Premium Essay

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…...

Similar Documents

Premium Essay

Recent Accounting and Corporate Governance Scandals

...REPORT RE: RECENT ACCOUNTING AND CORPORATE GOVERNANCE SCANDALS Contents INTRODUCTION: 3 CORPORATE GOVERNANCE 5 CORPORATE GOVERNANCE IN IRELAND 5 RESPONSE FROM REGULATORS TO THE MOST RECENT SCANDALS IN BANKING SECTOR 7 US CORPORATE GOVERNANCE at a time of Tyco scandal 8 RESPONSE FROM THE REGULATORS -SARBANES-OXLEY ACT 2002 9 AUDIT 10 EXTERNAL AUDIT 10 INTERNAL AUDIT 11 INTRODUCTION TO ANGLO IRISH BANK 12 The Scandals 12 Loans to Sean Fitzpatrick 13 Irish Life and Permanent Depositing Funds 14 Corporate Governance Situation of Anglo 16 Ernst & Young – External Auditor 17 Impact on Shareholders & The Public 18 Company Law, Financial Regulator, Accounting Standards IFRS and GAAP 19 TYCO INTERNATIONAL 20 DETAILS OF TYCO’S SCANDAL 21 ACCOUNTING ISSUES IDENTIFIED 22 THE CORPORATE GOVERNANCE WEAKNESSES AT TYCO 22 PERFORMANCE OF EXTERNAL AUDITORS 23 CONCLUSION 27 The Main Reasons for The Scandals 27 Steps taken afterwards-will they prevent similar events happening in the future? 33 END REFLECTION 36 Bibliography: 37 Appendices: 41 INTRODUCTION: Accounting and corporate governance scandals have been a growing problem in the recent years. Many believe that the blame for those scandals should be borne on two groups of people. Those responsible for managing a company and those whose duty is to provide assurance on the accounts prepared by the directors (auditors), both of whom failed to perform their jobs......

Words: 12288 - Pages: 50

Premium Essay

Case Stady Analysis

...Case Study Analysis MGT/488 William Funderburk Tyco International: A Case of Corporate Malfeasance Tyco International, having its former chief executive, Dennis Kozlowski and its former chief financial officer, Mark Swartz convicted of grand larceny, conspiracy, and fraud, had a long future of rebuilding trust ahead of them. Herein, several issues are discussed including, how the lack of corporate governance at Tyco contributed to its downfall will be discussed, how Dennis Kozlowski used organizational structure and controls to implement his strategic plan, the role of Tyco leadership in strategic implementation, and the role of strategic entrepreneurship in creating firm value at Tyco. “Corporate governance is the set of mechanisms used to manage the relationship among stakeholders that determines and controls the strategic direction and performance of organizations” (Hitt, Ireland, & Hoskisson, 2009, p. 276). Kozlowski and senior managers broke their fiduciary duty. Board member broke the duty of loyalty and senior manager broke their duty as agents of the Board of Directors. No approval of bonuses or loans was gained from the board, therefore breaching disclosure of all relevant information. The directors failed to monitor management, thereby failing to fulfill their duties of overseeing strategy and performance. Directors allowed wasteful spending of corporate funds in the form of bonuses and perquisites Kozlowski’s management......

Words: 916 - Pages: 4

Premium Essay

Management

...Basics of Corporate Strategy Module 2: Competitive Rivalries Module 3: Managing Strategic Change Module 4: Academic Research on Strategy Module 1: Basics of Corporate Strategy extends the frameworks and cases taught in BUAD 497 on “Corporate Strategy”, meaning issues that companies with multiple strategic business units face. We focus on the following issues in this module: 1. 2. 3. 4. The basic tenets of corporate strategy; Diversification and the notion of core competences; Vertical integration, Transaction Cost Economics (TCE) & the “make or buy decision”; and Corporate governance and “managing” the managers We examine these issues through both Harvard Business Review readings and Harvard and Stanford Business School cases. Module 2: Competitive Rivalries examines in more detail how firms compete with each-other in fast-moving markets. We read several chapters from the Hitt, Ireland & Hoskisson (2005) book Strategic Management: Competitiveness and Globalization (Concepts and Cases). By this stage of the course, we will also be immersed in the corporate simulation (see below for more information), and we will use the materials in Hitt, et al. book to help formulate corporate strategy for the simulation. Page 1 of 9 Module 3: Managing Strategic Change examines practical issues that come with trying to implement both business and corporate strategy. In particular, we study the practical problems of implementing business and corporate strategy through the case study of......

