In business management, ethics plays an imperative role because it purports transparency, dedication, and professionalism. Ethics suggests that managers should differentiate between corporate and personal roles by creating an artificial distinction between the two affairs. This helps managers to avoid corrupting their official responsibilities and compromising corporate affairs at the expense of personal needs. Despite the efforts of scholars in instilling business ethics, some managers neglect them and participate in corrupt behaviors. Consequently, legal institutions have developed systems that charge people who violate business ethics. One of these cases is the Adelphia financial fraud which happened due to abusing power, manipulating financial records, and creating illegal companies among others. This paper will touch on the fraudulent case by describing the scandal, identifying its ethical problems, describing deontological ethics, and applying Kant’s Categorical Imperatives to solve the problems.
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Adelphia Communications Scandal
Adelphia Communications Company was conceived by John Rigas along with his three sons and one son-in-law in 1952. During conception, Rigas bought a cable company and located its headquarters in Coudersport. The business progressed financially enabling them to acquire Century Communications Company.
During the financial fraud, Rigas combined Adelphia’s funds with family finances. Consequently, he withdrew the company’s money from this bank account to fund personal businesses and projects. He obtained personal loans from the same bank account to cater for the personal businesses. Later, he doctored and manipulated the financial records to satisfy the auditor’s expectations regarding this loan as well as other financial discrepancies. Additionally, he convened an illegal deal with Adelphia Company to transfer money through journal entries. Consequently, the Adelphia Company accumulated huge debts while Rigas enjoyed big assets without incurring any cost for the loans.
Secondly, Rigases spent Adelphia’s funds extravagantly resulting in adverse financial backlash. In this case, he purchased luxurious apartments in Manhattan and used them for private residence. Additionally, the Rigases bought huge private lands for the creation of a personal golf club at the expense of Adelphia’s funds (Barlaup, Hanne & Stuart, 2009). Furthermore, they provided advances to Buffalo Sabre which was a separate family business. During the execution of these decisions, the Adelphia’s finances and family funds were put in the same bank account to make personal purchases. The family used the company’s credit line to make all purchases regardless of their purpose. As a result, Rigases faced legal charges which include abusing control, conducting fraudulent fund transfers, wasting the Adelphia’s assets, and bleaching their corporative roles (Markon & Frank, 2002).
Key Ethical Problems Conjoined to Adelphia’s Scandal
There are two evident ethical problems in Adelphia’s fraudulent case. First, the case portrays a lack of professionalism as well as informality when managers are making decisions. Due to the informality and unprofessionalism, Regas management mingled personal funds with the company’s funds. Lack of professionalism impaired their ability to differentiate between personal wealth and corporate assets. They thought that Adelphia’s assets were equivalent to the family wealth because the company belonged to the family. However, professionalism could have enabled them to understand that the company’s assets are entirely different from the family’s wealth. The lack of professionalism resulted in misuse of Adelphia’s funds since they used it to develop their agendas (Johnson & Rudolph, 2007).
Secondly, corruption is an ethical problem that appears recurrently in this fraudulent case. For example, the management of Rigas manipulated the financial records to lure the financial auditors. Also, he created an illegal partnership between Adelphia and private companies where the companies obtained loans without paying interest. Although other problems emerged from this case, these are the main ethical issues that confronted Adelphia Communications Company until it collapsed (Markon & Frank, 2002).
Describing Deontological Ethics
Deontological ethics refer to conventionalities which evaluate the credibility of actions and decisions by rules. It is, also, referred to as obligatory ethics since the rules bind the managers to their roles ensuring that they satisfy organizational objectives. This implies that actions become ethical if they are consistent with the rules that the organization has stipulated. Attempts of breaking these rules lead to ethical offenses where the offenders face dire consequences. It is based on various philosophies which include Kantianism, Moral Absolutism, Divine Command Theory and Contemporary Deontology (Micewski & Troy, 2007).
