Investing has always involved taking risks with many unknowns in the equation. Markets change rapidly, stock prices can rise and fall quickly, and partners can break promises. Two business figures, Warren Buffet and Bernie Madoff, have raised fortunes and enjoyed impeccable reputations, yet one of them is still praised as the most successful investor, while the other is sentenced to prison. Ascertaining their similarities and differences is essential in establishing rules for ethical business conduct.
Warren Buffet’s Approach
Warren Buffet has managed to become one of the world’s most successful business leaders and investors due to his consistent moral principles. Buffet’s approach to investments entails his absolute control over the money and minimal reporting to the investors (Crippen, 2008). Buying stocks is a high-risk venture, and the less information and control an investor has, the less secure they are in their financial stability, which is not consistent with the accepted business ethics.
Buffet’s solution to keeping his partners’ trust and having as much control as possible is annual reports. On December 31, he releases a detailed summary of his investments. Moreover, Buffet’s choice of partners was always based on connections (Maranjian, 2017). At the beginning of his career, he only worked with people he knew via his family, friends, or partners. This way, he maintained trust and built on his reputation as a known and reliable investor.
Comparison of Buffet to Madoff
Before his infamous investment fraud, Bernie Madoff was seen as a business person similar to Buffet. Similar to Buffet, he also promised large returns, was reserved in disclosing financial information to the investors, and strived for maximum control of financial operations (Carlson, 2019). In both cases, people have an offer that requires them to handle their money to an outside person, which is reminiscent of a dishonest scheme.
The difference between the two billionaires lies in their integrity. Whereas Buffet was consistent in sharing the pivotal data on the investments, Madoff valued secrecy over investor trust (Maranjian, 2017). Despite both Madoff and Buffet having a good reputation, the latter was remarkable in his consistency regardless of the state of markets and prognoses (PBS NewsHour, 2017). In contrast, Madoff did not deliver his promises when the economic crisis of 2008 happened.
Application of Philosophies to Buffet and Madoff
The ethical philosophies that best describe Warren Buffet’s set of principles are Kantianism and virtue theory. Kantianism prioritizes moral rules, which should always be followed (CrashCourse, 2016b). Virtue theory does not presuppose strict rules but rather emphasizes good character that will lead to positive consequences (CrashCourse, 2016a). Buffet is a representative of both worldviews because he has a strong moral framework, but it is flexible and does not limit his decision-making in business.
Bernie Madoff is an example of Utilitarianism philosophy’s tenets backfiring. This approach downplays the intentions as irrelevant and elevates the consequences as the primary focus (CrashCourse, 2016b). Madoff acknowledged his actions as intentional fraud (Carlson, 2019). His ultimate goal is unknown, yet while trying to achieve it, he was willing to sacrifice money, trust, and reputation of his financial partners and family without the positive effect becoming apparent, thus defeating the premise of utilitarianism.
Investors from Ethical Standpoint
The table in Appendix A depicts the comparison of Warren Buffet and Bernie Madoff from an ethical standpoint. The first ethical consideration that should be analyzed in business is prioritizing stakeholders. As it is generally accepted, “Understanding the impact of a business decision on the stockholder and various other stakeholders is critical to the ethical conduct of business” (Byars & Stanberry, 2018. p. 16). A common strategy is to buy stocks, which are more likely to yield financial returns. Buffet followed a counter-intuitive approach, consistently investing despite the looming threats and prognoses (PBS NewsHour, 2017). Madoff’s actions indicated the lack of respect for stockholders in the face of a recession.
The second comparison point is building investor relationships on trust. One of the reasons why Warren Buffet attracted so much attention and finances is his trustworthiness. His choice of stakeholders was based on familial or friendships’ connections, which would grow, producing more potential partners. Buffet claims to value investor trust and a firm’s reputation over money (PBS NewsHour, 2017). In comparison, Madoff acquired finances from people “from all walks of life” (Carlson, 2019, para. 3). He promised people who were unknown to him large rewards backed by his word.
The third rule is providing transparency by making sure that financial partners are aware of their money’s state. While both Buffet and Madoff liked to control the operation themselves, they were different in sharing the details. Buffet sends his partners letters with comprehensive information about their investments that lets them decide whether to withdraw or continue cooperation. Madoff was infamous for his excessive secrecy, thus highlighting a possibility of dishonest machinations that his actions turned out to be.
Conclusion
Altogether, it is evident that the choice of partners in money affairs is complicated by numerous moral issues. The major aspect of financial relationships is trust, yet Madoff’s case demonstrates that even an investor with a solid reputation can deceive their clients and betray their faith. Business ethics are influenced by philosophies that encourage following moral norms. However, the inappropriate application of philosophies can result in negative output for a perpetrator as well as society.
References
Byars, S., & Stanberry, K. (2018). Business ethics. OpenStax.
Crippen, A. (2008). Warren Buffett: People thought “I was doing some sort of Ponzi scheme”. CNBC. Web.
Maranjian, S. (2017). What Buffett and Madoff have in common. The Motley Fool. Web.
Carlson, R. (2019). What Bernie Madoff did and who he defrauded. The Balance Small Business. Web.
CrashCourse. (2016a). Utilitarianism: Crash Course philosophy #36 [Video]. YouTube. Web.
CrashCourse. (2016b). Aristotle & virtue theory: Crash Course philosophy #38 [Video]. YouTube. Web.
PBS NewsHour. (2017). America should stand for more than just wealth, says Warren Buffett [Video]. YouTube. Web.