Case 1- The Adelphia Scandal
ETH501: Business Ethics
Dr. Bonnie Adams
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 deontology and Kant’s CI.
The Scandal In March of 2002, Adelphia disclosed more than $2 billion in debt that had been accumulated from at least 1998 through March of 2002. This debt had been kept from the public by creation of falsified financial reports that concealed the debt and overstate earnings to give the appearance of a financially healthy company. The truth; however was that the Rigas family had indebted Adelphia outrageously to other family owned business, withdrawn millions of dollars and misused corporate assets to the point of bankrupting Adelphia. John Rigas’ misappropriation of corporate funds and assets was infected with deceit and dishonesty. Not only had he and his family bled the company of millions of dollars in cash and indebted it $66 million for personal loans, he had used the company’s other assets as if they were his own. He had, on many occasions used corporate jets to fly his family and friends on extravagant vacation, including an African safari in August of 2000 (Markon & Frank, 2002). He on another occasion he used the plane to fly a Christmas tree to his daughter in New York. As if that weren’t brazen enough, when his daughter didn’t approve of the tree, he flew her another one up days later. The Rigas family comingled the companies money and assets with is on it other was as well. They spent $12.8 million dollars to finance a private golf course built on their property and used corporate funds to buy timber rights and to fund a the Buffalo Sabers, an NHL hockey team (Barlup, Hanne & Stuart, 2009). Two apartments in Manhattan had been paid for by the company, one of which was used rent-free by John Rigas’ daughter and son-in-law. When the company’s stock plummeted in April of 2002, the Rigas family used $252 million from Adelphia’s cash-management system to pay for them. When the dust settled the criminal charges and civil lawsuit allegations were monumental. The SEC filed a complaint that alleged “between mid-1999 and the end