Chapter 4 Notes PDF

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Chapter 4: Practical Ethical Decision Making: Pg. 170-199 

Consequentialism, Deontology and Virtue Ethics all contributes differently to a useful and defensible approach for ethical decision making in business or personal life

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EDM (Ethical Decision-Making Framework) o It incorporates traditional requirements for profitability and legality, as well as requirements shown to be philosophically important and those recently demanded by stakeholders o EDM Considerations:  Well-offness or well-being  Respect for the rights of stakeholders  Fairness among stakeholders  Expectations character traits, virtues

Philosophical Approaches to EDM 1. Consequentialism a. It’s more narrow than utilitarianism, focusing on items that are more relevant, measurable and foreseeable b. Analyze the harms and benefits to multiple stakeholders (AACSB) 2. Deontology a. Duty, rights and justice considerations are particularly important to professionals, directors, and executives b. The professional accountant has a duty to clients, certain third parties, laws, codes and accounting principles  There is a conflict of interest between PRINCIPLE and AGENT  Shareholder’s = principle  Management = agent (they are the agency problem)  Accountants have a fiduciary duty for public interest 3. Virtue Ethics a. It focuses on the character or integrity of the moral actor (management), and looks to moral communities, such as professional communities, to help identify ethical issues and guide ethical action  Statements should be:  Materially correct, relevant, on-time, accurate, easily understood, transparent  Freidman’s quote: Profit is the ultimate goal Sniff Tests for Ethical Decision Making  Am I comfortable if this action appears on news?  Will I be proud of this decision?  Will my mother be proud of this decision?  Does this align with our mission and code?  Equality = treating everyone the same  Equity = providing what they need to be successful

AICPA Code of Professional Conduct (Principles) Responsibilities

 exercise sensitive professional and moral judgments in all their activities. The Public Interest  act in a way that will serve the public interest, honor the public trust, and demonstrate commitment to professionalism. Integrity  perform all professional responsibilities with the highest sense of integrity. Objectivity and Independence  maintain objectivity and be free of conflicts of interest in discharging professional responsibilities… be independent in fact and appearance when providing auditing and other attestation services. Due Care  observe the profession's technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibility to the best of the member's ability. Scope and Nature of Services  should observe the Principles

Rules of Thumb for Ethical Decision Making Golden Rule Disclosure Rule Disclosure Rule The Categorical Imperative

Do unto others as you would have them do unto you. If you are comfortable with an action or decision after asking yourself whether you would mind if all your associates, friends, and family were aware of it, then you should act or decide. The Intuition Ethic: Do what your “gut feeling” tells you to do. You should not adopt principles of action unless they can, without inconsistency, be adopted by everyone else.

The Professional Ethic

Do only what can be explained before a committee of your professional peers.

The Utilitarian Principle The Virtue Principle

Do “the greatest good for the greatest number.” Do what demonstrated the virtues expected.

Ethical Decision Making Approaches

Fundamental Stakeholders  Their interest(s) should be better off as a result of the decision  The decision should result in a fair distribution of benefits and burdens

Interests of

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The decision shouldn’t offend any rights of any stakeholder, including the decision maker The resulting behavior should demonstrate duties owed as virtuously as expected

Quantifiable Impacts  Profit  Externalities (costs and benefits)  Net Present Value calculations  Uncertainty (expected values)  Ranking stakeholder claims o Power o Legitimacy o Urgency Non-Quantifiable Impacts (Among Stakeholders)  Fairness = discrimination in hiring, promotion; evidence by distribution of benefits and burdens  Rights = health, safety, treatment, exercise of conscience, dignity/privacy, freedom of speech

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Traditional 5 Question Approach

- It’s a useful approach to the orderly consideration of problems without many externalities and where a specific focus is desired by the decision-process designer

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3. Pastin

Traditional Moral Standards Approach

Traditional Approach

Common EDM Pitfalls  Unethical corporate culture  Misinterpreting public expectations  Focusing on short-term profit & shareholders-only  Focusing only on legalities  Limits to fairness and rights canvassed  Conflicts of interest  Identify all stakeholders & interconnectedness  Rank specific interests of stakeholders  Leaving out well-offness, fairness, or rights  Consider motivations for the decision  Consider virtues expected to be demonstrated Summary of Steps 1. Identify all stakeholder groups and interests 2. Rank stakeholders and their interests 3. Assess impact on each stakeholder group American Accounting Association Steps  Determine the facts  Define the ethical issues  Identify major principles, rules, and values  Specify the alternatives  Compare values and alternatives  Assess the consequences  Make your decision Comprehensive Approach...