In the aftermath of the revelation that Bernard Madoff's investment fund was a tremendous Ponzi scheme, businesses have fallen under heavy scrutiny and continue to be challenged by the public as the result of a growing mistrust in the way business is conducted. Issues in management practices, like conflict of interest, can be raised from this debacle. Madoff developed a culture of individualism and arrogance that silenced any insurgence. His communication and manipulation skills helped him generate income for himself, while keeping any suspicion of fraud away. Formal control mechanisms and transformational leadership skills may have avoided such an unethical attitude. Madoff’s scam has been impacting several charities, private investors as well as the health of the financial markets. Madoff’s low moral development stage and his well oiled reputation management skills were reasons for his long lasting success. In actual fact, Madoff disregarded social impact management. Unless radical changes happen in the institutional due diligence, in risk assessment practices and in ethical leadership training, we will see more and more such cases, especially during uncertain times.
TABLE OF CONTENTS
1. The internal and external environments
1.1 Organisational culture of Madoff Securitiespage 4
1.2 The external environmentpage 5
1.2.1 General environmentpage 6
1.2.2 Specific environmentpage 6
2. Ethicspage 7
3. Corporate social responsibilitypage 9
This report discusses and illustrates the role of the internal and external environments, ethics and social responsibility in a modern organization. The main case study used is Madoff Securities, the US finance company that collapsed last year after a web of fraudulent and unethical activities were exposed. The discussion blends theory and facts, from which recommendations for better management emerge.
1. THE INTERNAL AND EXTERNAL ENVIRONMENTS
1.1 Organisational culture of Madoff Securities
A corporate culture is the present values, beliefs, and norms that exist within an organisation. Culture is the foundation that will assist in the prevention of fraudulent behaviour. It can also be looked at as a social control that can manipulate members into perceiving, thinking, and feeling in certain ways. Robins et al (2006, p. 98) identifies the internal culture of a company often reflects the vision and character of his founder. Through poor execution of all the basic management functions, i.e. planning, leading, controlling and organising, Madoff allowed a culture to develop at Madoff Securities that would accept unethical behaviour and social irresponsibility. Madoff believed he could control all outcomes. This refers to the omnipotent view of management theory. (Robins et al. 2009, p. 80). Madoff made it a point to spread a culture of greed, arrogance and exclusivity among his branch sites (Schein, p.13). Many people think that Madoff was selfish and heartless and put profit before people (Harburg, 2009). On his credit, humans are blinded by their self interest. We have little time worry about the morality that affects the common good. It appears Madoff had a strong ego and an internal locus of control as he took responsibility for consequences and relied on his own standard of right and wrong to guide his behaviour. Madoff was viewed as a charismatic man and stellar financier with favorable connections to power brokers on Wall Street. This may have given him overconfidence and high tolerance to uncertainty and risks when building his Ponzi scheme.
Madoff used his reputation as a former Nasdaq chairman to build unlimited confidence and deceive notorious victims like Elie Wiesel. Madoff relied on social engineering and the predictability of human nature to generate income for himself. Madoff used the tactic that only...