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Business Ethics refer to ethical principles, values and morals of individuals and organisations that effectively set out an ethical framework for the company (Crane, A. and Matten, 2016). The following assignment is based on the application of ethical theories in business scenarios along with alternative courses of action and justification for the chosen action .
The utilitarian is an ethical theory which was propounded by David Hume, John Stuart Mill and other in 18th and 19th century (Act and Rule Utilitarianism, 2018). This theory suggest that the basic criterion for the judgement of any act is the utility of that particular action. As according to this theory, action which provide greater amount of benefit, utility or happiness to larger number of person is the right action to be taken.
That mean an act is right if it provide happiness to large of people on the other hand action will be wrong if it affect the people who are connected with it in a negative manner. Utilitarian theory suggest that a person must evaluate the course of alternatives by comparing their intrinsic value. This support in determining which action will be more beneficial and provide utility to large number of people.
This theory was criticised that principle of utilitarian focus on the welfare of community and doesn't address the happiness of individual. Another criticism was that there is not any method to measure about the pain or pleasure before performing that action. But this theory worked toward providing benefit to larger number of people and also ensure that the loss if happen then must be as lower as possible. Hence, this theory contribute toward “collective benefit” of people.
Application of ethical theory:-
Utilitarian theory is applied by several organisation in order to operate their business in effective manner so that they will be able to survive in industry or marketplace. As the utilitarian theory focuses over providing the collective benefit to large number of people i.e. all the stakeholders must get benefited with the action as well as policies that are being performed by company. For instance, in case when company have higher work pressure then at that time it is required to involve its workforce for extra working hours. So, in order to deal with this situation and keep employees motivate toward the work company must provide monetary benefit to them. But the main ethical issue is that incentive program is generally arranged once in financial year and workforce is cooperative which will definitely support company in this case.
So as according to utilitarian theory, incentives must be granted to workers as this will provide benefit to employees, company by profit and community by their services. Another example can be taken as, in case when company have two alternatives and both provides losses. Then company must select that alternative which provide benefit to all its stakeholder. As per the utilitarian theory even if the company faces loss then the intensity must be minimum that is least number of individuals get affected in minimum possible way (Ulrich and Sarasin, 2012).
As per the given scenario, David is working in an insurance company named as Tepid Insurance Co. over a basic salary plus commission. The Tepid Insurance Co. offer two type of insurance where product one is the combination of saving and life insurance. But in this product the life coverage is very less than the family of customer will not be able to cover their basic need at the event of insured premature death. On the other hand the rate paid over their saving is only around 1%. But for the company the product is valuable and provide higher benefit to them and because of which Tepid prefer to sell this product more in market. Apart from this the commission earned by David is also relatively higher as compare to product two.
On the other side product two provide better coverage to the life of customer and pays more interest over their savings. But the management of Tepid Insurance Co. discourage employees to sell this product more and the commission paid over this product to David is relatively less as compare to product one. The commission over this product 2 is not even equal to quarter of commission paid over product one. So the basic salary of David will be less not enough to fulfil the demand or need of his family unless David sell significant number of product one (Doh and et. al., 2010).
So the main issue in front of David is that if he choose to sell product two then it will benefit the customer by providing them higher interest and greatest life coverage to them. But on the other hand, he will suffer loss as the company not allow them to sell those product in much quantity and if it will be sold then David would not be able to earn adequate salary to support his family. On the other hand, if he choose to sell product one then in that case David will be able to earn higher commission and company will also get benefit by earning higher revenue over it. But this product will not be able to provide more life coverage as compare to product two still on the other side it will provide saving option to customers as an additional benefit.
So from the above scenario it can be said that product two must be selected by David as it is more beneficial. Because as according to utilitarian ethical theory, a business must take action which provide benefit to large number of people and in present scenario product one will provide combined benefit to company, employees as well as customer (only in case when death is after maturity period).
Tepid insurance have various stakeholders that would be directly affected by the decision that David would take (Grassl and Habisch, 2011). Most importantly, the stakeholders that would be most affected are employees. These are those individuals who help a firm in generating worth and aid in achieving corporate and business objectives. Employees would have an impact if David chooses Product 1. this is because they would receive more commission if a significant number of this offering is sold by David.
