Responsible Leadership

Professor Sreedhari Desai​

Digital Headstart Module Second Half

May 23, 2022 - June 26, 2022

Post Graduate Programme in Management

2022-23

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 Table of Contents

[Link]. Topic Remarks

1 A utilitarian approach to business ethics 04

2 A formalist approach to business ethics 06

3 The ethics of persuasion and nudging
08
4 The fraud triangle and what you can do about it 11

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A Utilitarian Approach to Business Ethics
Cotter, A.

There are two dominant approaches in ethical theory today. One approach maintains that we
judge actions by their consequences and the other maintains that we judge actions by appeal to
rules. The second theory, called deontology, will be addressed later. The first theory,
utilitarianism, we will consider in this article.

The idea of applying utility to ethics has its roots in 18th century philosophy. David Hume
mentions it in his Inquiry Concerning the Principles of Morals and Adam Smith devotes a
portion of his Theory of Moral Sentiments to the concept. However, as a fully formed ethical
theory, utilitarianism was the product of two philosophers in the 19th century. The first of these
was British philosopher Jeremy Bentham.

Bentham began with what he considered to be a self-evident psychological principle. Human

beings act in accordance with two motives: the pursuit of pleasure and the avoidance of
pain. This being the case, the principle of utility can be formulated as "the doctrine that we
ought to act so as to promote the greatest balance of pleasure over pain." However, there are two
problems with this initial formulation. First, it seems overly concerned with pleasure as opposed
to right action or behavior. The second problem is that this principle of utility doesn't address
whose pleasure we should be concerned with.

From Bentham's perspective the first problem was not a problem at all. Good, strictly speaking,
is equated with pleasure. The pursuit of pleasure simply is the pursuit of good. And as we'll see
momentarily, for Bentham what counts is the quantity of pleasure. However, the second
problem needs addressing. Bentham was concerned not only with self-satisfaction but also with
social reform. This being the case, Bentham reformulated the principle of utility to say "that we
ought to act so as to promote the greatest happiness of the greatest number." Note also, the
change in terminology from pleasure to happiness. This is to remind us that the utilitarians are
not only concerned with physical pleasure and pain, but all types of pleasure.

As inviting as it might be to quantify ethical theory, there may be problems with this
approach. First, how can pleasure or happiness really be quantified? Whatever scale we might
use seems inherently arbitrary. Even the choice of which scale to use is arbitrary. Plus, if we
were to formulate some objective criteria to evaluate and quantify pleasure and pain, it would
seem that this would be the foundation of ethical theory instead of utility. A second problem is
that this quantitative approach implies a sort of relativism of values. Between two competing
goods, for example reading poetry and playing a game, is there really no way to distinguish
them? If so, then there seems to be no way of making sense out of the central normative feature
of any ethical theory. For example, if I were to say that you ought to tell the truth, but you get
just as much quantitative value out of lying, then you are perfectly justified in lying. To say the
least, this seems odd. There may be an alternative.

The alternative was offered by a student of Bentham named John Stuart Mill. While he was
deeply impressed by the utilitarian theory of Bentham, he did think that certain modifications

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taught by “Professor Sreedhari Desai” at Indian School of Business, Hyderabad from “May 23 - June 26, 2022”.
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were needed. In particular, Mill wanted to de-emphasize quantity in favor of quality with regard
to happiness. To illustrate the difference Mill asked whether anyone would rather be a pig
satisfied than a human being dissatisfied. The idea is that when it comes to happiness quantity is
not enough. It's not the amount of happiness that counts but the kind of happiness. Another way
of putting this is to say that some pursuits are inherently better than others. How can Mill justify
this claim?

The answer goes back to an idea developed by Aristotle. To be truly happy, human beings must
fulfill their potential. Part of this potential is to be rational agents. So any pursuits which require
a rational component are inherently better than those pursuits which do not require such
capacity. Here, better means more effective at creating happiness. So Mill's point is that the
conditions for human happiness are different and related to our rational capacity. Still, we need
clear criteria for deciding which actions to take to achieve happiness. For example, how can we
decide between two activities if we've only tried one? The answer, for Mill, is simple. We rely
on the expertise of those who have tried both. According to Mill, those who have tried both
inevitably choose for the higher pleasure thus illustrating that it is the correct choice.

Utilitarianism has great potential for practical application and some form of reasoning based on
utility is an important part of many decision models which address public policy questions.

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 A formalist approach to business ethics.

