Quite a lot has been said and done about Business Ethics. Several studies have been conducted emphasizing on the importance of what and How in business environment. However there has been put quite little effort in describing in a unified term of what business ethics exactly asks. Nevertheless existing giant businesses have not been scrutinized of their ethical practices.
This study is an attempt to investigate what ethics does Tobacco Industry practice. The case of Pakistan is taken to complete this research so as to check in absence of strict government regulations how responsible does the industry behaves. Cost Benefit analysis procedure for clarifying this ethical dilemma shows that in the absence of strong health hazard data the industry’s overall functioning can be considered ethical under utilitarian school of thought. This is because the number of beneficiaries of the industry in a developing country like Pakistan is immense and the recognized harms are comparatively less. This thesis gives the real coaster effect when these results are revealed.
However this is a deductive study that leads to further research questions and discovers new undiscovered ventures to explore.
Ethics is mostly known as the study of decision making that while doing this considers the widely accepted moral standards. One of the ethical questions however is the ethical dilemma, in which an issue has two conflicting bur arguably valid sides. A classical ethical dilemma example can be of the debate on allowing the tobacco companies to advertise. If allowed to do so then that means encouragement of an unhealthy practice but on the other hand if they are not allowed to advertise then it is clear discrimination between rights.
Similarly Employees have the right to privacy, but employers also have right to expect safe, competent behavior from employees. Now who is to decide the winner between employees choice of taking drugs or employers’ liberty to let undergo their employees through drug tests? Many such ethical questions are faced by managers every day.
The common theme in all ethical dilemmas is a clash between the privileges of two or more stakeholders over one another. Traditionally, the place of ethics in business practices has been to supply a decision procedure or some formal normative orientation. The place of ethical theory in the making of business decisions is problematic, and the symptoms are numerous. This can be seen, for example, in the difficulties authors of “business ethics” texts often have in employing ethical theories to resolve or clarify issues of ethical or social concern.
In my opinion the theories for resolving the ethical dilemmas themselves create an ethical dilemma. For instance some of the employees in the organization feel that there shouldn’t be fixed working hours. As long as they are productive there should not be any restrictions on them regarding the time schedules. If we analyze this case under the two schools of thought i.e. Utilitarian and the deontological we will see that if the employees are productive without imposing the limit of fixed working hours on them i.e. the consequence of the proposition is positive then according to the utilitarian theory the act is ethical. While Deontological concept will take it as unethical for it will see it as breaking the laws and conventions of the organization
It can be observed that presently accepted and practiced ethical theories posit strong foundations. In my opinion however these theories are of limited use in solving ethical problems. Their reliability and ability to be generalized can be challenged because they ignore certain aspects of morality and prefer others according to different situations that arise in different contexts. This study is devoted to resolve the conflict of deciding between what is and what is not ethical in the Tobacco industry.
The theory chosen for the study is utilitarian theory which has two advantages over other alternative ethical theories as how to be applied in various business endeavors. Firstly as we know that business works for the motive of benefiting self and so does utilitarian theory defines morality i.e. morality is to prefer self interest as prime. Secondly utilitarian theory is analyzed by comparing the benefits and harms of a given option and this is how it again finds similarity with profit and loss in accounting and business.
Since utilitarian theory is quantified with the help of cost-benefit analysis so the data is analyzed by using cost-benefit analysis model. The strive was to be able to resolve the ethical dilemma regarding the existence and functioning of Tobacco industry without creating an ethical dilemma through the process of resolving it.
Business ethics is a form of applied ethics that identify and solve the ethical and moral issues in the business environment. “In the increasingly conscience focused marketplaces of the 21st century, the demand for more ethical business processes and actions (known as ethicism) is increasing” (wikipedia, 2007).
Historically, interest in business ethics accelerated dramatically during the 1980s and 1990s, both within major corporations and within academia. For example, today most major corporations use alternate words such as social responsibility charters, corporate social responsibility etc to highlight the importance of social values and norms.
Business ethics has to decide on ethical issues by looking through the lens of the employee, the enterprise or the society as a whole.
