Adelphia Communications Scandal
BriefDescription of the
Foundedin 1952 as Adelphia by John Rigas, it was the first television cablecompany that existed in Coudersport. Owing to the assistance by hisbrother Gus and his two sons, John Rigas managed to expand the cabletelevision to other communities around hence penetrating the 32states as well as Puerto Rico. This would lead to John making thecompany a public entity in 1986 hence coming to be known as AdelphiaCommunications Corporation (ADELQ). As a result of thecharacteristics of John Rigas, he would make high risks even if theexpected pay off was high enough. The actions of Rigas would make himoperate in capital-intensive business that demanded from himcontinuous growth and innovation as a means of survival. Overtime,ADELQ would grow to be the sixth largest cable operator with anestimated 5.3 million subscribers (Barlaup, Hanne & Stuart,2009).
Duringthe period under which the company grew, there was a tremendousalteration in the morality and ethical beliefs of Rigas. This changewould lead him to manipulate the financial reports of the companywhich was referred to as “cooking books” (Markon & Frank,2002). The company would then find itself incorporating in itsculture a trend of manipulating and concealing critical financialinformation. This behavior would make them exclude liabilities thatwere quantified to be in billion dollars from their financialstatements. The company would also inflate their yearly earningsstatements so as to meet the expectations of the Wall Street. Oftenthe management at Rigas would inflate stock price as well as come upwith private partnerships with Adelphia as a way of orchestratingself-dealing schemes. Additionally, the company would engage inmaking fund transfers through journal entries hence resulting in moredebt. It is noted that the Rigas family used the company more of a“piggy bank” so as to refund the funds at a later date (Barlaup,Hanne & Stuart, 2009). Thus, the financial issues of the familywere conjoined with the corporation but ultimately wereunconsolidated. In September 2002, three individuals of the Rigasfamily were indicted by a federal court for insider trading andcompany fraud (Markon & Frank, 2002).
Identifyand discuss two key ethical problems raised by the AdelphiaCommunications case.
Thetwo key ethical issues that arose from the scandal included first,there was misrepresentation of both the earnings and liabilities ofthe company. Usually, ADELQ would inflate its earnings so as to meetthe expectations of Wall Street through the wrong press releases.Also, there was manipulation of performance of the company especiallythose touching on measurement metrics for evaluation such as numberof cable subscribers and corporate earnings. Additionally, thecompany presented wrong fillings of the Security Exchange Commission.
Thesecond problem was that personal loans were made by AdelphiaCorporation to the Rigas family. This began in 1998 where the companystatements would be manipulated to conceal the interference of thefamily in corporation finances (Barlaup, Hanne & Stuart, 2009). The inappropriate uses included paying of vacation properties in NewYork as well as development of golf course. Also, there was issuanceof over $772 million of common stock and $563 million of corporatenotes to be used by the family (Barlaup, Hanne & Stuart, 2009).Revelations indicated that $174 million was secretly diverted to paypersonal margin loans from Adelphia (Barlaup, Hanne & Stuart,2009).
Describewhat is meant by deontological ethics’ generally (e.g., duty andrights), and by Immanuel Kant’s Categorical Imperative morespecifically.
Accordingto deontology ethics, the moral philosophy is concentrated on therights of the persons as well as the intentions that surroundspecific behavior but not the consequences. According todeontological theories, there is need to accord each individual equalrespect with a focus that rightness is aimed at an individual and notthe society. The deontological ethics is primarily divided in twoparts, the rule and act deontological ethics. According to ruledeontologists, the ability to conform to general principles by anindividual determines their ethicalness. According to this rule, theability of individuals to reason enables them to determine theirrelationship between their basic rights and set of rules that defineproper conduct.
Onthe other hand, Act deontologists contend that actions should be thebenchmark for morality. According to this ideology, an individual hasto adhere to set rules of equity, fairness and be impartial whenmaking decisions or enforcing them. The rules are just but aguideline with the past experience playing a bigger role in decisionmaking. According to these individuals acts are either right or wrongand this has no bearing on consequences or deontological rules.
Accordingto deontology, individuals must comprehend their moral dutiesproperly for them to make correct moral choices and at the same timebe aware of the correct rules that exist in regulation of the duties.Upon comprehension of their duties, individuals are thus said tobehaving morally while if they fail to follow their duties they aresaid to be behaving immorally. Hence according to this philosophy,the societal duties as well as rules and obligations are dictated byGod, hence being moral is subject to obeying God.
Duringthe period covering 18thand 19thcentury, there emerged contemporary deontology philosophy that hadthe influence of Immanuel Kant. This was known as categoricalimperative. According to this philosophy, when an individual iscomfortable in allowing people or the society to see them execute aspecific act, and if the individual’s act is universally principledin guiding behaviors, then the person committing the behavior isethical in their acts.
Applythe deontological framework of business ethics to the two key ethicalproblems you identified above.
Inapplying deontological ethics to the two ethical problemsencountered, there are two positions that one lands on either thecorporation behaved ethically or unethically depending on thecategory of the deontological philosophy one uses to advance theirargument. First, under the rule deontologists, Adelphia and RigasFamily’s behavior was unethical given that they ignored ordisregarded the SEC financial regulations and the ethicalprofessional practices that govern the Institute of ManagementAccountants (IMA). They also placed little regards to the rights ofthe stakeholders (Markon & Frank, 2002).
Second,according to Act deontologists, Adelphia did not act unethically assuch owing to the fact that the rules set only were benchmark and notdivine laws, hence making their actions just owing to the pastexperiences of the former corporation’s compensatory practices.According to this ethical philosophy, there is no existing rightanswer morally, unless an individual decides to choose what in theirview is right or wrong. With these two positions it might be verydifficult to condemn either Adelphia or Rigas family or both asbehaving unethically.
ApplyKant’s Categorical Imperative to the two key ethical problems youidentified above
Uponapplying Kant’s Categorical Imperative to the two key ethicalproblems to Adelphia and Rigas Family’s case one reaches aconclusion that the actions that resulted in the two ethical dilemmasin the scandal was morally wrong and at the same time harboredunethical behavior. Under his philosophy, Kant notes that it is notreally important that for a society to reach a conclusion whether anaction is morally correct, but the society should be able to make auniversal rule. Therefore, if the society cannot be compelled tofollow the same rule or action, the rule or action applied is thusnot a moral one in standing.
Barlaup,K., Hanne, I. D., & Stuart, I. (2009). Restoring trust inauditing: Ethical discernment and the Adelphia scandal. ManagerialAuditing Journal, 24(2), 183-203. Retrieved on November 19, 2012,from ProQuest.
Markon,J., & Frank, R. (2002, July 25). Adelphia officials are arrested,charged with massive fraud three in the Rigas family, two otherexecutives held, accused of mass looting. The Wall Street Journal.Retrieved November 19, 2012, from ProQuest.