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Adelphia Communications Scandal (Essay Sample)


In the Module 1 Case, we will be exploring the means by which deontological ethics may be used as a useful theoretical lens through which an organization’s sense of business ethics may be critically assessed.

Please begin by reading the following two journal articles:

  • 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 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 other executives held, accused of mass looting. The Wall Street Journal. Retrieved November 19, 2012, from ProQuest.

Case Assignment

Using the two articles in the Required Reading section above and the readings provided in the Background page of Module 1, please write a 5-6 page paper in which you address the following:

Drawing upon deontological ethics, discuss how Adelphia Communications’ executives violated the trust of the company’s shareholders and the trust of that of the larger public.

Keys to the Assignment

The key aspects of this assignment that should be covered in your paper include the following:

  • Briefly describe the Adelphia Communications scandal.
  • Identify and discuss two key ethical problems raised by the Adelphia Communications case.
  • Describe what is meant by “deontological ethics” generally (e.g., duty and rights), and by Immanuel Kant’s Categorical Imperative more specifically.
  • Apply the deontological framework of business ethics to the two key ethical problems you identified above.
  • Apply Kant’s Categorical Imperative to the two key ethical problems you identified above.

Assignment Expectations

Your paper will be evaluated using the following five (5) criteria:

  • Assignment-Driven Criteria (Precision and Breadth): Does the paper fully address all Keys to the Assignment? Are the concepts behind the Keys to the Assignment addressed accurately and precisely using sound logic? Does the paper meet minimum length requirements?
  • Critical Thinking (Critical Thinking and Depth): Does the paper demonstrate graduate-level analysis, in which information derived from multiple sources, expert opinions, and assumptions has been critically evaluated and synthesized in the formulation of a logical set of conclusions? Does the paper address the topic with sufficient depth of discussion and analysis?
  • Business Writing (Clarity and Organization): Is the paper well written (clear, developed logically, and well organized)? Are the grammar, spelling, and vocabulary appropriate for graduate-level work? Are section headings included in all papers? Are paraphrasing and synthesis of concepts the primary means of responding to the Keys to the Assignment, or is justification/support instead conveyed through excessive use of direct quotations?
  • Effective Use of Information (Information Literacy and References): Does the paper demonstrate that the student has read, understood and can apply the background materials for the module? If required, has the student demonstrated effective research, as evidenced by student’s use of relevant and quality (library?) sources? Do additional sources used in paper provide strong support for conclusions drawn, and do they help in shaping the overall paper?
  • Citing Sources: Does the student demonstrate understanding of APA Style of referencing, by inclusion of proper end references and in-text citations (for paraphrased text and direct quotations) as appropriate? Have all sources (e.g., references used from the Background page, the assignment readings, and outside research) been included, and are these properly cited? Have all end references been included within the body of the paper as in-text citations?

Tips and Suggestions

  1. In writing up your Case, be sure that you use the Student Guide to Writing a High-Quality Academic Paper guidelines.
  2. Please note that the 5-6 page minimum length requirement does not include your cover page and references.
  3. Be sure that you cite all of the sources you use in your paper, and that have been taken from the Background section Module 1 and/or any other external references. As it relates to the Module 1 Case, however, please do not be overly concerned as it relates to use of proper APA referencing -- we will be learning use of APA Style in the next module.
  4. You are required to analyze the Case. This entails that you should not simply recount the facts you read in the above articles, but that you perform a critical analysis of the case using deontological ethics and Kant's Categorical Imperative.
  5. In preparing your initial Case, you may find the document compiled by Dr. Susan Gunn to be quite useful. In this paper, Dr. Gunn provides excellent guidance related to the formatting and writing of this sample Module 1 Case: Dr. Susan Gunn's Module 1 Case Samples

The Adelphia Communications Scandal was a set of frauds that involved mainly John Rigas the founder of the firm, his son Michael and Tim Rigas and former Adelphia Vice President Michael Mulcahey. Among other fraud charges are: waste of corporate assets, fraudulent conveyance and conversion of corporate assets. Violation of the RICO Act, breach of fiduciary duties and unjust enrichment were also evident. (Markon & Frank, 2002, p. 1).
Markon and Frank (2002) reported "The Management of Adelphia distorted accounts to meet audit expectations and enhance the stock price”. (p. 1). Adelphia was used as a tool for personal dealings to create private partnerships. In this case, fund transfers were made through entries that gave Adelphia more debts and the Rigases multi-million dollar assets at no cost.
The management committed Adelphia funds with family funds using Adelphia to drive projects out of the corporate boundaries such;

