Ethics and Morality in Finance - Essay Example

? Ethics in Finance Introduction Ethics and morality are issues that greatly influence every person’s undertakings. Every decision that a person makes in regards to a social phenomenon is based on the principles and values that he or she upholds. In the business world, it is necessary to pursue the financial objectives of the enterprise while still upholding ethical principles (McKinnon 2). In the case study, it is imperative that the bank manager has to apply ethics in order to decide whether or not to limit the credit facilities of Linda and Catherine. This paper will evaluate the various ethics theories and analyze how they can be used to solve the ethical dilemma. Utilitarianism Utilitarianism ethics theory holds that the right action is the one giving the ultimate form of satisfaction for every one that is affected (Snoyenbos & James 17). It is notable that utilitarianism is a consequentialist moral theory that seeks to evaluate the outcomes of an action rather than the action itself (Van Staverin 21). According to this theory, the rightness or wrongness of an action is dependent on the general effect that the action has on the people it affects. Suffice to say, utilitarianism holds that an action cannot be judged in isolation to be good or bad. In this regard, an action is right if it produces more intrinsic good than any other action that would have been taken. For instance, utilitarianism could hold that cheating is right if it resulted in the saving of lives of people in danger. Actions are right when they maximize happiness and good for all the affected persons. One of the basic objections of the utilitarianism ethics theory is that the judgment of an act is based on its future outcomes (Singer 41). It is not possible for a person to know the precise consequences of his or her actions in the future. Thus, the utilitarianism ethics theory cannot be applied to justify the morality of present actions since the outcomes have to be evaluated first. However, the counter-argument to this objection is that a person can use the subordinate rules to choose the course of action in a particular situation. If in the particular circumstances greater good would result by discarding the subordinate rules, the utilitarianism ethics theory can be applied to justify an alternative action (Van Staverin 23). In the case study, the manager has to make a decision that would result in greater intrinsic good for all the people affected. Linda has had a good financial history with the bank for the past twenty years. In her twenties, she was financially prudent and made significant savings. In the recent past, she has been in a financial turmoil culminating in frequent overdrafts and exceeding her credit card limits due to depression. Despite this, she has never defaulted on her repayments although her sister Sophie has had to bail her out twice in the recent past. Linda points out that she took care of their mother, Catherine, when Sophie was setting up her businesses. Catherine has been a faithful customer of the bank for the past fifty years. In fact, her account with the bank has been prudently managed over the years and she managed to save some money for her funeral. Her financial position has changed only in the recent past since she has to cover the costs of accommodating her daughter Linda. Sophie has successfully established herself as a business lady with a growing empire of companies. She has bailed out Linda and Catherine twice but she insists that they have to take charge of their financial independence. She proposes that the bank should cut of off their credit card facility as well as overdrafts. According to utilitarianism ethics theory, it would be appropriate for the manager to keep the credit facilities for both Catherine and Linda. The credit facilities would help Linda to obtain money to fulfill her personal and family needs considering the fact that she was no longer working. Also, the credit facility would help Catherine to pay rent and buy food for herself and Linda’s children. The bank would also benefit from this credit arrangement wince Sophie would eventually pay any outstanding amounts due to her ties to her family. Thus, keeping the credit facility would result in the greater good of all those that are affected. This is in line with the utilitarianism theory (Van Staverin 29). Egoism Egoism is a normative ethics theory which postulates that the main goal of every person is satisfy his or her own self interests (Toner 279). Imperatively, the ultimate motivation for a person’s actions is self interest. According to this theory, people attain pleasure or benefits for themselves as individuals. One’s personal welfare is the supreme determinant of whether or not action is ethically right. Psychological egoism claims that humans are naturally motivated by self interest (MacKinnon 52). Tannsjo indicates that every action is directly or indirectly motivated by one’s selfish desires (p. 63). Even though some actions may be geared towards the interests of others, it is imperative that there is always some benefit to the individual as well. Notably, psychological egoists fail short of identifying the influence of altruism on ethics. Altruism is not only self interested but also takes into consideration the goals of other people as well (Singer 72). This means psychological egoism may not operate in isolation since most actions often involve individual benefits as well as benefits to other people. Ethical