Words: 3080 - Pages: 13

Premium Essay

Mgt 488 Entire Course Global Business Strategies

...Course Global Business Strategies https://homeworklance.com/downloads/mgt-488-entire-course-global-business-strategies/ To Get this Tutorial Copy & Paste above URL Into Your Browser Hit Us Email for Any Inquiry at: Lancehomework@gmail.com Visit our Site for More Tutorials: ( http://homeworklance.com/ ) MGT 488 Entire Course Global Business Strategies Week One: Strategic Business Continuity and Internal Risk Assessment Details Due Points Objectives 1.1 Identify key firm capabilities. 1.2 Describe the components of sustainable competitive advantage. 1.3 Analyze the influence of the organization on strategic business continuity. Readings Read Ch. 3 of Strategic Management: Competitiveness and Globalization, Concepts and Case. Participation Participate in class discussion. All Days 1 Discussion Questions Respond to three discussion questions. Days 3, 4, 5 3 Weekly Summary Write a 300-350 word summary of how this week’s material relates to you professionally and to organization. Post to Weekly Summary Thread. Day 7 1 Learning Team Instructions Create the Learning Team Charter. Select one of the following Virtual Organizations to use throughout the course for strategic plan development: • Riordan Manufacturing • Huffman Trucking • McBride Financial Services Day 7 Individual Internal Risk Assessment Resource: University Library’s Datamonitor 360 Access the University Library’s Datamonitor 360 and look up one of the......

Words: 6810 - Pages: 28

Premium Essay

Tyco Cae Study

...stand by what I believe in. Complete Case Study: Case Study: Tyco International: Leadership Crisis (located at the end of Unit 4 READ) Summarize Tyco of ten years ago as presented in this case study and from research of valid Internet sources, and then investigate the Tyco of today to compare. What changes have Tyco made to guard against the ethical problems they encountered a decade ago? Tyco began in the early 1960’s as a high tech company based in Massachusetts. It grew gradually through the 1970’s and 1980’s, largely by acquisition. After Dennis Kozlowski took over as CEO, acquisitions grew rapidly with revenues growing from 3 billion to 34 billion dollars between 1992 and 2001 (gurufocus.com, 2012). In 2001 Kozlowski gained much attention as a result of his lavish spending of company funds. This attention caused many questions to be raised about Tyco’s accounting policies and eventually led to the resignation of Kozlowski in mid-2002. Kozlowski was eventually convicted of misappropriating company funds. Under the leadership of Edward Breen, Kozlowski’s successor, Tyco’s flamboyant culture and executive staff was eliminated and replaced with a new team of managers who managed with quiet, ethical competence. In 2007 Tyco capped off its restructuring effort by splitting into three separate businesses: Tyco International, Tyco Electronics and Tyco Healthcare (gurufocus.com). Today, with a much lower debt ratio, Tyco appears to be a much leaner and more......

Words: 1469 - Pages: 6

Premium Essay

Tyco International

...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. TYCO: BEFORE, DURING, AFTER Tyco International has operations in over 100 countries and claims to be the world's largest maker and servicer of electrical and electronic components; the largest designer and maker of undersea telecommunications systems; the larger maker of fire protection systems and electronic security services; the largest maker of specialty valves; and a major player in the disposable medical products, plastics, and adhesives markets. Since 1986, Tyco has claimed over 40 major acquisitions as well as many minor acquisitions. BEFORE: Prior to the Tyco scandal, the company was one of America's largest......

