ACCA P1 Governance, Risk and Ethics - 2011 - Study text - Emile Woolf Publishing
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Paper P1: Governance, risk and ethics
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3.6 Criticisms of Kohlberg’s ideas
Some of the criticisms of Kohlberg’s ideas are interesting, and have relevance to
concepts of business ethics (especially for global companies) and professional ethics
(especially for professional bodies with global membership).
Some critics have argued against the view that post-conventional morality exists
or is at a higher level of moral development. At Stages 5 and 6, individuals put
their own principles above society and the law, which is a dangerous moral
stance to take.
Other critics have argued that Kohlberg’s views have a cultural bias, because his
ideas are based on Western philosophy. His views might not apply to non-
Western philosophies and cultures.
Carol Gilligan (1982) argued that Kohlberg’s views had a gender bias, and were
based on a male view of the world. Kohlberg argued that moral thinking is
based on reasoning linked to a sense of justice – rules, rights and abstract
principles. Gilligan argued that for women, morality and ethical views are not
based on these concepts of justice, but on concern for interpersonal relationships
and the ethics of care and compassion.
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Ethics: deontological and teleological approaches
Deontological approach: the ideas of Kant
Teleological approach (consequentialist approach)
4 Ethics: deontological and teleological approaches
The absolutist and relativist views of ethics are concerned with moral reasoning and
ethical opinions. These views lead on to the question of how should individuals
apply their moral judgements in making decisions and taking action.
There are two differing approaches to ethical decisions:
the deontological approach
the teleological approach, also called the consequentialist approach.
4.1 Deontological approach: the ideas of Kant
A deontological approach to ethical decisions is based on an absolutist view of
ethics. This approach is closely associated with the 18
th
Century German
philosopher, Kant.
Deontology is a belief in a sense of duty. It is based on the view that there are
universal moral laws, and individuals have a duty to obey them, in all the actions
that they take and irrespective of what the consequences might be. These universal
laws or principles are binding on everyone: the absolute set of moral standards
applies to us all. Actions are right or wrong in themselves, and there should be no
regard for the consequences. For example, it is always wrong for a government to
torture a captured terrorist in order to obtain information, even if the consequence
might be that there will be more terrorist attacks and more deaths of civilians.
Kant and the categorical imperative
Kant argued that an action is morally right only if the person taking the action is
motivated by ‘good will’. In other words, an action is morally right only if it is done
from a sense of duty and for reasons of principle.
He developed the concept of the categorical imperative. He argued that we can
judge whether an action is morally right by asking whether it would be consistent
with the categorical imperative.
The categorical imperative can be expressed as follows:
Act so that you can want the principle for your action to become a universal law.
At a simple level, this means judging whether an action is moral by asking what
would happen if everyone behaved in exactly the same way.
Act so that you treat other people as an end in themselves, never as a means to
an end.
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For example, Kant argued that it is always morally wrong to tell a lie. Imagine what
would happen if everyone told lies: trust between people would come to an end.
You cannot argue that sometimes it is morally right to tell a ‘white’ lie in order to
achieve a just result: this would mean that the person who has been told the lie has
been used as a means to achieving the just result.
The same argument applies to torture. It can never be morally right to torture
someone. What would happen if everyone used torture to get what they want. By
torturing a person in order to save the lives of other people, the tortured person is
used as a means to an end, not as an end in himself.
4.2 Teleological approach (consequentialist approach)
The teleological approach, also called the consequentialist approach, to moral action
is based on the relativist view of ethics.
This approach takes the view that the morality of an action should be judged by its
consequences. If the consequences are ‘good’, the act is morally correct. ‘The end
justifies the means.’
An example of the teleological approach is utilitarianism. This is a view of morality
most closely associated with the 19
th
Century British philosopher John Stuart Mill.
Mill argued that an act is ‘right’ if it brings the greatest amount of good to the
greatest number of people.
The teleological approach to ethical decisions can therefore be explained as follows:
(1) Actions in themselves do not have an intrinsic moral value.
(2) The moral value of an action is determined by its consequences (not the act
itself).
(3) Using reason, it is possible to calculate the costs and the benefits of an action,
to determine whether or not it is morally correct.
Taking this approach, for example, it would be argued that telling a lie can be
justified and would normally be acceptable provided that the consequences are
‘good’ or ‘benevolent’.
Teleological ethics and the profit motive
Teleological ethics can be used to justify the profit motive in business. It can be
argued that when a business is profitable, many people benefit. Shareholders benefit
from higher returns and dividends; employees benefit from the employment that a
profitable business provides; customers benefit from the goods and services that a
profitable business is able to provide (that it would not be able to provide if it did
not make a profit); the general public benefits from the benefits to the economy from
profitable businesses and additional economic activity.