By A. Cotter (2018)

While consequences are important to consider, there may be another important aspect of ethical
theory that needs addressing. For Immanuel Kant, this is motivation. We should judge the
moral worth of an action by its motivation and, according to Kant, only those actions motivated
by duty are morally praiseworthy. Strangely enough, inclination decreases the moral worth of an
action. To see why, let's examine deontology which focuses on the role of duty.

Kant begins with the claim that nothing is good without qualification except the good
will. Clearly, there are many things which are good but they can be used for evil
purposes. Consider intelligence. This is a good thing but, when put to use by a criminal, can be
very dangerous. The same applies to wealth. It can be a good thing but when used to fund drug
trafficking or terrorism is, indeed, evil. However, the good will is good in all cases; it’s good by
definition. What is the good will? By will Kant means our capacity for making decisions. The
good will, then, is that will which acts in accordance with the moral law. That should pretty
much answer all the questions about Kant's theory except one. What is the moral law?

Kant believes that the moral law is an objective standard by which we judge the correctness of
our actions. It does not depend on consequences and is not contextual. Instead, the moral law is
universal and should be followed regardless of the consequences. This may sound strange
inasmuch as we would hope that following the moral law would, in fact, have good
consequences. And, indeed, Kant believed this. However, we should not judge the moral worth
of our action by the consequences. Rather, we should follow our duty and doing so will, in the
end, generate the best consequences.

The moral law defines what our duty is and is expressed by the categorical imperative. Before
addressing this, we should clarify something about imperatives which are simply commands to
act in a certain way. There are two types of imperatives: hypothetical and
categorical. Hypothetical imperatives take the form of conditional statements. For example, "if
you want to be a good musician, you should practice a musical instrument everyday." Now,
when I give you this imperative have I obliged you to practice a musical instrument
everyday? No. After all, you could say, "I don't care anything about being a musician, good or
bad." So you are under no obligation to follow the imperative. All hypothetical imperatives are
like this and can be opted out of. They are, in a sense, optional and only hold in cases where you
want to achieve the antecedent condition, be it becoming a good musician or whatever.

The interesting question for Kant's theory is whether the moral law could be expressed as a
hypothetical imperative. An example of this might be: "If you want to be a good person, you
should tell the truth." On the surface this might seem acceptable but a closer inspection reveals a
problem. If the moral law were expressed as a hypothetical imperative, then the moral law
would be optional! You could choose to opt out of it. This seems wrong somehow. Certainly, it
goes against Kant's claim that the moral law is universally binding. In fact, by virtue of being a
rational agent we are all bound by the moral law. It is for this reason that the moral law must be
expressed as a categorical imperative.

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taught by “Professor Sreedhari Desai” at Indian School of Business, Hyderabad from “May 23 - June 26, 2022”.
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The categorical imperative itself has two formulations. The first is called the principle of
universalizability. This is a complicated term but the idea is pretty simple. The way Kant
describes it is to say that we should act such that the maxim of our actions can be made into a
universal law. This still probably sounds complex. Consider the following example. I need
some money and I'm coming to you for a loan. However, in order to convince you to lend me
the money, I need to promise to repay it. The problem is that I have no way of repaying the
money. So the question is, "Should I make a promise I know I can't keep?" To test whether this
is morally correct I apply the categorical imperative. I ask whether I can make this maxim a
universal rule of action: Make promises you know you can't keep. If we consider the logic of
this we can see a serious problem. Pretend that we've made this a universal rule of action. Now,
I say to you if you need help on the next exam I will be available to talk tomorrow at 7:00
P.M. You ask if we can meet then and I say I promise to be available. Would you believe my
promise? You shouldn't since we've made it a universal rule to make promises you know you
can't keep. Promising would be rendered contradictory in such a case. So this rule cannot be
made universal and that's what tells us that my original action is immoral.

The second formulation of the categorical imperative is called the principle of respect. Simply
stated, this says that we should never treat people, including ourselves, only as a means to an
end. The important word in this phrase is "only." We use people as means to an end all the
time. When I visit the grocery I use the grocer as a means to an end; the end of getting my
groceries. Don't be too alarmed at this, since my grocer is using me to further the end of making
a living. You are using me as a means to the end of furthering your education, but don't feel
guilty about that since I am using you as a means to further the end of making a living. None of
these arrangements are problematic. The trouble occurs when we use people only as means to an
end. How can we tell whether we're doing this?