Words: 3815 - Pages: 16

Premium Essay

Business Ethics

...INSTITUTE OF HOTEL MANAGEMENT, AURANGABAD Corporate Governance of IHCL Business Ethics Anamika Chatterjee (H-18023) Submitted in Fulfilment of the Requirement for BA (Hons.) in Hotel Management THE UNIVERSITY OF HUDDERSFIELD, UNITED KINGDOM March 2013 Corporate Governance Acknowledgement I would like to mention certain people and organizations who have directly or indirectly influenced this piece of literary work. First and foremost I would like to thank my career institute, Institute Of Hotel Management, Aurangabad (IHM-A) for giving me the necessary work atmosphere. I would like to make special mention of our module tutor Mr.Rakesh Katyayani (Business Ethics). Anamika.C(H-18023) Page 2 Corporate Governance Declaration I Anamika Chatterjee of 3rd year student of Hotel Management, H-18023 declares that all the content in this project has been "The result of my own research and at places where the information has been" Copied from a particular site, book, journal or pamphlet. I Declare That I Have Committed No Such piracy "any step taken which is against the academic rules of IHM-A and The University of Huddersfeild. Anamika.C(H-18023) Page 3 Corporate Governance Table of Content Serial Number 1 2 3 4 5 6 7 Chapter One-TATA Company Profile Chapter Two-IHCL Company Profile Chapter Three-IHCL and Corporate Governance Chapter Four- Prologue to Corporate Governance Chapter Five-Case Study Analysis on Tyco International Limited Chapter......

Words: 6208 - Pages: 25

Premium Essay

Mgt 488 Entire Course Global Business Strategies

...Course Global Business Strategies https://homeworklance.com/downloads/mgt-488-entire-course-global-business-strategies/ To Get this Tutorial Copy & Paste above URL Into Your Browser Hit Us Email for Any Inquiry at: Lancehomework@gmail.com Visit our Site for More Tutorials: ( http://homeworklance.com/ ) MGT 488 Entire Course Global Business Strategies Week One: Strategic Business Continuity and Internal Risk Assessment Details Due Points Objectives 1.1 Identify key firm capabilities. 1.2 Describe the components of sustainable competitive advantage. 1.3 Analyze the influence of the organization on strategic business continuity. Readings Read Ch. 3 of Strategic Management: Competitiveness and Globalization, Concepts and Case. Participation Participate in class discussion. All Days 1 Discussion Questions Respond to three discussion questions. Days 3, 4, 5 3 Weekly Summary Write a 300-350 word summary of how this week’s material relates to you professionally and to organization. Post to Weekly Summary Thread. Day 7 1 Learning Team Instructions Create the Learning Team Charter. Select one of the following Virtual Organizations to use throughout the course for strategic plan development: • Riordan Manufacturing • Huffman Trucking • McBride Financial Services Day 7 Individual Internal Risk Assessment Resource: University Library’s Datamonitor 360 Access the University Library’s Datamonitor 360 and look up one of the......

Words: 29510 - Pages: 119

Premium Essay

Sox and Its Effects on It Security Governance

...Journal of Smart Home Vol. 3, No. 1, January, 2009 SOX and its effects on IT Security Governance Rosslin John Robles1, Min-kyu Choi1, Sung-Eon Cho2, Yang-seon Lee2, Tai-hoon Kim 1 School of Multimedia, Hannam University, Daejeon, Korea 2 Dept of Information Communication, Sunchon Univerity, Sunchon, Korea 3 Fumate Inc., Daejeon, Korea rosslin_john@yahoo.com, secho@sunchon.ac.kr, yslee@fumate.com, taihoonn@empal.com Abstract The Sarbanes-Oxley (SOX) Act is a United States federal law enacted on July 30, 2002 in response to a number of major corporate and accounting scandals including those affecting Enron, Tyco International, Adelphia, Peregrine Systems and WorldCom. This paper discusses the effects of Sarbanes-Oxley (SOX) Act on corporate information security governance practices. The resultant regulatory intervention forces a company to revisit its internal control structures and asses the nature and scope of its compliance with the law. This paper reviews the implications emerging from the mandatory compliance with Sarbanes-Oxley (SOX) Act. Issues related to IT governance and the general integrity of the enterprise are also identified and discussed. Industry internal control assessment frameworks, such as COSO and COBIT, are reviewed and their usefulness in ensuring compliance evaluated. 1. Introduction Accounting scandals at some of the big corporations like Enron, HealthSouth, Tyco and WorldCom had a devastating impact on investor confidence. Clearly, it was......