It is the situation in which an issue has two conflicting but arguably valid sides. Ethical dilemmas continue to receive a great deal of attention from philosophers and management experts, who have developed a number of tools to guide managers through sometimes confusing and always difficult decisions regarding ethical dilemmas. However it is important to note that like the problem the methods for resolving this problem are also not absolute and agreed upon. Even the best models rarely lead to a single answer that is absolutely right, just or fair, but they do point the way to answers that seem more right, more just, or more fair than others Hosmer(1988 a).
Principles of ethical analysis have their roots in normative philosophy, the study of proper thoughts and conduct, or how people should behave Hosmer(1988 b). Five commonly applied normative approaches are described as under.
Deontology depends on the intentions of a person making the decision or performing the act. A deontologist would disagree with the emphasis on outcome as the determinant of moral actions because consequences are generally indefinite and uncertain at the time the decision is made. Immanuel Kant (1724-1804) provided much of the base for understanding this concept in all eras.
Theories of Justice.
Theories of justice explain ethical decisions on the basis of fairness and impartiality (Stead et al, 1990). This philosophy stresses social justice. Critics point out that this theory assumes that social cooperation provides the basis for all economic and social benefits, which may or may not be true (Stead et al, 1990).
Theories of Rights.
Theories of rights as from the name indicate that the most ethical decision will be based on protecting peoples’ right that might potentially be affected by the decision (Courtland et al, 1992). Theories of rights, unlike theories of justice, depend upon on equal opportunities for choice and exchange, not on equal allocations of wealth and income. As discussed earlier sometimes the conflicting rights become the shortcoming of the application of this theory (Courtland et al, 1992).
Social Contract Theories.
Social contract theories hold that when individuals become a part of a bigger community such as an organization of a local community then they agree to share the values of that group and also agrees to the means of reaching the agreed upon goals (Thomas, 1991). Critics argue that social contract theories do not give liberty to the individual thinkers who might have a contradicting opinion from their fellow community members (Thomas, 1991).
Utilitarian theories support the idea that ethical behavior results in the greatest good for the greatest number. So, according to utilitarian theories, the most ethical decision creates the greatest degree of benefits for the greater number of people while having a potential of inducing comparatively lesser amount of damages or harm (Hitt & Columbus, Ohio 1990). Consequentialist moral theories are teleological which means that they aim at some goal state and evaluate the morality of actions in terms of progress toward that state.
Tobacco Industry and Business Ethics.
This section will outline some historical facts related to tobacco industry and will also highlight how this industry grew from the scratch. This section also includes the description of the functioning of the tobacco industry in terms of business ethics since from the beginning of its origin right up till now. Finally the chapter concludes by briefly stating how it became a part of Muslim and Asian culture.
Tobacco is a natively fostered plant of America. Tobacco plant has very small seed such as one ounce approximately contains over three hundred thousand seeds. This plant started being cultivated according to an estimate thousand years B.C.
As early as one B.C., Tobacco started being used in various religious activities. Not only religious but also was thought to be of quite a medicinal importance by American Indians. It was basically thought of as pain killer and was also used by quite a number of people as a cure all solution.
Discovery of the New World.
Christopher Columbus was gifted dried tobacco leaves by the American Indians. As it was brought to Europe it started to be grown all over the Europe. Europeans grew it against a misinformation that tobacco has a healing tendency and that it can cure all the diseases no matter how big or small.
According to a book written by a Spanish doctor in 1571 tobacco could cure at least thirty six health problems. Thomas Harriet a Virginian in 1588 invented smoking as he wanted to discover a way that could help take a daily dose of tobacco. Later he died of nose cancer because it was through the nose then that they use to breathe tobacco.
In 1610 Sir Francis Bacon realized that trying to quit smoking was really difficult. In 1632 for the first time for moral reasons smoking got prohibited in Massachusetts.
Tobacco: A Growth Industry
For the first time when tobacco industry got significant industry value was in 1776. In the American Revolutionary War It acted as a security against the loans America borrowed from France.
