How Bernie Madoffs Business Ethics Impacted the Business World - Literature review Example

How Bernie Madoff’s Business Ethics Impacted the Business World A number of ethical issues existing within American culture are exposed by the case of Bernard Madoff. Apart from case of lying, disrespect, cheating, fraud, this is the case about how Madoff managed to fulfill this scheme for quite a long period of time, involving many people, remaining unnoticed and causing such an effect. As for the ethical issues go far beyond Madoff’s individual efforts, this case discloses both – the American as well as international underlying cultural aspects along with the way the modes of thinking and behavior become deep-rooted (Nguyen, 2012). The purpose of this study is to reveal one of the most outstanding fraud stories of all times, to analyze the kind of personality hiding behind the mask of Bernie Madoff and to assess his activities in terms of business ethics. The paper traces the life beginning with early childhood up to the scandalous situation Mr. Madoff consequently found himself in (Henriques, 2011). Early Life Bernie Madoff also known as Bernard Lawrence Madoff was born in 1938 in Queens, New York. His parents – Ralph and Sylvia Madoff were the children of immigrants who came to America at the end of nineteenth century. Being of Polish, Romanian, and Austrian origin, Bernie’s parents got married during times of the Great Depression and struggled financially for many years, until the 1950s, when they became involved in the world of finance. According to the financial records the Madoff family, their relationships with the trade were far from being successful. Registered as the broker-dealer, Bernie’s mother had an office at home and company called Gibraltar Securities (Nguyen, 2012). The business was forced to be closed due to debts and total failure in reporting their financial condition. At that time, Bernie Madoff was just an average little boy who might have soaked up the overall atmosphere and the behavior if his parents. It is common knowledge that personality is formed in early childhood during the first few years of life. Thus, taking into consideration this particular story, this is where the background of a financial criminal was born, far from the streets but within the walls of the parents’ house (Nguyen, 2012). As Bernie grew up, he attended the Bronx high school. While being a young man Bernie showed interest in earning money in every possible way, through selling magazines and Fuller brushes. After graduating from high school in early 1956, he headed to the University of Alabama. He stayed there for one year and afterward he transferred to Hofstra University. Two years later Bernie Madoff earned his bachelor degree in political science. It is worth mentioning that during education at Hofstra University, Bernie got married to long-time devoted partner Ruth, and since then his family played a crucial role in his life and notorious career (Nguyen, 2012). First Steps In Business Bernie’s thirst for knowledge made him begin to study law at Brooklyn Law School, but his education was interrupted by the fate when he began his own investment company. While working on casual jobs during summertime he managed to earn more than $5,000 which he used starting capital to establish Bernard L. Madoff Investment Securities, LLC. He also borrowed $50,000 from his wife’s parents, but the matter of paying them back or not still remains unclear. Apparently, this is the exact moment where Bernie might have gone off the right track and compromise in terms of ethics and morality was made (Nguyen, 2012). When analyzing this case through the prism of ethics, a lot of issues and fails appear on the surface. Going Off the Right Track The love of profit might have been passed to Bernie with his mother’s milk. Compromising decency and honor for the sake of easy benefit made Madoff and his accomplices generate and take part in the greatest Ponzi scheme in the history. Bernie spent several years working in exchange and security sphere, and during this period of time he broke the law repeatedly through deceiving investors and clients (Nguyen, 2012). Millions of dollars belonging to cheated people were accumulated. Of course, there is no room for business ethics at all as far as the trust betrayal is concerned. Many years later, when being questioned during the investigation, the lies were the only truth for Mr. Madoff as he tried to avoid any suspicion or criminal charges. This is the case when the first taste of big and easy money can erase all the positive traits of a human being and turn a person into merciless and infamous creature (Nguyen, 2012). However, this scheme could not be carried out by Bernie himself, as it required many people and their appropriate expertise. Thus, a number of individuals including members of Madoff family were involved in this scheme. Though during investigation many participants denied any knowledge of the fraudulent operations, their silence was financially rewarded. Huge money was involved in the process of employees selection, and this