Introduction

There are two approaches to integrating ethics in business: the action-based approach, and the agent-based approach. The traditional approach is action-based in that it focusses on developing rules or guidelines to constrain management's actions. These rules or guidelines generally manifest themselves in corporate codes-of-conduct, or codes-of-ethics.
Contrarily, rather than the action-based focus on rules governing action, the agent-based approach concerns the fundamental character and motivations of the individual agent. Under the agent-based approach, moral behavior is not limited to adherence to a rule or guideline but rather involves the individual rationally pursuing moral excellence as a goal in and of itself. In essence, ethics becomes central to the rationality concept as an objective rather than a constraint: "something positively good, ..something to be sought after" (Ladd, 1991, p. 82).

Agent-based approaches generally derive their philosophical foundation from virtue-ethics theory. This theory is attracting increasing interest from business ethicists. In essence, the 'virtue' in virtue-ethics is defined as some desirable character trait, such as courage, that lies between two extremes, such as rashness and cowardice. Thus the 'virtuous' agent is involved in a continual quest to find balance in decision-making. Such an agent does not apply any specific 'rules' in making decisions, but rather attempts to make decisions that are consistent with the pursuit of a particular kind of excellence that in turn entails exercising sound moral judgement guided by such 'virtues' as courage, wisdom, temperance, fairness, integrity, and consistency.

Rather than stepping outside one's professional role, virtue ethics would have one evaluate an ethically charged decision from within that role. Ethics becomes contextual and connected to a given person and situation, rather than separate and abstract to person and place. This is clearly a very different concept to that of ethics as adherence to a set of abstract rules, which is so common in contemporary professional codes of conduct.

For example, a financial accountant may be able to enhance her company's reported results of operations by crafting a sale-leaseback arrangement whereby some of the company's assets are sold, a gain is recorded, all the appropriate accounting pronouncements are adhered to, and the company still has use of its assets. The intent of the transaction was never to rid the company of unwanted assets, but rather to record a gain and thus possibly avoid breaching debt-covenant agreements or circumvent regulatory requirements.
In order to examine whether or not this example of creative financial-accounting is unethical, action-based approaches would have the individual step out of her accounting role and don the hat of a Kantian (e.g., "does this action violate the rights of users of the financial statements to fairly presented financial information?"), or of a utilitarian (e.g., "does this action maximize the welfare of all stakeholders?"). In this approach, the agent adopts a type of moral schizophrenia in which being a good professional in the sense of being an economically effective accountant becomes separable from being a good professional in the sense of being an ethical accountant. Thus, given this action-based approach, an accountant could be a 'good' accountant, in the sense of being very efficient and effective, yet at the same time not be a 'good' accountant, in the sense of being ethical.

The great strength of virtue ethics is that it overcomes this moral schizophrenia. Ethics is no longer merely a list of constraints on behavior. For example, our financial accountant, if she were virtuous, would not have to weigh the goal of maximizing firm profits against the constraints of an ethics code. Maximizing firm profits would simply no longer be her ultimate objective.

Indeed it is this holistic motivational focus, transcending contextual specificity, that is the great contribution of virtue-ethics theory. This theory provides an alternative value base upon which to build a morally sensitive theory of financial economics.

At first sight, however, the virtue-ethics approach might appear too esoteric for application in business: How could a financial manager pursue moral excellence through virtue? On closer scrutiny, however, the focus of virtue-ethics on the fundamental motivations of the agent actually dovetails rather neatly with the increasing focus among financial economists on the motivations of agents in business.