Tyco International:

Earnings
Management
Group 4
Mai San Yadana
De Ocampo, Gezelle
Dimalibot, Danica
Endaya, Maria Angelica Mae
Zarraga, Fatima

Histo
ry
196
0
197
4
197
5
198
0
198
2
198
6

Arthur J. Rosenburg

Tyco is listed on the New York Stock

Exchange.
Dennis Kozlowski began to work under
the CEO Joseph Gaziano.
Tyco organized its subsidiaries and
divided them into three segments.

Gaziano died and was replaced by John

F. Fort III.
Tyco reorganized its subsidiaries and
divided them into four segments:

History
(cont.)
199 Tyco International
0
199
CEO Dennis Kozlowski
2
Rumors began to spread about Tycos
199
accounting habits.
9
200 Tyco acquired more than 30 major
companies.

Tycos
scandal was taken place.
0
200
2

Introducti
Greed
on and corruption are few of the words to
describe the mismanagement of earnings
and funds of Tyco Internationals CEO Dennis
Kozlowski.

Tyco, one of America's largest

conglomerates, situated in Waltham,

Massachusetts, was founded by Arthur J.
Rosenburg.

Introduction
(cont.)
In September 12, 2002, national television
showcased Tyco Internationals former chief
executive officer (CEO) L. Dennis Kozlowski
and former chief financial officer (CFO) Mark
H. Swartz in handcuffs after being arrested
and charged with misappropriating more than
$170 million from the company.
As Kozlowski rose to become the second
highest paid CEO, some red flags pointed
toward the impending disaster.

1. CEO Dennis Kozlowski

H. Swartz

2. CFO Mark

Those who issue red flags will be

terminated

Employees are discouraged to speak

their minds

Kozlowskis self-priority
is not observed
Transparency
Unauthorized funds came out of the
company

Misappropriations
Bribery
Accounting Fraud
High Bonuses

1.

The company should have a committee of

independent non-executive directors on its
Board of Directors who are responsible for
ensuring that systems are in place in the
corporation to assure employee compliance with
the Code of Ethics.

2. The fair treatment should root in all area of

management.

3. The company should be responsible for ensuring

greater transparency in its financial reporting.

4. The company should research, develop, and

document policies and processes around that
define, identify, and report ethics violations.

5.

The company should avoid hiring managers

and even employees that have close
connection or relation to the top management.

6.

The company should delegate the powers of

the top management. No one should anchor
double function.

Solution

Damage
Costly because of the
compensation for the
additional
committee.

Costly because of the Employees will be more

additional
dedicated to the
compensation of the efficiency of their work.
employees.
Costly because of the It will ensure reliable
compensation for the financial statements.
services of outside
auditors.
Research cost is at
minimal.

Benefit
Because of additional
cost, income will be
lessen but can avoid a
large corruption even in
the top management.

Monitoring

The company can ensure

reliable and ethical work
from the bottom of the
management up to the
top.

Fairness
The additional
committee as well as
the company will
benefit, however, the
cost is situated to the
company.
The employees as well
as the company will
benefit, however, the
cost is situated to the
company.
Benefit the whole
company.

Benefit the whole

company.
The burden of
monitoring is situated
in the Human
Resource Department.

Solution

Damage
Cost is minimal.
Applicants ability
and courage can be
hard to discover.

Difficulty of the
executives in
choosing whether to
be a part of the
board or the top
management.

Benefit
Fairness
The company can ensure Benefit the whole
unbiased work from its
company.
employees.
Burden the Hiring
This can lessen the
department.
intervention of the top
management in each
departments duties.
No cost is needed.
This can lessen misuse
and overuse of power.

Work can be efficient

but no assurance of
having the most
qualified part of the
board or top
management.

Upon the assessment of the alternative solution, the

researchers came up with two (2) most appropriate
solution to lessen conflict of interest.
1. having a committee on ethical conduct
2. delegate the power of the executive to avoid misuse
and overuse of power

1. Establish a clear company's policy with guide

procedures in every internal or external
transaction.

2. Delegate the powers to the different executives.

3. Conduct monthly board meeting.
4. Create a committee who'll be focusing on the

ethical conduct regarding those of the policies of

the company.

5. The committee will be assigned in seminars

regarding ethical conduct.

6. The committee will also be in charge of taking

corrective actions to those who have been found

guilty of committing unethical actions.

 The Tyco International scandal gives the

business world an overview of what could

happen if too much power is put in the hands of
an individual.

This should serve as a lesson to others that

greed will not lead to anything good and if they

think that it would never be discovered there are
always loopholes that could reveal the acts.

 Proverbs 28:20 The faithful man will

prosper with blessings, but whoever is in a

hurry to get rich will not escape punishment.

Timothy 6:10 For the love of money is a

root of all kinds of evil. Some people, in their

eagerness to get rich, have wandered away
from the faith and pierced themselves with
much pain.