Probably the most widely understood and commonly applied ethical theory is utilitarianism. In an organisational context, utilitarianism basically states that a decision concerning business conduct is proper if and only if that decision produces the greatest good for the greatest number of individuals.

“Good” is usually defined as the net benefits that accrue to those parties affected by the choice. Thus, most utilitarians hold the position that moral choices must be evaluated by calculating the net benefits of each available alternative action.

Importantly, all the stakeholders affected by the decision should be given their just consideration.

As mentioned previously, teleological theories deal with outcomes or end goals. The often-stated declaration that “the end justifies the means” is one classic expression of utilitarian thinking. Several formulations of utilitarianism exist. Their differences harken back to the original writers on the topic, the nineteenth-century philosophers Jeremy Bentham and John Stuart Mill.

One major school of thought, act utilitarianism, focuses on the action that has been taken, analysing it along the lines of whether the selected action produces more good than bad consequences.

For example, a pharmaceutical company may operate by the principle that it will release any  officially approved drug with some side effects as long as it helps more persons combat a particular disease than the number troubled by a minor side effect.

If the benefits are sufficiently great and the problems with the side effects sufficiently limited, then the action of the pharmaceutical company may be justified on act utilitarian grounds.

A second formulation, rule utilitarianism, looks at whether the option or choice conforms to a rule that attempts to maximize the overall utility.

Some have criticised act utilitarianism on the grounds that it often gives the wrong ethical answer when evaluating individual actions.

To use an example from banking, suppose a banker is considering whether it is right to foreclose on the mortgage of a widow and her children. To consider that action in isolation, it is fairly easy to show on act utilitarian grounds that foreclosure would cause more pain than not foreclosing. However, suppose we had a rule that said that banks should not foreclose whenever the action of foreclosing would cause more harm than foreclosing. If that rule were adopted, then banks would be reluctant to lend money. Thus, the rule permitting foreclosure on widows is better for society than a rule that forbids such disclosure.

Rule utilitarians, then, focus on the rules for acting rather than on individual actions themselves. For a rule utilitarian, a rule is morally correct when it provides more social good than any alternative rule.

For act utilitarians, rules are just rules of thumb. For rule utilitarians, rules are determinate of right and wrong.

Business executives commonly embrace such consequentialist approaches to ethical problems because they are so compatible with traditional business thinking.

Why? Just as this results-based theory seeks to maximize happiness, or the good, business executives often hope to maximize profit, return on investment or share price.

If a businessperson draws the broader conclusion that the greatest good is equivalent to the highest profitability and this situation produces the most benefits for society, it is easy to see how these two systems, both oriented to optimum results, are philosophically compatible.

Consequence-Oriented Philosophy and Management

A strong appeal of the utilitarian approach is its cost-benefit character. Business managers regularly weigh the pros and cons of alternative economic and managerial actions. This approach to solving business problems is a staple of many business courses so is therefore ingrained in the psyche of many managers.

Business executives appreciate the fact that most utilitarians recognize that not everyone will benefit from a particular action. Hence, the emphasis in utilitarianism is on the net utility of the set of outcomes resulting from a decision being considered.

Business managers, of course, also realise that their business decisions must often be placed in the context of a “win-lose” situation. That is, the consequences of a business action are seldom singular; rather, they are multiple and may “cut both ways.” For instance, in mature markets, the only way to gain market share is for at least one competitor to lose share. Or increasing long-term shareholder value may require sacrificing short-term profits (and perhaps management bonuses) in favour of reinvestment in the business, its products and services.

Another reason managers are so accepting of utilitarian thinking lies in its flexibility in response to differing situations. Utilitarianism accommodates complex circumstances more easily than other, more absolute, philosophical approaches. The factors considered in a utilitarian framework can be conveniently varied from the short term to the long term or from financial to non-financial criteria. While conflicting stakeholder claims can be recognised, managers typically weigh business owner or shareholder goals associated with corporate profitability as more important than the goals of other groups such as employees or the community.

What is the proper weighting? There are normally many factors to consider, some of which result in immediate profitability, others may result in customer loyalty and thus longer term profitability, although sometimes at the expense of more apparent short-term goals.

For example, in a situation involving the distribution manager of a supermarket chain sending lower-quality cuts of meat and vegetables to lower-profitability stores in disadvantaged neighbourhoods, one can see how this approach might be defended.

The manager rationalizes that as long as the meats and vegetables are above some minimally acceptable quality level, it is in the best financial interest of the supermarket chain to take whatever action it can to enhance overall operations.

With respect to shops located in the least affluent areas of the city, economic advantage is maximized by systematically discriminating against these less profitable stores. Alternatively, management may also calculate (quite reasonably) that the marginal value of the inner-city store can be maintained only by offsetting the impact of higher insurance and security costs and lower sales volume per square foot with other cost-cutting measures.

This reasoning may also be combined with recognising the need to provide higher quality to customers in more affluent areas that may also present the greatest threat from competitors. When compared with the alternative of closing an otherwise unprofitable store (with the ‘external’ costs of unemployment and less service to that neighbourhood), the current practice may be the most ethical in a utilitarian sense.

Limitations of Utilitarianism

Consequentialist approaches to ethical reasoning are obviously not without their problems. Perhaps the most evident concern, which applies to almost any formulation of utilitarianism, is the question of who decides what “the greatest good” is.

Indeed, usually many opinions exist as to what constitutes the nature of the actual benefits of a particular action. When this is the case, who is it that decides which perception of what “good” shall prevail? Is it the chief executive officer, the head of marketing, the product managers or a panel of customers?

Second, it appears that utilitarianism is a philosophy where ends sometimes may justify otherwise unacceptable means. That is, just because the outcome of a particular action produces a “net good” for a corporation or, for that matter, the whole of society, should that necessitate a penalty or expense for some parties?

Should any product be permitted in the market if it causes a significant and lasting health problem for a minority of users?

Those who practice most forms of utilitarianism recognise that one cannot cause great harm to certain others in order to achieve a desirable or noble end. This seems to be the point that animal rights activists stress in advocating a ban on the use of animals in safety testing such products as cosmetics.

In fact, one of the greatest ethical precepts is never knowingly do harm. But the definition of what constitutes “a harm” or a significant harm is subject to debate.

Third, those managers who adopt a primarily economic interpretation of utilitarianism must answer whether such an approach is compatible with the conceptof justice. The transformation of utilitarian theory into economic utilitarianism is somewhat understandable in the sense that a business organisation is primarily an economic enterprise.

But just because an action is economically beneficial, does this mean it is just and proper?

Even though a particular action has produced the greatest economic good for the greatest number, that still does not prove that the action is just and proper when both production and consumption are seen to victimise some participants and, arguably, the consumers as well in other than economic terms.

In short, the utilitarian principle to act in a way that results in a greatest good for the greatest number is a popular method of ethical reasoning used by many managers that also presents problems in some circumstances.


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