This is “Ethics Foundations”, section 3.1 from the book Finance for Managers (v. 0.1).
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What is ethicsA system for evaluating whether an action is right or wrong.? For our purposes, we define it as a system for evaluating whether an action is right or wrong. For example, consider this following famous thought experiment:
A trolley car is hurtling out-of-control down a track where there are 5 workers ahead. You are standing by a switch that can divert the car onto a side track, where only 1 worker is currently. If you do nothing, the 5 workers will be killed, and if you throw the switch, the 1 worker will be killed (but the 5 will be spared). There is no time to warn the workers or take any other action. Should you throw the switch or not?
Asking this question in a group of individuals is bound to start some (perhaps intense) discussion about whether throwing or not throwing the switch is the right choice. In an ideal world, we would each embrace an ethical framework within which we can evaluate this situation.
There are four main categories of approaches to ethics:
To contrast these approaches, consider a friend who has received a terrible haircut asking, “Do you like it?” An outcome based view might support lying, since telling the truth would result in the friend having hurt feelings. Another outcome might be that the truth would make the friend angry, and they might retaliate. Or perhaps telling the truth might convince the friend to visit a different barber.
Instead, one might feel that lying is always wrong, no matter the outcome. Or there might be more complex rules dictating exactly when lying is appropriate.
The third case involves considering the virtue of honesty and the virtue of charity of one’s neighbor. The character of an ideal human must have some balance (neither deficiency nor excess) of these virtues.
Another consideration might be, “What is the socially acceptable thing to do?” If the norm is to lie when someone has received a bad haircut, this might be a guide that can be used to determine proper behavior. It might not be acceptable to lie under oath in a court of law, but society may accept a certain amount of dishonesty.
Within these categories, there are many systems which can be considered, and scholars have debated the merits of each over the centuries. It is the recommendation of the authors, however, that finance managers give some thought to ethics before encountering dilemmas in the workplace; otherwise, it is more likely that one is influenced to pick an ethical system to justify a desired action, when the causality should flow the opposite direction.
We can’t tell you what system will work for you. We would argue that it is each person’s responsibility as a human being to think about this very seriously, and try to arrive at a workable system. There are many books dedicated to thinking about ethics and entire fields of philosophy that discuss these issues.
We can say that we subscribe to a virtue ethics system, and we believe that surrounding oneself with mentors and colleagues that are paragons of virtue is the best way to learn how to act.
Note that “legal” and “ethical” are not necessarily the same thing. Most ethical systems include following just laws (since they arise from a social contract), but can allow for the violation of laws that are unjust (the civil disobedience of Gahndi and Rosa Parks are some canonical examples). And, in many ethical systems, the fact that something is permitted by law does not necessarily mean that it is ethical to engage in the behavior.
Additionally, many professions include self-governance or designations that require adherence to a set of ethical guidelines or a code of conduct. For example, the CFA Institute maintains a “Code of Ethics & Standards of Professional Conduct” that members with a CFA designation are obliged to uphold.