Another stakeholders that would be affected by this decision are the customers. These are those individuals who buy the offerings of a company in exchange of some value. Product 1 would allow customers to acquire effective live coverage as well as savings. The direct impact of the product would be experienced by the customers. This is because they would be the one who would experience all the benefits provided by the product. Any changes in the scheme and all the conditions will have direct impact on these individuals. Customers would be able to get 1% of their savings amount and a certain amount in case of premature death.
There are certain Alternative Courses of Action in the given business scenario which could be applied effectively in David's situation. These actions would give another insight and better approach to the ethical framework which would allow David to effectively handle the given scenario in the best possible way. One course of action could be to convince the management to develop additional scheme in order to effectively provide benefits to the customers in case of premature death. In this manner, the customers could charge a little extra price from the customers along with the scheme which would cover families' financial needs in case of premature deaths in the family. Moreover, this would allow them to gather same benefit than that from a stand-alone product (Ryan, Buchholtz. and Kolb, 2010). assignment australia
Another course of action could be to provide a scheme that would allow the customers to invest in a plan where they would be provided with life insurance and savings. Out of the total amount invested, the firm would segregate some amount in equity or debt. This gives customers options to either withdraw regular amount monthly or save it for future. In case customer opts for saving, during pre-mature death, the amount that would be more in life insurance or equity/debt would be provided to the customer. However, in this method, in case the customer stays alive even after the maturity period, the person does not get the equity amount.
It is essential that both the possible courses of actions be effectively governed by the Ethical Theory. This means that both the actions would be effectively evaluated under Utilitarian Theory (Holland and Albrecht, 2013).
In case of the first course of action, customers are getting more benefit under this scheme and the scheme is itself beneficial for the company. This ensures higher revenue generation and more commission to employees. Moreover, this theory covers the ethical limitation of Product 1 where families were not getting enough benefit in case of premature death. Moreover, in this manner, the scheme would be satisfying the most prominent concept of this ethical theory, i.e., it would be providing maximum benefit to maximum number of people. Customers will be getting more worth of their investment, the company would be getting more buyers and more revenue and the employees will be getting more commission than their standard product. Thus, this course of action is favoured by Utilitarian Theory.
The second course of action provides more benefit than any other products introduced by the company. Customers will be getting more amount which would help them support themselves and their families in a better way. However, this scheme also fails to provide benefit in case the customer stays alive even after the product reaches its maturity date. Thus, according to Utilitarian Theory, this course of action provides effective worth to customers as well as organisation and employees but has certain limitations (Wright and Bennett, 2011).
Out of all the courses of action, it is imperative that the most appropriate and justifiable course of action be chosen in order to effectively justify the ethical theory in question. Utilitarian theory focuses on providing maximum benefit to maximum number of customers. In this manner, the most appropriate and recommended course of action would be to provide additional scheme for premature death along with Product 1.
The justifiable reason for the same would be that additional scheme would allow the firm to accumulate two schemes with additional chargers which would allow the firm to gather more customers under their radar and ensure more employee satisfaction. Employees like David would also be able to gain more commission and support their peers in a better way than their standard pay scale. Thus, this course of action effectively justify Utilitarian Theory and thus is the best alternative for the given situation.
Thus, it is concluded that Business ethics is very imperative for every organisation to follow and companies must apply ethical theories to effectively overcome ethical situations in a better and appropriate manner. Utilitarian theory could be used by firms to judge collective good of their each action and its consequences. In addition to this, possible courses of actions must also be effectively analysed and evaluated to select the most appropriate alternative action that could do justice to the situation as well as to the theory.
- Crane, A. and Matten, D., 2016. Business ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.
- Doh, J. and et. al., 2010. Ahoy there! Toward greater congruence and synergy between international business and business ethics theory and research. Business Ethics Quarterly. 20(3).
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- Holland, D. and Albrecht, C., 2013. The worldwide academic field of business ethics: Scholars’ perceptions of the most important issues. Journal of business ethics.
- Ryan, L.V., Buchholtz, A.K. and Kolb, R.W., 2010. New directions in corporate governance and finance: Implications for business ethics research. Business Ethics Quarterly.