Teleological ethics can also be used to justify actions in business that might
otherwise seem morally ‘dubious’ or ‘wrong’, such as:
cutting costs (including making employees redundant)
down-sizing (which involves making people redundant)
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doing business in a country with a dubious political system, such as a tyrannical
government.
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Ethical decision-making models
System development ethics
The purpose of ethical decision-making models
Tucker’s 5 question model
The American Accounting Association model
5 Ethical decision-making models
5.1 System development ethics
Business entities and non-business entities are exposed to ethical risk. This is the
risk that some of its managers or employees will act in a way that is unethical, and
the entity will suffer some loss or harm as a consequence. There is a risk to the entity
itself from deception or fraud by employees. In addition, there is a risk of unethical
action by some individuals causing harm to other – customers, other employees,
suppliers, the community, and so on.
It might be argued that ethical risk can be minimised by recruiting and training
individuals with strong moral character.
System development ethics, however, is based on the view that recruiting and
training morally-strong individuals is not sufficient. In order to act in a moral way,
individuals need support from the systems they work in, and the environment
provided by their employer.
The employer should give clear guidance and moral support to its employees.
‘Personal improvement and character-building can only occur in morally-
supportive environments that are rationally-planned and maintained.’
Codes of corporate ethics and codes of professional conduct help to provide the
environment that individuals need.
5.2 The purpose of ethical decision-making models
Guidance about ethical decision-making can also be provided by a decision-making
model. The purpose of an ethical decision-making model is to help individuals to
assess, before they make a decision, whether the decision is ethically correct.
These models do not deal with the problem of what is right or wrong. They assume
that the basis for judging right and wrong is understood. This means that they could
be used with either a deontological or a teleological approach to ethics, although a
teleological approach is much more common in business.
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Several ethical decision-making models have been developed for use in a business
context, and can also be applied to professional activities such as accounting. Two
such models are:
Tucker’s 5 question model
the American Accounting Association model.
5.3 Tucker’s 5 question model
Tucker’s 5 question model for ethical decision-making in business is based on the
view that the profit motive is justified, and the purpose of decision-making in
business should be to make a profit. However, profits should be made in an ethical
way.
In order to be ethically correct, business decisions and actions should be legal.
Activities outside the law by a business cannot be correct. Business should also be
conducted in a fair way, without deception or other ‘under-hand’ acts. For example,
competitors should be treated with respect, and customers and employees should
be treated in a fair way. Tucker’s model is also based on the view that decisions
should not be taken in business if they do not support sustainable business or could
be damaging to the environment.
The 5 question model involves asking five questions before making a business
decision. If the answer to all five questions is ‘Yes’, the decision is ethically sound.
The five questions about a decision are:
(1) Is it profitable?
(2) Is it legal?
(3) Is it fair?
(4) Is it right?
(5) Is it sustainable or environmentally sound?
Example
An international company is planning to build a new manufacturing plant in a
developing country. The country was chosen because costs of land and labour are
cheap, so the forecast profits are high. The plant will be built on a ‘brown field’ site
just outside the country’s capital city, which used to be the site of another factory
that has now been closed down. The company intends to build a plant that will use
modern technology that keeps environmental emissions at a low level.
The country’s government has approved the building of the new plant, and the local
population is eagerly waiting for construction to begin, bringing with it much-
needed commercial activity – and jobs. The government believes that the plant will
bring economic growth to the country’s economy.
Required
Is the decision to build the plant an ethical one? Use the Tucker 5 question model to
reach an answer.
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Answer
Question 1. Is it profitable? The answer seems to be Yes. The country was chosen
because of its low cost of land and labour.
Question 2. Is it legal? The answer seems to be Yes, because the government has
given permission for the plant to be built.
Question 3. Is it fair? There is no reason to suppose that it is not fair. The only
stakeholders in the example are the government and the local population. Both
seem to support the building of the plant, and this suggests that the project is fair.
Question 4. Is it right? The answer seems to be Yes. The project will bring jobs,
wealth and economic growth. There are no obvious reasons why the project is ‘Not
right’.
Question 5. Is it sustainable or economically sound? The answer seems to be Yes,
because the plant will be built using modern technology that keeps environmental
emissions at a low level.
In this simple case, the decision to build the plant would be ethical.
