TYCO : A TOP-DOWN
APROACH TO ETHICAL
FAILURE
MADE BY:
PRABHNEET SINGH-17021021141
HIMANSHU GUPTA-17021021257
AYAAN ANAND-17021021044
PRANAV ARORA-17021021143
COMPANY HISTORY
• The company was founded in 1960 by Arthur J. Rosenburg.
• Initially supported by government research contracts.
• It became public owned company in the year 1964.
• In 1968 it was controlled by16 companies.
• It was listed on NYSE by the year 1974.
• It undertook several subdivisions between the year
1982 and 2000.
COMPANY OVERVIEW
• Tyco offered different services
Health care
Fire and Security
Plastics And Adhesives
Electronics
Engineered Products and Services
• Provides products and services worldwide.
• It employs over 267000 people.
KEY MANAGEMENT PERSONNEL
Dennis Kolzowski
Graduated of Seton Hall University, New Jersey.
Began to work at Tyco in the year 1976.
To fix up some of the floundering acquisitions of the company.
He became CEO of the company in the year 1992.
Mark Swartz
He Started working in Tyco in the year 1991.
He previously worked for Deloitte.
He became the CFO in the year 1995.
Also nominated for the CFO excellence award in the year 2000.
TYCO UNDER DENNIS KOLZOWSKI
1986 : 1990’s : Renamed 1999 : 1st
to Tyco 2002: Spent $8 billion on
Restructured to Investigation of the acquisitions
4 segments International company
FIRST INVESTIGATION
SEC launched the first investigation in late 1999.
Findings
a. Overstated expected costs of new acquisitions.
b. Made acquisitions appear financially unstable.
Results
a. Technically no laws were broken.
b. Tyco agreed to restate earnings.
c. No fines assessed or penalties imposed
SECOND INVESTIGATION
SEC launched the second investigation in early 2002 against CEO Dennis
Kozlowski and CFO Mark Swartz.
Tax Evasion.
Robert Morgenthau aka Sherlock Holmes.
Improper use of company funds.
Payoffs were paid to directors to cover up improper use of funds.
Undisclosed stock sales. $430 million made by Kozlowski and Swartz.
No Whistle Blower
CHARGES AND PUNISHMENT
Inflated operating income by $567 million.
Improper acquisition accounting by undervaluing acquired assets
and overvaluing acquired liabilities.
Used reserves to make adjustments and smoothen its publicly
reported results to meet earnings forecasts.
Failure in disclosure of executive compensation, indebtedness and
related party transactions of its former senior management in
annual reports.
TYCO was charged with $50 million civil penalty
CEO and CFO was charged for $240 million fine
CEO and CFO faced imprisonment for 25 and 8 years respectively
WHERE DID THE MONEY GO?
$106 million to employees through Loan forgiveness and relocation program
$2.1 million for the birthday party of Kozlowski's wife was billed to Tyco.
Kozlowski used Tyco to avoid around $1 million import taxes after purchasing
$14 million in rare artwork
$2.5 million for a home in Florida, $9 million for additional property, $5 million
for Massachusetts property, $900,000 for Connecticut property and $240,000
jewelry for Mrs. Kozlowski.
Kozlowski received $81 million in unauthorized bonuses
Stephen Foss received $751,101 for supplying aircraft and pilot services to Tyco.
Lord Michael Ashcroft used $2.5 million in Tyco funds to purchase a home
Frank E. Walsh, Jr. received $20 million commission
REASON FOR FAILURE
Unethical business
Unethical leadership practices of
subordinates
Unethical auditing
practices of TYCO
WHAT COULD’VE AVOIDED THE FRAUD
Annual meeting with Monitoring of CEO
shareholders and their directors
Employee training
Greater segregation
programmes could
of duties
have been adopted
REBUILDING
Company filed suit against CEO and CFO for more than $100 million. It fired a total of 9
executives on their board.
New management team recovered some of the funds taken by CEO and CFO hence restored
investors faith.
New board of directors voted to make future executive agreement and board chairman to be
an independent person rather than TYCO CEO.
Eric Pillmore was hired as VP of Corporate Governance
NEW CORPORATE GOVERNANCE
MODEL
Installation of corporate ethics programme and new ethical guide was distributed
to all employees.
90% of headquarters staff were replaced.
An Ombudsman position at Tyco who mediated between employees and
management.
Published confidential hotline „Concern LINE‟.
In 2004, CEO Edward Breen was listed as one of the Business weeks Best
Managers.
In 2008, Tyco was named Corporate Citizen of the year for helping the homeless
LEARNING/SUGGESTIONS
Companies should more closely monitor their employees for
unethical conduct
The government should monitor accounting practices of companies
more closely
Any executive of companies who exhibit unsuspicious behavior
should be closely watched and corrective measures should be taken
Morals and ethics was an area where these personnel didn’t gave
even a second thought.
THANK YOU
