Normative ethics: utilitarianism and deontology

Abstract

Is the 25 years imprisonment presented upon Bernard Ebbers, former WorldCom CEO, too harsh of a sentence?  Using normative ethics as an analytical tool, this paper will attempts to better answer the above question.  Within normative ethics, this paper will examines utilitarianism (ethics based on quantity), and deontology (ethics based on quality).  This paper will explain how utilitarianism and deontology is pertinent to this case, and in so doing, this paper will explains why the 25 years imprisonment is acceptable under utilitarianism, but under deontology, it would requires a much lesser sentence.

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            People make choices between right and wrong dailies, and all these choices always have one similar guiding light; an important fundamental principle which dictates peoples’ behaviors, ethics.  Ethics, however, is a very broad term which encompasses vast schools of knowledge and beliefs, but for the purpose of this paper, the analysis will be relegated to normative ethics.  Normative ethics deal with the philosophical knowledge that allows a person to examines a situation, and decide what is right or wrong.  This paper will examine the case involving WorldCom, its CEO Bernard Ebbers, and the falsifying of WorldCom’s financial reporting that lose investors over eleven billion dollars.  Again, this paper will explain how utilitarianism and deontology is pertinent to this case, and in so doing, this paper will explains why the 25 years imprisonment is acceptable under utilitarianism, but it would requires a much lesser sentence under deontology analysis.

In the case involving Bernard Ebbers and his executives, their wrong doing would undoubtedly lead them to severe penalty and punishment under current financial reporting laws.  This case ties strongly to deontology in that these individuals fail to uphold their duties and obligations to the company, and their share holders, by cheating the financial system with false or misleading accounting while losing the company and share holder large sum of money.

However, from a deontology prospective, this case does begs the question as to who Ebbers obligation was toward as this could alter the judgment relating to his intention?  If Ebbers felt he holds no obligations to the shareholders and the company (those that are paying him to leads the company), then the judgment of wrongdoing could be very different.  For example, if he felt his duties was to his family, their financial gain and stability, then his actions would be bind to his duties toward his family, which mean the end state of WorldCom being cheated for Ebbers own gains would not be a wrong consequential state.

When Ebbers said, “I knew nothing” it might not be completely fabricated.  It is ridiculous that a CEO of a company was not aware of large suspicious activities under his watch, but we are human, stuff happen; hence, ruling out the possibility that Ebbers know nothing would be a mistake.  There are many cases out there that could be used to prove this possibility like having a loved one turning you in for something you may or may not have done, and then realizing that they did it through jealousy, hatred, personal gain, or malicious intent.  Maybe Ebbers had good intention the entire time, but we will never know what Ebbers thinks.  Though a final sentence and verdict was handed down by the jury and judge, and the hard “evidence” of wrong doing was there; without know what Ebbers intention and thought are, sometime right and wrong it not as clear.  If the law system sentence base upon deontology; without understanding Ebbers’s intention and obligation, the verdict of wrong doing would be much more lenient if not inconclusive.

This case may also be examines from a lower view using utilitarianism to determines if the punishment in the WorldCom case was appropriate.  WorldCom was a company that provided services for millions of people, and while Ebbers is the CEO, he is also working to provides for his family.  WorldCom employed thousands of individual, provided services for millions, and there were billions invested in the company by investors.  If WorldCom was to fail, one must examine the utilities from these entire groups: Ebbers family, WorldCom employees, WorldCom costumers, or the investors that were defrauded?   Utilitarianism is all about result, and in this situation, would legal actions against WorldCom result in a better or worst outcome as oppose to leaving WorldCom alone?

From one side, Ebbers and WorldCom provided a comfortable (extremely comfortable) life for Ebbers and his family, provided communication services for millions of people, and provided for thousands of employees and their family.  The fraud accounting will also continue to push WorldCom price higher, which will make their investor richer.

            With WorldCom getting audited, and their fraud reviewed, investors that had invested in WorldCom for it “growth” suddenly lost everything overnight, 17,000 employees lost their jobs and their mean of providing for their family, and millions of those that used their service must face switching services.  If WorldCom was left alone, many would not lose their jobs, and investors would not have lose everything overnight, but the fraud accounting would keep pulling in investors at a high premium to the true value of the company and its growth, which could eventually leads to huge loses when the company’s loses become too big to cover up.  However, giving a longer run view, could WorldCom have recovered from its downward revenues spiral?

To answer this question, one must first examines how WorldCom deteriorated so much, that is, one must examines the fail synergy between the WorldCom and MCI merger.

No one really knows what Mr. Ebbers was trying to accomplish with his acquisition. On the surface, the MCI and WorldCom merger was a success, making it one of the largest telecommunication providers, but synergizing the two companies together quickly became a problem.  They were unsuccessful in combining all the core services, customer at were having trouble with their accounts between the two companies and there were no easy way of fixing it, and overall, poor execution of the merges started losing WorldCom millions of customers that quickly hit WorldCom’s bottom-line.   Furthermore, acquisition mean personnel changes, goals, vision, and guidance change, and retraining for mangers and supervisor; and these were all internal things that were not going smoothly for WorldCom and Ebbers.  This all come at a time when the telecommunication industries were heading into a downturn.

