Case 1 The Adelphia Scandal
Trident University
Case 1- The Adelphia Scandal
ETH501: Business Ethics
Dr. Bonnie Adams
4/13/2014
Introduction Aldelphia Communications Corporation was founded in 1952 by John Rigas and two partners. Rigas began to grow the business and by July 1, 1986 Adelphia was ready to go public. The company quickly grew into the sixth largest cable company in the United States. Its annual revenue exceeded $2.9 billion with offices located in 32 states and Puerto Rico (Barlup, Hanne & Stuart, 2009). With more than five million subscribers, it seemed that Adelphia was headed to the top of the food chain. In March of 2002 everything changed. The SEC announced that Adelphia had “systematically and fraudulently excluded billions of dollars in liabilities from its consolidated financial statements by hiding them on the books of off-balance sheet affiliates. It also inflated earnings to meet Wall Street expectations, falsified operations statistics, and concealed blatant self-dealing by the family that founded and controlled Adelphia, the Rigas family” (Barlup, Hanne & Stuart, 2009). The extent to which the Rigas family and their coconspirators had looted the company and ostentatious amount of time and money stolen from investors made this scandal one of the most unbelievable cases the SEC had ever seen. This paper will discuss how Adelphia Communications’ executives violated not just the trust of the company’s shareholders but also the trust of billions of consumers who were financially impacted by the devastating effects it brought to the market. First, the paper will describe what exactly the scandal was and how it came to be. Then it will identify and focus on the two key ethical problems associated with Adelphia Communications. After that the paper will further discuss deontological ethics and Immanuel Kant’s Categorical Imperative (CI). From there the paper will apply a decision making framework of business ethics to the formentioned ethical problems using
Case 1- The Adelphia Scandal
ETH501: Business Ethics
Dr. Bonnie Adams
4/13/2014
Introduction Aldelphia Communications Corporation was founded in 1952 by John Rigas and two partners. Rigas began to grow the business and by July 1, 1986 Adelphia was ready to go public. The company quickly grew into the sixth largest cable company in the United States. Its annual revenue exceeded $2.9 billion with offices located in 32 states and Puerto Rico (Barlup, Hanne & Stuart, 2009). With more than five million subscribers, it seemed that Adelphia was headed to the top of the food chain. In March of 2002 everything changed. The SEC announced that Adelphia had “systematically and fraudulently excluded billions of dollars in liabilities from its consolidated financial statements by hiding them on the books of off-balance sheet affiliates. It also inflated earnings to meet Wall Street expectations, falsified operations statistics, and concealed blatant self-dealing by the family that founded and controlled Adelphia, the Rigas family” (Barlup, Hanne & Stuart, 2009). The extent to which the Rigas family and their coconspirators had looted the company and ostentatious amount of time and money stolen from investors made this scandal one of the most unbelievable cases the SEC had ever seen. This paper will discuss how Adelphia Communications’ executives violated not just the trust of the company’s shareholders but also the trust of billions of consumers who were financially impacted by the devastating effects it brought to the market. First, the paper will describe what exactly the scandal was and how it came to be. Then it will identify and focus on the two key ethical problems associated with Adelphia Communications. After that the paper will further discuss deontological ethics and Immanuel Kant’s Categorical Imperative (CI). From there the paper will apply a decision making framework of business ethics to the formentioned ethical problems using
References: Alexander, L. (2007, November 21). Deontological Ethics. Retrieved April 11, 2014 from http://plato.stanford.edu/entries/ethics-deontological/ 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. Retrieved on April 12, 2013, from ProQuest. Diagnosing depression. (2009, January 03). Retrieved April 12, 2014, from http://www.economist.com/node/12852043 Fabrikant, G. (2005, April 25). Rigas Family To Cede Assets To Adelphia. Retrieved April 12, 2014, from http://www.nytimes.com/2005/04/26/business/media/26settle.html?_r=0 Markon, J., & Frank, R. (2002, July 25). 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. Retrieved April 18 2014, from ProQuest. Markwick, N., & Fill, C. (1997). Towards a framework for managing corporate identity. European Journal of Marketing, 31(5/6), 396-409. doi: 10.1108/eb060639 Retrieved April 18 2014, from ProQuest Misappropriation of Funds Law & Legal Definition. (2014). Retrieved April 10, 2014, from http://definitions.uslegal.com/m/misappropriation-of-funds/ U.S. Securities and Exchange Commission, (2002). SEC Charges Adelphia and Rigas Family With Massive Financial Fraud.