1. Evaluate the corporate governance of Tyco International under Kozlowski, in particular the functioning of its board!
Mr. Kozlowski ran a decentralized company, allowing for high autonomy and an entrepreneurial culture. Executives were empowered to act in the company’s best interest and received compensation based on the company’s growth targets, whereas non-executives got rewarded based on their individual performance. Consequently, it incentivized all employees to perform well. In addition to motivating employees to meet growth targets, Mr. Kozlowski initiated many acquisitions and in some cases to smooth out the earnings of Tyco, because it was smaller acquisitions that did not need to be reported. The functioning of the board started out well, where all parties enjoyed the loose corporate culture, but eventually this structure triggered misconducts in the top management.
2. Can you identify any issues/problems with regards to Kozlowski’s relationship with the board of directors? The main issue between Mr. Kozlowski and the board of directors was the lack of transparency. The board did not take part in the reports from the internal auditors, which solely was reported to Mr. Kozlowshi, neither were they informed about his projects that required capital from the company. To have a well established communication and transparency between these two parties is an essential element at any firm. The corporate policy of decentralization was also present in relations to the board of directors. They trusted Mr. Kozlowski and his management too much based on financial statements that had been tampered with. Because of his great track record the last 10 years, they almost became blinded by the fortune and did not question Mr. Kozlowski’s actions.
The betrayal of Mr. Kozlowski and the ignorance of the board, resulted in a destruction of shareholder value and a sharp decrease in the firm’s credibility.