Ethics and Corporate Fraud Cases

This assignment delves into the realm of business ethics by examining real-world corporate fraud cases such as WorldCom and Bernie Madoff's Ponzi scheme. Students are tasked with analyzing these cases through various ethical frameworks, including Kantian ethics, consequentialism, and egoism. The goal is to understand how different ethical theories can be applied to assess the moral implications of unethical business practices and their consequences.

Running head: CORPORATE GOVERNANCE AND ETHICS
Corporate governance and Ethics
Name of the Student
Name of the University
Author name

Executive Summary
The report puts light on the various policies that are taken up by the moral agents to
create a better image of the company in the market. This is mainly the public relation sector
of the company that looks after the issues that deal with the image building and maintaining
in the public sphere. The corporate governance policies enable the organization to create a
positive relationship with its shareholders, employees and the people in the market who are
connected with the company. The purpose of this report is to focus on the various ethical
practices of the company moral agents that deter the sustainability of the organization in the
market. WorldCom and Bernard L. Madoff Investment Securities are the organizations that
ceased to work in the 21st century due to discrepancies in the ethical dimension of the
company’s moral policies. To conclude, the report presents the core issues that lead to the fall
of these companies in the market.

Table of Contents
Introduction................................................................................................................................4
Discussion..................................................................................................................................5
Ethical Theories.....................................................................................................................5
Application of ethical theories...............................................................................................8
Bernard Madoff..................................................................................................................9
Bernard Ebber (WorldCom fraud)...................................................................................10
Conclusion................................................................................................................................12
Reference list............................................................................................................................14

Introduction
Corporate governance refers to the set of policies and conducts which are used by an
organization to direct and control the entire work process. The way in which authority and
accountability flow between the stakeholders, Shareholders, CEOs and the various managers
in the company is known as corporate governance (Tricker & Tricker, 2015). The managers
and shareholders have a common interest in respect to the company’s growth (Beery &
Wilcox, 2015). However, the problem occurs when these interests diverge in their intentions
and take a personal turn rather than the shared common goals. An organization must have one
interest group that follows the common interest of company’s growth so that in return they
are served with better incentives for their hard work in taking the company to the dream
position. The situation worsens when the interest groups are more than one and people are
enriching themselves rather than the company. The managers or the moral agents of the
company are far more expert and fluent with the aspects of management than the
shareholders (Glinkowska, 2017). This can lead to them taking decisions that are meant for
personal benefits rather than long-term benefits of the company. The report aims to shed light
on the various issues of corporate governance together with the ethics that are to be
maintained by the moral agents of the company. WorldCom and Bernard L. Madoff
Investment Securities faced decline due to their misconduct towards the ethics of corporate
governance. The moral agents, namely Bernard Ebbers and Bernard Madoff of the respective
companies will be taken into consideration for the report. The success of a company in the
market and the extent of trust it garners among its shareholder depends on the various values
that are to be maintained by the company agents to ensure stability in the market. The moral
agents have the immense duty to abide by the ethics and to understand that they are
responsible towards the all those who are associated with the company (Harris, 2013). The

discussion will lead to a better understanding of the practical implementation of these ethics
and guidelines that are to be followed by the morals agents of a company.

Discussion
Ethical Theories
According to Goldman, ethical theories cover the field that systemizes, defends and
randomizes the ideas of right or wrong behavior pattern A person who works as the agent of a
company dealing with the moral aspects of the working process must have the capacity and
ability to perform in a moral way and make proper moral judgments. The company
executives who works as the moral agents are the ones who need to have a rational thinking
base and the individual must always resort to ethical and virtuous practices. According to
Melden, the ethical theories can be divided into two further segments-
 Consequentialist theories
 Non- consequentialist theories
Consequentialism set of normative ethics believe that an action is judged as right or
wrong by the result it creates after implementation. This set of theorists believes that it cannot
be decided that a decision taken up by a moral agent was wrong unless we find the results
from the decision taken (Carlson, 2013). It is often found that at times the moral agents take
some harsh decisions that are not abiding by the ethical code but they end up adding
positively to the company. Hence, only the outcome decides if the step taken was right or
wrong. The consequential theories are-
 Egoism
 Utilitarianism
Egoism theory is a consequential business theory that pursues self-interest as the primary
target (Broad, 2014). The theory is an opposite of altruism, as the latter believes in the benefit
of others rather than the benefit of self in the ethical egoism theory (Salmieri, 2015). The

