Consequentialism Versus Deontology

While the consequentialism/deontology schism may never rank up there with the "tastes great/less filling" debate, it nevertheless deserves further inquiry. I will discuss each philosophical approach in turn, including the relevant strengths and weaknesses, and then conclude with an illustration of why one standard is better than the other and why it can overcome the main objections raised against it.

What Consequentialism Is All About

Consequentialism, in brief, is the embodiment of the idea that the "ends justify the means." Put in more eloquent terminology, you could say that consequences are determinative of the morality of the action.

The Roots of Consequentialism: J. S. Mill and the Principle of Utility

Consequentialism has its roots in the work of John Stuart Mill, who espoused the idea of utilitarianism. He stated that "Actions are right in proportion as they tend to promote happiness, wrong as they tend to produce the reverse of happiness." He qualified this statement further by writing that happiness is "not the agent’s own greatest happiness but the greatest amount of happiness all together." In simpler terms (which, unmistakably, are those that I’m most comfortable with), adherents of the philosophy of utilitarianism believe in the greatest good for the greatest number.

Problems with Utilitarianism

Although utilitarianism is a step up from the "What’s in it for me? And the hell with you!" approach of egoists, it is not without its limitations, which include the following:

• The formulation problem. Should we maximize happiness or just make sure that there is more happiness than misery?

• The distribution problem. Is the goal to generate the greatest amount of happiness or is it to create the most happiness for the most people?

• The problem of deciding what is good. Is the good we’re trying to create "well-being" or pleasure?

• The problem of predicting the future. It’s hard to judge whether an action will ultimately generate the greatest good because in some sense the future is unknowable until we get there.

• The problem of illicit means. Utilitarianism fails most severely in this area. People can conjure up all types of justifications to make moral some action that they believe will result in the greatest good for the greatest number.

Our book also points out that Immanuel Kant would say that utilitarianism is flawed from the start "because it fails to take into account what is characteristic of moral actions, a moral motive."

What Deontology Is All About

Deontology is the theory that states that consequences don’t matter. An action is either moral or immoral.

The Roots of Deontology: Immanuel Kant’s Categorical Imperative

Deontology grows out of the work of Immanuel Kant, who believed that human nature has two parts: nature and reason. These two parts are constantly dueling, and to be moral, reason must override nature. In other words, reason informs us of our duty.

Kant believed in the categorical imperative, which boils down to doing your duty, because it is your duty, not because of some benefit you hope to attain. How do you decide what your duty is? Kant offers a couple of formulas.

The First Formula of the Categorical Imperative

The book explains that the first formula for the categorical imperative is: "Act so that you can will the maxim of your action to become universal law." You might think, "What the hell does that mean?" And you would be in good company. Kant said we should act according to those rules that you can will to be universal law. In other words, conduct has to be reversible. If the tables were turned and you were in the other person’s place, would your conduct be acceptable? If so, then you have the makings of a workable moral rule.

The Second Formula of the Categorical Imperative

In his second formula, Kant (who seems like an pretty smart guy, although probably a pain to have around the house) said: "Act so as to never to treat another rational being merely as a means." In other, perhaps simpler terminology (because we’ve already established my lack of erudition and my fear of philosophy in general), Kant would say you have to treat people as ends in themselves, deserving respect, never solely as means. Therefore, those subscribing to Kantian belief structure would never exploit people. In addition, they would never let themselves fall prey to the slippery slope of rationalization, where in the end, almost action can be "justified."

Problems with Deontology

As a moral structure, deontology offers intellectual rigor, consistency, and easy applicability. But still there are times when the ends do justify the means. Say it is World War II, and Nazis are knocking at your door. Meanwhile you are harboring a family of Jews in your attic. Wouldn’t it be more moral to lie to the Nazis and save the family, than to tell the truth about their whereabouts and send them to their deaths?

Why Deontology Is the Better Approach

Still, I see deontology as the better approach. How? By reducing the debate to its essentials: Who would you rather have as your neighbor: a utilitarian (bad pun alert: maybe if your power was out) or a deontologist? With the utilitarian you would always be wondering what he has up his sleeve. Does he act the way he does because he feels it’s the right way to act or because he’s trying to make you a pawn in some strategy that he hopes will result in the greatest good for the greatest number?