egoism is based on the premise that an action is right or wrong based solely on an individual’s self interest (Wernicki 13). According to this theory, an action is sufficiently morally right if it maximizes an individual’s self interest. This theory takes an individualistic position in regards to the evaluation of ethics in the society. Basically, ethical egoism points out that the self interests of an individual take precedence over other people (Crane and Dirk 81)). It would seem that the ethical egoism does not give considerable weight to the interests of other people. The basis of judging morality and ethics is determined by the interests of an individual. It is imperative to note that ethical egoism may allow for an action to be judged right and wrong at the same time depending on the individual assessing it. In relation to the case study, egoism would indicate that the manager has to act in a manner that maximizes his self interest. In this case, the manager has to ensure that the bank does not lose clients and that bank makes money. This is necessary to ensure that he keeps his job and continues earning income. By assessing the facts of the case, it is imperative that Catherine and Linda are in a bad financial position and likely to become liabilities to the bank. However, the bank can make money by allowing both Catherine and Linda credit facilities. This money will help to sustain their lifestyles. In any case, Linda has indicated that her sister Sophie is capable of bailing them out incase they default on payments. However, Sophie has made it clear that she does not want the Linda and Sophie to be given the credit facilities. In the interests of the bank and the manager, it would be risky to extend credit facilities to Catherine and Linda since their ability to repay cannot be guaranteed. By following egoism, it is prudent for the manager to cut off the credit facilities for his own self interests. Virtue Ethics Virtue ethics theories are based on the premise that good character traits are the main determinants of the morality of a person (Toner 300). Virtue ethics lays emphasis on helping people to practice virtues that define the life of a person. It is significant to note that virtue ethics theories do not seek to be guides for moral decision making but rather to provide a description of how a moral life should be (Fisher 154). According to the virtue ethics theories, an action is right if it is what a virtuous person would do in that particular situation (Toner 299). Virtues are important character traits that people have to adapt in order to live an ethical life. This theory indicates that a person is judged by his or her character and not by a specific action in a one of business case (Ferrel & John 19). For instance, individuals who have developed admirable character traits can be judged to be a morally good person. The actions of person are judged in the context of the character that he or she has cultivated over time. In order to become virtuous, it is necessary that a person attains moral education that can aid the development of the desired virtues (Wernicki 112). It is notable that the concept of virtue is dependent on the culture of person. The definition of virtue may differ depending on the particular environment and the culture. For instance, being cunning was considered a virtue in ancient times given the fact that such a character helped a person to gain recognition in the community. One of the challenges that face virtue ethics theories is that they deem virtues to universal (Toner 290). This is wrong assumption and it may curtail the application of virtue ethics theories in the evaluation of morality across several cultures. However, it is notable that virtue ethics strives to promote good character in the society and focuses on helping a person to become who he or she ought to be. For instance, following rules and obeying laws does not necessary make a person to be good. The evaluation of ethics goes beyond the mere one off actions of a person and encompasses his or her entire life character background According to information available, it can be inferred that Linda and Catherine have had a good history with the bank for a long time. Catherine has been a faithful customer for over fifty years and has diligently managed her finances during that period. Although she was not wealthy, her account had never been on an overdraft and she had started saving for her funeral expenses. On the other hand, Linda had been a client for over twenty years and her early record is impressive. In her early twenties, she had a prudent approach to her financial affairs as she had several steady jobs. Even when she was facing a protracted separation from her husband, she still managed her finances well. She started facing financial challenges since four years ago and the problems can be traced to depression. Catherine’s bank account also begun facing challenges in the recent past given the fact she had to support Linda and her children. Virtue ethics theories indicate that a person should be judged based on their established character (Toner 292). In this regard, it is evident from their history with the bank that both Linda and Catherine were prudent in their financial affairs. It would therefore be ethically wrong to punish them based on the recent past financial challenges while ignoring their otherwise solid financial history. The decision on whether or not to cut off their credit facilities should not be entirely based on their recent