Application of Deontological Ethics to Discuss How Adelphia Communications’ Executives Violated the Company Shareholders’ and the General Public’s Trust
Introduction
Violation of rules and regulations that have already been put in place to control the conduct of public and private companies’ executives has over the recent past become a common phenomenon in the contemporary business world (Beauchamp, 1991). This is often attributed to the executives’ greed which makes them misappropriate or embezzle company finances or engage in unethical behaviors in order to conceal their activities which are not in accordance with laid down rules and regulations (Waller, 2005). To a significant extent, these unethical behaviors by company executives considerably violate the trust of company shareholders as well as the trust of the general public. According to Waller (2005) trust of shareholders and the general public is essential to the functioning of public companies, especially those which directly offer services or manufacture goods for the general public. Moreover, recently reported accounting scandals, where some public companies prepare fraudulent financial statements, subsequently followed by auditing firms issuing clean opinions on such financial statements which are fraudulent, have to a significant extent violated the trust of company shareholders and the general public (Beauchamp, 1991).
According to deontological ethics most of the unethical behaviors perpetuated by company executives, and particularly the fraudulent conduct of Adelphia Communications Corp executives result to significant violation of the trust of company shareholders as well as the general public (Barlaup et al., 2009). This is mainly because deontological ethics is the normative ethical position responsible of judging an action’s morality on the basis of how the action adheres to existing rules and regulations. As a result, deontological ethics is sometimes described as “rule” or “obligation” or “duty” -based ethics, since a person is bound to his/her duty by the existing rules and regulations (Waller, 2005). Beauchamp (1991) notes that along with rules and regulations, trust guide interactions in public companies because trust is defined as the expectations arising within a company due to honest, cooperative, and a regular behavior, on basis of commonly shared norms. Thus, in public companies where shareholders and the general public trust and have confidence the company executives, smooth running, operational efficiency, and profitability are often achieved (Waller, 2005). Hence in this essay the focus is on Adelphia Communications Corp scandal that was perpetuated by the company executives, and drawing upon deontological ethics the extent to which the conduct of Adelphia Communications’ executives violated the trust of company shareholders and that of the general public is discussed.
Application of deontological ethics principles and concepts to evaluate the conduct of Adelphia Communications’ Executives
Considering that deontological ethics is the normative ethical position responsible of judging an action’s morality on the basis of how the action adheres to existing rules and regulations (Waller, 2005), it is essential to draw upon this theory in order to discuss the violation of company shareholders and the general public trust by Adelphia Communications’ executives. This is mainly because despite the existing rules and regulations on which morality of an action is judged in deontological ethics, Adelphia Communications’ executives carried out fraudulent financial reporting (Barlaup et al., 2009). The reason for the wide public outcry resulting from Adelphia scandal, is that
Adelphia Communications Corp was a public corporation offering cable television services, and by the time the fraudulent accounting scandal at Adelphia Communications Corp was reported in 2002, the company was the sixth largest cable television services provider in the United States (Markon & Frank, 2002). Therefore, based on deontological ethics the reason why Adelphia Communications’ executives violated the trust of company shareholders as well as the general public was due to the fact that financial statements prepared by Adelphia’s management were fraudulent because they failed to represent the company’s economic reality, through exclusion of debts which amounted to billions of dollars. External auditors did not manage to realize the fraudulence in the company’s financial statements, giving Adelphia Communications’ executives an opportunity to continue embezzling company finances (Barlaup et al., 2009).
The fraudulent financial reporting and other unethical behaviors perpetuated by Adelphia Communications’ executives are immoral and unethical on the basis of deontological ethics because they violated existing rules and regulations eventually resulting to violation of the trust of company shareholders as well as the trust of the general public (Markon & Frank, 2002). Adelphia Communications’ executives appear to have acted unethically and immorally, due to lack of fundamental concern for rules and regulations as well as ethical behavior. Hence the ethical analysis of Adelphia Communications’ executives conduct on basis of deontological ethics to discuss how it violated the trust of company shareholders and the general public show an outright disregard of the existing rules and regulations an indication that their actions significantly violated the trust of company shareholders and the general public (Barlaup et al., 2009).