This eventually leads to an uncertain future for WorldCom.  However; at the same time, WorldCom had become too big, investor keeps piling in, and being in a system where CEO answers to shareholders first and foremost, there were huge pressure to keep shares price up.  Secondly, Ebbers and many executive’s wealth were tied heavily to WorldCom share price; hence, there were great incentive to mask up the failing business.  Therefore, starting in 1999, and continuing into 2002, the company’s CFO Scout Sullivan and David Myers, and the Director of General Accounting, Buford Yates, started to use illegal accounting practices to inflate revenues and underreport costs.  WorldCom stock’s price continues to climb, and everyone got rich.

Given the situation, were the lost too great that if WorldCom businesses were to recovered, WorldCom would still have gone into bankruptcy?  In hindsight, the answer is no as WorldCom didn’t have the money to stay in operation, and files for chapter 11 in 2003 as its business never recovered.  However, if it could off recovered, it could off slowly fixed its book and return to being a legitimate business, and none of the negative result from the failing of WorldCom would off come true.  In that instance, it could have been a better decision to leave WorldCom along even if it was doing wrong.  However, if WorldCom was left along, future CEO and CFO might felt it is ok to alter the books, which could eventually lead to the downfall of Wall Street as a system of trade.  In that instance, regulators have to make a solid stand that false financial reporting is never acceptable.

            Regardless of what had happened, WorldCom and its founder have definitely created a convenient service for the entire world.  Relatively speaking, that’s a lot of people not including the people he has provided work for during the life of the company.  Despite WorldCom’s failure, it had once provided a futures and prosperity for millions.

            For the positive and negatives aspect of Ebbers’ term as CEO, we may not know the entire details of all that happens.  All we can take into consideration at this point is that he had tried to paints himself as a clueless CEO that know nothing about the accounting scandal that brought his company and shareholders down in flames.  Though the facts might not be all presented, and the jurors might not know everything; at the end of the day, it is what it is and in this case, he is guilty of all charges.  We, as someone that is not Ebbers, can only see Ebbers as what had been painted for us, and thus can only judge him that way.

            As unfair as it may seem, I still think CEO should be held accountable for anything that happens at the corporate level.  After all, a CEO represents what the company is, and thus, should be responsible for almost anything that happens throughout the corporation.  However, CEO being responsible, and how punishment are bestowed upon them are two different things.  There is always that case of executive doing illegal action without the CEO’s knowledge, but at the end when those executives get caught, most of the blame lands on CEO.  In spite of everything, the CEO should know everything so they usually take the heat, but they should take the brunt of the punishment.

            If Ebbers really did do what the news have been portraying, then yes I do believe that he should go to jail just like everyone else who have violated such rules and regulations in the past.  However, it should not only be the CEO who has to personally go to jail for everyone’s involvement.  Each person needs to take a piece of the pie.  Of course this depends on the situation.  Did those involved had the same mind set as everyone else including the CEO, or did they do what they did for job security fearing that would lose their position if things hadn’t been done the way their superior ask them to?

            Even though I strongly believe that Ebbers should be punish for what he did, and in this case, by serving time behind bars; I also believe that the sentence reckon upon him was too harsh.  He is already 63 years-old at the time the sentence was given.  There are murders out there who receive less than 25 years in prison.  Although he caused many investor accounts to crumble, and 17,000 people to lose their jobs, he had built something big in the process, and if left along, it could of keep on going.  There were goods being done in all the madness and lies.  Beyond that, if the case was viewed as one where Ebbers was only operating under obligation to himself or his family beyond the company, then there might not be any wrong doing.

            Additionally, Ebbers and WorldCom serves as a learning experience for future generation of investors and businesses.  He had made negative history but nonetheless, its history.  Now he needs to go out there and tell the world on what not to do.  You can be on your way of becoming a pronoun legend, but a pebble of sand can ruin your entire life, let alone career.  From a utilitarianism point of view, it is difficult to weight the good verse the bad of taking down world come, but by giving Ebbers the harshest punishment, the system hopes to prevent such situation from happening again, and felt that such action outweigh any other benefit that WorldCom could provides by staying in operation .  From a deontological, the moral reasoning to put him behind bars for the rest of his life may be over the limit.

References

Crawford, K. (2005, March). Ex-worldcom ceo Ebbers guilty. CNN. Retrieved March 1, 2009, From http://money.cnn.com/2005/03/15/news/newsmakers/ebbers/

Jeter, L. (2003). Disconnected: Deceit and Betrayal at WorldCom. Wiley.

Masters, B. (2005, March). WorldCom’s Ebbers Convicted.  Washington Post Staff Writer, A01

Moberg, D. (2003, Feburary).  WorldCom.  Santa Clara University.  Retrieved March 1, 2009

            From http://www.scu.edu/ethics/dialogue/candc/cases/worldcom.html

Romar, E.. (2006, Feburary).  WorldCom Case Study Update 20061.  University of Massachusetts-Boston.  Retrieved March 1, 2009

            From http://www.scu.edu/ethics/dialogue/candc/cases/worldcom.html

 

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