The Adelphia Scandal

The Adelphia Scandal

In 1952, John Rigas purchased his own cable company. By the late 1990’s, he had turned it into the sixth largest cable company in the United States with 5.6 million customers. The business was always run as a family style business which led to fraudulent acts among family members and upper level executives. The family has been accused of stealing $3.1 billion from Adelphia and is now facing criminal charges. Adelphia was forced to file chapter 11 bankruptcy and as of April 24, 2004, the new board of directors made the decision to break up the company and sell it. The Adelphia scandal is morally wrong because the Rigas family coerced and exploited employees, harmed all stakeholders as well as stockholders, and had a negative impact on the cable industry as a whole.

The word exploit means “to use unfairly for one’s own advantage” (Mish 267). The Rigas family exploited and coerced employees by stealing $3.1 billion from the Adelphia Corporation for their own personal use. An example of the Rigas family exploiting an employee is when John Rigas asked an accountant to take out a $20,000 loan in the accountant’s name. John Rigas never paid him back. The accountant only made $40,000 at the time. Kant argues, “persons should be treated as ends and never purely as means to the ends of others” (Chapter One 22). I personally think John Rigas taking the money from the accountant is a means to the end of others. In this case, others would be the accountant. Rigas was clearly using the accountant to his advantage. He had no other purpose than to get the money for himself. Therefore, the accountant is being used purely for the advantage of John Rigas. Not only did the Rigas family exploit their employees, but they also damaged the reputation of their employees. The Rigas family destroyed all of the employee’s credibility when they decided they would steal money from the Adelphia Corporation. The way they did this was when these employees apply for a new job, they will have to write “Adelphia Communications” on their resume. The new employer may look down on them for this, even if they had nothing to do with the scandal.

In addition, the Rigas family harmed all the stakeholders. Stakeholders are those “groups who have a specific stake in or claim on the firm. Specifically suppliers, customers, employees, stockholders, and local community, as well as management” (Freeman 56). Adelphia Coliseum, now renamed The Coliseum, had to be renamed because of Adelphia’s bankruptcy. Adelphia Coliseum was a stakeholder. This made everyone who utilized the stadium a stakeholder as well. The stakeholders were harmed because when Adelphia went bankrupt, the coliseum was not completely paid for. Therefore, they had to find alternative ways to pay for the coliseum. The Rigas family was the manager of Adelphia and had a fiduciary responsibility to the stakeholders. This scandal was immoral because Adelphia did not fulfill their responsibilities to their stakeholders when it was their duty.

According to Milton Friedman, “stockholders are the owners of the corporation, and hence corporate profits belong to the stockholders. Managers…have a moral obligation to manage the firm in the interest of the stockholders” (Friedman 45). Adelphia was managed in such a way that it was not in the stockholder’s interest, in fact, it was only managed in the interest of the Rigas family. It is wrong to harm the stockholders because they have entrusted the company with their money with an expected return and maybe an occasional loss. The stockholder bought stock in this company thinking that he would be privy to information about the company and that the company would not be involved in any illegal activities that might cause the company to suddenly file for bankruptcy. A good analogy of the Adelphia scandal would be a poker game where the dealer (Adelphia) is cheating, and the gambler (stockholder) gets cheated. Harming the stockholders is immoral because they have been misled by the company and because the company was not managed in the stockholder’s interest.

Another reason that the Adelphia scandal is morally wrong is because