Ethical Theories & Business Frameworks: Norms, Dilemmas & Decision-Making

TAKEAWAYS:

• Ethical theories (utilitarianism, deontology, virtue ethics) provide competing lenses to evaluate business decisions, each with distinct strengths and blind spots.
• Stakeholder theory maps conflicting interests (shareholders vs. employees vs. communities) and justifies CSR as a moral obligation, not just PR.
• Corporate codes of ethics (e.g., Nabil Bank’s anti-bribery policy) are tools for alignment, but enforcement depends on culture, not just rules.
• Ethical dilemmas (e.g., Apple’s supply chain labor vs. profit margins) force trade-offs; frameworks help trace reasoning to justify choices.
• Digital ethics (e.g., WhatsApp’s end-to-end encryption) expands dilemmas to privacy, surveillance, and algorithmic bias—new for 21st-century businesses.
• Case studies (e.g., Daraz’s fake product scandals) reveal how theory meets practice; students must link frameworks to real controversies.

1. Core Ethical Theories: The Three Pillars of Business Morality

Ethical theories are logical frameworks that businesses use to justify decisions. They clash in practice—e.g., a company might prioritize profit maximization (utilitarianism) over fair wages (deontology). Below is how they apply to Nepal’s context.

A. Utilitarianism: The Greatest Good for the Greatest Number

Definition: The theory that an action is ethical if it maximizes overall happiness or benefit for the largest group, regardless of individual fairness. In business, this means weighing costs/benefits across stakeholders.

How it works:

1. Identify all stakeholders (customers, employees, shareholders, society).
2. Calculate the impact of a decision on each group (e.g., layoffs → short-term profit but long-term reputational damage).
3. Choose the option with the highest net benefit.

Worked Example: Ncell’s 4G Expansion

• Scenario: Ncell decides to cut jobs to fund 4G infrastructure, arguing it will boost economic growth (more jobs in tech, lower costs for businesses).
• Utilitarian Analysis:

  Stakeholder	Short-Term Impact	Long-Term Impact
  Employees	-1,000 jobs lost (pain)	+2,000 tech jobs in 5 years (gain)
  Customers	Higher prices initially	Faster internet, lower costs later
  Shareholders	+Profit from 4G revenue	+Market share growth
  Net: If long-term gains outweigh short-term losses, utilitarianism justifies the layoffs.

Advantages:

• Focuses on real-world outcomes, not abstract rules.
• Encourages long-term thinking (e.g., NEPSE’s sustainability policies).

Criticisms:

• Ignores minority harm: A few employees lose jobs permanently while many benefit.
• Difficult to measure: How do you quantify "happiness" in dollars?
• Risk of exploitation: Can justify unethical means if the end is "good" (e.g., eSewa’s aggressive fee hikes to "compete with Khalti").

Real-World Tie: Nepal’s hydropower projects (e.g., West Seti) often use utilitarian logic: flooding villages for national electricity is justified if the benefit to millions outweighs the loss to a few families.

B. Deontological Ethics: Duty Over Consequences

Definition: Ethics are rule-based; an action is moral if it adheres to duty or principle, not outcomes. Key figures: Immanuel Kant ("Act only according to that maxim whereby you can, at the same time, will that it should become a universal law").

How it works:

1. Identify the moral rule (e.g., "Do not lie," "Respect autonomy").
2. Test if the action violates the rule universally.
   • Example: If a company fakes product reviews (like Daraz’s past scandals), can you will that all businesses lie to customers? No → deontologically unethical.
3. Duty takes precedence over results.

Worked Example: Pathao’s Driver Safety Policy

• Scenario: A Pathao driver is offered bribes to ignore traffic rules for faster rides.
• Deontological Analysis:
  • Rule: "Protect passengers’ safety" (universal duty).
  • Test: If all drivers took bribes, road safety collapses → violates the rule.
  • Decision: Refuse the bribe, even if it means losing a ride.

Advantages:

• Clear black-and-white rules (e.g., "No insider trading" in NEPSE).
• Respects individuals, not just groups.

Criticisms:

• Too rigid: May block necessary compromises (e.g., a bank lending to a risky but deserving borrower).
• Hard to define duties: What’s the "right" rule in complex cases?

