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Business Ethics: The Case of Benard Madolf Reviewed

Updated on December 6, 2014

The Madolff scandal erupted in 2008 when its founder, Bernard Madolf frankly admitted in a court of law that the wealth management aspect of his business entity was actually a ponzi scheme. His company, which was known as the Benard, L Madoff investment Securities was established in 1960 where until his arrest, was his chairperson. Interestingly, he had placed his own brother Peter as Chief Compliance Officer and Managing director of the firm. He also placed his own nephew, Peter’s daughter, Shana Madolff as the organization’s lawyer, compliance and rules officer (Oppenheimer, 2009).

Madoff was arrested towards the end of 2008. In 2009, he pleaded to being guilty on 11 counts of federal criminal charges. He was in June 29, 2009 confined to 150 years imprisonment in addition to $17 billion restitution. According to Madoff, his organization had liabilities that were approximated to be $65 billion (Gendar, 2009). The prosecutors approximated the magnitude of the fraud to be more than $65 billion. This amount was based on the 4, 800 clients of Maddoff firm as per the time of his arrest. The freezing of Madolff foundation degenerated into a chain of reaction from many business entities, individuals and institutions that had invested in the foundation. Business organizations that had to close down instantly included, Lappin charitable Foundation, JEHT organization, Picower and so on (Weiner, 2005). The US Exchange and Security Commission was largely blamed for ignoring to investigate the scandal, despite consistent alert by whistle blowers. Questions regarding his conduct and operations of his organizational arose from as early as 1999 but SEC had failed to act on them (Wilhelm, and Downing, 2001).

Maddolf’s trouble started in the year 1999, when Harris Markopolos, a Boston based financial analyst, suspected that Bernard Madoff's ponzi business scheme was nothing but a scam. By logical reasoning and investigations, Markopolos believed and concluded that Bernard Madoff’s business was a scandal in the making. He figured out that there was no way Madoff could be earning the kind of money he had claimed to be making for his investors even when economic conditions were unfavorable in USA. By discovering that, Harris Markopolos tried to report this under- dealings to the Securities and Exchange Commission, expecting them to take a swift action in stopping the scandal early enough (Markopolos, 2010).

Ethical Concerns in Madolff’s Case

Topics of malpractices by organizations’ workers and managers have been a common feature in media headlines around the globe. The publics and other stakeholders are concerned about this rising ethical malpractices and the effects they have not only in this organizations but also on the national economy in general. Public concern about ethical malpractices have related with how their investment is dealt with in the organization. This makes investors to be very sensitive on this issue. Frequent media reports and public awareness programs have become so rampart to an extent that we are used to most of them. What is more amazing is that despite the stringent laws passed by lawmakers and the organization’s management, Ethical malpractices have never ceased, instead, they continue to be increasing reported (Connor, 2005).

Benard Madolff may be regarded as one of the most manipulative and smart individuals in the world. Do not take me for contradicting myself as the man is currently under prison custody for fraud crimes. He was able to manipulate people to an extent of making them invest all their money in his illegal scheme. Madoff had informed his clients that their investments would attract a substantial amount of returns. In convincing them further, he tailored the financial statements to reflect his allegations. Madolff’s lack of moral ethics resulted into individuals and organizations to lose huge sums of their money. Apart from his business collapsing, he also lost his own freedom, as he is now serving 150 years imprisonment; this is actually equivalent to life imprisonment. However, Madolff was not to blame alone; rather employees and people who were behind him should have seen these malpractices and avoided them at an early phase. This is where moral and ethical considerations come into play and an indication that all the people in this corporation had lacked integrity.

There are many other ethical and moral issues surrounding Madoff’s case. Madolff exemplifies an individual with no respect in his her work. In addition, he disregards individual relationships that he fights hard to establish for many years. Despite being respected and trusted by his clients, and many other people including government officials, he failed to reciprocate this respect.

It is probably true that Madolff and his employees understood quite well that what they were doing was unethical. What they did not however, realize was that there unethical ways were numbered and was a recipe for the organizations failure. For an organization to achieve positive returns employees have a great impact in that perspective and being ethically responsible is one of them. The competitiveness and ability of the employees to embrace morality so as to achieve the company goals is an important factor. Good ethical practices by the management and employees in the work environment are an indication that these workers, are proud of their company. Further, good ethics means that employees and the management show respect to other workers, management, customers, partners and suppliers(Duggan, 2013, Liveris, 2011).

Business Ethical Theories

In instilling the ethical culture in an organizations’ workforce, managers and employees ought to put into practice theories related to an understanding of ethics. Hartman developed one such theory which he named the model of axiometrics. This involved ethics of intrinsic thinking, extrinsic dimension and systematic thinking. This theory of axiometrics can assist both employees, and the management in evaluating an individual’s thought, and how they relate to his or her conduct (Connor 2009). This approach is different from that taken by Conventional psychometrics, which poses that inductive thinking in evaluating persons conduct is essential. A good instance is whereby in evaluating and individual’s value, people are required to agree or disagree on various statements; their responses are then used to evaluate them.

Axiometrics Ethical principal will be best applied in instilling and evaluating the worker’s moral development. This is because this theory portrays a sense of reality as it incorporates the three systems of thinking: intrinsic, extrinsic and system. Employing this principal in a work environment is highly beneficial to both the employees and workers in their ethical evaluating of decisions from different perspectives. In other word Axiometric principles is deductive: that is, it uses different approaches in evaluating individuals. It does not tie itself to a specific type of reasoning. In addition, it identifies a malfunction and tries to figure out its specific causes. If employees at Madolff company had been acquainted with this principle, then they could have either stopped the operations or quite the company altogether, but instead, they assisted by supporting it.

Another significant theory that could be applicable in this perspective is the social contract theory. Hasnas (1998) a professor at Georgetown University is the pioneer of this theory. The author postulates in this theory that all business entities ought to be concerned on the aspect of improving their communities’ welfare in general. However, Mudoff’s rogue organization was not interested on the communities’ welfare as they extorted money from vulnerable people who were not aware on his under dealings.

According to Paliwal, M (2006), the basic responsibility of any businessperson or organization is to effectively, and efficiently manage the business. They should subsequently extend the business resources to achieve the particular goal(s) for which the organization was established. The theory of social contract was based on the traditional social framework. This framework is based on the agreement between society and an artificial organization where the society identifies the prevalence of an organization on the fact that it adheres to the communities’ interests.

Conclusion

In Benard Madolff’s case, we find the essence of applying common sense in our day today activities. Investors with Bernie Madoff could be perceived as people who were obsessed with greed, lack of diligence, hard mentality and so on. This is because they could not use their common sense the same way Markopolos had used his to reason that the kind of returns put forward by Madoff could not be in reality practical. Harris Markopolos understood this at the first instance that Madoff’s theory in providing extremely glittering hopes for his investors was simply not practical at all. This offers us a lesson that we have to be careful enough on some cronies’ antics lest we be dubbed in such get rich quick schemes.

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