Page 35 - FINAL CFA II SLIDES JUNE 2019 DAY 6
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LOS 23.d: Compare the Friedman doctrine, Utilitarianism,
Kantian Ethics, and Rights and Justice Theories as approaches READING 23: CORPORATE PERFORMANCE, GOVERNANCE, & BUSINESS ETHICS
to ethical decision making.
MODULE 23.1: CORPORATE PERFORMANCE, GOVERNANCE, AND BUSINESS ETHICS
PHILOSOPHIES UNDERLYING BUSINESS ETHICS
Friedman Doctrine : The only social responsibility of a business is to increase profits “within the rules of the game,” meaning
through “open and fair competition without deception or fraud.” Critics: What if rules ( law and regulation) are poorly defined? Such use of
child labour in mining? Ethical behavior entails a lot more than making profits; it requires difficult tradeoffs.
Other philosophies:
Utilitarianism : Business must weigh the consequences to society of each action and seek to produce the highest good for the
largest number of people. Maximization (minimize) positive (bad) outcomes such that collective utility is maximized.
• Modern cost-benefit analysis is an application of this principal –difficult to measure though!
• Utilitarianism fails to consider the injustice that occurs when the greatest good for the many could come at the expense of a smaller
subgroup.
Kantian ethics: People are different from other factors of production –they deserve dignity and respect. Widely accepted
but not sufficient!
Rights theories: All have fundamental rights and privileges; pursuit of the utilitarianism should not interfere with: Safeguarding
is key!
Justice theories: Just distribution of economic output, based on generally agreed fair rules. Will results be acceptable under a “veil of
ignorance?”
• Begin with political liberty (right of free speech and to vote);
• Division of wealth and income -unequal division acceptable under the differencing principal –if it benefit the least-advantaged!
Downside: What if we displace existing domestic jobs (with dangerous/toxic working conditions) into foreign?
Under the veil of ignorance, it is difficult to argue in favor this you would not want to work in those jobs yourself. Veil of
ignorance is a useful tool for managers who must make ethical decisions requiring difficult tradeoffs.