was a part of a certain corporate culture, which included low appreciation and tolerance for professional business ethics and honesty. Basically, the company was established on numerous layers of lies. In this respect, one should consider the thoughts of an average employee working for Bernie Madoff. First of all, after having discovered unethical behavior it would be appropriate to analyze who is involved in this particular issue, and what actions are to be undertaken from a moral point of view. It would be necessary to evaluate own involvement and guilt of a person who noticed fraudulent actions. The point is, that an employee might not notice his role and participation in unethical practices, being blind within unhealthy surroundings. In order to behave ethically, an employee should consider it his duty to report criminal actions to relevant law enforcement institutions, describing each fact in detail, and providing all the possible information as well as disclosure of his own role in the scheme (Nguyen, 2012). The experience of Bernie Madoff and his team must be taken into consideration by the employees worldwide working in the financial industry as the guidance for moral and ethic behavior. Bernie Madoff spent years building up the fraud machine where different people played the role of screws and cogwheels. The whole situation might have been prevented and the machine ruined provided the key parts resisted the system and acted ethically (Nguyen, 2012). It was Mr. Madoff who decided to run the policy of breaking the law, lying, stealing from people based on disregard and greed. He has chosen the dominant model of business conduct which is basically not consistent with the law and ethics (Henriques, 2011). Just a simple respect towards the law and people along with their lives would never generate even a single thought of such behavior. Bernie appeared to be a good psychologist, as knowing all the aspects of human nature, he managed to use each and every tool in order to make people trust him. He made big promises of high returns and denied the idea of doing wrong as much as he could. There was always a chance for Mr. Madoff and his colleagues to turn away from this evil route and volunteer the truth, but it was just a matter of choice, as fattening the wallet if very far from the law-abiding activity (Nguyen, 2012). Bernard Madoff made his breakthrough in the sphere of finance in the early 1960s. As his business was expanding day by day, he became to be viewed as the financial titan. He managed to occupy the position of the chairman of his own firm for more than forty years, until 2008, December the 11th when the fortune turned its back on Mr. Madoff. Finally, the eyes of the justice were opened. It was revealed that Bernie Madoff had been running Ponzi illegal scheme since 1992. A Ponzi scheme itself is the operation of investment that utilizes the money of current and previous investors in order to pay returns but not through profits. Bernie admitted his offenses to his children, who afterwards alerted the authorities (Henriques, 2011). The information about Madoff’s numerous crimes was immediately spread all over the world. The scope of the scandal and the numbers involved made it hard for people to believe that such injustice could really happen. On December, 11, 2008, Bernard Madoff was arrested and charged by FBI with the securities fraud. He was sentenced to 150 years of prison. The Trial After numbers of lies, Bernie Madoff finally pled guilty to 11 federal felonies on March 12, 2009. Mr. Madoff insisted that he was the only person responsible for the crimes, and the victims who suffered from the scheme demanded nothing but justice (Henriques, 2011). The trial was more than a trial, but more like a live show, with millions of spectators watching this media circus worldwide. It is reported, that Mr. Madoff admitted to the investigators that the overall sum of money lost was about $50 billion and pled guilty for wire fraud, securities fraud, mail fraud, false statements and many more. It is worth mentioning that false filings with the United States securities and Exchange Commission were involved as well as theft from benefit plan for the employees. Obviously, the full extent of Bernie’s crimes is to be uncovered, it is stated by the prosecutors that over $170 billions transferred through Bernie’s major account for many years. The 2008 statements in Annual reports of his firm displayed a total of $65 billion. The system of justice made a decision to give the maximum possible prison sentence for the defendant who at that time was 71 years old – 150 years in prison (Borzykowski, 2014). The Victims It goes without saying, that Bernie Madoff’s activities caused a considerable damage to people on different levels (Borzykowski, 2014). The point is that the victims are very diversified, and they range from famous personalities and foundations to schools and other educational institutions such as New York University. Fairfield Greenwich Group is considered the biggest victim Bernie’s manipulations; as investments were over $7.3 billion during