Ethics and decision making Fred Wenstp 10242021 Fred

Ethics and decision making Fred Wenstøp 10/24/2021 Fred Wenstøp 1

Overview • Foundations of ethics – Virtue ethics – Deontological ethics – Consequential ethics • History of managerial consequential decision analysis – – – Hume Drucker Raiffa Freeman Kaplan and Norton Jensen 10/24/2021 Fred Wenstøp 2

Ethical mindsets: the war in Iraq • The US objectives for the war – To free the peoples of Iraq – To prevent future spread and use of weapons of mass destruction – To limit international terrorism – To secure oil supply (maybe) • Consequential ethics – The war is ethical because the intended consequences are good and weigh less than possible side -effects • Deontological ethics – War is wrong because it violates the UN Rights of Nations, no matter how good the possible consequences are • The UN rule against the war – Violation of the right’s of Iraq • G. W. Bush’s possible motive for the war • Virtue ethics – To right the wrongs of his father 10/24/2021 Fred Wenstøp – Make amends for own offence – Be proud of himself and family 3

Ethical foundation of decision making • Virtue ethics (Dydsetikk) • Teleological ethics Teleos = goal • Consequential ethics – Aristotle (384 – 322 BC) – Corporate core values • Deontological ethics To deon = duty – Immanuel Kant (1724 -1804) – Rule based management 10/24/2021 Fred Wenstøp – – – Jesus David Hume (1711 -76) Utility theory Management by objectives The balanced scorecard Stakeholder theory 4

Virtue ethics 1 of 3 • Virtues and vices (dyder og laster) – tell the character of a person – describe action and feelings • Aristotle – Virtue promotes human flourishing – Several dimensions of attitude, depending on circumstance – A virtuous person is balanced, neither deficient nor excessive in any dimension 10/24/2021 Fred Wenstøp Aristotle (384 – 322 BC) 5

Virtue ethics 2 of 3 10/24/2021 Fred Wenstøp 6

Virtue ethics 3 of 3 10/24/2021 Fred Wenstøp 7

Deontological ethics • Duty based ethics – Actions posses moral worth only when we do our duty for its own sake, not because of its consequences • Kant’s categorical imperative – “Act only on that maxim through which you can at the same time will that it should become a moral law!” Immanuel Kant (1724 -1804) 10/24/2021 Fred Wenstøp 8

Kantian rules • UN Universal Declaration of Human Rights, 1948 – The rights are considered absolute regardless of their consequences. • UN Global Compact CSR-rules – nine principles for good corporate conduct in the areas of human rights, labour and the environment • UN Rights of nations – In the UN covenant on civil and political rights – Examples • the right to self determination • the right to own, trade, and dispose of their property freely, and not be deprived of their means of subsistence 10/24/2021 Fred Wenstøp 9

Rule based Management The ideal bureaucracy “The dominance of a spirit of formalistic impersonality, sine ira et studio, without hatred or passion, and hence without affection or enthusiasm. The dominant norms are concepts of straightforward duty without regard to personal considerations. Everyone is subject to formal equality of treatment; that is, everyone is in the same empirical situation. This is the spirit in which the ideal official conducts his office. ” 10/24/2021 Fred Wenstøp Max Weber (1864 -1920) 10

Logic of appropriateness • J. G. March (1994): – How Decisions Happen – Descriptive Decision Theory • Rule Following Decision Making – When individuals and organizations fullfill identities, they follow rules or procedures they see as appropriate. . – Neither preferences nor expectations of future consequences enter directly the calculus 10/24/2021 Fred Wenstøp 11

Teleological ethics • If the intention motivating the action is good in terms of the ultimate goal being pursued, then the action itself is ethical • Teleological (or consequential) ethics focus on goals rather than actions • Spokesmen – – Jesus Hume Jeremy Bentham John Stuart Mill 10/24/2021 Fred Wenstøp 12

Matthew 12, 10 -12 “And behold, there was a man which had his hand withered. And they asked him, saying, is it lawful to heal on the Sabbath days? that they might accuse him. And he said unto them, What man shall there be among you, that shall have one sheep, and if it fall into a pit on the Sabbath day, will he not lay hold on it, and lift it out? How much then is a man better than a sheep? Wherefore it is lawful to do good on the Sabbath days. ” 10/24/2021 Fred Wenstøp 13

Hume’s law • There are no intrinsic good or evils • Reason cannot be the basis of morality – Reason can show us the best way to achieve our ends, but it cannot determine our ultimate desires – “‘Tis not contrary to reason to choose my total ruin, to prevent the least uneasiness of an Indian” • Hume’s law – There is a gulf between facts and values, between “is” and “ought” • We must formulate objectives and judge consequences accordingly 10/24/2021 Fred Wenstøp David Hume (1711 -76) 14

Rationality 1944 • John von Neumann and Oscar Morgenstern – Formalisation of theory of utility – Rationality defined as consistency through axioms – The principle of rationality as utility maximisation – One dimensional theory of utility John von Neumann 1903 – 1957 10/24/2021 Fred Wenstøp 15

Management by objectives 1954 • Peter Drucker – The Practice of Management • Introducion of MBO – specific performance objectives – jointly determined by subordinates and their superiors – progress toward objectives periodically reviewed – rewards are allocated on the basis of this progress – MBO was universally accepted – flourished in the 1960 s and 70 s 10/24/2021 Fred Wenstøp Peter Drucker 16

Multi Criteria Decision Making 1976 • R. Keeney and H. Raiffa: – Decisions with multiple objectives. John Wiley & Sons • Dichotomy between facts and values – Good decision analysis requires the separation between objective facts and subjective values • Multi-objective decision making – Formalisation of weighting 10/24/2021 Howard Raiffa Fred Wenstøp 17

Stake Holder Theory 1984 • R. Edward Freeman – Value creation for stakeholders –. . or is it stockholders ? • Corporate governance problematic 10/24/2021 Fred Wenstøp 18

The Balanced Scorecard • Kaplan & Norton 1996 – Translating strategy into action: The Balanced Scorecard. Harvard Business Press. • The focus is on performance drivers – Early signals – Financial measures too slow – Dynamic consequence analysis needed • No single company objective function 10/24/2021 Fred Wenstøp 19

Enlightened stakeholder theory 2001 • Michael C. Jensen: Value maximization, stakeholder theory, and the corporate objective function. J. Applied Corporate Finance, 14 (3), 2001 • Same as Freeman’s stakeholder theory, but … – maximization of the long run value of the firm is the basis for requisite tradeoffs between stakeholders 10/24/2021 Fred Wenstøp 20