Case Study Paper
In 2002, Tyco International became the center of attention in a fraudulent scandal. CEO Leo Dennis Kozlowki, and CFO Mark Swartz, among other members of the board of directors in Tyco International, were found at fault for the misuse of company funds. The internal investigation and federal finding revealed that Tyco’s money was use for personal forgiveness loans, bribes paid in form of bonus for business deals, disposal of employee programs, personal purchases, and tax evasion.
This paper answers case study questions to provide an overview of Tyco’s ethical and legal issues, company culture, and the role that both top executives and board members had in this scandal. It also presents and recommends the course of action that the company took, and should take, to restore the trust of stakeholders while avoid fraudulent financial problems.
The Ethical and Legal Issues in this Case
There were numerous ethical and legal issues in the Tyco case. The most damaging issues were accounting fraud, misleading of board members and shareholders, and expense abuses committed by Kozlowski and his counterparts. Over $150 million were stolen from the company in the form of massive bonuses and commissions paid to Kozlowski and other board members. Kozlowski committed tax evasion in New Hampshire and New York. He cheated his employees out of their stock options and used the money to buy yachts, art, and vacation homes.
The Role That Tyco’s Corporate Culture Play in the Scandal Tyco’s corporate culture played the role of being supporters of Kozlowski’s greed. This corporation exacting culture was focused on the rapid growth and profitability rather than concern for all stakeholders. While in the role as president of Tyco’s largest division, Grinnell Fire, Protection Systems Co., Kozlowski created a competitive culture among managers. He established bonus programs for managers, awarding them publicly for the worst-producing unit and the best. He earned the reputation of being a “corporate tough guy, respected and feared in roughly equal measure.” His reputation was based on his aggressive approach towards overtaking his division’s competitors, turning them into profitable units for growing Tyco’s portfolio. Kozlowki’s acquisition and merger practices later resulted in the resignation of CEO John F. Fort III. The board turned away from Fort’s conservative and profitable approach to support Kolowski’s largest acquisition plan. They made Kozlowki CEO in 1992, with an exorbitant salary of $170 million making him the top paid CEO in U.S.A. However, even the highest CEO salary was not enough. Kozlowski proved to be a protégée of his former Tyco’s CEO, the late CEO Joseph Graziano, whose leadership was based on indulging in a lavish lifestyle using Tyco’s incentives. Tyco’s culture of greed was a significant factor in Kozlowki’s unethical decisions. The roles that the board of directors, CEO, CFO and legal counsel played The CEO was the ringleader for the ultimate downfall of Tyco. Leo Dennis Kozlowski was the CEO responsible for the hiring of and positioning of the legal counsel and board of directors. Kozlowski knew what he wanted, knew what it would take to get there and knew who would help him accomplish this. Leo Dennis Kozlowski had an accounting background from Seton Hall University. He started from the bottom of the Tyco workforce and worked his way up. When he started at Tyco he “found a friend and mentor in CEO Joseph Gaziano” (Ferrell et al 334). Gaziano was known for living a lavish lifestyle. Kozlowski learned from Gaziano and dreamed of being in his shoes. John Fort III replaced Gaziano after he lost his battle with cancer in 1982. Fort was the opposite of Gaziano, “Fort was analytical and thrifty”. Kozlowski was able to impress Fort. He earned the admiration of Fort with his ability to “cut out extras and...