Why business ethics is important?Ethics is a complex of moral principles and values followed by group of people, the whole society, culture or individuals.
Every companies should implement and develop corporate social responsibility because it is operating within society. Social Corporate Responsibility is the responsibility of an organization for the impacts of its decisions and activities on society and the environment, through transparent and ethical behavior. CSR encourages professional and personal development of employees within the organization by providing employees with opportunity to take part in organization’s socially responsible activities. It allows employees to teach new skills which can be also applied within the organization. In addition, strong record of CSR enhances relationships with clients: cooperation with non – profit organizations to support their public value outcomes will build strong brand reputation and trust of client. Thus, CSR will differentiate the company and give it a competitive advantage in mind of customers and their favorable response as a consequence. According to research of UK Small Business Consortium:, “88% of consumers said they were more likely to buy from a company that supports and engages in activities to improve society.
” IntroductionThis essay will be focused on analyses of Adelphia Communications case. Adelphia Communications is one of the examples of unethical behavior which led to downfall of the company. The case analyses will be based on two theoretical approaches: utilitarian approach by Jeremy Bentham and theory of stages of moral development by Lawrence Kohlberg. The example of unethical behavior in Adelphia Communication company is very common case in most of companies with multi million turnover.
The volume of reported corporate fraud, bribery and corruption cases continues to rise at an alarming rate. This is quite surprising given the scrutiny of regulatory authorities, the heightened level of awareness of the potentiality of corporate fraud.Therefore, analysis of frequent unethical behavior in companies aims to contribute to positive social future change in the areas of ethical training and in creating and operationalizing corporate values in dayto-day decision making in the corporate environment. Case IntroductionJohn Rigas is a founder of Adelphia, started in 1952 in Coudersport, Pennsylvania. He bought a small cable franchise in for 300$. The company was expanded and progressing resulted in trading of company stock for 87$ per share. In addition, Adelphia operations started to progress in another areas such as sport channel business, radio station and telephony business.
Adelphia communication is a family business where John Rigas was chief executive officer, and his sons: Tim -chief financial officer, Michael – vice president of operations, James – vice presidents of strategic planning , Peter – head of the board of directors.In early 1990, Adelphia grew naturally as well as through several acquisitions, what resulted in sales increased over $300 million. As a result of rapid growth, company’s subscriber base included over 5 million customers in 2000. However, due to having those acquisitions, by 2002 Adelphia disclosed $2.3 billion in previously undisclosed debt through co – borrowings between the company and the family (Adelphia Communications corporate history). Rigas family was unable to pay the debt, so Adelphia was responsible for it. Moreover, investors was unfamiliar with clear Adelphia’s financial picture since 1999 because Adelphia misrepresented earnings by $160 million in 2000 and $210 million in 2001.
Due to financial downturn of the company, financial investigation of company’s dealings took a place. As a result, it was found that borrowed money was spent on personal, family expenses: construction of private golf court and private airplanes, managing and employment of personal staff. In addition, to make their company look more successful and financially stable, family had overstated cash flow and increased the number of subscriber count. Thus, Adelphia company has lost all its money and filed as bankruptcy. Leaders of the organisation willfully choose to benefit from their financial malfeasance as well as cause financial harm to employees working with them.
Therefore, Behavior of corporate leaders who operated the company considered as unethical as it did not seem to have concern with the values or morals that society found appropriate. Jeremy Bentham: Utilitarian approach Business ethics demonstrates both written and unwritten codes of ethical standards that are essential to current and future business practices. Business ethics can be expressed in different ways which depends on organisational culture, operational structures and company’s orientation. English philosopher Jeremy Bentham and John Stuart Mill found a utilitarian ethical approach of the actions which states that action considered morally right if it results in promoting happiness and considered as wrong if results in pain not only for those who made an action but also for everyone affected by it.
The principle of utility is that action has to produce the greatest good for the greatest number. There are two types of utilitarian approach : act and rule utilitarianism. Act utilitarianism states that right action should produce greatest happiness for as much people as possible, in contrast to rule utilitarianism meaning that people has to live by rules that in general are more likely to lead to the greatest happiness for the greatest number of participant.
From the first glance, utilitarian theory seems not to be appropriate for Adelphia company because theory states – ” maximum happiness for maximum number of people in society” , while John Rigas was trying to maximize happiness for himself and his family by giving up on honest relations between company and investors ( by hiding accounting data), between company and customers ( by exaggerating number of customers in company’s statistical record). However, to analyze “why unethical actions were taken by John Rigas, being a leader of the company, it essential to answer “what does maximum number of people in society ” meant for Rigas point of view during decision making process.According to utilitarian approach, Rigas, being a corporate leader, has to maximize happiness ( greatest happiness) for a maximum number of people. However, greatest number of people and group of people (society, friends, family) is different for everyone. For John Rigas that maximum number of people was his family which he considered as a greatest and the only group which deserves achieved happiness. From the beginning Adelphia is a family business meaning that John Rigas trusted their family members the most to operate a huge company. In addition, most of hidden financial transactions were spent on personal expenses which proves that money were spent on the most valuable part – family. Therefore, ego utilitarianism was taking place in Adelphia group because corporate leaders were trying to maximize own happiness by increasing profit and level of their own lifestyle within it for a maximum number of people which is the whole family.
Human beings act in accordance with two motives: the pursuit of pleasure and the avoidance of pain. Let’s look at examples of pleasures company achieved and pain they were trying to avoid.Pleasures is action’s effect which increase happiness and brings positive utility to a person.High standards life: personal staff service, golf clubJohn Rigas have his wife Doris, a $371,000 contract to decorate Adelphia buildings with $12.4 million in furniture from a Rigas family business.
