TYCO SCANDAL OF 2002 By Group 1 Click to edit Master subtitle style
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Brief description of the company Tyco International Ltd., formerly Tyco Fire & Security and Tyco Engineered Products & Services (TFS/TEPS)
diversified, global company that provides vital products and services to customers in more than 60 countries.
leading provider of electronic security products and services,
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The scandal
Mr. Dennis Kozlowskie (former chairman and chief executive officer)
Mr. Mark H. Swartz (former chief financial officer)
accused of theft of more than $150 million from TYCO
in the form of disguised executive bonuses or benefits, unapproved loans and fraudulent stock sales
During their trial in March 2004, they contended the board of directors authorized it as compensation.
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TIMELINE:
March 13, 2001: Tyco announces $9.2 billion cash and stock deal to purchase the CIT Group, a commercial finance company. Tyco director Frank Walsh helps arrange the deal.
Dec. 5, 2001: Tyco shares close at a high of $59.76 on the New York Stock Exchange.
Jan. 14, 2002: Business Week magazine lists Tyco CEO L. Dennis Kozlowski as one of the top 25 corporate managers of 2001.
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TIMELINE: Jan. 30, 2002:The New York Times reports that Kozlowski and Tyco CFO Mark Swartz sold more than $100 million of their Tyco stock the previous fiscal year despite public statements that they rarely sold their stock. Kozlowski and Swartz say they will buy 1 million shares with their own money.
June 3, 2002: Kozlowski resigns unexpectedly as The New York Times reports he is the subject of a sales tax evasion investigation by Manhattan District Attorney Robert Morgenthau's office.
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TIMELINE:
Oct. 7, 2003: The first trial of Kozlowski and Swartz begins with opening statements in which prosecutors characterize them as crime bosses who looted Tyco. Defense lawyers call them honest executives who deserved and disclosed all corporate payments and perks.
Oct. 28, 2003: The jury is shown a video of a birthday party Kozlowski threw for his wife at a resort in Sardinia. Tyco paid roughly half the $2 million cost of the event, which featured entertainers clad in togas and an appearance by singer Jimmy Buffett.
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TIMELINE: Jan. 26, 2005: The second trial of Kozlowski and Swartz begins with opening statements in which prosecutors switch tactics to focus on money the two allegedly stole from Tyco. They do not mention Kozlowski's $6,000 shower curtain or the Sardinia birthday party for his wife.
April 27, 2005: Kozlowski, who did not testify at his first trial, takes the stand and testifies that the millions of dollars in Tyco payments and perks he received had been properly authorized and disclosed.
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Ethical issues
As top executives of the company they lead it in an unethical manner. They should have been honest, accountable, responsible leading to integrity. They partnered in conspiring to lavish themselves because of greed.
The ethical and legal issues at Tyco International range from discrimination, accounting fraud, and grand larceny. The issues involved cohesion on the part of the CEO, and the members of his team. In addition, they placed great emphasis on placing their own values ahead of what was good for the organization.
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Stakeholders
Shareholders
Board of directors
Employees
Creditors
Jury
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Available alternatives
We believe that government laws are enough. What should have been done is a stricter internal control in order to prevent the situations. Internal and external audits should have been done also to secure better results as well. We believe that the scandal was out of the nature of the person and not of the organization as a whole.
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Assessment
What happened was a very high profile corporate scandal. It destroyed both the company’s credibility and investors’ confidence. To help rebuild Tyco, they began to have improved standards and control.
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Evaluation Tyco trusted their CEO and CFO too much. It’s a good thing that they have a strong underlying business that’s why they still had an opportunity to turn around the company.
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Monitoring
Currently, Kozlowskie has been moved to a minimum security prison in Manhattan and is up for parole. The company replaced the top management right away and seems to be going out of its way to keep bondholders on its side.
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