With the deontologist, you would always know where you stand. And while you might disagree about the essential morality of a given action, you could count on him being consistent down the line. And as you get older, fair-dealing and straightforwardness definitely are attractive qualities to have in the people around you

To illustrate the power of the deontological approach, I offer this story from my life. When my father was nearing retirement age, his boss thought he might want to consider some kind of consulting package with the company prior to his formal retirement. The implicit understanding was that it would be a way to generate some extra income without really having to do much work at all. My father rejected the deal outright. He explained that he had spent his career getting paid well for the work he did. He wasn’t about to accept a deal that would violate his sense of duty to the company. All his previous paychecks, he could cash without a second thought. The consulting paycheck would present a moral quandary. In his interior monologue, he would have had to justify why he was paid so much for doing so little. He could have made a utilitarian argument that the extra money would have contributed to the betterment of society by sending his kids through grad school so they could become even more productive citizens. Instead, he said, "Forget it." Who would have guessed? My father, the deontologist. But his upbringing forced him to reject the utilitarian argument as invalid because it would have overridden his duty to the company.

I would also like to consider an example here that shows the dangers of the utilitarian approach, which is from a mystery novel I’m reading, Actual Innocence by Barry Siegel. A young woman, Sarah Trant, is framed for a murder she didn’t commit because she knew about an oil plume beneath the town—the remnant of some long-ago oil-drilling efforts. The wealthy landowners wanted to railroad Sarah and make her the scapegoat because if the authorities found out about the oil plume, their town would be overrun with environmental authorities. The town’s elders reasoned (in their own utilitarian way) that even though the girl would be sent to jail because of their actions (and lack of action), they would be protecting the greater good: the peaceful serene life in the area. Here’s an excerpt that drives home some of the moral choices one of the woman landowners had made:

"There were prices to pay, consequences of actions, always and forever. To save El Nido, she’d forsaken a young woman whom she’d cared for. To save El Nido, she’d forged a bond with her enemies, she’d ignored the valley’s poisonous plume, she’d let her cows die."

For the deontologist in the example above, the choice is clear. You don’t perjure yourself in hopes of securing the greatest good for the greatest number. You tell the truth because it is wrong to lie. (Of course, while that approach would make for a better society, it would make for less-compelling novels.)

Stockholders versus Stakeholders

Stockholder Theory

Stockholder theory in the 20^th century has been largely promoted through the work of Milton Friedman, who states that the business of business is about maximizing stockholder wealth, not "promoting desirable ‘social’ ends." His philosophical argument rests on the following factors:

• Agency theory. The job of managers in a corporation is to do the bidding of their principals—the stockholders. "In a free-enterprise, private-property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in social custom."

• Market mechanics. If abuses occur, the market will correct them.

• Knowledge. Managers are not equipped to decide what is good for the commonwealth. Their expertise is in maximizing profits, not in maximizing social welfare. "[Businessmen] are capable of being extremely far-sighted and clear-headed in matters that are internal to their businesses. They are incredibly short-sighted and muddle-headed in matters that are outside their businesses but affect the possible survival of business in general. This short-sightedness is strikingly exemplified in the calls from many businessmen for wage and price guidelines or controls or income policies."

Still there are limits on the playing field. Businesses, Friedman says, must conform to the rules of the game. He believes that if any abuses occur, the market will correct them.

Philosophical Bases

Friedman’s work builds on a number of his predecessors, beginning with John Locke, who promulgated the idea of property ownership, and Thomas Hobbes who said people look out for their self-interests. But Hobbes also saw the need for some centralizing influence from the government to take care of those responsibilities for which business was not equipped to handle.

Fast-forwarding to the 18^th century brings us to Adam Smith. In his landmark work, Wealth of Nations, he proposed his ideas concerning division of labor, which he said would result in a greater good for all. He, too, was a believer in the power of pursuing self-interest, and he stated that promoting one’s own interest was the best way to benefit society. As such, he was an egoist.

Like Friedman years later, Smith didn’t trust those who purportedly were acting out of a desire to "do good." And Smith believed abuses by businesses would be corrected by the "invisible hand of the market" (sounds a little like magic, doesn’t it?).

Stakeholder Theory: Kantian Capitalism

R. Edward Freeman was one of the first to popularize the stakeholder theory, challenging the idea that the sole role of business was to maximize wealth. Instead he said business must work in the best interests of all those affected by the business, including customers, suppliers, employees, and, of course, stockholders. Each in their own way are vital to the success of the business. And as persons, they deserve respect because of their dignity as individuals and should be treated as ends not as means.

Evan and Freeman establish the following principles as part of the foundation to stakeholder theory:

• "Principle of Corporate Right (PCR): The corporation and its managers may not violate the legitimate rights of others to determine their own future."

• "Principle of Corporate Effects (PCE): The corporation and its managers are responsible for the effects of their actions on others."