individual gain is the biggest motive that fuels the egoist moral agents and this leads to
realization of the fact that an egoist is not selfish. However, the words egoist and selfish are
relatively similar but it is not necessary for an egoist to be selfish. The egoists pursue
individual advantage and if this can be done by helping others than that is what they will do
so that the ultimate benefit is associated to them. It does not necessarily mean that egoists
behave maliciously and treacherously with others. There are two kinds of egoists: Personal
egoist who only care for their own interests, and the impersonal egoists, who are those
individuals that claim that the chasing one’s interest will motivate the entire the group
(MacDonald, 2015).
Utilitarian theory of business ethics refer to the theory that suggests that the selection
of a decision depends on the extent of benefit it will incur to the maximum number of people.
A decision will be taken for the maximum benefit and whatever is decided will be regarded
as the ethical decision if it results in incurring the maximum benefit for the people associated
with it (Neher & Sandin, 2015). The short-term benefits are targeted or the long-term ones
remains a foremost concern of utilitarian theory being in practice. As it is, something that is
targeted for the maximum benefit hence the duration of the benefit ripped from the decision
is something that the executives must be concerned with while using this theory in their work
process.
The non-consequential theories of refer to the set of business theories that fall under
the set of normative theory. This set of theory belives that a decision should be taken keeping
in mind the goodness and morality rather than always thinking of the possible outcome that
may profit or loss. The theories are based on the moral goodness and badness of a decision
that will be taken by the company moral agents. The Non-consequentialist theories that are
applicable in business are as follows-
 Virtue theory

 Kant’s ethics
 Ethic of care
Virtue theory is a non-consequential business ethic that deals with making decisions
based on certain virtues that ensure the desired result. The ‘virtue’ in virtue theory lies in
selecting the trait that is required to select between the extreme points of decision making that
involves either courage or cowardice in the managers part (Bell, Dyck & Neubert, 2017). The
agent is continuously involved in finding a way to get a balance between the two extremes.
The various virtues that guide the decision making process are courage, integrity, wisdom
and fairness. Virtue ethics pursues morally approved excellence to achieve flourishing.
According to Vaughn, the virtues taken into consideration can be divided into two categories:
self-regarding and other-regarding. The main feature of this practice lies in its core concept of
development being a fundamentally moral process.
Kant’s theory of business ethics deals with the need of the human being to respond to
the moral needs firstly without any second thought. If there is a need to do something that is
moral an immediate moral requirement then the individual should look no further and do the
duty. Kant believed that human beings are blessed to have a rational thought system and they
should use it to the greater extent because no other being in the world has that ability (Bowie,
2017). Kant’s idea of categorical imperative is something that he refers to as universal law.
For all human beings the categorical imperative has to be the same so that people respond
morally to the requirements that arise in their immediate surroundings (Kant, 2014). The
decision making process of the managers must be inclined towards the idea of categorical
imperative. People should not be treated as resources that will help in meeting the ultimate
goal, a morally healthy bond and thinking has to be kept so that people do not lose their trust
on the organization and they do not further feel being only used for the advantage of the
company. The critics have argued that whether the categorical imperative will always lead to

