THEORIES OF

BUSINESS ETHICS
BINU KURIACHAN

DEFINITION OF ETHICS
Ethics as a moral and normative
science refers to principles that
define human behavior as right,
good and proper.

ETHICAL THEORIES IN BUSINESS

Ethics is a normative study, i.e., an investigation that attempts to
reach normative conclusions.
Ethical theories in business include:

Consequentialist normative theory: Normative themesegoism,

utilitarianism.
Non-consequentialist normative theory: Non-consequentialist
normative themesduties, moral rights, and prima facie
principles

CLASSIFICATION OF NORMATIVE
THEORIES

NORMATIVE THEMES
Egoism
contends that an act is morally right if and only if it best
promotes an agents long-term interests
makes use of self-interest as the measuring rod for actions
performed
is equated with an individuals personal interest but it is
equally identified with the interest of an organization or
society

 intends to provide positive consequences to the

partys interest without considering the consequence to
the other parties.
Philosophers distinguish between two kinds of egoism:
personal and impersonal.
Personal egoism: One should pursue his/her long-term
interest and not dictated what others should do.
Impersonal egoism: Everyone should follow their best
long-term interest.

UTILITARIANISM

Jeremy Benthan (17481832)

John Stuart Mill (18061873)

Utilitarian principle: An action is ethically right only

if the sum total of utilities produced by that act is
greater than the sum total of utilities produced by
any other act that could have been performed in its
place.

KANTIAN ETHICS

Immanuel Kant (17241804)

This theory introduces an important humanistic

dimension to business decisions, which is to
behave in the same way that one would wish to
be treated under the same circumstances and
to always treat other people with dignity and
respect.

NORMATIVE THEORIES OF BUSINESS

ETHICS: CLASSIFICATION

Stockholder Theory
Expresses business relationship between stock
owners and their managers running the day-today business of the company. As per the theory,
managers should pursue profit only by all legal,
non-deceptive means.

Stakeholder Theory
This theory argues that a corporates success
in the marketplace can best be assured by
catering to the interests of all its stakeholders
(shareholders,
customers,
employees,
suppliers, management and the local
community). This objective is achieved when
corporations adopt policies that ensure an
optimal balance among all stakeholders.

Social Contract Theory

This is based on the principles of social
contract, wherein it is assumed that there
is an implicit agreement between the
society and any created entity such as a
business unit, in which the society
recognizes the existence of a condition that
it will serve the interest of the society in
certain specified ways.