However scientists continued to understand the chemicals in tobacco, as well as the dangers they had. In 1836 tobacco was recognized as a lethal commodity.In 1847, the famous Phillip Morris was established, selling hand rolled Turkish cigarettes. Until 1900 chewing tobacco was the most famous tobacco product however cigarette started becoming famous in 1990’s. As the cigarette was gaining popularity so was anti smoking campaigns with the notion of some states in America asking for total ban on tobacco. The demand for cigarettes however kept growing.
The Recent trends.
In 1980’s was the time when legal actions gained their pace against the working of tobacco industry as in 1982 from the Surgeon General reports it was evident that tobacco is injurious to health and by no means its use or sale can be termed legal. It was also known that passive smoking may cause lung cancer. It was in 1990 that smoking got banned in all the flights except for the flight to Alaska and Hawaii.
In 1990, Ben & Jerry’s initiated anti smoking campaigns and terminated business with tobacco industry allies. This lead Tobacco industry to change their strategy in the 80’s and 90’s and they started marketing their products heavily in developing countries of Asia. The strategy was to acquire market share from the markets with more flexible rules for tobacco business.
It has been revealed that tobacco industry has realized all long and is aware of the harmfulness of their products. Knowing this did not stop them from doing and expanding business and they have been justifying this by stating that people make informed choice. This draws our attention on the fact that those who are being blamed need to take measures against this blame.
The arrival of Tobacco in the Muslim World.
Quite similar to the situation in Europe Tobacco use started by physicians and started to gain popularity through medical manuals and journals in the Middle East by the last years of the sixteenth century (Grehan, 2006). Those responsible for carrying the same message were mostly non Muslims that had contacts with Europe and could easily understand, interpret and translate the work of Europeans for the locals (Gokhale, 2009).
There were not any segments of Middle Eastern society that did not contribute to this constantly increasing demand. While investigating tobacco’s prevalence in his era, the Damascene jurist Abd al Ghani al Nabulsi confidently declared in 1682, “Tobacco has now become extremely famous in all the countries of Islam … People of all kinds have used it and devoted themselves to it … I have even seen young children of about five years applying themselves to it” (Ghauri, Atcha, Shiekh, 2006, p.34). Among these early users were quite a lot of women (Grehan, 2006).
As Grehan (2006, p.413) states “from the time of its first entry, tobacco would have to rebuff strenuous challenges from political and religious authorities, who in the most critical tests of its appeal would join forces in sporadic anti-smoking campaigns”. One widely accepted methodology was to win a debate for proving tobacco as an intoxicant and that it has the same affect on the body as wine therefore strictly forbidden by Islamic law as resourced in Quran and Hadith (Grehan, 2006).
Tobacco manufacture in subcontinent started in Akbar’s reign. But by 1617 its use had become so widespread that Akbar’s successor Jahangir (1605-1627) issued a verdict forbidding the smoking of tobacco Gokhale (2009).
Tobacco Industry of Pakistan.
Smoking can be proved as dangerous for people’s health but for the economies such as of Pakistan and other such nations, it is the good news that they will always want to hear. This section intends to highlight the important role tobacco plays in the economics of the country.
Tobacco industry contributed 4.4 per cent or over Rs 27.5 billion to the total GDP of Pakistan including Rs 15.17 billion, including Rs 14.54 billion in excise duty and sales tax, in 1997. According to data provided through the internet resources it can be seen that tobacco industry pays six times more taxes than is earned from the cotton industry. This makes the tobacco industry to pay over five percent of all the taxes that are collected by the country. Furthermore over a million people are working as tobacco industry employees.
Cultivation area has also increased in the last decade that means increase in business. The figure indicates the increase of thirty percent which is even less than the percentage increase of production i.e. hundred and forty five percent.
The only crop of Pakistan whose yield exceeds the world average is also tobacco i.e. its per hectare yield equals that of the US and several other developed countries that makes approximately nineteen hundred kilograms.
Tobacco Industry and Ethics.
Tobacco Companies cannot be treated like rest of the companies as all their practices and products are not like other companies. Tobacco industry produces the products that are not only legal but at the same time they are also deadly for their consumers. How wondrous is that a product can kill more than half of its regular users?