the betterment of the company is a huge question that can never be answered with any surety.
A person being used as means is a concept that is under the scanner to get a better idea that
what Kant actually meant by this ‘use’ that he refers to.
Ethics of care is an approach that is distinctive to moral theory that gives importance
to responsibility, relationship and concern unlike the utilitarianism or the deontologism
(Barnes, Conradi & Vosman, 2015). This concept is relevant for people who care for other
individuals and are so much eager to be of help that they can even break rules and ethics just
to be morally correct. The ethics of care theory questions that whether the justice is being
conveyed correctly to the person along with ensuring equality. This thought and ethical
practice has emotions attached to it, as the person thinks himself in place of the sufferer and
takes the decision based on the emotional impulse that comes in the mind (Muhtadie et al.,
2014). The suffering of any person is not to be withstood by those who follow this theory in
their business practice. However, the critics have rightly pointed that such a thought will
restrict an individual from thinking rationally in situations that may be extremely emotional
in nature. Individuals with emotional mindset may indulge in taking regular wrong decisions
due to the constant emotional pressure put on them. It can be the a weak point that will be
regularly used by people to get their task done by the person. Proper application and
understanding the actual need to use the theory ultimately depends on the person who will
take the decision.
Application of ethical theories
Corporate governance and the ethics that are related to it are the most important part
of organizations sustainability in the market. A breach in these ethics can lead to serious
consequences on part of the organization’s overall image and position in the market. Below
listed are two recent case studies that prove the above statement.

Bernard Madoff
Bernerd Madoff was the CEO of Bernard L. Madoff Investment Securities. The
company was popular among people at a time for providing high returns on the investments
that would be made in it. The rates of return were very consistent and high. People started
realizing that this entire money making scheme may be part of Madoff’s greater plan of
running a Ponzi scheme amidst the people (Ponzi, 2015). The level of assurance for the
unrealistic returns that the investments were paying was something that raised many eye
brows and lead to many investigations by the Securities and Exchange Commission (SEC).
The competitors in the market were alarmed by such rates of return that were nowhere close
to what was being prevalent in the regular market scenario. It was furthermore discovered
that fake trading was being practiced on Madoff’s name to generate money to refund to the
people who were investing in the scheme. The trading was doubted to be taking place through
an independent third party and not directly on Madoff’s name (West, 2017). As the
investigations progressed, SEC could not find sufficient evidence to show that Madoff was
running a ponzi fraud and this lead Madoff to using this clean image to popularize his
investment schemes more. The stunt allowed him to add credibility to his investment ideas
and he presented those in a way that everyone realized that the schemes were good and had
nothing wrong about them because the SEC could not find anything. On part of the SEC it
can be seen that they did not indulge into the deeper aspects of this case to find out the actual
ponzy scheme that was being operated by Madoff to gain profit for the investments.
Madoff was an egoist person to the core and only thought about achieving wealth and
creating a huge image in the market as someone who could sense the financial trends in the
market. His ideas are consequentialist in nature and follow the lines of egoism closely to
achieve faith in the market and create an image of dependability. He was also held
responsible for mishandling huge amounts of money of investors for personal benefit. For

him nothing ever existed than his happiness and financial greed. Being an agent of the
company and dealing with the moral and immoral practices in and out of the company,
Bernard Madoff was completely immoral and had no wish to work for the betterment of the
company (Monaghan & O’Flynn, 2017). Breaking the ethics lead to massive debacle in the
company image and the company had to finally come down in front of the law. Dismissing
the non-consequentialist idea that was propounded by the greatest minds like Kant leads to
many levels of imbalance in the entire work process. The agency managers should learn and
follow the non-consequential theories that enable a greater sustainability to the organization.
The morality of the company should remain same in every situation and the requirements of
others should be seen as the foremost concern when it comes to taking decisions. It is not
always the case that taking a consequentialist decision or strategy leads to loss but when
personal motives are imbibed then it leads to devastating outcomes such as the case of
Bernard Madoff (Baron, Zhao & Miao, 2015).
Bernard Ebber (WorldCom fraud)
The WorldCom fraud was one of the biggest public accounting fraud in the history of
global corporate. There was found more than $11 billion of fraudulent entries in the accounts
of WorldCom. The fraud amount was so huge that it made up about 29% of the annual
revenue for the year 2002 (Wisner & Brown, 2015). The fraud was a joint action by the top-
level accountant and managers of the WorldCom and the person heading this fraud was
Bernard Ebbers, the CEO of WorldCom. The organizational control was weak that allowed
such fraud to happen inside the company and as because it was a top-level conspiracy,
nobody from the organization even tried to whistle blow the entire thing out in public. The
company started schemes that reversed allowances to the customers and this allowance was
without any strong justification. The motive for such a huge fraud had two intentions –
Corporate and Personal. The company had a down and degrading economical situation, they

