AC342 notes - Accounting, Corporate Responsibility, and Sustainability
Business Ethics and Corporate Purpose
Ethics
• Normative ethics - what we ought to do and why.
• Business ethics - normative ethics of business (e.g., should there be any restraint on economic
globalization, or how should a firm deal with a dangerous plant, defective product, or an injured
worker.)
• Gives us some tools to evaluate corporate activities and claims (e.g., in disclosures such as CSR
reporting)
Systems of Ethics:
• Consequentialist (instrumental)
• Deontological (rules-based)
• Virtue ethics (principles-based)
• General challenges to business ethics
Consequentialist approach
• Justification of act depends on the pay-offs of an action – “the ends justify the means”
• Greatest happiness principle: bring about that outcome which yields “the greatest good for the
greatest number”.
• In modern consequentialist theories, “utility” is a numerical representation of individual
preferences.
• Classic utilitarianism assumes impartiality: we have a moral duty to all people affected by a
decision – however difficult to know before CBA who will be affected and this complicates analysis
• Actions may not yield the outcomes expected
Always state whose interests you are considering for consequentialism.
Problems with utilitarianism: Distribution
• Largely ignores synchronic distributional issues e.g., some groups may get a bad deal.
• Problem with diachronic distributional issues (how things evolve):
o Is it better to have more utility now or later?
o Do you discount future utility? If so, at what Drate? (E.g., the Stern report on climate change)
o How do you handle transient populations of affected persons? (E.g., Macaskill on long-
termism, where you think about the next billion years - Longtermism is the view that we
should be doing much more to protect future generations, effective altruism)
o The paradox of effective altruism sounds as follows: although it strives to achieve the
greatest good for humanity in the long-run perspective, the society of effective altruists
appears to be the most anti-egalitarian and the least robust
• Economic growth may be viewed as ethical even if it benefits only one group or if it damages one
group’s livelihood
Problems with utilitarianism: Measurement
• Difficulty in accessing the information necessary (and cost of doing so)
• Meaningfulness of aggregating interpersonal comparisons of utility?
• People may express differing/conflicting preferences for the same outcome depending on how it is
described. (E.g., in a population of 100 people, you have to choose A or B, where A = 10 survive, B =
90 die.) Johnathon Height – decisions are emotional rather than rigorous
• Utilitarianism requires causal knowledge, and causal models are often flawed.
• With uncertain, unique choices how do we determine probabilities?
Despite issues, consequentialism still commonly used.
,Remember that a consequential approach is a form of cost-benefit analysis. A consequentialist
approach may not be viable when outcomes are uncertain, making it difficult to predict
consequences reliably. It also fails when values like human dignity or justice cannot be quantified or
compared in a cost-benefit analysis. Additionally, it may be inappropriate when it leads to violating
moral principles, fundamental rights, or laws, or when time-sensitive decisions leave no room for
detailed evaluation. Finally, it might overlook issues of fairness by focusing solely on maximizing
overall benefits.
Ford Pinto Case
• In the 1960s, facing overseas competition, the US Ford Motor Company began designing the
lightweight low-cost Pinto.
• Ford tested prototypes to see if they met the National Highway Traffic Safety Administration
(NHTSA) safety standards concerning fires following collisions. Any vehicle in a rear-end collision of
30 mph was required to be able to avoid fuel loss.
• The prototypes and most versions of the Ford Pinto itself all failed to maintain fuel tank integrity in
a 20-mph test. (Shaw & Barry, 2015)
Ford Pinto Case – ethical reasoning
• Ford relied in part on cost-benefit reasoning (i.e. consequentialism)
• There were various ways of making the Pinto’s gas tank safer. Although the estimated price of
these safety improvements ranged from only $5 to $8 per vehicle, Ford decided not to redesign the
tank (presumably the cost exceeded the perceived safety benefit).
• An internal report, “Fatalities Associated with Crash-Induced Fuel Leakage and Fires,” reveals the
cost-benefit reasoning that the company used in cases like this. In 1972, the NHTSA estimated the
cost of a human life lost in a car crash to be $201k.
Cost benefit analysis
Rules-based approach
• Follow the rules! E.g., the law, codes of best practice, company policies, social norms.
• May yield the same results as a consequentialist approach but the ethical reasons for this course of
action are different.