Words: 3348 - Pages: 14

Free Essay

Tyco: Did Kozlowski Do Not the Easy Thing, but the Right Thing

...UNIT VI - CASE STUDY TYCO: DID KOZLOWSKI DO NOT THE EASY THING, BUT THE RIGHT THING Student name: Chi Huong Nguyen Student I.D.: 217505 Columbia Southern University Case Summary Once talking to the graduates at St. Anselm’s College in Manchester, New Hampshire about moral standard, Dennis Kozlowski’s advice to them was to do not the easy thing, but the right thing. The later Tyco scandal pointed out “the right thing” of Dennis Kozlowski seems to be too far away to morals. Since Dennis Kozlowski became CEO of Tyco until he was demanded to step down on June 3, 2002, he wrote a story of a greed and arrogance man who not only used the money of his company for personal wants and desires but also to turn him into a king. He threw Tyco money into buying things for himself, which were luxury houses, yachts, car, and famous paintings. Besides of assets, he used Tyco money for royal parties, which the most famous was his wife’s birthday where everyone dressed in Roman togas while an ice sculpture of David urinates Vodka into a crystal bowl. Dennis Kozlowski created his era at Tyco. It was Tyco’s luck or due to Kozlowski’ insatiable greed or both, Tyco scandal started when rich stingy guy Kozlowski, who had all the best things in life with Tyco money, still did not find the necessary to pay taxes. In avoiding taxes on impressionist paintings that he brought in Manhattan, he had the clerk to write out the bill of sale to make those paintings appeared to be shipped to......

Words: 1061 - Pages: 5

Free Essay

The Paper Times One

...Case Study: Tyco international fraud Tyco Background Tyco International has operations in over 100 countries and claims to be the world's largest maker and servicer of electrical and electronic components; the largest designer and maker of undersea telecommunications systems; the larger maker of fire protection systems and electronic security services; the largest maker of specialty valves; and a major player in the disposable medical products, plastics. Edward Breen, who replaced kozlowski removed nine members of Tyco’s international board, and adhesives markets. Since 1986, Tyco has claimed over 40 major acquisitions as well as many minor acquisitions. How the Fraud Happened According to the Tyco Fraud Information Center, an internal investigation concluded that there were accounting errors, but that there was no systematic fraud problem at Tyco. So, what did happen? Tyco's former CEO Dennis Kozlowski, former CFO Mark Swartz, and former General Counsel Mark Belnick were accused of giving themselves interest-free or very low interest loans (sometimes disguised as bonuses) that were never approved by the Tyco board or repaid. Some of these "loans" were part of a "Key Employee Loan" program the company offered. They were also accused of selling their company stock without telling investors, which is a requirement under SEC rules. Koslowski, Swartz, and Belnick stole $600 million dollars from Tyco International through their unapproved bonuses, loans, and extravagant......

Words: 4682 - Pages: 19

Premium Essay

Ethical Decision Making and Ethical Leadership

...decisions at home, in their family, or in their personal lives. Within the context of an organizational work group, however, few individuals have the freedom to decide ethical issues independent of organizational pressures. ETHICAL – ISSUE INTENSITY The first step in ethical decision making is to recognize that an ethical issue requires an individual or work group to choose among several actions that various stakeholders inside or outside the firm will ultimately evaluate as right or wrong. Ethical issue intensity, then, can be defined as the relevance or importance of an ethical issue in the eyes of the individual, work group, and/or organization. it is personal and temporal in character to accommodate values, beliefs, needs, perceptions, the special characteristics of the situation, and the personal pressure prevailing at a particular place and time. Ethical – issue intensity reflects the ethical sensitivity of the individual or work group that faces the ethical decision – making process. Research suggest that individuals are subject to six “spheres of influence” when confronted with ethical choices – the workplace, family, religion, legal system, community, and profession – and that the level of importance of each of these influences wiil vary depending on how important the decision maker perceives the issue to be. Additionally, the individuals sense of the situation’s moral intensity increase the individuals perceptiveness regarding ethical problems, which in turn......

