Page 37 - FINAL CFA II SLIDES JUNE 2019 DAY 6

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.
PHILOSOPHIES UNDERLYING BUSINESS ETHICS MODULE 23.1: CORPORATE PERFORMANCE, GOVERNANCE, AND 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 have pointed out that when law, regulation, and the rules of the game are poorly defined (such as Nike’s use
of off-shore suppliers with poor working conditions) ethical behavior entails a lot more than making profits.
requiring difficult tradeoffs.

Other philosophies that precede the Friedman doctrine include the following.

Utilitarianism : Business must weigh the consequences to society of each of their actions and seek to produce the highest good for the largest number of
people. Utilitarianism entails maximization of positive (good) outcomes and minimization of negative (bad) outcomes such that collective utility is maximized.
• Modern cost-benefit analysis is an application of this principal –cost-benefit 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 argue that people are different from other factors of production; they are more than just an economic input and deserve dignity and respect.
This argument is widely accepted but not sufficient to be a complete philosophy.

Rights theories argue that all individuals have fundamental rights and privileges, and that the pursuit of the utilitarianism’s greatest good does not trump
these fundamental rights. Managers should recognize their obligation to safeguard the fundamental human rights of others.

Justice theories focus on a just distribution of economic output. Justice is met if all participants would agree the rules are fair if the results would be
acceptable when decided under a “veil of ignorance.”

• Begin with political liberty, encompassing the right of free speech and to vote, and extend to issues of society’s division of wealth and income.
• Recognizes that unequal divisions of wealth and income may be acceptable under the differencing principal, which holds the unequal division must
benefit the least-advantaged members of society.
• Consider the earlier discussion of production outsourced to independent suppliers. Substandard conditions for the workers of those suppliers can be
argued as being just, if it is an improvement in those workers’ standard of living. The veil of ignorance would be an appropriate test of whether the
actions are ethical. Under this standard it is difficult to conceive that members of society would argue in favor of displacing existing domestic jobs into
foreign jobs with dangerous and toxic conditions knowing they would not want to work in those jobs themselves.

The veil of ignorance does appear to be a useful tool for managers who must make ethical decisions requiring difficult tradeoffs.