66 Accounting: Business Reporting for Decision Making
action or decision itself. So in deciding ‘what is the right thing to do’ some would assess the benefits
(short or long term) arising from the action and some would consider the action based on some ethical
principle or standing regardless of the outcome of the action.
Teleological theories
An accountant or manager making decisions that would optimise the greatest possible good for the greatest
number of people is following a teleological approach to decision making. Two common forms of this
approach are called utilitarian and ethical egoism. Utilitarianism was derived from the work of Jeremy
Bentham (1748–1832) who defined happiness as ‘utility’. He espoused the need for individuals to maxi-
mise their utility and argued that if all individuals did so, this would lead to society’s utility being maxi-
mised also. The logic was that society’s utility is the sum of each individual’s utility. John Stuart Mill
(1806–1873), however, advanced the theory that the maximisation of an individual’s utility should not be
at the expense of the group or community. He proposed that behaviour should be based on what provides
the greatest good to the greatest number. So, the idea is to maximise the utility of society as a whole rather
than of individuals. This thinking underlies the development of economics. Generally, in business, this
basic principle fits nicely with the efficiency theme. That is, it is in the public’s best interest if businesses
focus on profitability, as it will ensure the maximum production from their limited resources.
Following on from utilitarianism is ethical egoism. Ethical egoism is where the individual decision maker
decides what is best for himself or herself. This type of thinking underlies the assumptions in agency theory
(Nordberg 2008) and is relevant to modern corporate governance. For example, it is widely presumed that
CEOs will act in their own self-interest and therefore one job of the board of directors is to set up mechan-
isms that will allow the entity to prosper as a result of a CEO pursuing his or her own wealth-maximisation
actions. Whether or not self-serving decisions are likely to be morally wrong compared to decisions made for
the common good, the greed or profit-pursuing motive of individuals or entities has in the modern day taken
precedence over the overall sense of corporate purpose for the good of society generally.
The self-interest theme underlies much debate throughout the centuries on the amount of government
regulation. How much should the government step in and set rules to ensure that entities do the ‘right
thing’? Thomas Hobbes (1588–1679) felt that rationally people would want regulation for security and
protection, while Adam Smith (1723–1790) believed that regulation impeded prosperity and that com-
petitive self-interests were necessary in the commercial world to achieve overall public benefit. This
debate is what spurred Milton Friedman to utter his famous words:
There is one and only one social responsibility of business — to use its resources and engage in activities
designed to increase its profit so long as it stays within the rules of the game, which is to say, engages in
open and free competition without deception or fraud (Friedman 1970, p. 126).Friedman’s laissez-faire economy, in which profit is the ultimate goal and there is very little regu-
lation, is based on the idea that an entity taking on social costs becomes less efficient and will, in the
long run, do more harm to society than good. However, the question remains as to what extent regulation
is needed to protect the interest of the community while not stifling the risk-taking ventures of entre-
preneurs that provide the impetus for wealthy nations. In other words, what are the rules of the game and
how and who decides on them?
Deontological theories
The second approach is the deontological approach. Accountants or managers taking actions based on
their sense of duty would subscribe to this approach. That duty may be based on a set of rules or
professional guidelines. Following rules of religion (for example, the Bible or the Koran) or various
philosophical approaches (for example, Marxism or Rousseau’s social contract) would require taking
actions according to what they believe would be the principles of right and wrong relative to their beliefs
despite the consequences of their decisions.
Another philosophy under this heading is Kantianism. The German philosopher Immanuel Kant
(1724–1804) proposed that an action is morally right if it is motivated by a good will that stems from a