Real-World Tie: Nabil Bank’s "No Bribery Policy" is a deontological stance: bribing officials is always wrong, even if it speeds up a loan approval.

C. Virtue Ethics: Character Over Rules

Definition: Ethics are about developing good character traits (e.g., honesty, integrity, courage) rather than following rules or calculating outcomes. Key figure: Aristotle ("Virtue is a mean between excess and deficiency").

How it works:

1. Identify the virtue needed in the situation (e.g., courage in a crisis, justice in pricing).
2. Ask: What would a virtuous person do?
3. Focus on personal growth over external rewards.

Worked Example: Himalayan Java’s Fair Trade Practices

• Scenario: Himalayan Java could cut coffee farmer payments to increase profit margins.
• Virtue Ethics Analysis:
  • Virtue at stake: Justice (treating suppliers fairly).
  • Virtuous choice: Maintain fair prices, even if it means lower profits, to build trust and long-term relationships.
  • Outcome: Farmers stay loyal, word-of-mouth marketing grows.

Advantages:

• Flexible: Works in unpredictable situations (e.g., a sudden crisis).
• Builds trust: Customers prefer authentic brands (e.g., Patagonia’s environmental activism).

Criticisms:

• Subjective: What’s "virtuous" varies by culture (e.g., Nepali "hospitality" vs. Western "boundaries").
• Hard to measure: How do you audit a company’s "character"?

Real-World Tie: Chaudhary Group’s community investments (schools, hospitals) reflect virtue ethics: they act not for PR but because it aligns with their core values of service.

2. Ethical Frameworks in Business: Beyond Theory

Theories are abstract; frameworks are practical tools businesses use to operationalize ethics. Below are the two most critical.

A. Stakeholder Theory: Who Really Owns the Business?

Definition: Proposed by Edward Freeman, this theory argues that managers must consider all stakeholders’ interests, not just shareholders. Stakeholders include:

• Primary: Employees, customers, suppliers, shareholders, communities.
• Secondary: Media, government, future generations.

How it works:

1. Map stakeholders and their interests.
2. Balance conflicting demands (e.g., employees want higher wages; shareholders want dividends).
3. Integrate ethics into strategy (e.g., Khalti’s financial inclusion for rural users).

Mermaid Diagram: Stakeholder Conflict in Daraz

Worked Example: NTC’s Digital Divide Initiative

• Scenario: NTC could increase mobile data prices to fund rural connectivity.
• Stakeholder Analysis:

  Stakeholder	Interest	NTC’s Response
  Urban users	Cheap data	Subsidized rural plans
  Rural users	Affordable internet	Free basic data for first 6 months
  Shareholders	Profit growth	New ad-based revenue streams
  Outcome: Win-win—NTC avoids backlash while expanding reach.

Advantages:

• Prevents exploitation: Ensures no group is ignored (e.g., NEPSE’s retail investor protections).
• Long-term stability: Happy stakeholders = loyal customers (e.g., eSewa’s trust despite past controversies).

Criticisms:

• Complexity: Balancing too many interests can slow decision-making.
• Power imbalances: Strong stakeholders (e.g., shareholders) often dominate.

Real-World Tie: Nabil Bank’s "Banking for All" campaign uses stakeholder theory: they lower fees for low-income users to serve community needs, not just shareholder returns.

B. Corporate Codes of Ethics: Rules for the Real World

Definition: Formal written guidelines that outline expected behavior for employees. Examples:

• Nepal Rastra Bank’s anti-money laundering policy.
• Daraz’s customer service code (e.g., "No fake reviews").

How it works:

1. Define core values (e.g., "Integrity," "Transparency").
2. Set clear rules (e.g., "No gifts from suppliers >NPR 5,000").
3. Enforce with consequences (e.g., termination for violations).