People deserve to be treated with respect simply by virtue of being human beings. People
deserve our respect quite apart from what they can do for us. If we only treat them well because
of what they can do for us, we are violating this principle. In addition, our interactions with
others should be voluntary and uncoerced. However, according to this principle we are obliged
to treat ourselves with respect as well.

As with utilitarianism, there are some problems with Kant's deontology. One of these, of course,
is the radical separation from consequences. Kant tells us that the consequences of our action
cannot be used to judge the morality of the actions. What counts is the motivation. This,
however, leads to a rather strange implication. According to Kant an action is morally
praiseworthy if it is done out of respect for the moral law and in accordance with our duty. But
what if we are disposed to behave in certain ways that happen to coincide with our duty? For
example, if my duty to my friend requires me to visit him in the hospital. But, since he's my
friend I'm already naturally inclined to visit him whether it’s my duty or not. And so, I follow
my inclination and visit him. In Kant's view, the action has no moral worth. Why not? Because
it was not done out of respect for the moral law. So, it seems that the things we want to do are
not moral even if they happen to be the right thing to do! It’s not that they're immoral. They
simple have no moral worth. A peculiar situation indeed.

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taught by “Professor Sreedhari Desai” at Indian School of Business, Hyderabad from “May 23 - June 26, 2022”.
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Ethics of Persuasion & Nudging
Smith-Burkes, K., & Rhodes, K.

It's necessary to define ethical parameters whenever a person's ability to choose freely is
curtailed, such as when they are being influenced or nudged. Do note, however, that most of us
wildly overestimate the amount of freedom we think we have.

Those who do not understand the power of social influence may live in the happy delusion of
unlimited freedom, but the influence expert is aware that social influence is powerful enough to
make certain actions and thoughts extremely likely on the part of the influence target.

I'd contend we only enjoy the limited amount of freedom that remains between the powerful
influences that largely determine our everyday lives. Because we are not consciously aware of
those influences, we perceive freedom.

Take for example the story of the unwitting psychology professor as told by Steven Hassan. A
psychology professor was teaching his students the basics of behavioristic psychology, of
rewards, punishments, and shaping. The story goes that his students decided to test the
professor's theories--on the professor himself! Whenever the professor lectured from the right
side of the room, the students became distracted and noisy. When he moved to the left side of the
room, they listened with rapt attention. By selectively rewarding the professor's location in the
room, the class was able to shape the professor's lecturing behavior to the point that he would
enter the room and walk immediately to the left wall, leaning against it during the entire lecture.

When the students finally revealed their prank to the professor, Hassan tells us that an interesting
thing occurred: the professor denied any influence over his behavior, and insisted that lecturing
while leaning against the left wall was simply his preferred style! Certainly the professor
perceived no limitation of his freedom. Despite the professor's protestations of autonomy, what
do you think? Was he truly acting of his own freewill, if his class manipulated his actions?

Ethical issues become increasingly complicated when it becomes apparent that psychological
determinants and restrictions to freedom lie, to a large extent, in the minds of those who are
being influenced--rather than being imposed from the outside in a coercive nature. For this
reason, social influence is often compared to Jujitsu, a pugilistic art that redirects the aggressor's
own power against himself. A running, enraged 200-lb man has generated considerable kinetic
energy that a savvy opponent can use against him--perhaps by merely tripping him as he sails
past.

Analogously, this may be how a salesperson views a greedy, rapacious customer--as a 200-lb
appetite demanding a desirable commodity at a cut-to-the-bone price. The salesperson's ability to
surreptitiously redirect that energy into a profitable sale would tempt even the most ethical
among us.

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taught by “Professor Sreedhari Desai” at Indian School of Business, Hyderabad from “May 23 - June 26, 2022”.
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Whatever our role in the workplace, be it a sales person, product development manager,
marketer, customer support manager, accountant, HR, even CEO, much of our success at work
will depend on our ability to influence and persuade others to say yes to our requests.

So how or why are these principles “ethical”?

When needing to persuade others, the difference between influencing others and manipulating
others lies in genuinely looking at the situation for one or more of these principles that truly exist
in that situation.

– Do we genuinely have expertise on such a matter? If so, it is legitimate for us to want to bring
this to the surface.
– Is there genuine consensus on a given option? If so, it is legitimate to want to bring such
consensus to the surface.
– Is there genuine similarity? Do we really share something in common with the other person? If
so, then it is legitimate to build on this similarity to build trust.

This approach is called the detective’s approach as it involves investigating thoroughly the
situation and bringing to the surface the principles that are real and appropriate to the situation or
problem to be solved.

