Theories of Business Ethics: Teleological, Deontological, Virtue, System

Ethics is the branch of philosophy that deals with the principles of morality and the well-defined standards of right and wrong that prescribe human character and conduct in terms of obligations, rights, rules, benefit to society, fairness, etc.

In other words, ethics encompass human rights and responsibilities, the way to lead a good life, the language of right and wrong, and the difference between good and bad. This means it is concerned with what is right or wrong for the individuals and society. The term “ethics” has been derived from the Greek word “ethos” which means character, habit, disposition, or custom.

Theories of Business Ethics

Several philosophers have propounded different types of theories of business ethics which are listed below:

  1. Teleological Ethical Theories
  2. Deontological Ethical Theories
  3. Virtue Ethical Theories
  4. System Development Ethical Theories

Further, ethics can be classified into three major study areas: Meta-ethics is concerned with the theoretical meaning of morality and ethical principles, i.e. what we understand when we talk about what is right or wrong.

  • Normative ethics deals with the content of moral judgments i.e. determining the moral course of action and includes the criteria for what is right or wrong, good or bad, kind or evil, etc.

  • Applied ethics is concerned with the actions which a person is obliged to perform in a particular situation.

Thus, ethics are the well-defined standards that impose obligations to refrain human beings from any misconduct, which could be harmful to the self as well as to society.

Teleological Ethical Theories

The Teleological Ethical Theories are concerned with the consequences of actions which mean the basic standards for our actions being morally right or wrong depend on the good or evil generated.

The following are the types of Teleological Ethical Theories:

  1. Ethical Egoism
  2. Utilitarianism
  3. Eudaimonism

Ethical Egoism

Ethical egoism is a teleological theory that posits, that an action is good if it produces or is likely to produce results that maximize the person’s self-interest as defined by him, even at the expense of others. It is based on the notion that it is always moral to promote one’s own good, but at times avoiding personal interest could be a moral action too.

This makes ethical egoism different from psychological egoism which holds that people are self-centered and self-motivated and perform actions only with the intention of maximizing their personal interest without helping others, thereby denying the reality of true altruism (sacrificing one’s personal interest in the welfare of others).


The Utilitarianism theory holds that an action is good if it results in maximum satisfaction for a large number of people who are likely to be affected by the action.

Suppose a manager creates an annual employee vacation schedule after soliciting the vacation time preferences from all the employees and honoring their preferences, then he would be acting in a way that shall maximize the pleasure of all the employees.


Eudaimonism is a teleological theory that posits, that an action is good if it results in the fulfillment of goals along with the welfare of human beings. In other words, the actions are said to be fruitful if they promote or tend to promote the fulfillment of goals constitutive of human nature and its happiness.

Suppose a manager enforces employee training and knowledge standards at work, which are natural components of human happiness. Thus, a moral theory that maintains that the rightness or wrongness of actions solely depends on their consequences is called a teleological theory.

Deontological Ethical Theories

The Deontological Ethical Theories hold that actions are morally right independent of their consequences. A theory asserts that the rightness or wrongness of actions does not depend on the goodness or badness of their consequences.

The following are the types of Deontological Ethical Theories:

  1. Negative and Positive Rights Theories
  2. Social Contract Theories
  3. Social Justice Theories

Negative and Positive Rights Theories

The negative rights theory asserts that an action is right if it protects the individual from harm or unwarranted interference from other people or the government while exercising his right. Suppose an individual has the right to use, sell, or dispose of his personal car then the other persons have the correlative duty not to prevent him from doing whatever he wants to do with his car.

The positive rights theory posits that an action is right if it provides or tends to provide an individual with anything that he needs to exist. Suppose an individual has the right to adequate health care services to survive this means other agents, perhaps the government have the correlative duty to provide him with the necessary health care services.

Social Contract Theories

The social contract theories posit that people contract with each other to abide by the moral and political obligations towards the society in which they live.

This theory is based on the notion that if there is no order and law in society, then people will have unlimited freedoms, i.e. the right to all things, and will resort to all misdeeds such as rape, murder, plunder, etc.

Social Justice Theories

The social justice theories state that the action will be considered right if it confirms fairness in the distributive, retributive, and compensatory dimensions of cost and rewards. The distributive dimension means the perceived fairness in the distribution of social benefits and burdens among the group members.

