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
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
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
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 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
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
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
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
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
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
Stockholder theory in
the 20th 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
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
Market mechanics. If abuses occur, the market will
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.
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
Fast-forwarding to the
18th 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
"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?
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 20th 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
- 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…."
- The stakeholder bill of rights. "Each stakeholder
group would have the right to elect representatives and to recall
representatives to boards."
- 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…"
- 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
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.