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Kantianism contends that people must act according to rules to act in a morally right manner. This means that people can only act morally if they are guided by rules. The rules form a crucial reference point that provides a platform to evaluate the credence of a decision. However, these rules must appear in the context of the society that has assigned duties. Also, it suggests that the consequences of a decision do not make it right or wrong. Instead, the intentions of decision-makers determine the credence of their decisions and actions. Secondly, moral absolutism contends that some actions are generally immoral regardless of their implications and motives. Additionally, deontological ethics incorporates a religious ideology. According to this ideology, God approves some actions and rejects other human behaviors. As a result, the rejected actions are conceivably immoral while the approved ones are morally right. Lastly, contemporary deontology articulates the law of Permissible Harm which argues that a harmful action can be permitted if it results in positive effects. For example, a person can lie to a murderer to save his life. Although lying is conventionally condemned, it is permitted in this case because it saves life.
Application of Deontological Ethics to Problems
Although the framework of deontological ethics has various components that are considered when managers are making business decisions, the Kantianism theory is the most applicable to the above problems. In this light, Kantianism states that some acts are universally immoral regardless of their consequences. We can, therefore, apply this knowledge to the two problems to provide the right position and advise the managerial profession according to deontological ethics.
First, the Adelphia fraudulent case portrayed unprofessionalism when Regas integrated personal funds with business ones. From a universal perspective, the field of business requires managers to embrace professionalism when they are handling business matters. In this light, formality forms the foundation of professionalism since it requires managers to create a distinction between personal and official issues. Based on the universal unacceptability of an informal approach, business professionals should embrace professionalism when they are conducting businesses. When they are managing a family business, they should consider each other as business partners rather than family members.
Second, it is evident that corruption was one of the main factors which led to the failure of Adelphia Company. However, corruption is an immoral behavior since the corrupt personnel aim at creating personal benefits only. It is, therefore, noticeable that the intentions behind corruption are based on ill motives. Consequently, corruption is regarded as an immoral behavior that impedes the prosperity of businesses. It is, therefore, reasonable to argue that business managers should avoid corruption and eliminate corrupt elements in the organization.
Applying Kant Categorical Imperative to the Problems
Kant categorical imperative contends that people should act in a manner which they would like others to emulate. If they act in a manner that they would not like other people to adopt, their behavior is not morally right. The categorical imperative, therefore, seeks to evaluate the credibility of actions from a broad perspective.
Regarding unprofessionalism, this theory would expand the scope of unprofessionalism to dominate the whole society. It would argue that if all managers adopt unprofessionalism, all businesses would collapse. We can, therefore, conclude that unprofessionalism is an immoral behavior based on categorical imperatives.
The same applies to the corruption that was portrayed by Rigas management when they doctored the financial records. When categorical imperative theory in evaluating this act, it attempts to evaluate what would happen if all people were corrupt. In this case, businesses would be weakened financially leading to bankruptcy. As a result, managers should not embrace corruption since it can lead to economic depression.
Adelphia is one of the most devastating financial frauds that happened in the USA due to unprofessionalism and corruption. Further, the above discussion has portrayed the ethical position according to deontological ethics. It is, also, noted that the key ethical problems that were related to this case include professional negligence and corruption. Lastly, the application of Kant’s Categorical Imperatives and Deontological Framework disapproves of corruption as well as unprofessionalism.
Barlaup, K., Hanne, D., & Stuart, I. (2009). Restoring Trust In Auditing: Ethical Discernment And The Adelphia Scandal. Managerial Auditing Journal, 24(2), 183-203.
Johnson, L. R., & Rudolph, H. R. (2007). The Lessons Of Adelphia’s Cash Fraud. Journal of Corporate Accounting & Finance, 19(1), 19-24.
Markon, J., & Frank, R. (2002). Adelphia officials are arrested, charged with massive fraud- three in the Rigas family, two other executives held, accused of mass looting. The Wall Street Journal, 2, 234.
Micewski, E. R., & Troy, C. (2007). Business Ethics Deontologically Revisited. Journal of Business Ethics, 72(1), 17-25.