the period of 15 years (Henriques, 2011). There were also many individual investors whose lives were severely affected by Madoff’s crimes, one investor lost $11 million which is about 95 percent of his net worth. Bernie Madoff has a chance to apologize to his victims. He said, that he had left a legacy of shame and said he was sorry. But he perfectly knew, these words would not help anyone, in any case. The Aftermath The case of Bernie Madoff is very complex, and it is hard for an average person to think of an adequate solution to this situation. Mr. Madoff might have thought that anything can be bought with money; he could never imagine the justice might be in hands of his sons. Bernie was incarcerated in the Federal Correctional Institution in North Carolina. In order to see his release, Bernie would have to live until he turns 201. Since the first day of the imprisonment Bernie has been writing diary and letters to his family, where he states that prison is much safer that the streets of New York. When Bernie Madoff established his investment firm, he could hardly imagine the scope of the damage it would cause to his family and his children in particular. It is not only the shame and reputation, the consequences were terrible. After Mr. Madoff’s arrest, his sons told they would never forgive him for what he had done to people. Bernie’s son Mark together with his wife committed suicide two years after father’s arrest. In 2014 the other son Andrew died of cancer (Borzykowski, 2014). Impact Fortunately, everything has its consequences, and everything has to be paid for. Fraudulent investment firm collapsed. Finder and owner Bernie Madoff went to prison and there is no chance for him to get out of it being alive. This scandal united victims of different size and social status (Henriques, 2011). They include several huge international banks, pension funds, charities, investors, some of them more wealthy, others more modest. Due to the fact, that Bernie Madoff is a great liar, the sum of money owed by his firm differs from time to time, but nevertheless the approximate amount is more than $50 billion. Talking about the scope of the overall impact, it can be described as the widespread wealth destruction in the United States, and internationally. And still there is more to be faced in the future: billions of dollars in losses and write-downs, bankruptcy for banks of different size, financial devastation for universities, healthcare institutions, and philanthropic organizations who entrusted their future to Mr. Madoff (Borzykowski, 2014). It is common knowledge, that the case of Bernie Madoff is very complicated. From an ethical point of view, this crime is considered white-collar. Mr. Madoff sacrificed the public interest for the sake of his personal financial needs. From the very beginning, there were a number of ethical issues, such as manipulating cash flow stream in order to make the company look much more valuable, than it was in fact. Apart from that, the firm’s financial reports were never presented to public, not once during thirty years (Borzykowski, 2014). The fact which is even more depressing, is that SEC appeared to be cooperating with the Madoff’s firm in many ways, rather than adequate control. In this respect, the US government system’s reputation was considerably damaged. During one of the interviews in 2009 Bernie Madoff describes his activity as something that starts with taking a little bit, a thousand or even a hundred, after you get comfortable with that, it snowballs into something much bigger just before you notice it (Borzykowski, 2014). Many authors discussing this scandal called this phenomenon “slippery-slope effect”. And Bernie Madoff is the best example of how little indiscretions can transform into huge scandal (Borzykowski, 2014). The case of Bernie Madoff provoked a vast number of discussion and studies in the field of business ethics, as the impact on people’s views towards right and wrong can hardly be overestimated. Many surveys and questionnaires had been organized, and the reports were quite sad. The results showed that the dominant majority of people are capable of acting slightly unethical, therefore small errors are sure to lead to egregious behavior in the future (Henriques, 2011). The problem is, that there has appeared a place in the heads of potential employees, where the thought about compromising morality may live. Due to the fact, that unethical conduct is manifested by senior management. Employees are sensitive, they note this specific behavior which becomes a cultural norm. Consequently, this corporate culture results in lowering of goals, twisting of the budget, hiding of the facts, skipping the details and many more. Negative Effects Investors When analyzing the overall impact of the Madoff’s scandal, it should be noted that investors were worst affected by these financial crimes. As the investigation is still in process, the sum of lost investments exceeds $65 billion (Borzykowski, 2014). Many average scale investors lost families and households. A lot of people suffered health problems and diseases