Words: 3754 - Pages: 16

Premium Essay

Sarbanes - Oxley Act

...and 'Corporate and Auditing Accountability and Responsibility Act' (in the House) and commonly called Sarbanes–Oxley, Sarbox or SOX, is a United States federal law enacted on July 30, 2002, which set new or enhanced standards for all U.S. public company boards, management and public accounting firms. It is named after sponsors U.S. Senator Paul Sarbanes (D-MD) and U.S. Representative Michael G. Oxley (R-OH). The bill was enacted as a reaction to a number of major corporate and accounting scandals including those affecting Enron, Tyco International, Adelphia, Peregrine Systems and WorldCom. These scandals, which cost investors billions of dollars when the share prices of affected companies collapsed, shook public confidence in the nation's securities markets. The Sarbanes-Oxley Act does not apply to privately held companies. The act contains 11 titles, or sections, ranging from additional corporate board responsibilities to criminal penalties, and requires the Securities and Exchange Commission (SEC) to implement rulings on requirements to comply with the new law. Harvey Pitt, the 26th chairman of the Securities and Exchange Commission (SEC), led the SEC in the adoption of dozens of rules to implement the Sarbanes–Oxley Act. It created a new, quasi-public agency, the Public Company Accounting Oversight Board, or PCAOB, charged with overseeing, regulating, inspecting and disciplining accounting firms in their roles as auditors of public companies. The act also covers issues......

Words: 2179 - Pages: 9

Premium Essay

Acct 411

...according to MacIntyre? A. External rewards B. Money C. Internal rewards D. Authority of rules 6. What is the number one virtue that people should want in a boss? A. Diligence B. Commitment C. Honesty D. Sense of humor 7. The best restatement of Kant's categorical imperative is: A. Do to others as you would have everyone do unto you. B. Consider others needs before you act. C. That those with a smaller stake should have a smaller say compared to those with a bigger stake. D. Don't be cruel until someone is cruel to you. Page 2 8. Ty is a rising star at Texas State Country & Western Stores. He is the controller of the company. His wife, Rosie, is the lead auditor of the CPA firm that examines Country & Western's financial statements and issues an audit opinion. Given the nature of the relationships, Rosie would violate what ethical standard if she is allowed to conduct the audit: A. Integrity B. Due care C. Independence D. Responsibility 9. The motive of "duty" is most associated with ___________. A. Rights B. Deontology C. Utilitarianism D. Justice 10. Virtue ethics is A. Doing what is right B. One's duty to act in a socially acceptable manner C. One's ability to meet or exceed their potential D. What one ought to do when presented with an ethical dilemma 11. Egoists maintain a general principle of the following sort: A. "One ought to always act in others' interest" B. "One ought always act in one's and others' interests" C. "One ought to always act in peer group's......

Words: 1248 - Pages: 5

Premium Essay

Malaysia Company Fraud: Cooking the Book

...Social Science Vol. 4 No. 13; October 2013 Cooking the Books: The Case of Malaysian Listed Companies Fathilatul Zakimi Abdul Hamid Rohami Shafie Zaleha Othman Wan Nordin Wan Hussin Faudziah Hanim Fadzil School of Accountancy Universiti Utara Malaysia Sintok, 06010 Kedah Malaysia. Abstract Cooking the books refers to fraudulent accounting activities undertaken by a business to falsify its financial statements. Thus, the objectives of this study are to investigate what the cooking-the-books activities carried out by businesses consist of, how they conduct them, and what the impact is on the business and its shareholders. The case study sample companies are two Malaysian companies that had received various awards from reputable third-party organizations. On the other hand, the activities undertaken in both companies have caused them to be labelled as Malaysian mini Enrons. We employ a qualitative research methodology as most prior research employs a quantitative methodology to investigate the determinant factors in businesses’ cooking-the-book activities. The result of the study shows that the managers have used their positions, prior experience, and regulatory loopholes in their activities. Furthermore, the financial report restatement and higher reported earnings are the early warning signals of their activities. As a result of this, the Malaysian Securities Commission has revised the corporate governance code, and among others incorporated the Audit Oversight......

Words: 5312 - Pages: 22