Impacts of Unethical Behavior: Tyco International

Topics: Stock, Corporate governance, Dennis Kozlowski Pages: 3 (721 words) Published: March 20, 2014
Impacts of Unethical Behavior
In 2005 former Tyco CEO Denise Kozlowski and ex-CFO Mark Swartz where convicted of taking more than $120 million in unauthorized bonuses, abusing an employee loan program, misrepresenting the company’s financial condition to investors to boost the stock price while selling $575 million in stock (Crawford, 2005). Kozlowski and Swartz’s defense was they did not steal from the company. The defendants maintained the board of directors approved all bonus money. Unfortunately, the lack of a paper trail did not support the defendant’s argument.

In addition to the charges, the Tyco has several unquestionable relationships and practices. Kozlowski decentralized the business structure. He placed hand picked people in key positions. These people would normally report unethical or questionable behavior to shareholders. However, many of these people, including Swartz were placed directly on the board and aided in a cover-up of dubious activity.

In addition to key employees and board members, a questionable relationship existed with Merrill Lynch. The potential unethical behavior between Merrill Lynch and Tyco was evident in Lynch’s upgrading Tyco stock from buy to accumulate. This upgrade occurred despite the concerns raised by a Lynch analyst about the rapid acquisition rate Tyco was exhibiting and the lavish spending of the executives.

Kozlowski decentralized the corporate structure. This meant that only his key hand-picked employees were fully aware of the company’s activities and its financial position. In early 2002, Kozlowski divided the company into four publically traded companies. Additionally, Kozlowski paid an unauthorized $20 million dollar bonus to Frank Walsh, a board member, for his part in the CIT acquisition. Once the other board members found out about the discovered the bonus they launched in investigation into Kozlowski’s activities.

Investigations discovered large sums of money were...

References: Crawford, K. (2005). Ex-Tyco ceo Kozlowsi found guilty. Retrieved October 2, 2012 from http://money.cnn.com/2005/06/17/news/newsmakers/tyco_ trialoutcom/index.htm.
Daniels Fund Ethics Initiative University of New Mexico. (n.d.). Tyco International: Leadership crisis. Retrieved October 2, 2012 from http://danielsethics.mgt.unm.edu/pdf/Tyco%20Case.pdf
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