Essay on Managment: Summary of Scenario and Ethical Implications

Bernard Madoff was involved in a fraud case that involved the Ponzi scheme by luring investors to give him money and expect 50% returns on the investment within 90 days. The business was able to operate because the money brought in by new investors would be used to pay the old investors thus making people believe that the scheme was a clean business yet there were no profits gained from it. Madoff was caught up in the fraud scheme when issues began deteriorating, and the investors decided to request for returns amounting to $ 7 billion. Madoff only had $300 million to give the investors and it made them feel betrayed by a person they trusted would enable them to earn profits without losing their money. Madoff was later convicted due to the fraud act he engaged in (Stolowy et al., 2014).

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The fraud case affected the investors, the organization, and the society. The investors lost large amounts of money and lost trust in such schemes as well. They had invested in the scheme to acquire more money that later turned out to be a fraud. The fraud case was unethical to the investors because every investor expects returns on the business, however, for Madoff, he stole the money, and lied to the new investors that the business had profits yet it did not have any. The organization was a good scheme before Madoff began controlling it. People had already trusted it and were actively investing in it. It later lost its investors when Madoff came in, and the fraud case was also associated with the other employees such as the finance and accounts officers who had been influenced by Madoff to engage in the fraud, which is unethical. The society lost its faith in the schemes as well as popular people who may be controlling such schemes. Madoff used to have a good reputation before the Ponzi scheme but later made people lose trust in him because of the fraud committed in the scheme.

Terminal and instrumental values

Rokeach has identified two different types of values that a leader could use in the management of an organization. There are terminal values, which are the objectives people work towards and perceive them as the most required and most people strive to achieve them in their lifetime. The terminal values outlined by Rokeach include happiness, social recognition, self-respect, true friendship, and a comfortable life (Tuulik et al., 2016). Instrumental values, on the other hand, are modes of behavior preferred by others, and they include character traits and personality characteristics. The instrumental values identified by Rokeach are courage, ambition, independence, honesty, responsibility and self-control.

Madoff should have ensured he offered equality to his clients by offering each of them his or her share in the investment they made. Some people managed to get their profits back, but some ended up losing all their money in the scheme. He would have also valued having a positive social recognition, but he ended up defaming his name by being fraudulent. People ended up knowing him for the wrong acts he did, and he was later sentenced to jail for 150 years at the age of 70. A sense of accomplishment would have driven Madoff to have a clean business, however; his selfish acts led him to steal money from the investors thus lacking a sense of accomplishment.

A business leader needs to be ambitious in his practices to succeed in the end. Madoff should have been ambitious to grow the scheme and enable more people to benefit from it, but he instead took advantage of the situation and stole most of the money the investors placed in the scheme. People do not influence a self-controlled person especially if they want to pursue an offense. Madoff lacked self-control and even influenced others in the fraudulent act. He was not honest with the investors because he did not share the financial statements of the business with them. He should have been honest and self-controlled to make better decisions than he did.

Ethical theories and rationales

There are various theories and rationales of ethical behavior identified in the Gamble and Gamble text. Categorical imperative explains how a leader needs to have a moral duty to behave uprightly while the utilitarianism theory expects a leader to liberate the consequences and benefits of issues before taking any action (Frederiksen & Nielsen, 2013). The virtual ethics theory focuses on how a leader is responsible individually for actions taken under his leadership. The ethical egoism, on the other hand, states that the leader is self-centered in his acts and disregards what others may want. Servant leadership involves a leader taking care of the followers while altruism enables a leader to be concerned on others by helping them (Broad, 2014).

Madoff as a leader is an ethical egoist. He carried out the scheme to benefit himself and leave the investors with losses. He did not value the business to the extent of ensuring he weighs the benefits and consequences of his actions as a utilitarian would do. He went on to lie to the investors that the business made huge profits thus enabling it recover the returns of the clients and manage to expand however they were no profits made as the money used to pay old investors came from the newly recruited clients. His aim was to get more clients and make more money, but he did not worry about losses that the business would incur and if they would affect the financial status of the clients and the other employees in the organization.