Adelphia backed the Rigases in securing a personal loan of $2.3 billion.
Real estate transactions such as purchase of Manhattan apartments for private use and purchase of land for private golf courses.
$252 million to pay margin calls or asked cash loans placing the family’s Adelphia stock portion as the collateral.
Markon and Frank (2002) further explained that the family created a common account where all revenue from Adelphia subsidiaries and other businesses were banked. This account was purposely used to settle both the company and the family bills. (p. 2).
There was no consolidation of the family’s and the company’s financial usage though Rigas family mixed its financial affairs with those of Adelphia’s. Adelphia’s line of credit was also used for personal purchases.
The family created non-existing transactions and companies by doctoring financial records at Adelphia. These engineering of accounts was meant to inflate the company’s stock price and to hide the large amounts of debts.
Main ethical issues in the Adelphia Communications Scandal
Lying and betrayal of trust
The Rigas family complicated their cash management so as to continue financing various private entities. This complex cash management system was also used to cover the fraud where they stole $100 million for themselves some of which belonged to the investors in their company.
Michael Rigas was charged with massive wire transfers and conspiracy. He pleaded guilty to a charge on false financial report entries. These were the actions of the management and their goal was to conceal the state of their company until they could be righted and use the equity on debts. (Markon & Frank, 2002, p. 2).
The Rigas created bogus transactions and companies in order to misinform lenders and the public on the image and the company’s performance yet it was riding in debts.
2. Discernment of trust
In the suit, a testimony by one of the main investors in Adelphia revealed how Rigas robbed cancer patients and an artist millions of dollars. During their case, attorney Ben Preziosi presented documents from board meetings on March6, 2002 and earlier that revealed how Adelphia guaranteed debt to fund Rigas securities purchases. During the hearing, a witness in the case confirmed that he identified securities purchases amounting close to Adelphia- guaranteed loans at a board meeting in Cancún, Mexico on March 6, 2002. In response to questioning by Preziosi, the witness said that the family draws amounted to $429.06 million which were used to buy the total sum of securities amounting to $427.3 million.
According to Markon and Frank (2002) "There were numerous misappropriation such as the case where John Rigas ordered two $60,000 Christmas trees flown to his daughter. He also ordered up 17 company cars and the company purchase of 3,600 acres of timberland at a cost of $26 million to preserve the pristine view outside his Coudersport home”. (p. 2).
Deontological ethics
Deontological ethics or simply deontology is a normative ethical position of judging the morality in actions on the adherence of the actions to set rules. It’s an obligation, duty or rule-based ethics.
There many deontological philosophies but in our case were going to examine the main deontological formulation; The Immanuel Kant’s theory of ethics.
Immanuel Kant’s theory of ethics is purely deontological because of a number of reasons. To begin with, Kantian ethics advocate that to acting in a moral right way, individual must act from duty. Secondly, He argues that the motive of the person doing the action is the platform of judging whether they are wrong or right and not the consequences of the action itself. Kant holds that a person has a good will when he acts in respect of the moral law and people have a duty to act in respect of the moral law. He emphasizes that the only thing in the world that is truly good in itself is goodwill which is only possible when an individual chooses a thing because it’s his/ her personal duty.
According to Kant, acting in a way that is morally right is all about doing thing purely from duty.
He concludes by asserting that there is only one truly good thing in the society;
"Nothing in the world, indeed nothing even beyond the world, can be conceived as good without qualification as good except goodwill.”
Kant also developed another subject; comparative imperative that is the central philosophical concept in deontological ethic.
It’s an ethical system on unconditional moral law that applies to all moral beings in the world, and it’s not dependent on any personal motive or desire. The doctrine argues that individuals must act according to some universalized maxims that respect persons as end in themselves.
He explains categorical imperative by developing some three significant formulations which include;
People should act in adherence to that maxim by which you can also wish that it would become a universal law.
Act in a way that always treats humanity, whether in your own personal interest or in person of others.
Every rational human being must act as if he were through his maxim as a legislating member of a universal kingdom of ends.

Deontological framework of business ethics on the two key ethical problems in Adelphia communications
The Adelphia communications scandal is splendid example that explains the price of unethical behaviors like lying and discernment of truth to a business organization. According to the deontological ethics of Kant, ethics of financial statement preparation must be followed to the letter to ensure trust of the shareholders and the general public in the business. The management of any company with a fraudulent motive can take an over or under presentation of financial statements presentation. These mispresentation can take the form of alterations of tax returns and diary bookk...
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