• Complying with legal requirements may be viewed as fulfilling the moral requirements of business
(Milton Friedman) – debateable e.g. lack of ESG mandates does that mean it’s unnecessary, is law
always the right thing to do/moral compass
Benefits: simplicity, lack of judgement needed, in most developed countries rules do yield the right
outcomes
An example of rules-based reasoning
• The precautionary principle which emerged in environmental regulation.
• Rio Declaration (1992) principle 15:
“Where there are threats of serious or irreversible damage, lack of full scientific certainty shall not
be used as a reason for postponing cost-effective measures to prevent environmental
degradation”.
• This statement does not mention the likely outcome but provides a rule which should be followed
when an action is presumed to risk harm.
The precautionary principle
• Can you think of a case when we act to prevent harm before we have
fully established the outcomes with a high degree of certainty? often applied in environmental
policy. For example, banning or restricting the use of a chemical suspected of causing harm, such as
DDT or certain pesticides, before definitive scientific proof is established reflects this principle.
Similarly, during the COVID-19 pandemic, governments implemented lockdowns, mask mandates,
,and vaccination campaigns early to prevent harm, even when the full efficacy of these measures or
the virus's long-term impacts were not entirely understood, climate change
Let’s go back to the Ford Pinto Case
What rules are relevant? NHTSA rules (external), company codes of best practice (internal)
How would you evaluate the Ford Pinto case using rules-based reasoning? Remodel based on failing
NHTSA
Problems with rules-based approaches
• Minimal compliance e.g. reduce emissions/health requirements to bare-minimum levels or reduce
servings
• Manipulation
• Most people still have the intuition that outcomes matter (consequentialist) e.g. doctors to treat in
emergency cases despite breeching employment rules
Breaking rules
Be truthful with customers
Treat employees well
False advertising
• In 2010, Kellogg's Rice Krispies cereal was fined for misleading consumers about the product’s
benefits to children’s health
• Kellogg Company was also fined for claims over false advertising claims for its Frosted Mini-Wheats,
whose ad campaign claimed the cereal was clinically shown to improve children's attentiveness by
nearly 20 per cent.
Rimmel Scandaleyes
• Company (Coty) use individual lash inserts on the model (Cara Delavigne) and used post-production
to add in additional lashes.
• The complaint was upheld by the UK Advertising Standards Authority
Failure to treat employees well
• Nestle was fined £800k and paid costs of £7.7k employee suffering life-changing injuries due to a
roller mechanism on a conveyor machine used to make chocolate sweets.
• Nestle failed to guard the dangerous part of the machinery, the roller. There was a foreseeable risk
to employees.
• The company had been prosecuted for a similar incident in the past their Halifax factory despite
Nestle safety policies in place.
Virtue ethics
• Virtues as foundational to ethical reasoning (honesty, integrity, courage). Can companies be
virtuous?
• Useful especially where consequentialism is not feasible and rules are not known for a specific
context e.g. deepfake with AIs – no rules yet virtuously wrong
What does it mean to be a virtuous company?
• The company itself is virtuous
• Implies a non-reductive view of the company – the company has moral agency itself and we cannot
necessarily trace responsibility to individuals or hold them accountable (List and Petit)
• But does that make sense? Reductive view of the company – it is always theoretically
possible to trace the actions of a company to its CEO, chair, directors, local managers etc.
although this may be very difficult in practice (Alexander and Morley, 2021)
General challenges to business ethics
, Moral absolutism vs relativism
• Absolutism – there are universal moral truths (one universal over time and for all cultures).
• Relativism – Morality can only be understood contextually and should be coherent within a
particular context (e.g. good is relative to the local culture) e.g. different views of child labour
• Do you think there are valid ways of dealing with moral relativism (e.g. for different views of
bribery) for international businesses?
Moral relativism
• Do you think there are valid ways of dealing with moral relativism (e.g. for different views of
bribery) for international businesses?
• It is important to understand the operating beliefs that drive particular actions. E.g., there may be
different understandings of what constitutes a bribe (or related party transaction) in different
cultures and contexts.
• How might relativism be a problem for rules-based ethics regarding e.g., the treatment of staff? it
suggests that ethical principles are culturally or contextually dependent, which can lead to
inconsistent treatment of staff. For example, what is considered respectful or fair treatment in one
culture might differ in another, creating challenges in applying universal rules. This could result in
perceived favouritism or inequality if rules are adjusted based on local norms, undermining the
fairness and objectivity that rules-based ethics aim to uphold.
