BUS UNIT 7 Tyco Internation Scandal PDF

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BUS UNIT 7 Tyco Internation Scandal...

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Running Head: CASE STUDY: TYCO INTERNATIONAL

Case Study: Tyco International The Tyco International scandal refers to the over 30 individual corporate violations of theft and unethical misconduct by former company CEO Dennis Kozlowski and former CFO Mark Swartz. Convicted of theft of as much as $600 million from the firm, these two former executives were finally convicted in 2005 with maximum sentences of up to 25 years in prison for grand larceny, securities fraud, and other felonies and for stealing $137 million in unauthorized bonuses and selling $410 million worth of inflated stock. A class-action suit followed the criminal trial, and Tyco agreed to compensate injured shareholders with $2.95 billion, and Pricewaterhouse Coopers consented to pay $225 million in damages to cheated investors (Herold, 2019). Abuse of Leadership, Power, Unethical Behavior, and Corruption Kozlowski placed trusted friends, including Swartz, in key positions. Kozlowski acted humble in public and before the board “According to BusinessWeek magazine, he boasted to a guest, ‘We don’t believe in perks, not even executive parking spots.’” (Daniels Fund Ethics Institute, n.d.). Instead, it was later learned that Kozlowski acquired a fancy, secretive office building in downtown Manhattan overlooking Central Park, where he furnished offices and apartments with expensive things for himself and his top officers and friends with Tyco funds. He continued to hold his interviews in the old, humble office building for deceptive appearances. Kozlowski used his leadership power in his top position to fund his lavish lifestyle and the world of his top friends with Tyco profits that belonged to shareholders and investors. For

example, he paid Frank Walsh, Jr. $20 million to help arrange the acquisition of CIT Group

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without the knowledge or consent of the other board members. Kozlowski, Swartz, and other offenders abused their power to engage in unethical, corrupt behavior that victimized thousands of stock owners, shareholders, and investors. Kozlowski and his team swept low enough to steal funds designated to help employees buy stock. Standards for Leaders We hold leaders to a high moral standard for many reasons. Leaders are in a position of power and influence. Socialized power benefits others; personalized power is executed for personal gain (Riggio, 2009). For this reason, we must trust that our leader has our best interest and not his in mind and actions. Being trustworthy is a high moral standard. “To be a leader worth following there must be alignment between the values you preach to the organization and the values you live out in every facet of your life. Andy Stanley.” Leaders are expected to model behavior in the workplace and in their personal that is beyond reproach. Corrupt, unethical leaders like Kozlowski are punished as criminals for their crimes. He and his coconspirators re-paid thefts and fines along with their substantial prison sentences. Tyco’s Recovery The most important move Tyco made was to replace Kozlowski with Edward Breen as CEO. One of Breen’s first efforts was to conduct a review of Tyco’s corporate governance practice and accounting system. At the shareholder’s annual meeting, members: 

Elected a new board of directors

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Voted to make all future executive severance agreements obtain shareholder approval

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Voted to require the board chair be an independent seat, not a Tyco CEO Page 2

Eric Pillmore was hired as Vice President of Corporate Governance. The new VP was chartered with implementing a corporate ethics program. Through his leadership, the company replaced 90% of headquarters staff and created the 32-page document “Tyco Guide to Ethical Conduct” to familiarize Tyco employees with the expectations of ethical behaviors and decisions. Pillmore implemented strong and ethical corporate leadership, accountability, and behavior tracking processes that stand today. A confidential hotline was published so that misconduct could be reported safely and without retaliation. Tyco now publishes quarterly reports documenting anonymous employee concerns. Tyco then split into three entities – Tyco Healthcare, Tyco Electronics, and Tyco Fire & Security and Engineered Products & Services. Conclusion The Tyco scandal taught the corporate business world a lesson about the abuse of power and unethical misconduct and placing complete power in the hands of one person. The story outlines the importance of developing and maintaining a culture of ethics and accountability. To recover from the scandal, Tyco made important steps to bring in the right leaders and focus on incorporating ethics at every level in the company. To this day, Kozlowski insists he is innocent of misconduct (Herold, 2019).

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References Daniels Fund Ethics Institute (n.d.). Tyco International: Leadership Crisis. Retrieved from https://danielsethics.mgt.unm.edu/pdf/Tyco%20Case.pdf Herold, Thomas (2019). What was the Tyco International Scandal? Retrieved from https://www.financial-dictionary.info/terms/tyco-international-scandal/ Riggio, Ronald (2009). How Power Corrupts Leaders. Retrieved from https://www.psychologytoday.com/us/blog/cutting-edge-leadership/200908/how-powercorrupts-leaders

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