The essence of deontological ethics in evaluating actions of public corporations’ executives is that the morality of an action’s value is not dependent of its consequences. This is mainly because the moral value of an action is dependent on whether the motivation of an action was to carry out one’s duty (Beauchamp, 1991). According to deontological ethics theory, the fair thing to do is the only one possible action when in a position to serve interests of the public. This implies that there is a duty for everybody to always make the correct decision and do the right action. According to Waller (2005) deontological ethics theory considers an act as morally wrong even if it maximizes good as long as the action is not properly motivated. Therefore, this is a succinct indication that according to deontological ethics theory, an individual or a group of people should always tell the truth with total disregard of the outcome of telling that truth and under no circumstance is lying or misrepresentation of facts justifiable. This clearly shows that the fraudulent financial statements reporting by Adelphia Communications’ executives with absolute disregard of rules and regulations was unethical and not morally right meaning that this action negatively influenced the confidence of company shareholders and the general public on them (Markon & Frank, 2002). Subsequently this action led to significant violation of trust of company shareholders and the general public.
Deontological ethics theory is divided into: act and rule deontology. According to Waller (2005) act deontological ethics usually view every action as a distinct ethical occasion and reiterates that through consultation of our intuition or conscience, it is possible to determine the right and the wrong in a given situation without reference to set of rule and regulations meaning our actions should be guided by our intuition or conscience. Moreover, rule deontological ethics reiterates that the standards to determine whether an action is right or wrong are provided by universal rules and regulations (Waller, 2005). This means that deontological ethics accept the principle of universalizability, which incorporates the notion that one appeals to universally accepted principles to make moral decisions. Truth-telling is perhaps one of the most common examples of universal principles (Beauchamp, 1991). Hence the misstatement of financial statements by Adelphia Communications’ executives to secure a loan cannot be universalized because if everyone did it, the practice of lending would eventually fall apart. This implies that such an act cannot be universalized, hence unethical and not morally right because it involved concealing of the company’s borrowing status and inflating the company earnings (Barlaup et al., 2009). This act by Adelphia Communications’ executives further violates the trust of shareholders and the general public because most of the secured loans were used to finance family-owned entities. At the same time the Adelphia Communications’ executives continued to withdraw increasingly vast sums of money for Rigas family personal use (Barlaup et al., 2009).
Furthermore, Adelphia Communications’ executives and the Rigas family spent a total of $12.8 million corporate money for construction of a private golf course without authorization and disclosure to shareholders (Markon & Frank, 2002). On confrontation Adelphia Communications’ executives refuted claims that the project was aimed to benefit them, but considering the location and magnitude of the golf course it was obvious that the motive of the project was not proper (Markon & Frank, 2002). Thus, considering deontological ethics theory, it is clear that this action was immoral and violated the truth of the company shareholders and that of the general public. For instance, the violation of this truth is further based on using over $12 million of shareholder money without their consent making out of line with any categorical imperative (Markon & Frank, 2002). Furthermore, this action cannot express any of the morality’s universalizable principles.
Conclusion
As seen in the discussion, it is succinctly clear that deontological ethics advocate to right actions based on existing rules and regulations. Therefore, the actions carried out by Adelphia Communications’ executives are immoral and unethical because they cannot be universalized and were done with total disregard to rules and regulations. This meant that such actions by Adelphia Communications’ executives violated the company shareholders and the general public trust.
References
Barlaup, K., Hanne, I. D., & Stuart, I. (2009). Restoring trust in auditing: Ethical discernment and the Adelphia scandal. Managerial Auditing Journal, 24(2), 183-203.
Beauchamp, T.L. (1991). Philosophical Ethics: An Introduction to Moral Philosophy, (2nd ed.). New York: McGraw Hill.
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.
Waller, B.N. (2005). Consider Ethics: Theory, Readings, and Contemporary Issues. New York, NY: Pearson Longman.
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