Back to our ethical dilemma – life-saving drugs
• You are the board members of a pharmaceutical company that is developing a new life-saving drug
to treat a rare and deadly disease. The drug is in the final stages of development, but you realize that
to bring it to market quickly, you must skip some of the standard safety and efficacy testing
procedures required by regulatory authorities. The company believes that by doing so, they can save
time and get the drug to patients sooner, potentially saving many lives.
• Have another go at analysing this ethical dilemma from the perspective of consequentialism
(outcomes) and deontology (rules).
Challenges summary
• Consequentialism:
• Whose interests should the company serve?
• How do we measure the good and harm resulting from corporate actions?
• What if stakeholders’ interests conflict (i.e., a zero-sum game)?
• Deontological:
• What ethical rules/ codes of conduct are appropriate?
• What problems arise with relying on rule-following to ensure ethical behaviour?
• Virtue ethics:
• How to operationalize concepts such as “courage” or “honesty” in a business environment.
Model answer
Consequentialist analysis: the ends justify the means. Define consequentialism and connect it to utilitarianism and cost-benefit analysis.
State that the costs and benefits included in a cost-benefit analysis will depend on the interests of different stakeholders. Can refer to the
duties of directors in the CA 2006. The consequentialist ethical reasoning will depend on interests and setting.
a. Shareholder-focused companies operating in a low-regulation, low-disclosure environment would be expected to prioritise profit.
Students can cite the Ford Pinto case. Hence paying below minimum wage would probably not be considered in a consequentialist analysis
unless it has implications for fines/reputational damage/ difficulty hiring/unionisation. Similarly environmental pollution w ould not be
considered as a cost to the company if no regulatory action is likely to be taken and there are unlikely to be reputational effects or damage
to their social licence to operate.
b. Shareholder-focused companies operating in a high-regulation, high-disclosure environment are more likely to incorporate externalities
into their consequentialist ethical reasoning. Issues such as poor employment and environmental practices would be relevant as these are
likely to affect wealth creation for shareholders (students can cite the case of HSBC and the ASA).
c. Stakeholder-focused companies would be expected to include externalities in their consequentialist reasoning, and the utility of
stakeholders such as workers and the environment and would therefore include the cost of low wages and pollution in their costbenefit
analysis.
Business Ethics and Corporate Purpose
Ethics
• Normative ethics - what we ought to do and why.
• Business ethics - normative ethics of business (e.g., should there be any restraint on economic
globalization, or how should a firm deal with a dangerous plant, defective product, or an injured
worker.)
• Gives us some tools to evaluate corporate activities and claims (e.g., in disclosures such as CSR
reporting)
Systems of Ethics:
• Consequentialist (instrumental)
• Deontological (rules-based)
• Virtue ethics (principles-based)
• General challenges to business ethics
Consequentialist approach
• Justification of act depends on the pay-offs of an action – “the ends justify the means”
• Greatest happiness principle: bring about that outcome which yields “the greatest good for the
greatest number”.
• In modern consequentialist theories, “utility” is a numerical representation of individual
preferences.
• Classic utilitarianism assumes impartiality: we have a moral duty to all people affected by a
decision – however difficult to know before CBA who will be affected and this complicates analysis
• Actions may not yield the outcomes expected
Always state whose interests you are considering for consequentialism.
Problems with utilitarianism: Distribution
• Largely ignores synchronic distributional issues e.g., some groups may get a bad deal.
• Problem with diachronic distributional issues (how things evolve):
o Is it better to have more utility now or later?
o Do you discount future utility? If so, at what Drate? (E.g., the Stern report on climate change)
o How do you handle transient populations of affected persons? (E.g., Macaskill on long-
termism, where you think about the next billion years - Longtermism is the view that we
should be doing much more to protect future generations, effective altruism)
o The paradox of effective altruism sounds as follows: although it strives to achieve the
greatest good for humanity in the long-run perspective, the society of effective altruists
appears to be the most anti-egalitarian and the least robust
• Economic growth may be viewed as ethical even if it benefits only one group or if it damages one
group’s livelihood
Problems with utilitarianism: Measurement
• Difficulty in accessing the information necessary (and cost of doing so)
• Meaningfulness of aggregating interpersonal comparisons of utility?
• People may express differing/conflicting preferences for the same outcome depending on how it is
described. (E.g., in a population of 100 people, you have to choose A or B, where A = 10 survive, B =
90 die.) Johnathon Height – decisions are emotional rather than rigorous
• Utilitarianism requires causal knowledge, and causal models are often flawed.
