Bernard Madoff Case

Applying the 9-step process of Value-Aligned Leadership to Madoff’s Case

Bernie Madoff’s case raises ethical issues in handling investors’ money, from the way he ran the company to the mode of operation in which he guaranteed above-average returns to investors. There was an obvious conflict of interest and, ultimately, fraudulent transactions meant to hoodwink the naïve public into believing that Madoff was making the billions he claimed to be making for the investors. Red flags were raised in the numerous complaints raised by the public on the conduct of Madoff, but the SEC failed to act diligently on them, leaving the public exposed to Madoff’s fraud for three decades (Stanwick & Stanwick, 2016, p. 279). Applying the nine-step process outlined in the values-aligned leadership model will be applied to Madoff’s case, and a conclusion on applying the same in a global organization will be made based on the assessment of its applicability to the case study.

At the core of running the brokerage and securities firm, Madoff ought to have envisioned the purpose of the business. Here, the management of any company has a fiduciary duty towards its investors and should always strive to earn profits for the investors (King, 2003). However, Bernie falsified his firm’s operations and operated in secrecy without considering the impact this had on creating an impression of a successful business. In the end, without an explicit purpose for the business, Madoff was able to attract unsuspecting customers who invested billions of dollars in his fraudulent business. His business model, where he rejected some investors and recruited high-end clientele, made his business look legitimate and one attracting wealthy investors’ attention, but this was all a lie. Had he been open with the business model and explained to investors how their money was invested in guaranteeing the stated returns, then most would have realized it was a Ponzi scheme that was destined to fail (Shafritz et al., 2016). A constant and consistent assurance of the investors of the purpose and business model adopted is a must to win the confidence of the investors.

Coupled with the organization’s purpose articulated in the firm’s mission statement are the core values that the organization operates in. In the case of Madoff, there was a lack of accountability, openness, and integrity in the way the business was run. As Madoff put it, the organization’s core competencies were all riddled with secrecy as investors’ money was not invested. A red flag for the investors should have been the magnitude of cases brought before the SEC challenging the model of business run by Madoff, including Markopoulos’ 17-page memo to the SEC detailing all areas that pointed to fraudulent dealing by Madoff (Shafritz et al., 2016).

In the identification of the complete list of stakeholders, the management must understand its role towards its employees, investors, regulators, and all involved in the realization of the firm’s objectives (King, 2003). Madoff was an influential Wall Street business person, and this made him get away with SEC’s scrutiny. As such, his duty towards running an ethical business under the regulator’s watch was impossible, jeopardizing the subsequent role of prioritizing the stakeholders. As a manager, the ultimate duty is the fiduciary responsibility towards the investors, which Madoff failed to uphold. Fraudulently manipulating trading records to create an impression of a successful business is a defeatist endeavor that must be discouraged by any manager.

Having identified that the business model adopted by Madoff was deemed to fail, there was the need to come up with alternative decision-making and course of action to salvage the situation. Business acumen is required of any leader in the position of Madoff to know the best alternatives to undertake to save investors money and prevent the situation from spiraling into what became of Madoff.

After determining that there was a need to employ an alternative course of action in running the business, Madoff should have resorted to professionalism in managing the investors’ funds. This would mean that he had to restructure the operations of the securities and brokerage firm. to replace his close family members involved in the daily running of the firm with professionals who knew how to invest the money collected from investors and earn profits rather than continue running a fraudulent business. Any ethical dilemmas in realizing the stakeholders’ duties have to be addressed internally, and instances of conflict of duties must be addressed (King, 2003).

Lastly, in keeping with running an open and ethical business, full disclosure to the stakeholders about the operations of the business is required. This was lacking in Madoff’s case as the trading records were manipulated to suit the need to maintain a positive public image. In running such a business with billions of dollars at stake for investors, compliance with the regulatory standards on financial records and business model disclosure must be adhered to to protect the investors.

Conclusion

In light of what was at stake in Madoff’s case, all global organizations must adopt value-aligned leadership in managing investors’ funds. More so, compliance with the set laws in the business is a must, as failure to do so can be detrimental to the investors. Had Madoff run a transparent business and complied with SEC’s requirements, the loss of funds by the investors would not have occurred. Business managers must operate ethical businesses to avoid legal and financial repercussions for fraudulent operations.

References

King, C. E. (2003). Toward a better model for values-alligned leadership. Colorado Christian Univeersity.

Shafritz, J. M., Russell, E. W., & Borick, C. P. (2016). Chapter 9 strategic management and government regulation. In J. M. Shafritz, E. W. Russell, & C. P. Borick, Introducing Public Administration (pp. 325-355). New York: Routledge.

Stanwick, A. P., & Stanwick, D. S. (2016). Understanding business ethics (3rd ed.). Thousand Oaks, CA: SAGE Publishing.

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Session 4 Values Aligned Leadership Case Analysis 

Bernard Madoff Case

Reading and Viewing Assignments

Please complete the following before this session:

Reading:

Stanwick, P., & Stanwick, S. (2016). Understanding business ethics (3rd ed.).

• Chapters 1: The Foundation of Ethical Thought (pp.15-18)
• Chapter 12: Establishing a Code of Ethics and Ethical Guidelines
• Chapter 13: Evaluating Corporate Ethics

Sire, J. W. (2009). The universe next door: A basic worldview catalog (5th ed.).

• Chapter 7: Journey to the East
• Chapter 8: The Vanished Horizon

Towards a Better Model for Values-Aligned Leadership (pdf)

Instructions

After reviewing the white paper entitled,  Toward a Better Model for Values-Aligned Leadership (pdf)

• select one of the following cases from Stanwick and Stanwick (2016):

1. Case 1: Bernard Madoff – How “One Big Lie” Can Destroy Thousands of Lives (p. 278-285)
2. Case 9: HealthSouth: The Rise and Fall of the Scrushy Empire (pp. 345-351)
3. Case 21: Tyco: I’m sure that is a really nice shower curtain (pp. 442-455)

• Then practically implement the nine-step process from the Values Aligned Leadership model. How would you have applied the VALs process on the case you selected? Conclude with an overall assessment of the value of applying the Values Aligned Leaderships (VALs) model in global organizations.

Prepare a three page response paper (five pages total including cover page and reference page) that applies an interdisciplinary and multidimensional approach to ethical and analytical problem solving and demonstrates valid and reliable research-based methods for applying leadership theory to practice within the context of ethical theory and biblical worldview. Develop your paper based on the reading assignments, discussion forum, and session assignments, integrating biblical principles with outside research-based resources to support your presuppositions. A good paper should include at least three sources in addition to the course texts and be formatted according to APA requirements.

In this and all other papers in this class it is recommended you develop an outline and working draft of several pages, then boil your thoughts down to three pages plus cover page and references (5 pages total). By doing so you will be able to provide a concise and organized response that contains the most salient points and logical reasoning. You must come to a conclusion. Suggestions for how to do this are in the  Example Outline (pdf)

Click on the Session 4 Values Aligned Leadership Case Analysis link to submit your assignment by the posted due date. Review the rubric available in Due Dates and Grades for specific grading criteria.