challenges but rather on their historical characters. Deontology theories Deontological ethical theories argue that a moral action is right or wrong depending on one’s moral duty (Van Steverin 27). Essentially, deontological ethical theories emphasize that an action is right or wrong in itself without necessarily having to evaluate its consequences (Van Steverin 28). This implies that deontology is about following the laid down rules irrespective of one’s intent in any situation. These theories hold that an action is morally right if it is in adherence to the rules, duties or maxims that govern a particular situation (Kaptein & Johan 11). It is important to note the in deontology; the consequences of an action do not matter per se. Deontology provides character guidance by expressly indicating what should be done in a particular circumstance irrespective of one’s intentions. Thus, deontology can be thought of as a set of ethical theories that encourage conformism to existing moral norms regardless of the possible implications. Kantian ethics is the most influential deontological ethics theory. According to Kantian ethics, one should only act in a manner that he could will to become a universal law (MacKinnon 115). He postulates that one should treat humanity as an end itself and not a means to an end. According to Kant, the categorical imperative forms the basis of universal law that can be used to evaluate ethics and morality (Van Steverin 21, Trevino & Katherine 52). For instance, Kant indicates that lying is wrong irrespective of the intentions of the person lying. This is because if lying was made a universal action, it would undermine the fundamentals of communication. Kant’s deontological ethics indicate the only unconditional good will can be considered moral since it does not depend on other considerations. Thus, he recommends that ethics should not be pegged on self interest or any other interests for that matter other than one’s moral duty to do right in all situations. In the cases study, it imperative to note the manager is under obligation to do the right thing as per the present conditions. Deontological ethics dictate that the ethics of an action are dependent on the action itself and not on the consequences of the action. It is clear that Linda and Catherine have become financially imprudent in the recent past and their present financial position is under jeopardy. According to the bank regulations, any client who does not have the ability to service his or her credit facility should not be given the benefits of the service. It is also clear that Sophie has expressly expressed her wish that the bank should cut off the credit facilities to both Linda and Catherine. However, it is imperative to not that at the moment neither Catherine nor Linda has defaulted on repayment. Therefore, the manager should not cut off the credit facility even though their repayment ability is not guaranteed. Conclusion It is evident that Linda and Catherine are in a precarious financial situation. Linda has erratic expenditures that have made her to rely on her credit card and bank overdraft to survive. Also, she does not have a job and she is under depression. On the other hand, her mother, Catherine, is busting her financial limits so as to provide for Linda and her children. Sophie is financially stable and she has bailed them out twice. However, she has expressed her will that the credit facilities for the two should be cut off to curtail their expenditure. In deciding whether or not to cut off the credit facilities, the manager should apply utilitarianism ethics. It is necessary to consider the consequences of his actions on all the affected parties. By applying utilitarianism ethics, keeping the credit facilities will result in the greatest intrinsic good for all the involved parties. Bibliography Crane, A & Dirk, M 2007, Business ethics, Oxford University Press, New York. Elliot, R 2007, "Normative ethics.", A Companion to Environmental Philosophy pp. 177-191. Feinberg, J, "Psychological egoism." Ethical Theory: An Anthology 14 (2012): 167. Ferrell, O, & John F 2012, Business Ethics: Ethical Decision Making & Cases, South-Western Pub, Nashville, Tennessee Fisher, C & Alan, L. 2009, Business ethics and values: individual, corporate and international perspectives, Prentice Hall, New York. Kaptein, M, & Johan W 2011, "Three General Theories of Ethics and the Integrative Role of Integrity Theory." Available at SSRN 1940393 (2011). Koslowski, P 2011, "’The Ethics of Banking’." Issues in Business Ethics 30 (2011) pp. 23-27. MacKinnon, B, 2012, Ethics: Theory and contemporary issues. Wadsworth Publishing Company, New York Singer, P 2011, Practical ethics, Cambridge university press, Cambridge Snoeyenbos, M, & James H 2007, "Utilitarianism and business ethics" A Companion to Business Ethics pp. 17-29. Tannsjo, T 2008, Understanding ethics: an introduction to moral theory, Edinburgh University Press, Edinburgh Toner, C 2010, "Virtue ethics and the nature and forms of egoism" Journal of Philosophical Research 35: pp. 275-303. Trevino, K & Katherine, A, 2010, Managing business ethics, Wiley, New York Van Staveren, I 2007, "Beyond utilitarianism and deontology: ethics in economics." Review of political Economy 19.1: pp. 21-35. Weitzner, D, & James D 2009, "Why moral failures precede financial crises" critical perspectives on international business 5.1/2 pp. 6-13. Wernicki, Abigail Turner-Lauck. "Understanding Ethics" Teaching Philosophy 33.1 (2010): 111-113. Read More