connected with depression and stress, generated by huge losses. Several investors died because of the complications with health caused by a shock of losing everything. Employees As for the employees, they were severely affected by Madoff’s manipulations too as the majority lost the opportunities of employment. The firm displayed complete inability to be liquid which resulted in eliminating of business. This measure was compulsory to ensure no losses would be experienced by stakeholders in the future (Borzykowski, 2014). The company had many loyal employees who were not aware of their participation in illegal actions. They trusted their employers and relied on a firm but that didn’t prevent them from losing jobs. The results were upsetting: many employees were not able to feed their families, others suffered from health diseases. No compensations were provided. Creditors Closing of Madoff Securities also had its impact on creditors. The accurate figures are still unclear, but there was about $100 million owed to creditors. The point is, that these creditors were not a part of stakeholders, they were separate party. Few creditors were lucky enough to recover money. The others were unable to do so. Thus, a number of decent firms providing goods and services for Mr. Madoff’s company were bound to be closed (Henriques, 2011). Charities Perhaps, the saddest situation was faced by charities. There were many organizations aiming at providing help and assistance, but their trust was unjustified and scandal resulted in their sufferings. Foundations, such as JEHT, Rober Lappin and Chais family Foundation were greatly affected by the closure of Madoff Securities (Borzykowski, 2014). These organizations were dependent on financial help of Bernie Madoff and many of these charities were not able to survive without adequate funds. Ironically, Madoff Securities supported lymphoma research by means of over $4 million contribution. The closure of Mr. Madoff’s firm affected the research in this area. In 2014, it was lymphoma that killed Bernie’s son Andrew. Local communities The impact of fraud scandal couldn’t be avoided by the local community. A number of communities were identified with various social causes, and Madoff Securities provided significant support. Community projects were generously contributed by Bernie’s firm, and these projects were very important as they were targeted at empowering the population (Borzykowski, 2014). Corporate social responsibility programs were created and executed for this to be achieved. Madoff Securities founded a vast number of training and education opportunities within the local community for the children from poor families. After the firm was closed, many projects collapsed because of the donor absence, and there was no chance to propagate the work once started. It goes without saying, that many children’s lives might have been ruined as the single chance on the horizon to have a better life was lost (Borzykowski, 2014). Government The immensity of the crimes of Mr. Medoff made the government experience great losses. Among numerous effects, one of the massive ones is referred to losses of potential tax revenues from the company (Borzykowski, 2014). The government used to receive millions of dollars as an annual tax, and after the Madoff Securities was closed, the country lost this source of tax. The reduction of taxes amount resulted in damage of development and infrastructural programs, as the money used for these purposes were gone. Additionally, the government image was considerably injured due to the fact, that it displayed the inability to detect the biggest fraud in the history, and react timely in order to prevent huge losses in monetary terms as well as in terms of people’s lives (Henriques, 2011). Conclusion The findings of this study show that business ethics can be easily neglected when it comes to huge sums of money. Bernie Madoff’s case is not just about the money itself, this scandal symbolizes the decline of business ethics as the result of lost values (Borzykowski, 2014). Business ethics as a phenomenon is generated by the perception of what is bad and what is good in corporate scale, and this perception is partially created in early childhood. In this respect, parents played a crucial role in Bernie Madoff’s life, and formed a certain background for his future activities. Ethical business is successful business. The sad experience of Mr. Madoff is to present a lesson teaching that compromising decency, trust and honesty within a company is a little step that is sure to result in disaster. Adequate corporate culture and permanent control at all are the keys to successful performance, and also are to make sure no one will follow Mr. Madoff’s steps (Henriques, 2011). Works Cited Anderson, Kristie. "Business Ethics." Business Ethics. 2011. Web. 1 July 2015. "Bernie Madoff, Evil Genius? Thats Just Half Right." The Washington Post 30 Aug. 2009. Web. 1 July 2015. "Bernie Madoff: Im Happier in Prison." New Zealand Herald (Auckland, New Zealand) 29 Oct. 2011. 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