Business Ethics Report: Application of Utilitarian Theory in Business

This report examines business ethics, specifically focusing on the application of utilitarian theory within the context of Tepid Insurance Co. The assignment analyzes a scenario involving an insurance agent, David, who faces an ethical dilemma regarding the sale of two insurance products with varying benefits for the customers and the company. The report explores the principles of utilitarianism, which emphasizes actions that provide the greatest good for the greatest number of people. It discusses the stakeholders affected by David's decisions, including employees and customers, and evaluates alternative courses of action, such as developing new insurance schemes. Ultimately, the report concludes that applying ethical theories is crucial for businesses to navigate complex situations, emphasizing the importance of considering collective good and selecting actions that align with ethical principles.

BUSINESS ETHICS

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
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 ethical case regarding insurance policies under Tepid insurance Co. is
analysed with the support of different ethical aspects.
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.
MAIN BODY
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 suggests
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 number 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 suggests 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 ensures that if loss happen
then must be as lower as possible. Hence, this theory contributes toward “collective benefit” of
people.
Application of ethical theory:-
Utilitarian theory is applied by several organisations 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 times it is
required to involve its workforce for extra working hours. So, in order to deal with this situation
1

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.
So as according to utilitarian theory, incentives must be granted to workers along with the
completion of their work and the schemes should be revised in regular intervals. That allows
company to ascertain benefits in terms of profit and community by the excellent services of
workers.
One of the practical examples that must often arise within the organisation is about
selection of that alternative which provides loss in end but utmost in the beneficial to the large
number of stakeholders. Then company must select that alternative which has least negative
impact upon stakeholders. This decision of an organisation is supported by the one of the ethical
theory too, named as Utilitarian. According to this theory, required to select the option through
which any kind of benefit is delivered to the large number of population (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 provides 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. The basic salary of David is less and not enough
to fulfil the demand or need of his family unless David sells 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 and also company not allow them to sell those products in
2

much quantity. In any situation, if product two is sold in more quantity by David then in future
not be able to earn adequate salary to support his family. On the other hand, if he chooses 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 because the terms of this policy is different in
nature but all these are clearly disclosed to consumers and unilaterally chosen by them. So from
the above scenario, it can be said that product two must be selected by David as it is more
beneficial. But 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 will have larger impact if
David chooses Product 1. This is because they will receive more commission if a significant
number of this offering is sold.
Other 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 will
allow customers to acquire effective life coverage as well as savings. This will have direct
positive impact that will be experienced by the customers because they will be the one who
ascertain all the benefits that are associated with the product. Any changes in the scheme and all
the conditions will have direct impact on the return that will be attained by these individuals.
According to the current terms, Customers will 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 will 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
3

customers along with the scheme one of the extra benefit that will be provided to customers is
about cover families' financial needs in case of premature deaths in the family. Moreover, this
will allow them to gather extra benefit from a stand-alone product (Ryan, Buchholtz. and Kolb,
2010).
Another course of action could be to provide a scheme that will allow the customers to
invest in a plan where they will 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
Chosen 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 will 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 amounts 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
4

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 with the help of their standard pay scale. Thus, this course of
action effectively justifies Utilitarian Theory and thus is the best alternative for the given
situation.
CONCLUSION
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.
5

REFERENCES
Books and Journals
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). pp.481-502.
Grassl, W. and Habisch, A., 2011. Ethics and economics: Towards a new humanistic synthesis
for business. Journal of Business Ethics. 99(1). pp.37-49.
Holland, D. and Albrecht, C., 2013. The worldwide academic field of business ethics: Scholars’
perceptions of the most important issues. Journal of business ethics. 117(4). pp.777-
788.
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. 20(4).
pp.673-694.
Ulrich, P. and Sarasin, C. eds., 2012. Facing public interest: The ethical challenge to business
policy and corporate communications (Vol. 8). Springer Science & Business Media.
Wright, N.S. and Bennett, H., 2011. Business ethics, CSR, sustainability and the MBA. Journal
of Management & Organization. 17(5). pp.641-655.
Online
Act and Rule Utilitarianism. 2018. [Online]. Available through <https://www.iep.utm.edu/util-a-
r/>.
6