The profit margins the clients were offered was unusually high, and Madoff used it as a trick to attract large investors to the scheme. He made the image of the company look valuable, yet it was not through the stream of cash flow it managed to offer to the investors. He lacked to make the schemes annual financial reports as well which showed that the business had some hidden facts that were far from the truth. The traits he portrays in the scheme activities prove Madoff as an ethical egoist as he focused more on how he would make more profits rather than focusing on how he would assist people to earn profits for a long term as well as grow the business.

Cultural implications

Ethical relativism is a theory that indicates that ethics is about the practices of a particular culture and hence an action is determined to be wrong or right depending on the doers culture (Lyons, 2012). It is, therefore, clear that an act that may be unethical may be ethical in another culture. For instance, it could be unethical to kill a person in the society for a particular culture. However, it is allowed in some communities based on the reason why the individual went along to commit the murder.

Madoffs acts may, therefore, be ethical and culturally acceptable in some cultures based on the ethical relativism theory. However, it is clear that Madoff even apologized in court for the mistakes he made where he tells one of the investors that he is sorry even if his statement may not be of help to them at that time. It indicates that Madoff realized his mistakes hence he had acted unethically to the clients. Most people commit an act and term it as ethical because it is acceptable to them and their culture. As for Madoff, he regretted his actions and even apologized showing that he had failed and acted unethically hence it would still be unethical in another culture.

Sissela Boks Model of Ethical Decision-Making

The model focuses on using three steps of analyzing ethical questions. People need to consult their conscience to view how they felt about the action they have undertaken to clarify of it right or wrong (Gamble, & Gamble, 2012). They need to determine if their actions might affect others by engaging the parties involved in the activities as well. For instance, the leader can consult the stakeholders on how to use the profits organization gains. Finally, the model focuses on the determination of a different way the team can use to achieve the objectives it has without engaging in unethical practices. The main aim of the model is to enable a person to concentrate on alternatives instead of making premature decisions that might bring losses.

If Madoff considered using the Sissela Boks Model of decision-making, he would have to rethink his strategies before implementing them in public. For instance, he would have evaded the closure of the business of he had first consulted his conscience whether the steps he is making are right or wrong. He would realize that placing of unusually high profits to attract clients would bring huge losses in the end and make clients lose their investments thus rethinking a different strategy to avoid the losses. The model would enable him to engage the clients and employees in the planning and sharing of ideas to enable the business to grow. The model would have enabled him to interact freely with the clients and enable them to help him with different strategies to invest to ensure the profits are recovered, and the business survives. Madoff would manage to come up with other ideas other than how he would fraud the investors their money. Better ideas such as how he would manage to ensure the money earns enough profits and can expand the scheme would be beneficial and would not lead to his imprisonment.

Strategies for Ethical Leadership Accountability

Leaders are the controllers of organizations, and they need to be monitored to ensure they act as they should and adhere to the policies of the company. Our organization has various strategies it has to ensure the leaders are accountable for adherence to ethical principles. The organization holds a leader responsible for any losses in his department as the leader is the overseer appointed in a particular department in the organization. He or she needs to have noticed any losses in his department and needs to report it on time before the top management realizes there is a problem and a part of his salary is used to recover the losses. The organization also makes leaders resign from their positions when they engage in corruption or other unethical practices to avoid tainting the image of the firm in the market. The strategies limit leaders from taking part in unethical practices because they are aware of their accountability in the company.

References

Broad, C. D. (2014). Five types of ethical theory (Vol. 2). Routledge.Frederiksen, C. S., & Nielsen, M. E. J. (2013). Ethical Theories. In Encyclopedia of Corporate Social Responsibility (pp. 1071-1078). Springer Berlin Heidelberg.Top of Form

Gamble, T. S. K., & Gamble, M. W. (2012). Leading With Communication: A Practical Approach to Leadership Communication.

Bottom of Form

Lyons, D. (2012). Ethical relativism and the problem of incoherence. Available at SSRN 2117178.Stolowy, H., Messner, M., Jeanjean, T., & Richard Baker, C. (2014). The construction of a trustworthy investment opportunity: Insights from the Madoff fraud. Contemporary Accounting Research, 31(2), 354-397.

Tuulik, K., Ounapuu, T., Kuimet, K., & Titov, E. (2016). Rokeach's instrumental and terminal values as descriptors of modern organisation values. International Journal of Organizational Leadership, 5(2), 151.