However, if you are not a legitimate expert and you mislead the other person by pretending to be
something you are not, then this becomes manipulation. You may succeed the first time in
fooling your customer but you won’t get away with it a second time. This is the smuggler
approach. Just like a smuggler, you import into the relationship illegitimate and false values and
behaviors and such an approach is bound to fail as no long-term relationship can be based on
deceit.

Not all persuasion is ethical. Persuasion is widely considered unethical if it is for the purpose of
personal gain at the expense of others, or for personal gain without the knowledge of the
audience. Furthermore, some methods of persuasion are wholly written off as unethical. For
example, coercion, brainwashing, and torture are never considered ethical .

Barring any of the persuasive methods that are easily distinguished as unethical (such as torture),
the line between ethical and unethical is less clearly demarcated. Ethical persuasion has a series
of common characteristics that are missing in unethical persuasion. Ethical persuasion seeks to
achieve the following three goals:

1. Explore the other person's viewpoint

2. Explain your viewpoint
3. Create resolutions

Notably, this approach involves input from the audience and an honest explanation of your
viewpoint. If you have questions about the ethics of a persuasive attempt, there are a number of
tests that can be done.

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Sherry Baker and David Martinson suggest that an ethical persuasive speech must have all of the
following components:

1. Truthfulness of the message

2. Authenticity of the persuader
3. Respect for the audience
4. Equity of the persuasive appeal

Fitzpatrick and Gauthier developed a series of questions that must be honestly answered to
determine how ethical a pitch is:

1. For what purpose is persuasion being employed?

2. Toward what choices and with what consequences for individual lives is persuasion being
used?
3. Does the persuasion in this case contribute to or interfere with the decision-making
process for its target audience?

Only by answering truthfully the questions above and bearing in mind the ethics components,
can we hope to become ethical influencers.

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taught by “Professor Sreedhari Desai” at Indian School of Business, Hyderabad from “May 23 - June 26, 2022”.
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The Fraud Triangle and What You Can Do
About It
Coenen, T.

One of the older and more basic concepts in fraud deterrence and detection is the “fraud
triangle.” While researching his doctoral thesis in the 1950s, famed criminologist Donald R.
Cressey came up with this hypothesis to explain why people commit fraud.

The three key elements in the fraud triangle are opportunity, motivation, and rationalization.
Opportunity is the element over which business owners have the most control. Limiting
opportunities for fraud is one way a company can reduce it.

The opportunity to commit fraud is possible when employees have access to assets and
information that allows them to both commit and conceal fraud. Employees are given access to
records and valuables in the ordinary course of their jobs. Unfortunately, that access allows
people to commit fraud. Over the years, managers have become responsible for a wider range of
employees and functions. This has led to more access for them, as well as more control over
functional areas of companies. Access must be limited to only those systems, information, and
assets that are truly necessary for an employee to complete his or her job.

Motivation, another aspect of the fraud triangle, is a pressure or a “need” felt by the person who
commits fraud. It might be a real financial or other type of need, such as high medical bills or
debts. Or it could be a perceived financial need, such as a person who has a desire for material
goods but not the means to get them.

Motivators can also be nonfinancial. There may be high pressure for good results at work or a
need to cover up someone’s poor performance. Addictions such as gambling and drugs may also
motivate someone to commit fraud.

Lastly, employees may rationalize this behavior by determining that committing fraud is OK for
a variety of reasons. For those who are generally dishonest, it’s probably easier to rationalize a
fraud. For those with higher moral standards, it’s probably not so easy. They have to convince
themselves that fraud is OK with “excuses” for their behavior.

Common rationalizations include making up for being underpaid or replacing a bonus that was
deserved but not received. A thief may convince himself that he is just “borrowing” money from
the company and will pay it back one day. Some embezzlers tell themselves that the company
doesn’t need the money or won’t miss the assets. Others believe that the company “deserves” to
have money stolen because of bad acts against employees.

Business owners and executives must take control of fraud by working on the portion of the
fraud triangle over which they have the most control: the opportunity to commit fraud. It may be

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taught by “Professor Sreedhari Desai” at Indian School of Business, Hyderabad from “May 23 - June 26, 2022”.
11
difficult for management to do anything about an employee’s needs or rationalizations, but by
limiting opportunities for fraud, the company can reduce it to some extent.

Reproduced with permission from the Publisher for use only in “Responsible Leadership - DHM - II_[PGP]”
taught by “Professor Sreedhari Desai” at Indian School of Business, Hyderabad from “May 23 - June 26, 2022”.
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