As such, in terms of CSR activities, they cannot simply figure among the ranks of other consumer goods companies. Despite the tobacco industry’s thinly-veiled attempts to gain corporate respectability and companies’ claims to have changed their practices, they keep on adopting unethical strategies to promote their products, expand markets and increase profits (WHO, 2003).
Objective of study
The research will focus on the Tobacco Industry of Pakistan as the case of Ethical dilemma situation.The research will investigate what ethics do the tobacco industry practice. And can they be termed ethical under Utilitarian school of thought. Utilitarian theory is the world renowned theory to solve various ethical dilemmas in terms of the consequences an activity has. In short the study will be conducted to justify the role of Tobacco Industry in terms of business ethics.
This chapter serves as a backbone of the whole study. This study is deductive in approach so a complete review of the existing literature and schools of thoughts was mandatory to recommend future issues for research. The section starts with defining the core concepts and terminologies followed by how and where these concepts have been used. This section also states why one theory and method has been selected over the others. As the chapter grows there are arguments far and against of the practices of tobacco industry and how they varied in two time zones i.e. from 1980-1999 and from 2000-2007.
Business ethics Dilemma:
Business ethics adapts its functioning from the methods prescribed by normative believes to resolve the moral issues in businesses. Business ethics studies both profit and non-profit corporations. Existing practices are judged on the basis of what ought to be done in the given situation. One specific feature is vital to the business ethics. Business ethics has to account for strategic concerns. In the business sphere, ethical reflection has to allow for the interest at stake, in order to avoid being so high principled that one disregards all consequences for the corporation’s future (Peter Pratley 1997).
The common opinion seems to be that the term “business ethics” is not found anywhere in its true spirit. This is thought because ethics and business in soul are different. Where ethics preaches being nice and charitable there business finds its way to satisfy self interests and nasty objectives.
Organizations spend a lot of time and effort in implementing new initiatives for profit making and cost cutting however not even half of this commitment of resources can be seen for the implementation of ethical programs. The impression is given that adherence to the ethical code of practice is adequate rather than embracing its true spirit. Ethical considerations have no more value than the choice of plants in the office.
The view of Friedman (1976) that the only “social responsibility of business is to increase its profits”. Other literature has suggested that specialized ethical theories should be applied to business to better understand behavior in the context of the business organization. RobertAllanCooke (2004, p.2-5) evaluates in his study some fundamental fallacies about business ethics and finds that the good ethics is good business should still be termed as true.
On the one hand we have the common good for society arising spontaneously from a largely unregulated market of companies pursuing their self interest and on the other hand looking for the benefit for the company that it is standing for. In both cases the benefits are supposedly efficiency and fair distribution. Taken from the level of the corporation this appears to be a real time situation offering a minimum of restriction on market behavior and maximum control over internal affairs (Andrew Bartlett & David Preston 2000).
We encounter various situations in our life where we have to resolve any dilemma. And Businesses are no exceptions. Businesses and managers have to maximize their profits and optimize their costs in terms of resources and while planning for this all they come across many situations where they have to choose among two choices i.e. termed by economists as opportunity cost. The choices sometimes create an ethical dilemma and the decision in such cases become more complex.
With regard to consumers, the example of tobacco is particularly typical to understand. When seen in the through the lens of time it can be observed that in the short term, a need is satisfied on the expense of the long term loss of health of the customers. This has always been the strategy of the tobacco industry to not let their business slow down. While the advertising campaign in the United States was getting pace to encourage adolescents not to smoke, the tobacco companies were making new customers of the same age or teenagers in Asia an Africa by distributing free cigarettes (Levin 1991).
Ethical dilemma Theory:
Such dilemmas are dealt with ethical theories. One considered under the study is Utilitarian Theory. Utilitarianism is a Western adopted theory that has a history starting from the late 1700s (Harris, 2002; Shanahan & Wang, 2003). Harris stated that “utilitarianism is one of the most powerful and persuasive traditions of moral thought in our culture” (p. 119). Rachels (1998) described utilitarian theory as based in social transformation in human nature and behaviour, and it is that alternative to natural law that encompasses it as well.