• With uncertain, unique choices how do we determine probabilities?
Despite issues, consequentialism still commonly used.
,Remember that a consequential approach is a form of cost-benefit analysis. A consequentialist
approach may not be viable when outcomes are uncertain, making it difficult to predict
consequences reliably. It also fails when values like human dignity or justice cannot be quantified or
compared in a cost-benefit analysis. Additionally, it may be inappropriate when it leads to violating
moral principles, fundamental rights, or laws, or when time-sensitive decisions leave no room for
detailed evaluation. Finally, it might overlook issues of fairness by focusing solely on maximizing
overall benefits.
Ford Pinto Case
• In the 1960s, facing overseas competition, the US Ford Motor Company began designing the
lightweight low-cost Pinto.
• Ford tested prototypes to see if they met the National Highway Traffic Safety Administration
(NHTSA) safety standards concerning fires following collisions. Any vehicle in a rear-end collision of
30 mph was required to be able to avoid fuel loss.
• The prototypes and most versions of the Ford Pinto itself all failed to maintain fuel tank integrity in
a 20-mph test. (Shaw & Barry, 2015)
Ford Pinto Case – ethical reasoning
• Ford relied in part on cost-benefit reasoning (i.e. consequentialism)
• There were various ways of making the Pinto’s gas tank safer. Although the estimated price of
these safety improvements ranged from only $5 to $8 per vehicle, Ford decided not to redesign the
tank (presumably the cost exceeded the perceived safety benefit).
• An internal report, “Fatalities Associated with Crash-Induced Fuel Leakage and Fires,” reveals the
cost-benefit reasoning that the company used in cases like this. In 1972, the NHTSA estimated the
cost of a human life lost in a car crash to be $201k.
Cost benefit analysis
Rules-based approach
• Follow the rules! E.g., the law, codes of best practice, company policies, social norms.
• May yield the same results as a consequentialist approach but the ethical reasons for this course of
action are different.
• Complying with legal requirements may be viewed as fulfilling the moral requirements of business
(Milton Friedman) – debateable e.g. lack of ESG mandates does that mean it’s unnecessary, is law
always the right thing to do/moral compass
Benefits: simplicity, lack of judgement needed, in most developed countries rules do yield the right
outcomes
An example of rules-based reasoning
• The precautionary principle which emerged in environmental regulation.
• Rio Declaration (1992) principle 15:
“Where there are threats of serious or irreversible damage, lack of full scientific certainty shall not
be used as a reason for postponing cost-effective measures to prevent environmental
degradation”.
• This statement does not mention the likely outcome but provides a rule which should be followed
when an action is presumed to risk harm.
The precautionary principle
• Can you think of a case when we act to prevent harm before we have
fully established the outcomes with a high degree of certainty? often applied in environmental
policy. For example, banning or restricting the use of a chemical suspected of causing harm, such as
DDT or certain pesticides, before definitive scientific proof is established reflects this principle.
Similarly, during the COVID-19 pandemic, governments implemented lockdowns, mask mandates,
,and vaccination campaigns early to prevent harm, even when the full efficacy of these measures or
the virus's long-term impacts were not entirely understood, climate change
Let’s go back to the Ford Pinto Case
What rules are relevant? NHTSA rules (external), company codes of best practice (internal)
How would you evaluate the Ford Pinto case using rules-based reasoning? Remodel based on failing
NHTSA
Problems with rules-based approaches
• Minimal compliance e.g. reduce emissions/health requirements to bare-minimum levels or reduce
servings
• Manipulation
• Most people still have the intuition that outcomes matter (consequentialist) e.g. doctors to treat in
emergency cases despite breeching employment rules
Breaking rules
Be truthful with customers
Treat employees well
False advertising
• In 2010, Kellogg's Rice Krispies cereal was fined for misleading consumers about the product’s
benefits to children’s health
• Kellogg Company was also fined for claims over false advertising claims for its Frosted Mini-Wheats,
whose ad campaign claimed the cereal was clinically shown to improve children's attentiveness by
nearly 20 per cent.
Rimmel Scandaleyes
• Company (Coty) use individual lash inserts on the model (Cara Delavigne) and used post-production
to add in additional lashes.