Philosophical Bases of Stakeholder Theory

For the foundations of stakeholder theory, we have to go back to Immanuel Kant and his prohibition against using people as means rather than ends in themselves. Evan and Freeman note that "The right to property does not yield the right to treat others as means to an end. Property rights are not license to ignore Kant’s principle of respect for persons. Any theory of the modern corporation that is consistent with our considered moral judgments must recognize that property rights are not absolute."

Which Is the Better Theory?

Stockholder theory, which views corporations as economic engines, seems diametrically opposed to stakeholder theory, which views corporations as repositories of stakeholder interests.

Freeman points out a number of problems with stockholder theory. First of all, throughout the 20^th century we have seen more and more proof that the invisible hand doesn’t work. Where is the evidence? If the market were truly self-correcting then why are there so many regulations in place? The obvious conclusion: Regulations are enacted because the market doesn’t do its job in policing abuses. Evan and Freeman note that "In this century…the law has evolved to effectively constrain the pursuit of stockholder interests at the expense of other claimants on the firm."

The second problem that stockholder theory faces has to do with the economic side of things. Companies are not motivated to correct negative externalities—both because the problem is too big for a firm to handle on its own or it’s more profitable to continue raping and plundering the environment. Evan and Freeman offer an example of the ineffectiveness of stockholder theory when it comes to negative externalities: "No one has an incentive to incur the cost of clean-up or the cost of nonpollution, since the marginal gain of one firm’s action is small. Every firm reasons this way, and the result is pollution of water and air. Since the industrial revolution, firms have sought to internalize the benefits and externalize the costs of their actions." Stockholder theory also gives rise to such problems of moral hazards and monopoly power.

Stockholder theory falls down because of the failure of the invisible hand of the market to correct abuses. Also because it shies away from any kind of moral grounding, it seems incomplete. If we want people to behave morally, shouldn’t we ask the same of our corporations? Why should a corporation, which is nothing more than a collection of individuals organized for some purpose, be stripped of its moral foundation?

The main strengths of stockholder theory are its straightforwardness and easy applicability. It does a good job of clarifying who does what in a corporation and for what purpose. Stockholder theory also does a better job of recognizing why corporations exist: to create wealth for shareholders.

Stakeholder theory seems more inviting and accommodating on its surface but it falls down at times for being too facile and simplistic. For example, Evan and Freeman propose several structural mechanisms for making stakeholder theory practical:

1. The stakeholder board of directors. Evan and Freeman say it would work like this: "These directors will be vested with the duty of care to manage the affairs of the corporation in concert with the interests of its stakeholders. Such a Board would ensure that the right of each group would have a forum…."
2. The stakeholder bill of rights. "Each stakeholder group would have the right to elect representatives and to recall representatives to boards."
3. The management bill of rights. "management would have the right to act on its fiduciary duty, as interpreted and constrained by the Board and the courts…"
4. Corporate law. The laws of corporations need to be redefined to recognize that "The corporation should be managed for the benefit of its stakeholders: its customers, suppliers, owners, employees, and local communities."

The problem I see with stakeholder theory is that if each stakeholder has an equal say in the running of the business, then we are avoiding the necessary task of quantifying and setting priorities. It also seems to ignore the primacy of stockholders’ rights to greater rewards because of the risks they take in putting up capital.

If stakeholder theory has its roots in a democratic approach to corporate governance, then I say to hell with it. Businesses are not democracies. Democracies are too slow to deal with the exigencies and urgencies that are endemic to the business environment. If every time a business has to make a major decision, it must convene an assemblage of its stakeholders, then that business will never be nimble enough to survive the cutthroat business environment.

Where does that leave us? I propose a different kind of stockholder theory, one that puts the role of stockholders first, but that requires corporations to do no harm. And with that prohibition, you automatically eliminate most of the abuses that businesses are known for, but you preserve the ability to act swiftly when needed in making decisions.

Businesses are begun as mechanisms for generating wealth for the owners. To ignore that is to ignore what business is all about. Still businesses do not operate in a moral vacuum. To build a strong, stable society, businesses must operate within limits and refrain from inflicting harm onto others.

For example, if a chemical manufacturer adopted the stockholder theory with the "do no harm" caveat, it would still seek to efficiently generate profits for its owners. But it would refrain from laying waste to the countryside by polluting the air, ground, and water. Instead, what we would have would be a responsible corporation, but one nimble enough to survive in the rough-and-tumble world of capitalism.

If the same chemical firm adopted a stakeholder approach, it would constantly find itself being pulled in different directions by ancillary interests. In the end, such an inefficient approach to running a business would bring about its demise.