Ethical Theories in Finance

Ethical Theories Sheri Wernert BUS 670: Legal Environment Professor Gentry December 19, 2010 Ethical Theories In every day life a person is bound to have ethical issues that must be decided. This is also true for the business world. With cases evolving each day of unethical companies such as Enron ethics is now being viewed as an important part of training for many companies. Which ethical theory to follow depends on the individual and there are many theories to be considered. How does a person tell what theory they believe they follow?

Knowing the different theories and how they are viewed are key. Ethical theories are either teleological or deontological which can then be broken down further. Deontological ethical theories are theories that focus on decisions or actions alone (Mallor, Barnes, Bowers & Langvardt, 2010). Theories such as the rights theory and justice fall under this category. While teleological theories are theories that focus on the consequences of a decision. Utilitarianism and profit maximization theories are considered this form (Mallor, Barnes, Bowers & Langvardt, 2010).

The Rights Theory encompasses a variety of ethical philosophies holding that certain human rights are fundamental and must be respected by other humans. This can also be explained as rights and duties are related in such a way that the rights of one person implies the duties of another person (Mallor, Barnes, Bowers & Langvardt, 2010). For example, if a company has the right of payment for a product from a customer, then that customer has the duty to pay for the product. Over the years many as being difficult to achieve agreement about which rights are protected have criticized this theory.

Some say that it also promotes moral fanaticism and creates a sense of entitlement reducing innovation, entrepreneurship, and production (Mallor, Barnes, Bowers & Langvardt, 2010). The Justice Theory can be considered to have different foundations. John Rawls reasoned that it was right for governments to redistribute wealth in order to help the poor and disadvantaged (Mallor, Barnes, Bowers & Langvardt, 2010). The most common foundation is the Principle of greatest equal liberty, which expresses each person, has an equal right to basic rights and liberties.

This theory has the basic premise to protect those who are least advantaged in society (Mallor, Barnes, Bowers & Langvardt, 2010). However, when dealing with this theory an individual or company should realize that any attempt to rearrange social benefits requires an accurate measurement of current wealth. When dealing with the Utilitarian ethical theory the decision maker to maximize utility for society as a whole. By doing this a person will consider the benefits and costs of his or her actions to everyone in society (Mallor, Barnes, Bowers & Langvardt, 2010). An example of this would be when a person goes to vote on an issue.

The voter will first weigh his decision on the benefits to him and then how will this affect the society as a whole. When considering the Utilitarian theory a person should be aware that there are actually two types act utilitarianism and rule utilitarianism. Act utilitarianism judges each act separately, assessing a single act’s benefits and costs to society’s members. While, rule utilitarianism judges actions by a rule that over the long run maximizes benefits over costs. The profit maximization theory is considered more in the business world than for individuals and takes into account other theories.

This theory requires the decision maker to maximize a business’s long-run profits within the limits of the law (Mallor, Barnes, Bowers & Langvardt, 2010). By doing this the decision maker must have knowledge of the rights and justice theories so that they are aware of the rights protected by these theories. If a business abides by this theory without entering into illegal acts the business will probably benefit with profits. However, if they act illegally it could mean lost profits due to consumers and stockholders not trusting the company and withdrawing or boycotting the business.

Virtue ethics, which has not been discussed within the reading, refers in general to relatively stable, praiseworthy qualities in a person, such as honesty or integrity. Virtues have to do with who a person is rather than the act and the excellence of the person’s qualities (Tjelveit, 2003). This theory is one of the oldest normative traditions in Western philosophy, which were later called cardinal virtues. The virtue theory emphasizes moral education since virtuous character traits are developed in one’s youth.

Therefore, adults are the responsible ones to instill this theory among the young. An adult must also remember that most children learn by seeing therefore, if an adult wants to instill these ethical virtues they must also abide by them themselves. In conclusion, while there are many ethical theories the theories themselves interact with each other in one way or another. It can be said that in reality no theory can stand on alone. A person can say they fall under one ethical theory when in fact the situation at hand decides which theory should be followed.

It is this author’s opinion that the virtue theory should be considered the most important. When a person has good virtues they should be able to come to the right ethical decision in the other theories. Reference Mallor, J. , Barnes, A. , Bowers, T. , & Langvardt, A. (2010). Business Law: The ethical, global, and E-commerce environment. Boston: McGraw-Hill. Tjelveit, A. (2003). Implicit virtues, divergent goods, multiple communities: explicitly addressing virtues in the behavioral sciences. The American Behavioral Scientist, 47, (4), 395.