Tyco Case Study Corporate Governance Issue

In: Business and Management

Submitted By NehaJain1207
Words 4957
Pages 20
Daniels Fund Ethics Initiative University of New Mexico http://danielsethics.mgt.unm.edu

Tyco International: Leadership Crisis
INTRODUCTION On September 12, 2002, national television showcased Tyco International’s 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. They were also accused of stealing more than $430 million through fraudulent sales of Tyco stock and concealing the information from shareholders. The two executives were charged with more than thirty counts of misconduct, including grand larceny, enterprise corruption, and falsifying business records. Another executive, former general counsel Mark A. Belnick, was charged with concealing $14 million in personal loans. Months after the initial arrests, charges and lawsuits were still being filed—making the Tyco scandal one of the most notorious of the early 2000s. This case begins with a brief history of Tyco, followed by an explanation of Tyco CEO L. Dennis Kozlowki’s rise to power. As Kozlowki rose to become the second-highest-paid CEO, some red flags pointed toward the impending disaster. Most notably, Kozlowski’s aggressive approach to business, his lavish lifestyle, his clashes with the former, more conservative CEO, and his ousting of those who criticized Tyco’s activities all acted as indicators of Kozlowki’s unethical behavior. This analysis also shows how a decentralized corporate structure can make it difficult, even for the board of directors, to effectively monitor a firm’s dealings and finances. Kozlowski’s fall and the repercussions of his dirty dealings (financial penalties and jail time) are also detailed. Finally, an explanation of how Tyco survived the scandal is provided, along with safeguards the company has put into…...

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