Question Arthur Business & Management

Utilitarianism Theory and Business Ethics

How does Utilitarianism affect business ethics?

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Answer Internal Staff

Utilitarianism is a consequentialist ethical approach – it focusses on the outcomes of an act to judge its ‘goodness’. A common description of utilitarianism is seeking ‘the greatest good for the greatest number’ this is paraphrased from Jeremy Bentham, who developed Act Utilitarianism.

This theory specifically focusses on the judging of actions based on the comparison of harm and happiness/pleasure created. Act utilitarianism can be applied to business, but it can create some situations which many people would consider to be immoral. For example, the poor treatment, or even enslavement, of a small number of workers could be justified if it produced lower prices that benefitted a very large number of people.

A different approach comes from John Stuart Mill, who proposed Rule Utilitarianism. This approach advocates testing an action through hypothetical universalisation. So, what would be the outcome if the action was applied as a rule – this consideration can help to avoid situations where small groups would be exploited.

While these concepts may seem far removed from real business decisions, without realising it, many managers apply these principles when they think about effects on shareholders, customers, employees or other stakeholders. The difficulty of applying utilitarianism arises when it is not clear what the consequences of an action are, such as with pollution.