• The complaint was upheld by the UK Advertising Standards Authority
Failure to treat employees well
• Nestle was fined £800k and paid costs of £7.7k employee suffering life-changing injuries due to a
roller mechanism on a conveyor machine used to make chocolate sweets.
• Nestle failed to guard the dangerous part of the machinery, the roller. There was a foreseeable risk
to employees.
• The company had been prosecuted for a similar incident in the past their Halifax factory despite
Nestle safety policies in place.
Virtue ethics
• Virtues as foundational to ethical reasoning (honesty, integrity, courage). Can companies be
virtuous?
• Useful especially where consequentialism is not feasible and rules are not known for a specific
context e.g. deepfake with AIs – no rules yet virtuously wrong
What does it mean to be a virtuous company?
• The company itself is virtuous
• Implies a non-reductive view of the company – the company has moral agency itself and we cannot
necessarily trace responsibility to individuals or hold them accountable (List and Petit)
• But does that make sense? Reductive view of the company – it is always theoretically
possible to trace the actions of a company to its CEO, chair, directors, local managers etc.
although this may be very difficult in practice (Alexander and Morley, 2021)
General challenges to business ethics
, Moral absolutism vs relativism
• Absolutism – there are universal moral truths (one universal over time and for all cultures).
• Relativism – Morality can only be understood contextually and should be coherent within a
particular context (e.g. good is relative to the local culture) e.g. different views of child labour
• Do you think there are valid ways of dealing with moral relativism (e.g. for different views of
bribery) for international businesses?
Moral relativism
• Do you think there are valid ways of dealing with moral relativism (e.g. for different views of
bribery) for international businesses?
• It is important to understand the operating beliefs that drive particular actions. E.g., there may be
different understandings of what constitutes a bribe (or related party transaction) in different
cultures and contexts.
• How might relativism be a problem for rules-based ethics regarding e.g., the treatment of staff? it
suggests that ethical principles are culturally or contextually dependent, which can lead to
inconsistent treatment of staff. For example, what is considered respectful or fair treatment in one
culture might differ in another, creating challenges in applying universal rules. This could result in
perceived favouritism or inequality if rules are adjusted based on local norms, undermining the
fairness and objectivity that rules-based ethics aim to uphold.
Back to our ethical dilemma – life-saving drugs
• You are the board members of a pharmaceutical company that is developing a new life-saving drug
to treat a rare and deadly disease. The drug is in the final stages of development, but you realize that
to bring it to market quickly, you must skip some of the standard safety and efficacy testing
procedures required by regulatory authorities. The company believes that by doing so, they can save
time and get the drug to patients sooner, potentially saving many lives.
• Have another go at analysing this ethical dilemma from the perspective of consequentialism
(outcomes) and deontology (rules).
Challenges summary
• Consequentialism:
• Whose interests should the company serve?
• How do we measure the good and harm resulting from corporate actions?
• What if stakeholders’ interests conflict (i.e., a zero-sum game)?
• Deontological:
• What ethical rules/ codes of conduct are appropriate?
• What problems arise with relying on rule-following to ensure ethical behaviour?
• Virtue ethics:
• How to operationalize concepts such as “courage” or “honesty” in a business environment.
Model answer
Consequentialist analysis: the ends justify the means. Define consequentialism and connect it to utilitarianism and cost-benefit analysis.
State that the costs and benefits included in a cost-benefit analysis will depend on the interests of different stakeholders. Can refer to the
duties of directors in the CA 2006. The consequentialist ethical reasoning will depend on interests and setting.
a. Shareholder-focused companies operating in a low-regulation, low-disclosure environment would be expected to prioritise profit.
Students can cite the Ford Pinto case. Hence paying below minimum wage would probably not be considered in a consequentialist analysis
unless it has implications for fines/reputational damage/ difficulty hiring/unionisation. Similarly environmental pollution w ould not be
considered as a cost to the company if no regulatory action is likely to be taken and there are unlikely to be reputational effects or damage
to their social licence to operate.
b. Shareholder-focused companies operating in a high-regulation, high-disclosure environment are more likely to incorporate externalities
into their consequentialist ethical reasoning. Issues such as poor employment and environmental practices would be relevant as these are
likely to affect wealth creation for shareholders (students can cite the case of HSBC and the ASA).
c. Stakeholder-focused companies would be expected to include externalities in their consequentialist reasoning, and the utility of
stakeholders such as workers and the environment and would therefore include the cost of low wages and pollution in their costbenefit
analysis.