Along with the applause the utilitarian theory is also criticized by many. As Peter Pratley (1997, p.140) states that ‘it may happen that an option seems to be most profitable for the large majority, while at the same time we feel that it is morally totally improper from the point of view of distributive justice. Whereas most receive a relatively minor benefit, a small number have to cope with outrageous costs.
Applying Utilitarian guidelines continually is impossible, even for private corporations with noble humanitarian intentions. Utility asks too much from individual private businesses. If each time decisions were made corporations adopted only the utilitarian most perfect solution, many would have to close down especially if they had to pay for the environmental damage they do’.
“Utilitarian thinking favors bringing about the greatest total amount of good that we can” (Harris et al 2000 p. 77). According to a utilitarian, we have, as our most basic obligation, to:
- produce “the greatest good for the greatest number,” or
- “Maximize aggregate happiness” (these are assumed to be equivalent).
Problems for the general utilitarian approach are (Harris et al 2000 pp. 77-78):
- Utilitarianism is an information-intensive view, since there can be an enormous number of relevant factual issues.
- Another problem is determining the “audience” for a decision, which the textbook defines as “the population over which the good is to be [ought to be] maximized” (p. 78); that is, “audience” refers to all those whose happiness would be affected by the agent’s decision. This is problematic because decisions can sometimes affect an enormous number of people (not to mention non-human animals), into the indefinite future.
- Finally, the utilitarian approach is claimed to neglect considerations of justice, because it ignores the distribution of benefits and harms.
Cost – Benefit Analysis:
How do we decide whether a given action is morally right or wrong? The answer given by cost-benefit analysis that maximizing benefits should be the priority is very similar to the answer sorted out by utilitarian. Economists who do cost-benefit analysis claim that certain non market things are hard to quantify in terms of money value but yet it is exciting and challenging (Steven 1981).
Bentham’s ideal of a precise quantitative method for decision making is most fully realized in cost-benefit analysis. This method differs from Bentham’s hedonistic calculus primarily in the use of monetary units to express the benefits and drawbacks of various alternatives (Mishan, 1976). Primarily hedons and dolors i.e. positive and negative values were used to calculate utilitarian results. Any project the dollar amount of the benefits exceeds the dollar amount of the damages is worth pursuing, according to cost benefit analysis, and from among different projects.
A distinction is mostly made, moreover, between cost-benefit analysis and cost-effective analysis. Cost-effective analysis assumes that there is already some agreed upon end and what is the most efficient means for achieving this end. Cost-benefit analysis, by contrast, is used to select both the means to ends and ends themselves (Baram, 1980).
Experts in cost-benefit analysis attempt to overcome the problem of assigning dollar figure to non economic goods with a technique known as shadow pricing. This consists of determining the value reflected by people’s market and non market behavior.
According to Macintyre (1977) cost benefit analysis is offered as a method that is itself value-free and applies only the values that people express in the market. Critics charge, however, that the method is heavily value-laden since the values of the analyst cannot be excluded entirely. Cost benefit analysis requires the analyst to determine what constitutes a cost and a benefit.
However the defenders of cost-benefit analysis reply that any theory is “value laden,” and an advantage of cost-benefit analysis that it makes its value commitments explicit, so that they can be “flagged” and properly taken into account. This view has been supported in the work of Boatright (1997, p.46).
A virtue of cost/benefit is that it seeks to lift a murky and endless policy debate out of the realm of ideology or moral preference into a more objective realm of testable factual propositions. The object is to gather the best available evidence of social impacts or costs and then, within a social accounting or utilitarian framework, to compare social prescriptions in terms of their prospects for reducing those costs. Yet, as Alasdair Macintyre has cogently argued, utilitarianism has unavoidable limitations that the cost/benefit specifists seldom take into account.
