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Questionable Actions by the Chairman of Tyco International Limited

Questionable Actions by the Chairman of Tyco International Limited. Group 1: Rachel Alexander, Jonathan Crawford, Matt Kambic, You-Chen Lu, and Brittany Snyder. Overview. Introduction and Summary of Situation – Matt Kambic Benefits and Harms – You-Chen Lu Rights Involved – Brittany Snyder

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Questionable Actions by the Chairman of Tyco International Limited

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  1. Questionable Actions by the Chairman of Tyco International Limited Group 1: Rachel Alexander, Jonathan Crawford, Matt Kambic, You-Chen Lu, and Brittany Snyder

  2. Overview • Introduction and Summary of Situation – Matt Kambic • Benefits and Harms – You-Chen Lu • Rights Involved – Brittany Snyder • Economic, Legal, and Ethical Situation – Rachel Alexander • Moral Solution and Conclusion – Jonathan Crawford • Q & A – Group

  3. Company Information for Tyco International Limited • Domestic Manufacturer • Electronics • Fire and Security Technology • Healthcare • Engineered Products and Services • Among market leaders in all industries • Global company

  4. Company Performance History • Prior to July 1992 • Net Profits = $95 million • Return on Sales = 3.1% • Stock Price $4.30 • July 1992 • Hired Dennis Kozlowski as CEO and President of Operations • July 2001 • Net Profits = $5.1 billion • Return on Sales = 13.8% • Share Price = $58.00

  5. Kozlowski’s Rewards • Praised for company performance • Substantially rewarded • $25 million salary • $86 million stocks options sales

  6. First Investigation • SEC launched investigation in late 1999 • Findings • Overstated expected costs of new acquisitions • Made acquisitions appear financially unstable • Results • Technically no laws were broken • Tyco agreed to restate earnings • No fines assessed or penalties imposed

  7. Second Investigation • June 2004 • CEO Dennis Kozlowski and CFO Mark Swartz • Tax Evasion • Improper use of company funds • See Next Slide • Payoffs were paid to directors to cover up • Undisclosed stock sales • $430 million made by Kozlowski and Swartz

  8. Use of Company Funds for Private Purposes • $13.8 million for paintings • $2.5 million for a home in Florida • $9 million for additional property • $5 million for Massachusetts property • $900,000 for Connecticut property • $240,000 jewelry for Mrs. Kozlowski • Many more…

  9. Ethical Question • How wrong were Kozlowski and Swartz? • Totally “Wrong” ? • Somewhat “Wrong”, still did good for company? NOT WRONG AT ALL SOMEWHAT WRONG COMPLETELY WRONG

  10. Benefit to Some • Company’s CEO Dennis Kozlowski, and CFO Mark Swartz • Inside and outside directors who were involved • Company saves on taxes • Company and employees • Customers

  11. Harm to Others • Tyco • Government • Integrity of the company’s CEO and CFO • Company’s reputation • Performance • Stock price • Employees and their families • Executives that were not involved • Stockholders

  12. Rights Exercised • Kozlowski’s right to live lavishly • Board’s right to spend the company’s money as it sees fit • Right to overestimate future costs • Right of the SEC to investigate

  13. Rights Denied • Right of the government to tax its citizens • Rights of the citizens of New York for fair taxes • Rights of the company’s employees and shareholders to fair, honest reporting • Spending of corporate dollars • Acquisitions

  14. Moral Questions • Is it right to make another company appear more unstable that it really is? • Is it right to use corporate money for personal use? • Is it right to bribe board members? • Is it right to have undisclosed sales of stocks?

  15. Economic Outcomes Pre Kozlowski: Stock - $4.30 per share Ten years later: Stock - $58 per share Post Kozlowski: Stock – $16.05 per share

  16. Economic Outcomes • Extravagant purchases helped to boost economy • Purchases took away profit from Tyco International Ltd., its employees, and shareholders

  17. Legal Requirements • No law against overstating future cost • Tyco would restate earnings • June 2004: Tax evasion charges • Personal purchases as companies expense “What is legal, is not always right!”

  18. Ethical Duties • Public Company: Financial Statements – Overstating expenses • Acquisitions • Undisclosed sales of stock • Company funds for personal expenses • Special “bonuses” to keep quiet! • Kozlowski, CEO – Tax Evasion

  19. Kozlowski and Social Responsibility • Kozlowski falls between the Obstructionist and Defensive Approaches

  20. The Court’s Decision: CONVICTED • Fraud against shareholders of over $400 million • 22 counts of grand larceny for unauthorized bonuses totaling over $150 million • Currently serving 8 to 25 years in prison

  21. Moral Solution • Support the Court’s decision • “Superstar” status among CEO’s does not forgive ethical misconduct • Was aware of the ‘fine print’ and knowingly • Cheated • Lied • Broke the law • Not isolated incidents

  22. Conclusion • Matt Kambic - Introduction and History of Company • You-Chen Lu - Benefits and Harms • Brittany Snyder - Rights Exercised / Rights Denied • Rachel Alexander - Economic Outcomes/Legal Requirements/Ethical Duties • Jonathan Crawford - Moral Solution

  23. Q & A

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