The retributive dimension considers the punishment proportionate to the extent of crime while the compensatory dimension is the way people are compensated in relation to the injuries inflicted upon them.

Virtue Ethical Theories

The Virtue Ethical Theories hold that the ethical value of an individual is determined by his character. The character refers to the virtues, inclinations, and intentions that dispose of a person to be ready to act ethically.

The Virtue Ethical Theories are based on the notion that developing a sound character is what life is all about. The character builds a substantive moral foundation for one’s actions. It is believed that a person with a strong character has imbibed emotional, intellectual, moral, and social virtues to achieve self-discipline and do the right thing or want what is actually good for him.

Whereas, the person with a weak character finds himself doing all the wrong things, wanting what is truly harmful and making excuses for all his ill doings. The following are the major types of Virtue Ethical Theories:

  1. Individual Character Ethics
  2. Work Character Ethics
  3. Professional Character Ethics

Individual Character Ethics

Individual character ethics hold that the identification and development of noble human traits help in determining both the instrumental and intrinsic value of human ethical interactions. These noble traits are courage, self-discipline, prudence, gratitude, wisdom, sincerity, understanding, benevolence, etc.

Work Character Ethics

The identification and development of reflective, practitioner, noble traits at work such as creativity, honesty, loyalty, honor, trustworthiness, civility, dependability, shared work pride, empathy, etc. determine the intrinsic and instrumental ethical quality of work life.

For example, Suppose a manager is facing global competition, has huge productivity expectations, and requires effective teamwork, his work character behavior should be such that he is considered a role model for task accomplishment and his considerate relations with everyone at the workplace.

Professional Character Ethics

Professional character ethics hold that self-regulation, loyalty, impartial judgment, altruism, truthfulness, and public service determine the intrinsic and instrumental ethical quality of an individual associated with some communities.

For example, if a business manager of a firm of doctors detects the double billing for the OT’s services, then his ethical professional behavior will force him to inform the doctors in charge to get the problem solved. In case the problem still persists, then he will act as a whistleblower and inform the public outside and will not be silent until the problem is rectified. He does all this because of his loyalty to the professional code of ethics.

System Development Ethical Theories

The System Development Ethical Theories state that the extent to which an organization system is sensitive to the need to develop a work culture supportive of ethical conduct determines the ethical value of actions. The managers who cautiously assess the moral conduct of their employees and retribute (punish) their wrongdoings then he is said to have successfully developed a system of ethics.

In case, the manager relies exclusively on the character of his employees and does not implement morally supportive Intra-organizational systems and stable processes; then the organization is exposed to future ethical risk. The major types of System Development Ethical Theories:

  1. Personal Improvement Ethics
  2. Organizational Ethics
  3. Extraorganizational Ethics

Personal Improvement Ethics

Personal improvement ethics posits that the action is good if it is intended to promote the individual’s personal responsibility for continuous learning, improvement, holistic development, and moral excellence.

For example, the employees in order to gain expertise in their work enroll in the company’s training programs with a view to improving themselves as well as the organization’s functioning.

Organizational Ethics

The organizational ethics hold that the action is right if it confirms the development of the formal and informal organizational processes which in turn enhances the procedural outcomes, respectful caring, innovation in ethical work culture, and systematic justice.

For example, If there is no employee complaints redressal system in the organization and the employees do not have a voice system for feedback then it is the responsibility of the manager to implement such system and give a voice to the employee. By doing so, the manager supports individual and organizational moral development and reduces the intense resistance to overall moral development.

Extraorganizational Ethics

The extra organizational ethics asserts that the action is right if it promotes or tends to promote collaborative partnerships and respect the global and domestic constituencies representing the diverse political, economic, legal, social ecological, and philanthropic concerns that affect the firm.

For example, it is the social responsibility of a manager to consider all the factors external to the organization such as political, legal, social, environmental, etc. that can affect the organizational business processes.

FAQs About the Theories of Business Ethics

What are the theories of business ethics?

The following are the types theories of business ethics:
1. Teleological Ethical Theories
2. Deontological Ethical Theories
3. Virtue Ethical Theories
4. System Development Ethical Theories.