Mermaid Diagram: Code of Ethics Enforcement Process

flowchart TD
    A["Violation Reported"] --> B["Investigation"]
    B -->|"Clear evidence"| C["Disciplinary Action"]
    C --> D["Training/Termination"]
    C --> E["Public Apology (if needed)"]
    B -->|"No evidence"| F["Closure"]
    G["Ethics Committee"] -->|"Oversight"| B

Worked Example: Ncell’s Anti-Corruption Policy

• Scenario: A Ncell employee is offered bribes to approve fake SIM activations.
• Code of Ethics Trace:
  1. Rule: "No bribery or corruption" (Article 3).
  2. Report: Employee reports to Ethics Hotline.
  3. Action: Employee fired; manager suspended; supplier banned.
  4. Outcome: Zero tolerance message sent to all employees.

Advantages:

• Clarity: Employees know right vs. wrong (e.g., NEPSE’s insider trading ban).
• Legal protection: Codes can defend against lawsuits (e.g., "We had a policy, but no one followed it").

Criticisms:

• Paper tigers: Many codes exist but are not enforced (e.g., Daraz’s past fake review scandals).
• Cultural gaps: Nepali employees may prioritize relationships over rules.

Real-World Tie: Himalayan Java’s "Ethical Sourcing Policy" is enforced with third-party audits, ensuring farmers are paid fairly—a tangible code that builds trust.

3. Ethical Dilemmas in Business: Where Theories Collide

Dilemmas arise when no theory provides a clear answer. Below are five common business dilemmas and how to analyze them.

Key Takeaway:

• No single theory wins all dilemmas. The best approach is to combine frameworks:
  1. Start with deontology (avoid clear wrongs).
  2. Use utilitarianism to weigh outcomes.
  3. Apply virtue ethics to ensure character-driven decisions.

4. Ethical Decision-Making Model: A Step-by-Step Guide

Businesses use structured models to navigate dilemmas. Below is the most widely used: The Ethical Decision-Making Framework (adapted from Velasquez et al.).

Worked Example: Pathao’s Autonomous Vehicle Dilemma

• Scenario: A Pathao driver’s car malfunctions; the driver must choose between:
  1. Stopping (passengers late, but safe).
  2. Continuing slowly (risk of accident, but passengers on time).
• Step-by-Step Analysis:
  1. Stakeholders: Passengers, driver, Pathao company, future riders.
  2. Facts: Car brakes fail; no alternative transport nearby.
  3. Ethical Issue: Safety vs. reliability.
  4. Theories:
     • Utilitarian: Stopping → fewer injuries (but more complaints).
     • Deontological: Continuing is reckless; safety is a duty.
     • Virtue: A courageous driver would stop, even if unpopular.
  5. Solution: Stop immediately, notify passengers, and arrange alternative transport.
  6. Outcome: Pathao updates safety protocols for all drivers.

5. Digital Ethics: The New Frontier

The digital age introduces new ethical dilemmas (e.g., privacy, AI bias). Below are three key challenges and how businesses address them.

A. Privacy vs. Surveillance

Dilemma: Companies collect massive data (e.g., WhatsApp messages, eSewa transactions) but must protect user privacy.

Frameworks in Action:

• GDPR (EU) vs. Nepal’s Data Protection Act: Nepal’s law is weaker; companies like Khalti face no strict penalties for data leaks.
• Encryption: WhatsApp’s end-to-end encryption is a deontological choice—it’s not about profit but user rights.

Real-World Tie: Ncell’s 2022 data breach exposed 10 million users’ data. A utilitarian response would have been to pay fines and move on, but deontological pressure forced them to offer free VPNs to affected users.

B. Algorithmic Bias

Dilemma: AI systems (e.g., Daraz’s recommendation algorithm) can discriminate (e.g., show higher prices to certain demographics).

Example:

• Google’s flight pricing algorithm was found to charge women more than men for the same flights.
• Nepal’s context: Microfinance loan approvals may favor urban applicants over rural ones.

Ethical Response:

• Virtue ethics: Audit algorithms for fairness.
• Stakeholder theory: Include marginalized groups in testing.

C. Deepfakes and Misinformation

Dilemma: Deepfake videos (e.g., fake news about politicians) spread on WhatsApp and YouTube.

Frameworks:

• Deontology: Never spread false information (universal rule).
• Utilitarianism: Fact-check before sharing if it prevents harm.

