and made those in developed countries happy at having products for a lower price. In those cases, a Utilitarian would therefore be in favour of this effect of globalisation, against CSR and against whistleblowing.

This leads to the criticism of Utilitarianism that it justifies bad actions or harm (e.g. exploitation) to some minority if the happiness gained by a majority were greater. Utilitarianism is incompatible with the basis for human rights which are deontological. This is because a ‘right’ is something which must be respected regardless of the consequences.

The idea of human rights was strongly influenced by Kant’s formula of humanity. Kantian ethics would be against sweatshops regardless of their positive consequences because of the way that they treat workers as a mere means.

Mill’s harm principle seems to solve this problem because it suggests that society will be happiest if the rule of not harming others is followed. It seems this would commit Mill to being against exploitation as a rule, even if in individual cases it might produce more happiness than suffering.