were nowhere near meeting the Wall Street expectation from them, and to hide these
discrepancies they came up with the idea to fraud the financial reports that became their
corporate motive. On the other hand, the personal motive included the enrichment of personal
wealth and power with the use of corporate assets. According to Gottschalk, Bernard Ebbers
pursued power and advancements in the professional career and for that purpose; he
manipulated the numbers largely in the financial reports. Ebbers filled up the expenses of the
company as its investments, which lead to inflated figures in the profit of WorldCom
(Kashyap, 2017). The inflated figures allowed the company to gain a heightened status in the
market and impressed everyone with such a huge growth in their economics. Bernard
gimmicked the finances to prove that the company was speeding to victorious growth
whereas the truth was something else and WorldCom was deteriorating every passing day in
its financial aspects.
The image of a company rests on the shoulder of those who are at the position of
creating a better company profile in the market. The company has a face that earns trust from
those in the market. It takes years to build the relationship that enables a company to work
with profit and popularity in the industry it is catering. The public relations of the company
maintains this image but the top level officials are the actual face representatives of the large
companies that exist in the business. Bernard Ebbers was in such a position for the
WorldCom and his extensive misuse of the power led to the complete abolition of the
company from the market as people lost faith in it. Being egoist in nature, Ebbers only
pursued his self-interest and the motive was extremely selfish in the decisions he took for the
company. The consequences were not aligned to the needs of the people associated with the
company and this immoral approach ultimately lead to the fall of WorldCom. The lack of
transparency in the organizational structure leads to the prevalence of the misconduct inside
the company. No one even raised a voice against the practice and the fact was that people

were not even aware of the practice that was going on constantly in the company. Every
member should be well communicated with the company in entirety; Ebbers intentionally
weakened the internal communication so that people were mostly left in dark about the fraud
in accounts. The lack of ethical constraints on the part of Ebbers was clear because he did not
care what others will go through due to the steps he were taking in pursing his own goal and
the greater good of the company was being led down.
Conclusion
The corporate governance allows for a better functioning of the entire organization
and it is further ensured by the use of ethics that are necessary to ensure a proper functioning
of the system in a moral direction. Both the cases that were studied in the report give an idea
that when the codes of ethics are broken, the corporate governance is pushed to negligence
the entire organization suffers from losses, and a complete disruption in the work system
occurs. Both the Bernard’s were found chasing their own accomplishments and this
pursuance of self-interest led them to taking resort to many unethical practices that
completely devastated the company image in the market. Bernard Madoff and Bernard
Ebbers were both egoist in nature and they were personal egoist. While we see that Madoff
was providing out successful returns to his investors that made him impersonal to certain
extent but for the larger part he is found to be a personal egoist because he wanted to
establish his image as someone who is blessed with the understanding of the investment
market. Bernard Ebbers on the other hand is an absolute personal egoist and he only
manipulated the figures in WorldCom reports to show that he was superior than others in the
trade and people would consider him a successful CEO of the company because he attained
such huge growth. The motive was to meet the expectation of the Wall Street but the way
taken to meet the expectation was unethical inflation of the profit figures in the accounts of

WorldCom. This was done without keeping in mind any future aspect of the practiced
manipulation, Ebbers was blinded by the greed to increase wealth and gain more power in the
industry. What ensued as a result was the fall of WorldCom from being one of the most
successful telecom companies to being reputed as a company that lead recorded one of the
biggest financial frauds in America and the entire corporate globe. To conclude it is evident
that malpractice and ignorance towards maintaining transparency in the corporate governance
and misconduct of the business can lead to complete destruction of a company’s image and
position in the market. Pursuance of personal interest does lead to extensive loss to the
company in totality and should be avoided at any cost. The egoism theory is something that
should not be always regarded as negative; both the cases show an egoist approach of the
agency manager towards the working style and target of the company being aligned to
personal targets and fulfillments. It is to be noted that there are more people around the globe
with a egoist approach and in those cases the personal interest is directly aligned to the
betterment of the company in totality and hence leads to better consequences after their
successful implications.

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