Tyco Scandal PDF

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Tyco International: Leadership Crisis

Anonymous Business School, University of the People BUS5113: Organizational Behavior Darryl Frazier Oct.21.2020

2 Tyco International: Leadership Crisis Provide a brief summary of the corruption case Dennis Kozlowski began working for Tyco in 1975 under the reign of then CEO Joseph Gaziano. Kozlowski was mesmerized seeing Graziano’s lavish lifestyle and aimed to be like him one day. In 1982, Gaziano died of cancer, and a new CEO, John F. Fort III, was appointed. Unlike Gaziano, Fort was analytical and thrifty. Kozlowski didn't like the change of CEO, but yet he adopted Fort's vision. Soon after, Fort noticed Kozlowski's work, and Fort promoted Kozlowski to the president of Grinnell Fire Protection Systems Company, Tyco’s largest division. Over the next few years, Kozlowski continued to rise Tyco’s corporate ladder. He later became the company's president and then CFO. After Fort’s departure, Dennis Kozlowski appeared to be following in the footsteps of his mentor, former CEO Joseph Gaziano. In 2002, Kozlowski, along with former CFO Mark H. Swartz, were arrested and were charged with misappropriating more than $170 million from the company. They were also accused of stealing more than $430 million through fraudulent sales of Tyco stock and concealing the information from shareholders. During the investigation, it was found that several other board members were also part of the fraud. Kozlowski was also accused of taking $242 million from a program intended to help Tyco employees buy company stock. Kozlowski granted $106 million to various employees through loan forgiveness programs. Kozlowski purchased an artwork worth $14 million for his new office in Manhattan. In 2005, Kozlowski and Swartz were found guilty and were sentenced to jail, along with a heavy fine.

Why is this a case of abuse of leadership power, unethical behavior, and corruption? Kozlowski reduced the company's overhead by slashing the manager's salaries and designed a bonus compensation package to have control over his employees. Kozlowski placed

3 his trusted people in the key positions of the company. Due to this, the key members received millions of dollars to manage Kozlowski's private fund. Kozlowski opened an office in Manhattan, overlooking Central Park, where he designed the office lavishly. According to BusinessWeek magazine, he boasted to a guest, “We don’t believe in perks, not even executive parking spots” (Daniels Fund Ethics Initiative, n.d.). He maintained his image in public by giving interviews in his old, New Hampshire office. When Jeanne Terrile, an analyst from Merrill Lynch, who worked for Tyco, tried speaking against Kozlowski, she was shortly replaced by Phua Young. Tyco's pace of mergers and acquisitions escalated, and many merged companies were dissatisfied with the arrangement. Because of this, the toll on workers was enormous. Discuss why leaders are held to a high moral standard The moral center of every company lies within its leaders because of their ethics and morality (Schmidt, 2007). If the leaders are greedy and unethical, it will influence the other employees. We believe leaders live by a code of conduct. As in this case study, we saw how Kozlowski maintained his public image of integrity. Leaders are believed to commit work or the company's vision. Even if they believe that they will be not able to complete the work, they still don't fear committing it. A good leader sees it as their responsibility to inspire, guide, and nurture their employees to help them improve; they lead by example (Kuligowski, 2020). Ethical leaders will not overlook wrongdoing, even in cases when doing so may benefit their businesses (Kuligowski, 2020). Leaders are held to high moral standards because they are supposed to foster a positive environment, improve brand image, prevent scandals, enhance loyalty, and improve emotional well-being. A high moral standard leader can blend personal

4 humility with an extreme professional focus on achieving a corporate vision. These leaders give credit for other's work and accept blames and responsibility (eJP, 2018). What changes were put in place to address ethical conduct? Tyco replaced Kozlowski with a new CEO Edward Breen and a new Vice President, Eric Pillmore, who was determined to revamp Tyco's ethical culture. Breen first launched a review of the company's accounting to determine any other frauds. Pillmore implemented a corporate ethics program and also created a 32-page Tyco Guide to Ethical Conduct. This guide was available in a variety of languages for global employees. Eric Pillmore worked to incorporate three elements into Tyco’s culture, i.e., strong and ethical corporate leadership, accountability, and behavior tracking processes. Pillmore also created an ombudsman position at Tyco, who can mediate between employees and management. Tyco published a confidential hotline called ConcernLINE so employees could report misconduct without fear of retaliation. By including employees in the process, Tyco is holding employees accountable as well as giving them a chance to contribute to the company’s ethical programs. Conclusion The Tyco scandal taught the business world about the misuse of leadership power, unethical behavior, and corruption. The scandals showed the things happen when the company put too much trust into one person. Acquiring too many companies put a toll on workers, which led to demotivation. The employees had an authoritative leader where speaking against him means losing your job. Although it's not impossible to revive a company from a scandal, it takes an ethical and effective leader. With integrity and proper ethical behavior, no scandal can thrive.

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References Daniels Fund Ethics Initiative. (n.d.). The University of New Mexico. Retrieved from https://danielsethics.mgt.unm.edu eJP. (2018, January 16).

Should leaders be held to a higher ethical standard? Jewish

Philanthropy. https://ejewishphilanthropy.com/should-leaders-be-held-to-a-higher-ethicalstandard/ Schmidt, D. (2007, September 12). What is the moral responsibility of a business leader? CIO. https://www.cio.com/article/2438061/what-is-the-moral-responsibility-of-a-businessleader-.html Kuligowski, K. (2020, October 13). How to be an ethical leader: 7 tips for success. Business News Daily. https://www.businessnewsdaily.com/5537-how-to-be-ethical-leader.html

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