Transcript The Ethics of Corporate Downsizing by John Orlando

Utilitarian Ethics
as Discussed in
“The Ethics of Corporate
Downsizing”
by
John Orlando
Utilitarian ethical theory
• Utilitarian ethics = “the ethical action is the action
that maximizes the welfare of the maximum number
of people.”
– Can be applied to individual actions – “Should I cheat on
my Business Law exam tomorrow night?”
– Can be applied to a general rule – “Should Clarkson
prohibit cheating?”
– Or to an ethical principle – “Is cheating unethical?”
• The focus is on the overall consequences for the total
group of people.
– The person wanting to take the action does not count more
than anyone else.
The decision procedure in
Utilitarian ethics
• Identify all possible options for the action
(rule, or ethical principle).
• Identify the groups and individuals on which
these possible options will have an impact.
• Evaluate the benefits and negative
consequences (costs) that each possible option
will have on ALL of these groups and
individuals.
• Choose the possible option with the greatest
net benefit.
Utilitarian analysis of a specific “white lie”
Should I tell my wife what I think about her new hairdo?
– Options – 1) Yes, tell the truth that it’s awful. 2) Lie
through my teeth and say it’s the greatest thing ever. 3) Use
a “white lie” – “It’s interesting,” or “Wow, a new look.”
– Parties at interest – My wife and me.
– Consequences – Option 1) Hurt feelings for her and big
trouble for me. Entirely negative. Option 2) Happy feelings
for her but possible trouble for me if I can’t keep my mouth
shut while talking with friends. Some positives, but some
possible negatives. Option 3) Happy feelings for her and
safety for me. Entirely positive.
– Choice – Option 3.
Utilitarian analysis of a general rule about “white
lies”
Should I avoid telling “white lies?”
– Options – 1) Yes, never tell a white lie. 2) No, tell them
when they help ease a difficult situation, for example,
sparing someone’s feelings, or relieving someone’s
anxiety. 3) No, tell them whenever it’s easiest for me.
– Parties at interest – Me and the various individuals and
groups with which I interact.
– Consequences – Option 1) I develop a reputation for
honesty and integrity, but other people might sometimes
experience hurt feelings, heightened anxiety, etc. Option 2)
If my white lying becomes known, some relationships
might be undermined because of diminished trust. Option
3) ….
– Choice – Probably Option 1).
Now back to Orlando’s article
about corporate downsizing….
Corporate downsizing is an important
issue in business ethics.
• It has major impact on the laid-off workers.
– 15% lose their homes.
– Suicide rate is 30 Xs higher than national average.
– Psychological symptoms increase.
• Entire communities are negatively affected.
• It tends to widen the gap between rich and
poor.
The argument for downsizing based on
Utilitarian ethical theory.
• The argument is that downsizing maximizes welfare
because the benefit to the majority of the population
is greater than the costs to a minority.
• Orlando shows that this is unknown;
– Downsizing does not automatically improve a
corporation’s economic health.
– There are many negative consequences that have never
been quantified, so nobody knows how they balance
against economic benefit.
• Consequently, that most accurate statement is that the
Utilitarian case for downsizing has not been proven.
Arguments against the Utilitarian
analysis of downsizing.
• The argument that great harm cannot be
justified by lesser benefit.
• The argument based on legitimate
expectations.
• The argument from fairness.
The argument that great harm cannot
be justified by lesser benefit.
• Utilitarianism implies that great harm to a few is
justified if the accumulated small benefits to many
are greater.
• Orlando says this goes against our moral intuitions.
– For example, most people would say it would be immoral
to randomly arrest and execute suspicious people, even if
they are not guilty, because this practice would scare
potential criminals and thus slightly increase each of our
safety.
• More formally, Kantian theory places a limit on
Utilitarianism.
– Using someone as means is never right, no matter how
large the benefit to others.
The argument based on legitimate
expectations.
• Orlando points out that employees frequently base
important life choices on expectations about their
jobs, and these expectations are generally legitimate.
• Corporate investors rarely base life choices as
important on their expectations, and these
expectations are relatively modest compared to those
of the employees.
• Consequently, employees expectations have to be
taken into account in calculating costs.
The argument from fairness.
• Orlando’s fundamental point is that
downsizing often unfairly penalizes employees
for management’s incompetence.
• He mentions Rawls’ theory about fairness. We
will examine this theory later, but in general
Utilitarianism has a difficult time taking
fairness into account.
– But fairness is one of our earliest and most deepseated moral intuitions.
Orlando also discusses other
arguments for (and against)
downsizing.
The argument based on the property rights
of the shareholders in the company.
• The argument is that as the legal owners, the
shareholders of a corporation can do whatever they
want with it in the pursuit of profit.
• Orlando appeals to our moral intuitions to show that
legal ownership does not establish an absolute moral
right to do whatever owners want with their property
for profit (the apartment example).
• Consequently, shareholders’ property rights have to
be balanced against the moral rights of other groups.
The argument based on the fiduciary duty
of corporate managers.
• The argument is that the managers of a corporation
have a fiduciary duty to put the interests of the
shareholders above the interests of all other groups
and individuals.
• Orlando shows that the legal purpose of fiduciary
duty is to protect the shareholders from the managers.
– The managers are obliged to put the best interests of the
shareholders above their own interests.
• Consequently, corporate managers can take other
groups’ interests into account without violating their
fiduciary duty to the shareholders.
The argument based on risk.
• The argument is that shareholders have risked
money in their investment in the corporation
and therefore are owed special concern.
• Orlando lists various kinds of real risks that are
taken on by employees of corporations.
• Consequently, while risk needs to be taken into
account by corporate managers, this should
involve an evaluation and balancing of the
competing relative risks.
The argument based on contract
theory.
• The argument is that there is an implied contract
among corporate investors, managers, and employees
that includes the shared understanding that the
investors’ profits always take precedence over
employees’ well-being.
• Orlando says “baloney.”
– No such understanding exists – certainly for employees.
– Such an implied contract would require a balance of power
that does not exist.
• Consequently, this argument fails.
What is Orlando’s final conclusion
about downsizing?
• There is no universal, automatic conclusion
about the ethics of downsizing.
• Each case stands on its own, and the ethics
should be evaluated as such.
– Some cases will be morally permissible.
– Some will not be.
– And even some that are will need to be done in a
particular way in order to be ethical.