Tyco International: Leadership Crisis
Case Study #14
Ethical Decision Making
Case Study Prepared by:
Tyco International: Leadership Crisis
Tyco International, one of the most notorious scandals of this decade. Tyco International is a diversified manufacturer that had a big ambition in the late 1990s: to become the next General Electric. The company provides security products and services, fire protection and detection products and services, valves and controls, and other industrial products. On September 12,2002, Two of Tyco International top executives, CEO L. Dennis Kozlowski and CFO Mark H Swartz were arrested and charged with misappropriating more than $170 million from the company. Another executive and general counsel was charged with concealing $14 million in personal loans.
Tyco survived the scandal under the new leadership of the CEO Edward Breen. Breen implemented a corporate code of ethics and installed a corporate ethics program that is a role model for how one can clean up corporate misconduct.
The man behind the scandal Dennis Kozlowski, CEO. Dennis Kozlowski was born November 16, 1946 in Newark, New Jersey. He grew up in a Polish neighborhood and was the first one from his family to attend College. Kozlowski started his career in Tyco in 1975 as an internal auditor, becoming the CEO in 1992. The company massively expanded during Kozlowski’s years as the CEO. Wall street had a nickname for Kozlowski – “Deal-a-month Dennis”. (case study) His strategy worked. By the year 2000, Tyco’s revenue was $28 billion year. Kozlowski saw himself as Jack Welch, the former CEO of General Electric, bold leader who focused on winning. Kozlowksi saw himself as guru, he wanted to show the way to buy old boring companies that were not worth that much and by “hard work, rolling up your sleeves and being tough on expenses turning them into something profitable and valuable”. The company has a modest headquarters in New Hampshire, with a efficiently controlled staff . “Lean, mean, efficient machine”. Kozlowski was one the highest paid CEO’s in America. In 1996 he made eight point nine million dollars, three years later, in 1999 he made one hundred and seventy million dollars. Kozlowski explained his earnings by “stock performance”. By 2001, Kozlowski spent over $13 million on expensive art pieces purchased in New York. Taking advantage of the company’s headquarters in NH, the state he had empty art boxes shipped to New Hampshire; in actuality the masterpieces were sent to his new apartment in Manhattan. Kozlowski evaded more than one million dollars in sales tax. Kozlowski continued to spend money. He was into sailing and spent fifteen million dollars on the Endeavour, a so-called J-Class vessel, that was built for British aviation pioneer and yachtsman Thomas Sop with to compete in the 1934 America's Cup. Kozlowski gave away millions of dollars to schools, charities in Nantucket, New York and Maine. He spared no cost in acquiring his homes. In 1997, Kozlowski spent five million dollars on his Nantucket home, he purchased a Mediterranean style mansion in Boca Florida for nineteen million dollars, he also bought a ski lodge in Colorado and a sixteen million dollar corporate apartment in Manhattan, paid for with Tyco money. Kozlowski spent S11 million on apartment interior, which included a six thousand dollar shower curtain and $15 thousand dog shaped umbrella stand and an additional $2 million for his wife’s fortieth birthday party in Sardinia.
What role did Tyco’s corporate culture play in the scandal? Kozlowski's charismatic leadership style combined with the firms decentralized structure meant that few people, including the board of directors, accurately understood the firms activities and finances. Those who did where shot down and his ousting of employees who were critical of his decisions are indicators of Kozlowski's unethical behavior. (case study) Top management provides a...
Cited: 1. Tyco 's cost tyrant. 2001. Strategic Direction 17, no. 5 (May 1): 9-11. http://www.proquest.com.dbgw.lis.curtin.edu.au/ (accessed October 17, 2007).
2. Louis Lavelle in New York (2002, November). REBUILDING TRUST IN TYCO Wharton 's Mike Useem aims to overhaul the corporate culture. But was he too close to the problem? Business Week,(3809), 94-96. Retrieved October 17, 2007, from ABI/INFORM Global database. (Document ID: 242526061).
3. 2007 Tyco International, Ltd. - Board Governance Principles
4. Ferrell, Fraedrich, Ferrell “Business Ethics”, 7th & 8th Edition, Ethical Decision
5. Bloomberg Business week: “Solving Tyco’s Identity Crisis”, Feb. 7, 2008.
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