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Hsiang Ying Wu

Ethics Paper 11/15/05

Tyco Scandal
Dennis Kozlowski worked all his life to get from the bottom to the top of Tyco International Ltd. And when he reached the CEO position he was often compared to other great CEOs in history like Jack Welch. However, he picked up a lavish lifestyle that would soon be his destruction and bring him behind bars. After purchasing many art pieces in 2002 the SEC started an investigation and accused him of failing to pay taxes of about $1 million dollars, but as the investigation proceeded the case became more complicated as it turned out that CEO Dennis Kozlowski and CFO Mark Swartz have been looting Tyco International of more than $600 million. Examples of how this was possible are following: -Over the years they have been giving themselves interest free loans from the company and then later on forgave themselves for it through Mark Schwartz falsifying documents. -Dennis Kozlowski gave himself bonuses to repay the debt. -They sold stocks at inflated prices. When Tyco found out about the investigation they fired people involved and also replaced 10 of the top management positions to regain trust to the stockowner. Nevertheless the stock price has dropped 86% from $59.31 on 12/28/01 to $8.25 on 7/25/02. Three years later in September 2005 Kozlowski and Schwartz found themselves in court again after a mistrial in 2004 to face their sentence. They are charged for large larceny, falsifying business documents and securities fraud. Both are convicted to serve a minimum of 8 and to 25 years in jail. The biggest crime that happened here was that Kozlowski and Schwartz abused their power of control to steal from and lie to the stockowners. Given that Tyco was not a case like Enron where the employees lost everything, it is still very serious. The journal Business Week posted Kozlowski as one of their TOP 25 CEOs in 2000. That is how good people thought he was. The money that was used to buy houses and silly things like $6000 shower curtains should have been used to push the company further or given to the shareholders. Is that worse than what the executives did in Enron? No, but bottom line is stealing is stealing. I

Hsiang Ying Wu

Ethics Paper 11/15/05

believe Tyco has only did one thing wrong, trusting their CEO too much. They believed that Kozlowski was sharing the same ideas and goals that the company represents as he has proven to them many times when he closed up million dollar deals that made a fortune for them. Instead he used the company funds like a private bank and spent it like it was his money. The dishonesty of Kozlowski has caused more distrust to the public, and of course the stock to drop to a price that is worth virtually nothing compared to what it used to be. Also Tyco as a company had to endure many million dollar lawsuits and lost a lot of money to that. I think Tyco did the right thing by replacing top management right away after the issue occurred. They hired Edward Breen as their new CEO, who invested a lot of time and money to communicate to the public that Tyco International is operating in many parts of the world and that they are trustworthy even though their former CEO failed to do so. It may be very far away from having the trust of investors again, but they took a step in the right direction.

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