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Business Ethics of Banks and Bonuses Essay

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Updated: Apr 29th, 2021

Defining business ethics

Ethics in business is defined as the use of ethical reasoning, particularly to business set ups and transactions, so that moral issues that come up in business can be determined and solved or at least clarified (Morgan & Smit, p. 3). There are two ethical approaches that people follow in determining what is wrong or right in a given action, and they include deontological theory and utilitarian theory.

Deontological approach in bank bonuses using taxpayer’s bailout

The deontological approach is derived from the word “deon or duty,” which means that the theory is based on the concept that people have a duty to perform certain things and not to perform certain things (Department of Biology, Davidson College, para 10). Deontologists do not focus on how much good is brought by a given action but whether the action is prohibited or made mandatory by their rules. The argument of whether awarding top executives with taxpayers’ bailout, according to deontological theory, was clearly unethical because one cannot award those whose decisions led to a problem with the money meant to solve it. This is true because deontologists believe that a person should always stick to their obligation and duties whenever faced with any dilemma that involves ethical issues (Muirhead, p. 27). For instance, they were to choose between using the government rescue package in ways that directly affect taxpayers and honoring contracts signed between the bank and top executives. Being that the executive had failed on their side of the contract, they had to face the consequences of their actions. This means that the bailout given to banks was supposed to help mostly in canceling the mortgages because those loans doubled as taxpayers rather than giving bonuses to employees (The Washington Times, p.1).

Utilitarian approach in bank bonuses using taxpayer’s bailout

The utilitarian approach is derived from the word utility, which means benefit obtained from a given action. This theory is based on the ability to predict the results of a given action, and it argues that the choice that benefits the most people is ethical (Department of Biology, Davidson College, para 14). Using utilitarianism theory to explain the bailout issue, it can be said that looking at the future benefits; the banks were not wrong because salaries, bonuses, and other benefits to top executives are legal expenses of the company and if honoring their commitment to their employees would see the banking industry revived then their actions were legal. In the end, when the financial sector is back on its feet as a result of the motivated employees, then the benefit will be realized by the entire economy (West, p. 3)

One of the disadvantages of such an approach is that a precedent of lack of accountability will be set, and that means that there is a high likelihood of going back to the economic crisis (Smart & Williams, p. 16). Therefore even if we are finding a means to increase happiness or reduce suffering, those who do the contrary should not be allowed to enjoy the happiness. It also comes out that there are those charged with the duty to evaluate the future outcomes of different alternatives, and therefore depending on their understanding and interpretation, they will make choices which in turn might not be for the greatest good of most people. For instance, three companies, Morgan Stanley, JP Morgan Chase, and Goldman Sachs Group Inc., collectively paid out 40% of their combined bailout as bonuses, yet they made a profit of $9.6, which is 21% of the bailout. Citigroup incurred losses of over $27 billion while paying bonuses of $5.33 billion (Freifeld, para. 5 & 10).

Works Cited:

Department of Biology, Davidson College. n.d. Web.

Freifeld, Karen. Banks paid $32.6 billion in bonuses amid U.S. bailout (Update4). Web.

Morgan, Nicholas and Smit Elsabe. Contemporary issues in strategic management. Cape Town: Kagiso Publishers, 1996, Print.

Muirhead, John Henry. Rule and end in morals. Massachusetts, MA: Ayer Publishing, 1932. Print.

Smart, J. J. C. Smart, John Jemieson Carswell, Williams Bernard Arthur Owen. Utilitarianism; for and against. New York, NY: Cambridge University, 1993. Print.

The Washington Times. 2008, Web.

West, Henry R. An introduction to Mill’s utilitarian ethics. New York, NY: Cambridge University Press, 2004. Print.

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