5.4 The American Accounting Association model
The American Accounting Association developed a model for ethical decision-
making in 1990. It is based on a teleological approach, and is consistent with
professional ethical guidelines.
The AAA model is based on a seven-step approach to decision-making.
Step Question to ask Comment
1 What are the facts? It is important to establish all the
relevant facts. It is difficult to make a
correct decision without having a clear
understanding of the facts.
2 What are the ethical issues? The decision-maker should identify what
moral issues are involved (if any). What
is the moral dilemma?
3 What moral principles,
values or ‘norms’ are
relevant to the decision?
The decision-maker should consider the
ethical principles or values that ought to
be considered in reaching the decision.
4 What are the alternative
courses of action for the
decision-maker?
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5 Which course of action (or
courses of action) seems best,
because it is consistent with
the moral principles and
values identified in Step 3?
Each course of action should be assessed
according to whether it is morally
correct. Each choice is judged against the
principles and values that should be
applied in the case.
6 What are the consequences
of each possible course of
action?
7 What is the decision? The decision-maker makes an ethical
choice.
Example
A company makes and sells a range of products. One product, the mega-widget, has
been produced for about ten years and has been very successful. It is still popular
with customers, but profits have fallen to the point where the company is now
losing money on the product.
The fall in profits has been due to rising costs. Due to competitive pressures in the
market, increases in the selling price of the mega-widget have not kept pace with
the increases in cost.
At a management meeting to discuss the problem, it was suggested that some
technical alterations could be made to the mega-widget that would reduce costs
substantially, but the expected useful life of the product would fall by over 25%. It
would be necessary to prevent customers from finding out about any reduction in
product quality, because they might switch to buying the products of competitors.
It was agreed that if the technical alterations are not made, the company would have
to cease production and sales of the mega-widget. If the technical alterations are
made, the product should become profitable again, at least for the next few years.
Required
What decision should management take: should the technical alterations be made to
the product, or not? Management are expected to act in an ethical way by the
company’s board of directors. (You should ignore reputational risk in this example.)
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Answer
We could use an ethical decision-making model to help with making a decision.
Tucker’s 5 question model
(1) Is the decision profitable? Making technical alterations to the product would
improve profits, so the answer is: Yes.
(2) Is the decision legal? There is no law against making technical alterations to
the product. As long as the company does not deceive customers with its
advertising and marketing, making the technical alterations would be within
the law.
(3) Is the decision fair? It is fair in the sense that all customers would be treated in
the same way, and customers would have the choice to buy the products of
competitors. However, it is not fair in the sense that customers would be
encouraged to buy an inferior product, without knowing about the reduction
in quality, at the same price as before when the product was better.
(4) Is the decision sustainable and environmentally sound? There are no
indications to suggest that there is a problem with the environment or
sustainable business.
(5) Is the decision right? The moral problem is that the company would be
making changes to the product without informing customers. Managers
might think that this wrong, but at the same time they would be under
pressure to make profits for the company.
Using the Tucker model, the issue in this case might concern whether it is morally
acceptable to withhold product information from customers. It would help
managers in making their decision to know the ethical stance of the company
towards its treatment of customers. If the company had a code of corporate ethics,
this might help them to reach their decision.
American Accounting Association model
A similar conclusion might be reached using the American Accounting Association
model.
(1) The facts are given in the question.
(2) The ethical issue is whether to reduce the quality of a product without
informing customers.
(3) What are the ethical principles and values that are relevant to the moral
dilemma? A key principle here relates to the treatment of customers.
(4) What are the alternative courses of action? These are to make the technical
alterations to the product, or to stop making it. We do not know what the
consequences of shutting down production might be (for example, whether it
might lead to redundancies amongst employees).
(5) Which actions are consistent with the principles and values in (3)? Ceasing to
produce the mega-widget would be consistent with the principle of fair
dealing for the customer.
(6) The consequence of the decision to make the change is to increase profits.
Ceasing production of the product should result in no further losses.
However, it is more likely that in the long run the trust of customers in the
company would be maintained. (There is a reputational risk to consider, in the
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event that customers find out about the technical alteration, or find that the
items that they buy have a shorter useful life than before.)
(7) What is the decision? Management would be assisted by clear guidance from
the company on its ethical stance. If the company has a code of ethics that
insists on fair treatment and due consideration for customers, the technical
alteration should not be made. Production of the product should be brought to
an end.
This is just one example to illustrate how ethical decision-making models might be
applied to reach an ethical business decision. You might find that in your
examination, you are required to apply an ethical decision-making model to another
case or problem in order to make a recommendation about what a particular
decision should be.