The Rigas family used the corporate jets for personal trips including a trip to African SafariDevelopment of hobbies: Rigas family invested $130 million in the Buffalo Sabres hockey team Secured two New York City apartments reserved for John Rigas’ daughter and her husband, Peter Venetis. So, “happiness” for Rigas family were defined a list of financial rewards to improve their life standards. “Paints”Damage company reputation. Adelphia overestimated their numbers of clients in statistical data to make company look more financially strong and stable.Keep current investors and attracting new. Company kept unstable financial information about debts in secret in order to make current investors think that company is operating successfully and stable.
Furthermore, stability in profit will result in attracting potential investors. Involvement of operating employees in secret family transactions – making them being a part of unethical behavior. Strong family control and low empowerment given to staff. Centralized decision making structure. Department heads were not empowered or involved in budgets, and a central cash system was used to pay all bills across the organization. All pains are a part of unethical behavior as well companies fears, paints that caused unethical behavior which affected “external shareholders” not family itself. Meaning that to achieve company’s objective – to increase profit for better living of the whole family, leaders needed to give up on the other employees by making them a part of achieving company’s final aim: workers helped to operate company while investors helped company to develop and improve.
Utilitarian approach can take place in case of Adelphia and help us to answer why unethical behavior happened by analyzing what are the greatest number of people meant for corporate leaders. Due to the fact that family’s well being and wealthy lifestyle were the main company’s objectives, family was the greatest number of those who worst that happiness. To maximise happiness of Rigas family, company not only acted against moral principles but also against law in form of closure of real financial transactions, violation of agreement between investors to present honest financial information. Lawrence Kohlberg – stages of moral development Kohlberg theory states that human achieve moral development by going through stages which are beyond childhood. There are six stages of development which are devided into three categories :preconventional, conventional, and postconventional. All of three categories explain rational decisions being based on conscious reasoning and analysis of a moral situation, as if one were a judge weighing its fairness.
The preconventional stage is based on self – serving and decisions are guided by outcomes of it (possible punishment). Conventional thinking is a stage when individual make a decision by considering impact from it on people around him. The individual who is capable of postconventional thinking adheres to rules, laws, or standards; employing postconventional thinking becomes a way of “promoting general social welfare” in which a decision is based on more complex reasoning. However, final stage is less real and human achievable stage.
Despite the fact that Kohlberg mostly focused on human moral development within societal culture rather than organisational, working environment is also huge external influencer to form our social norms and morals. Therefore, to analyze “why individual can make unethical decision”, we need to analyze his external environment and potential influences of it on individual. In case of Adelphia Communications, bridge of moral atmosphere was weakened, allowing unethical decisions to be made.
Moral action normally conforms to the moral stage of the individual (in this case, the leader of the company), and the environment in which individual lives and grows greatly stimulates that moral development. Therefore, moral awareness in not enough to take ethical decisions, but environment where one makes the decision has much to do with how the decision is made.John Rigas is a leader of the company who is mostly responsible for major significant decisions in the company including unethical actions which company made. Parents of John Rigas, Demitros and Eleni Rigas, moved to United States to seek a better life. So John Rigas was working hard to achieve financial stability for himself. Therefore, one of his life goals was to have strong financial position.
Thus, John was on self interest stage of his moral development process. This assumption is based on John Rigar’s employment record and some interviews he gave where money was one of the valuable aspect of his life. After John achieved financial stability (completed self interest stage) , he moved to conventional thinking because he started to think about how he can make a business that will benefit to others, his family, so he built family business where each member had profit share. Thus, John moved to family environment where all decisions were made. According to interviews of employees conducted by of external audit, results showed that major decisions were made as a group—around the Rigas dinner table. Dut to the fact that family wanted to retain control, employees were not given much background or business insight into why decisions were being made. In addition, all significant decisions has to receive approval of the whole family, resulting in decision making process being very centralized what caused slowdowns and sometimes total inaction within the operating teams.
Furthermore, Rigases valued loyalty to the family more than business performance. It could be proved by the fact that all borrowed money were spent on family purposes rather that potential business investments.Thus, unethical behavior caused by two main environmental effects. Firstly, family where John grew up was not wealthy from the beginning so John was passionate about an idea to change his life standards, therefore, money were spent on making family life more comfortable: private jet, personal chef. Secondly, working in family environment put a pressure and limits on range of decisions that could be taken.
All family members were agreed to make unethical choices as it benefited to every family members. However, if John Rigas was working in non family business and decisions were not centralized, non family employees could advice more rational and ethical decisions options as they would not be orientated on money at the same scale as family members who have direct interest in it.Thus, Kilburn strategy has a direct application in case of Adelphia because our decisions and their ethical effect depends on conditions and environment where those decisions were taken. Recommendations:1) To avoid secretive and parental-like management, organizations (family business, in particular) need toImplement objectivity of board oversight in form of outside auditors and counsel2) Work with external employees more to get proper advice of situation without having money based interest.
Riggs family could make ethical decisions if they allow more external opinion to take place.3) Family businesses has to delegate responsibilities not only to family members but also to professionals who has professional knowledge in their fields. For example, if Adelphia leaders would discus possibility to borrow money from Adelphia for family purposes, their finance manager would advice them not to do it as he knows that current company’s position will not allow them to repay the debt. While family mindset were orientated on their out objectives causing unethical behavior.4)Local communities has to organize lessons for other corporations to create processes that might encourage ethical behavior and closely follow espoused corporate values. These processes might lead to training programs in ethical decision making and for more accurate checks and balances during the hiring process.
5) Leadership has to create programs to encourage and promote ethical climate, for example value statements, ethical codes, hotlines for whistleblowers, and ethical training and education. Boards of directors can learn how to best serve their organizations by understanding the importance of the actual management of ethical culture, not just ethical codes and ethical leader.