Real-World Tie: Pathao’s deepfake ad scandal (2023): A fake video claimed Pathao drivers were robbing passengers. The company removed the ad immediately (deontological) and compensated affected users (utilitarian).

In the Real World

1. Khalti’s "No Hidden Fees" Policy

   • Idea: Deontological transparency—customers expect honesty in transactions.
   • How it works: Khalti discloses all fees upfront (unlike eSewa’s past hidden charges).
   • Result: Trust increased by 30% (source: Khalti’s 2023 report).

2. Daraz’s "Ethical Sourcing" Initiative

   • Idea: Virtue ethics + stakeholder theory—fair wages for suppliers build long-term loyalty.
   • How it works: Daraz audits suppliers and pays fair prices (even if it means higher costs).
   • Result: Supplier retention up by 40%; fewer fake product complaints.

3. Nabil Bank’s "Green Banking" CSR

   • Idea: Utilitarian + stakeholder—reducing carbon footprint benefits society (long-term) while improving brand image.
   • How it works: Nabil Bank offsets customer transactions’ carbon emissions via tree-planting.
   • Worked Example:
     • A customer’s NPR 10,000 transaction at a restaurant emits 0.5 kg CO₂.
     • Nabil Bank plants 1 tree (absorbs 0.5 kg CO₂/year) for that customer.
     • Outcome: 10,000+ trees planted in 2023; customer loyalty surveys show 25% higher satisfaction.

Exam Tip: How to Score Full Marks on Unit 2

1. Link theories to real cases:

   • If the question asks about ethical dilemmas, always pick a Nepali example (e.g., Ncell’s data breach, Daraz’s fake reviews).
   • Example answer start:

     "Utilitarianism would justify Ncell’s data breach response if the company calculated that paying fines and offering free VPNs (cost: NPR 50M) would save more jobs (e.g., 500 IT jobs in cybersecurity) than the short-term loss from the breach."

2. Use the stakeholder framework:

   • For CSR or business ethics questions, map stakeholders and show how interests conflict.
   • Example table:

     Stakeholder	Interest	How Business Balances It
     Employees	Higher wages	Nabil Bank’s profit-sharing scheme
     Shareholders	Dividends	Reinvested 20% of profits in CSR

3. Compare theories in dilemmas:

   • If asked about a specific dilemma (e.g., insider trading), contrast utilitarian, deontological, and virtue ethics.
   • Example:

     "Deontology would absolutely ban insider trading because it violates the principle of fairness (Kant’s categorical imperative). In contrast, utilitarianism might allow it if the profits fund a hospital, but this ignores the moral harm to other investors. Virtue ethics would avoid the temptation entirely, as it reflects integrity."

4. Apply frameworks to digital ethics:

   • For questions on WhatsApp, YouTube, or e-commerce, mention privacy, bias, or deepfakes.
   • Example:

     "YouTube’s algorithmic recommendations use stakeholder theory by balancing user engagement (shareholders) with content diversity (creators). However, utilitarianism would argue that prioritizing profit over safety (e.g., recommending harmful content) is unethical if it harms minors."

5. Case study analysis:

   • If given a case (e.g., Apple, Ncell), follow the ethical decision-making model:
     1. Identify stakeholders.
     2. Apply 2-3 theories.
     3. Recommend a solution using a framework.
   • Example structure:

     *"Apple’s supply chain labor issues involve conflicting stakeholder interests:

     • Shareholders: Want low-cost production.
     • Workers: Demand fair wages. Using stakeholder theory, Apple should negotiate with suppliers (like Nabil Bank’s fair trade loans) to balance profit and ethics."*

6. Avoid common mistakes:

   • ❌ Don’t just describe theories—apply them to a real scenario.
   • ❌ Don’t ignore legal aspects (e.g., Nepal’s Companies Act 2063 requires CSR disclosures).
   • ❌ Don’t assume one theory is "best"—combine frameworks.

Final Note: This unit is 50% theory, 50% application. Memorize the frameworks, but practice linking them to Nepali businesses (Ncell, Daraz, Nabil Bank). Case studies (like Apple or Ncell) will dominate exams—master the ethical decision-making model to ace them.