Case Study: Tyco International: Leadership Crisis
Gupta Bhagirath, BUS604
Grand Canyon University
Tyco International Ltd. NYSE: TYC is a highly diversified global manufacturing company incorporated in Switzerland, with United States operational headquarters in Princeton, New Jersey (Tyco International (US) Inc.). Tyco International is composed of five major business segments: ADT Worldwide, Fire Protection Services, Safety Products, Flow Control and Electrical and Metal Products. This case study describes the Leadership crisis faced by Tyco International and its rebuilding an empire again. In 2001, Dennis Kozlowski, chairman and CEO of Tyco International, was identified by Business Week as a manager to watch. In 2002, it turned out that he certainly was the man to watch!!! Tyco International is an American conglomerate, operating in the electronics, healthcare, fire and security systems, underwater cables, commercial finance and flow control industries. (http://www.auburn.edu/~stanwsd/tyco.html).
The aim of this case study is to answer some questions which given in next pages.
1. What are the ethical and legal issues in this case?
There are many legal and ethical issue has been given in this case. The ethical and legal issues at Tyco International range from discrimination, accounting fraud, grand larceny. The issues involved cohesion on the part of the CEO, and the members of his team. In addition, they placed great emphasis on placing their own values ahead of what was good for the organization. Ethical Issues: Leo Dennis Kozlowski handpicked a few trusted people and placed them in key positions. One of these individuals was Mark Swartz, who was promoted from director of Mergers and Acquisitions to CFO. Kozlowski also recruited Mark Belnick to become Tyco’s general counsel. The majority of the directors had been on the board for ten to twenty years, and they were very familiar with Tyco’s strategies and Kozlowski’s management style. As directors, they were responsible for protecting Tyco’s shareholders by disclosing any questionable situations or issues that might seem unethical or inappropriate, such as conflicts of interest. CEO, CFO and Board of directors are all involved in un-ethical practices to extending the business on any cost. Board of directors found in taking the bonus, CEO made payments with out informing the Board of directors, CEO involved in utilizing company fund inappropriate way and it seems that company influences to Merrill Lynch to give the company a better financial rating. Legal issues –
Board of directors found involved in following illegal activities, while their role is to prevent such activities. •Mark Swartz, CFO participated in loan-forgiveness programs. •Richard S. Bodman, a venture capitalist, invested $5 million for Kozlowski in a private stock fund managed by Bodman. •Frank E. Walsh, Jr., director of the board, received $20 million for helping arrange the acquisition of CIT Group without the knowledge of the rest of the board of directors. Walsh also held controlling interest in two firms that received more than $3.5 million for leasing an aircraft and providing pilot services to Tyco between 1996 and 2002. •Foss received $751,101 for supplying a Cessna Citation aircraft and pilot services. •Ashcroft used $2.5 million in Tyco funds to purchase a home. •Leo Kozlowski, CEO and Mark Swartz, CFO indicted on 38 felony count for allegedly stealing $170 million from Tyco and fraudulently selling $430 million in stock options; Kozlowski accused of taking $242 million from a program intended to help Tyco employees buy company stock; Kozlowski accused of granting $106 million to various employees through “loan forgiveness” and relocation programs. •Swartz charged with falsifying documents in the loan progam in the amount of $14 million. •Belnick charged with larceny and trying to steer a federal...