Sunteți pe pagina 1din 3

TYCO INTERNATIONAL

A CASE STUDY

DESCRIPTION OF THE CASE BACKGOUND

Tyco International has operation over 100 countries. It began as an investment and holding
company with a growing concentration in science and energy conversion. It later diversified into a global
conglomerate company through fierce and rapid acquisition providing products and services across the
world in four business segments: fire and security, electronics, engineering goods and services, and
healthcare. Tyco depended heavily on a growth strategy which focus on extreme acquisition. It went
public and began rapidly acquire many other companies.

In 1992, Dennis Kozlowski took over as a CEO, resuming his former lifestyle. This was the beginning
of a long chain of unethical and illegal conduct.

In 2002, due to the lack of a strong ethical environment, Tyco was involved with the corporate
scandal where Kozlowski and some other executives were able to penetrate crimes of fraud,
embezzlement, accounting conflict of interest, excessive unethical personal spending and other
questionable activities. Authorities accused CEO and CFO of stealing $170 million and fraudulent stealing
for $430 million in stock options. Some of the Tyco’s board members, including Kozlowski used Tyco’s
funds for luxurious private spending. Kozlowski threw his wife a $2 million birthday party on the Italian
island of Sardinia all courtesy of Tyco. Tyco also has 240,000 employees at the time of scandal, and many
of their employees were affected gravely either by termination and/or losses in their pension fund. The
auditing firm PricewaterhouseCoopers responsible for checking the financial reports of Tyco failed to
identify Kozlowski’s illegal financial transactions. AS a result, Kozlowski’s unethical business practice
continued and became extensive.

STATEMENT OF THE PROBLEM

MAJOR PROBLEMS

1. Kozlowski’s misappropriation of company funds, bribery, and fraud.


2. Unethical leadership behavior of CEO and other executives.
3. Failure of auditing firm to identify CEO’s unethical business practice.

MINOR PROBLEMS

1. Termination of employees without just cause and due process.


2. Failure to make compensation and pension to the discharged employees.

FINDINGS

1. In order to fulfil self interest and luxurious life, CEO Dennis Kozlowski embezzled the company
funds that should have been used to manage the company in the best interest of shareholders
and stakeholders. Together with CFO Mark Swartz and General Counsel Mark Belnick, they
exploited the company to fulfil their own desire of having a lavish lifestyle. Kozlowski and Swartz
indicted on 38 felony count for allegedly stealing $170 million from Tyco and fraudulently selling
$430 million in stock options and concealing all information from shareholders. Kozlowski was
also accused of taking $242 million from a program intended to help Tyco employees buy
company stock and also for granting $106 million to various employees through “loan forgiveness”
and relocation programs. Additionally, Swartz was charged with falsifying documents in the loan
program in the amount of $14 million and Belnick for stealing millions of dollars in the form of
unauthorized bonuses and loans without disclosing such payments.

It was also uncovered that bribery was also involved. The first case is Frank E. Walsh Jr., the
director of Tyco International, who received $20 million for helping the arrangement of the
acquisition of CIT Group without the knowledge of the rest of the board of directors. Next, the
second case is Stephen W. Foss, the member of Tyco’s board of director who received $751,101
for supplying a Cessna Citation aircraft and pilot services. Having these money received,
everything was used for their personal use and thus, exhibiting unethical and unlawful behaviour.

2. Tyco International did not emphasize an ethical corporate culture during the empire of Kozlowski.
Gaining personal interest than on the interests of the company had became their corporate
culture which created assumption to the directors that embezzling fund is correct and is a normal
thing to apply in the company. However, unethical corporate culture could not maintain the
sustainability and growth of the company. In this case, Kozlowski set an example by
misappropriating the fund of the company which had been followed by the other directors. This
nearly caused Tyco International to be further corrupted and ruined because of the unethical
corporate culture.

3. PricewaterhouseCoopers has been Tyco’s auditor for eight years with the responsibility of
checking its financial reports. However, it still missed hundreds of millions of dollars unreported,
misappropriated and misrepresented. As a result, Kozlowski’s unethical business practice
continued and became extensive which made it more difficult to stop because of absent
constraining influence from the auditing firm.

4. Aside from using company’s funds for personal interest, the ways Kozlowski treated his employees
is certainly unethical as leader of a company. He abused his power as CEO by treating employees
unfairly and unjust and dismissed them as he wanted without an adequate reason. He dismissed
employees without prior notice when he learned that a part of the company resulting from the
merger could not generate satisfactory turnover. In addition to this, Kozlowski will reject those
who give Tyco a negative opinion, just like David, a short seller who expressed his opinion on the
acquisition of Tyco by using substantial reserves. He also violated the principle of a fair trial and
principle of just cause by terminating the employees without looking at their job performance.
Additionally, no notification and compensation were received by the employees he dismissed. In
this case, the employees were not treated fairly and equitably.
RECOMMENDATIONS
1. Company must foster corporate social responsibility and as part of fulfilling its role, they should
protect the key interests of stakeholders. Corporate social responsibility defines and implements
corporate strategy, and as the company’s corporate governance system, should serve to
safeguard the interests of its beneficiaries. The ability to meet CSR obligations, will avoid excessive
and unethical spending of the stakeholders’ money on personal pursuits.

2. Organization must develop formal code of ethics. Leaders must follow ethical principles and
exhibit honesty and trustworthiness by speaking the truth in all matters because poor ethical
judgement and lack of integrity are dangerous liabilities with high consequences, such as damage
to vital relationship with stakeholders. Leaders must also be aware of their obligations and be
accountable of their actions. They must take seriously the rights and claims of others, consider
the effects of their actions on others and lastly, be the role model of the organization.

3. The auditing firm failed to detect fraud due to lack of evidential matter. Whistle blowing is an act
that raises concern towards the person who involved in wrong doing. While promoting the whistle
blowing, the company should also set up protections towards the whistle blower to protect them
from the possibility of being boycott by the colleagues.

4. Organizational leaders must have the ability to foster CSR because its role is to actively make
efforts toward supporting the rights of all its stakeholders including employees. Employees should
be valued as assets to an organization, not cost, thus, assuming its obligation to look after its
employees’ best interests. They should provide what is best for their employees such as giving
notice and just compensation and pension. If termination occurs, it must be reasonable and in
due process.

S-ar putea să vă placă și