Ethics is concerned with the study of morality and the application of reason to elucidate specific rules and principles that determine right and wrong for a given situation (Crane & Matten, 2010). Since law does not necessarily cover the morality of many controversial issues, moral reflection ought to be performed on any action, regardless of its lawfulness. The growing power of business in today’s society has enabled businesses to significantly impact the world. Hence, business ethics is highly relevant as it could determine whether businesses contribute or cause harm to the society at large.
Using ethical theories to guide moral reflection, business ethics can help businesses avoid scandalous conduct that could harm the society.
Utilitarianism places high emphasis on the consequences and outcomes of one’s action. It is premised on the general principle that an action is right and ought to be performed insofar as it leads to overall happiness or benefits, as opposed to pains or costs (Chan & Shenoy, 2010). However, many businesses have a sole objective of maximizing its profits and shareholder value. While focusing on the interest of its internal stakeholders, the interest of its external stakeholders is often neglected.
The subprime mortgage crisis of 2007 highlights how financial institutes acted out of their self-interests and neglected the consequences of their actions on the community and society at large. Investors pursued after higher returns through engaging in risky investments involving subprime mortgages. When the housing bubble burst, the subprime mortgage industry collapsed and caused a financial liquidity crisis (BusinessWeek, 2007). The action of the financial institutes had a spill over effect on the global economy. As the investors were only concerned with the benefits that they will gain from the risky investments, they failed to take into account the happiness or pains that the greater society will face. Today, unemployment rate remains high in the United States. Although economic data show a modest recovery in the economy, consumer confidence is low as more than half of Americans think that they are still in recession (Morgan, 2011).
A utilitarian would strongly advocate businesses to consider all the happiness and pains of all its stakeholders and focus on maximising happiness for the greatest number. Businesses have to look beyond short-term monetary gains and consider the impact of their actions on their significant stakeholders. In the subprime mortgage crisis, the financial institutes could have better analysed the extensive pains that its external stakeholders may face when they invest in subprime mortgages. Although high returns from risky investments may seem beneficial to the investors in the short run, greater costs may be incurred in the long run due to subprime mortgage foreclosures and its significant repercussions on the society. If the financial institutes had adopted the...