The Utilitarian Flaws Of Corporate Fraud

Utilitarianism is a common approach to business ethics, with many people equating a pragmatic focus on achieving certain goals with doing what is morally best for a firm.  Sometimes the two may overlap.  In other cases, the two may be at odds with each other, such as when an executive builds a web of lies in order to keep up appearances.  Misleading stakeholders, including shareholders, is not always the utilitarian key to success, and it can actually lead to such public relations and management disasters that a consistent utilitarian would actually avoid this approach.

Even though a deceptive tactic like falsifying sales numbers or exaggerating the recorded number of new clients might be helpful in the short term, it can have a devastating long term impact that undermines the entire basis for engaging in the deception to begin with: helping the company.  The pragmatic benefits can easily give way to lasting corporate wounds.  Furthermore, a developing scandal might become more and more difficult to conceal to the point that hiding the fraud is counterproductive.

That something is helpful does not mean it is either morally obligatory or morally permissible, of course, but the effectiveness of corporate fraud can be subject to diminishing returns.  More effort must be put into maintaining the facade in many situations as time goes on, while the benefits become more and more overshadowed by the risks of potential discovery.  A random whistleblower or failure to consistently lie could expose the entire plot, and the immediate benefits of fraud would be immediately shattered.

If shareholders, investors, and executives are expecting a certain amount of profit from exaggerated sales, for instance, the suspicion can easily increase as they continue to go without their returns.  Moreover, if the scheme does come to the public light, the company's reputation could be thoroughly damaged for a generation, which, again, harms the company or individual the deception was intended to save.  The individuals involved in the scandal may not find a welcoming place in the corporate world after their deeds are revealed.

For these reasons, corporate fraud, at least in many cases, is not an ideal utilitarian practice, for it can dramatically worsen a firm's position and destroy the careers of anyone who participated.  The consequences far outweigh the short term and forfeited long term benefits in such scenarios.  Utilitarianism is an illogical moral framework as it is, for an immoral thing is immoral no matter what the consequences of an action are, but a utilitarian analysis of business practices can sometimes ironically indicate that the most pragmatic course of action is to not sacrifice the means for the end result!