Pragmatists who present cost/benefit analysis as a value-neutral tool, Macintyre argues, often lose sight of the fact that “utilitarian tests always presuppose the application of some prior non utilitarian principle which sets limits upon the range of alternatives to be considered.”(Macintyre 1977)These inputs into the putatively objective cost/benefit analysis are inherently value-laden. When they are not made explicit and are not subjected to the same rigorous tests applied within the circumscribed framework of the cost/benefit analysis itself, they can compromise the objectivity of the entire enterprise.
Criticism has been immense but the allegation to assign monetary value to the non market entities is not only the challenge faced by utilitarian theory but also all other political and ethical theories (Shepley, 2006).
Cost-benefit analysis can be thought of as an attempt to operationalize utilitarianism using economic analysis.
The textbook’s template for applying cost-benefit analysis (Harris et al 2000 p. 79):
- Assess the available options.
- Assess the costs and benefits (each measured in monetary terms) of each option for the entire audience of the action, or all of those affected by the decision.
- Make the decision that is likely to result in the greatest benefit relative to cost; that is, the course of action must not be one in which the cost of implementing the option could produce greater benefit if spent on another option.
Problems for cost-benefit analysis are (Harris et al, 2000, pp. 80-81):
- Considerations of justice in the distribution of benefits and costs are ignored.
- Can all of the relevant costs and benefits really be adequately represented in monetary terms?
- What about public (non-market) goods?
- Can a monetary value be placed on human lives?
- It has been used in the past to justify morally unacceptable practices like slavery and child labor.
McMaken (2001) in his article shows how trustworthy the method is to come up with such sensitive decisions such as government regulations etc. In his article he states, “It’s the return of cost-benefit analysis.
Coast (2004) argues that money represents a passage to consumption so loss of money can represent the worth of things lost and vice versa. The advantage of using money in analysis is that money is very familiar to people and its worth is highly recognized.
CBA addresses allocative efficiency which is achieved by minimizing the waste of resources and then to make one person better off without making another loose (Rushby & John Cairns, 2006).
Tobacco Industry Ethics:
The study is conducted for observing the tobacco Industry’s ethical practices for that reason some literature has been explored regarding the desired objective. Tobacco is a major health hazard and an important economic commodity. It is very rational to say that if it would have been useful to use tobacco products then anti tobacco campaigns must not have been accepted so widely. On the other hand, the market for tobacco is so big that these anti tobacco regulations are hard to implement.
The management of every joint-stock company is commissioned by the shareholders to achieve the maximum profit on the capital invested and to increase its market share. Consequently, a decrease in tobacco consumption or the number of consumers is not in the interests of the tobacco companies. Their goal is to increase production and consumption. The tobacco companies do not, as a rule, make statements implying that the use of their products can lead to illness or death. They may say that tobacco has been considered to be associated with increased risks.
As ethical considerations now are accepted by the tobacco industry itself, an analysis of their practice of autonomy, doing good, justice and doing no harm could be done and analysed (Fagerberg et al, 1990). Now when people make informed choice that is claimed by tobacco industry to be autonomy. When people enjoy the tobacco products and consider them as their need, tobacco industry terms it as doing well to people. Allowing people to make the choices under no authority is doing justice and there is no final medical report for health consequences so that means doing no harm in the eyes of tobacco industry (Tobaks, 1990)
All these arguments can be refuted asserting non-profitable motives in the service of humanity, and with the guiding principle of ethical responsibility formulated by the philosopher Hans Jonas in (1984). Thus the tobacco companies can be accused of misusing the word autonomy as they overlook the fact of chemical dependency on tobacco.
Also, the long-term effects are so immense that it is difficult to defend short-term motives of both consumers and the industry. The arguments for justice and doing no harm are counteracted by the knowledge that use of tobacco leads to lesions, sometimes direct mortal lesions, and by the circumstances that general knowledge based on facts can hardly be achieved to a sufficient degree in a whole population. To sum up, it is insane for the tobacco companies to find moral defenses for their misconduct.
Despite overwhelming scientific evidence against cigarettes, the tobacco industry continues to debate over the controversial results of different scientists for proving or disproving smoking as an important cause of deaths by various diseases (R