Business Ethics and Deontology: Adelphia Communications Scandal - Research Paper Example

? Business ethics and deontology of the of the Table of Contents Adelphia communications scandal: A brief summary 3 Key ethical problems 3 Deontological ethics 4 General theory 4 Immanuel Kant's Categorical Imperative 5 Deontological framework of business ethics: Adelphia Communications scandal 5 Kant's Categorical Imperative 6 References 8 Adelphia communications scandal: A brief summary Trust is a key element in capital markets that affects its functioning and performance. Confidence of the market agents is developed from the level of trust that is experienced by the market actors, when they make business transactions with one another. The Adelphia Communications scandal that occurred in 2002 is an example of breach of trust. It is a case of “fraudulent financial reporting”. Adelphia is a publicly traded corporation based in the United States. In 2002, Adelphia was ranked sixth among the largest cable service providers in the country. In the same year, the company was publicly accused of discrepancies in the financial reports prepared and produced by the company. It was found that the company did not represent the real economic condition and Adelphia was charged of a major accounting disgrace. Investigations proved that the managers modified financial statements of the company by excluding many billion dollars that it held as debt, from the company’s balance sheets. Hence, auditors could not discover the presence of fraudulent activities that the company indulged in. This is a major example of infringement of deontological issues. It was revealed through investigation that some of the most influential and important rank holding members of the organization lacked ethical behavioral traits and they were the major participants in this scandal. Key ethical problems The Adelphia scandal is a case of financial fraud that broke the trust of the shareholders and lowered level of faith of the public on the company. It is the most far-reaching financial fraud that has occurred in the country in the past few decades (Markon & Frank, 2002). The company filed for bankruptcy in June 2002 and was finally purchased in July 2006 by Comcast Corp. and Time Warner Inc. Two ethical problems were distinctly identified in this fraudulent case; financial statement modification and superficial statement about stock earnings. The first ethical issue is concerning the fact that the officials in the company had strategically and systematically excluded several billion dollars that the company held as liabilities over the period of four years between 1998 and 2002. The liabilities were hidden fraudulently from the books of off-balance sheet affiliates (Barlaup, Dronen & Stuart, 2009). Additionally, the company also inflated its earnings in order to meet the expectations of shareholders in the Wall Street. Various operations statistics were falsified and concealed (The SEC, 2002). These activities raised questions about ethical duties of the employees working in different private as well as public corporations. Deontological ethics The term ‘ethics’ is generally understood as “systematic attempt to understand moral concepts and to propose and defend principles and theories regarding right and wrong behavior” (Barlaup, Dronen & Stuart, 2009, p. 186). Normative ethics is found to be highly relevant to the issues faced business firms and the problems faced by auditors. Under the framework of normative ethics, three principal theories of ethics can be identified. These are egoism, utilitarianism and deontology. In this section, the focus would be on the deontological theory of ethics. General theory Deontological ethics relate to the “ethics of duty of principle” (Cooper, 2000, 179). The term ‘deontology’ was coined by Bentham (1748-1832) and by this term he emphasized on the following meaning. It is the act of motivating people in such as way that it would maximize overall community happiness. This would be done by mobilizing the causes that inspire specific private interests of the individuals in a society. The focus of the theory lies entirely on the social and institutional happiness and not on the personal interest maximization by a private individual. The essence of this theory of ethics is that the moral value of any action is independent of the consequences that follow that act (Duska & Duska, 2003). It is the duty of every person to take the right action. According to the deontological framework, an act is morally wrong, when it is not properly motivated, even though it might maximize general good. False action is not justifiable, even though it might create social good. The rightful action is always desirable even if it brings detrimental effect in the short run. Immanuel Kant's Categorical Imperative Kant (1724-1804) presents his theory on morality as a universal moral law. It is represented by the term ‘categorical imperative’ and is based on the assumption that human beings are rational beings. They have the capability to logically discern the “morally correct behavior” (Power, 2007, p. 245). It is an ‘imperative’ in the sense that it is a rational standard that every person is bound to abide by. It is termed as categorical since it is such a rule that one cannot intentionally violate without behaving irrationally (Power, 2007). Deontological framework of business ethics: Adelphia Communications scandal The deontological framework of ethics strictly lays down that any action that enhances or maximizes general good has to be accomplished, even at the cost of personal loses (Tannsjo, 2013; Kant, 2008). However, there are numerous examples of selfish attitudes involved in the scam of Adelphia Communications. In 2000, on discovering that the company earning, depreciation and amortization was lower than the public forecasts made by company analysts, the management instructed employees to create fake records of transactions that would boost revenue figures. Some of the managers used the company’s cash-management system to make financial transactions with their personal accounts for making private gain. A special accounting system had been developed by the management through which the personal transaction of the members of the Board of Directors could be masked. Huge sums of money were withdrawn from company’s accounts by the family of the Board of Directors for personal use. Besides, between 1999 and 2001, total volume of debt incurred by the company for making business operations reached $250 million from $1.8 billion. But, the amount of debt was hidden from the shareholders by not incorporating it in the balance sheets of the company. This shows that the deontological aspect of business ethics was not followed by the staff of Adelphia Communications. Kant's Categorical Imperative According to Kant’s theory of morality, it is stated that if one follows the categorical imperative as a moral guide, it would be clearly visible to the person about how he should behave, which ultimately would dissolve the moral dilemma. This shows that the officials that were engaged in the hoax did not follow the categorical imperative. This in turn implies that they have made irrational choices. According to categorical imperative of Kant, a person is not inclined to act morally out of the motivation to do the right act; rather it is the sense of moral duty that makes a person feel obliged to accomplish a morally correct act. Imperatives are articulated in terms of actions that a rational agent ought to undertake. According to Kant, imperatives are developed according to a standard, which is expected to lead to a good ending. If it is assured that the final consequence of an action (which is undertaken not for achieving the particular consequence, but for some other cause) is good, it is described as hypothetical imperative. On the other hand, certain actions are good in their own virtue. Such actions are described by Kant as categorical imperative. The scandal of Adelphia Communications has violated the basic notion of categorical imperative. Neither has the series of actions been well on its own virtue, nor has its end consequence been good for the company or its shareholders. It has infringed the faith of shareholders while fulfilling personal interests and desires of the few. References Barlaup, K., Dronen, H. I. & Stuart, I. (2009). Restoring trust in auditing: Ethical discernment and the Adelphia scandal. Managerial Auditing Journal, 24 (2), pp. 183-203. Cooper, T. (2000). Handbook of administrative ethics. New York: CRC Press. Duska, R.F. & Duska, B.S. (2003). Accounting ethics: Foundation of business ethics. Oxford: Blackwell Publishing Ltd. Kant, I. (2008). Kant's fundamental principles of the metaphysic of morals. Maryland: Arc Manor LLC. Markon, J. & Frank, R., 2002. Adelphia officials are arrested, charged with 'massive' fraud. The Wall Street Journal. Retrieved from http://online.wsj.com/article/SB1027516262583067680.html . Power, F. C. (2007). Moral education. Connecticut: Greenwood Publishing Group. Tannsjo, T. (2013). Understanding ethics. Edinburgh: Edinburgh University Press. The SEC. (2002). Complaint: SEC vs. Adelphia Communications Corporation. Retrieved from http://www.sec.gov/litigation/complaints/complr17627.htm Read More