Tyco International: Leadership Crisis

1.)Being in a high ranking position doesn’t mean one can take advantage of its power. The executive officers of Tyco faced numerous charges because they abused their power over the company and used it for their own benefit. The company’s board of directors should have manage and prevented this kind of situations most specially their role is to protect the firm’s shareholders from inappropriate or unethical situations. As a result, they faced consequences for their unethical behavior which is the decentralization of the corporate structure.

The misconduct of Dennis Kozlowski, the former chairman of Tyco and Mark Swartz, the former CFO lead them 30 counts of corruption, conspiracy, fraud, conspiracy, grand larceny, and falsifying business records. While Mark Belnick , the former general counsel was charged of obscuring $14 million.

2.)The scandal of Tyco happened in the rise of Kozlowski as the new CEO of Tyco. He greatly admires his friend, mentor, and previous CEO of Tyco, Joseph Gaziano. His style also became extravagant and lavish like his mentor.

He had also implemented the company jets, extravagant vacations, company cars, and country club memberships. Due to Kozlowski’s aggressive approach to business, it had led to Tyco’s many scandals. Even the board of directors is finding it difficult to monitor the company’s dealings and finances due to the decentralized corporate structure of Kozlowski. Kozlowski had picked his corporate governance team. All the employees he picked know his management style. The leaders of Tyco had shown characteristics of a psychopath.

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They focused more on the wealth that they will gain rather than serving the company.

Disregarding the feelings of the people, they shot down at those who will accuse Tyco, including Jeanne Terrile at Merrill Lynch and David Tice, the one who questioned Tyco’s use of large reserves. They also have no second thought in eliminating segments of the company that do not generate profit. It was due to Kozlowski’s unethical leading method that caused the scandal of the company. Both Kozlowski and Swartz were arrested for stealing 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 all information from the shareholders.

The unethical behavior that Kozlowski and Swartz had shown caused the investors to lose their trust in the company. Under the new management of Edward Breen, he launched a review of the company’s accounting and corporate governance practices to determine whether any other fraud had occurred. And to gain back investors’ trust, he reorganized a new management team and recovered the funds purportedly taken by Kozlowski. He assigned Eric Pillmore as the Vice President of Corporate Governance. And under his guidance, he incorporated three elements into Tyco’s culture, namely:

•Strong and ethical corporate leadership
•Accountability
•Behavior-tracking processes

3.)The Boards of Directors are responsible for protecting Tyco’s shareholders interest. However, some of the board members were not aware of the fraud, and other unethical deals that were going on behind the scenes. The board members that were aware, who were particularly the CFO and the legal counsel that were chosen by CEO L. Dennis Kozlowski himself, did not bring the issues to the other members of the board, therefore, they were just as guilty of unethical behaviors as the CEO and his direct reports. The reason behind this could have transpired is probably due to the majority of board members being on the board for more than 10 years, in which relationships have been established over time. The CEO, CFO and legal counsel, due to the nature of their positions, were not honest and transparent with the stakeholders concerning the issues relating to the accounting fraud and conflicts of interest. They all engaged in an enterprise of corruption and conspiracy. In particular, they granted values amounting millions of dollars to various employees through loan forgiveness and relocation programs.

Also, they have falsified documents in the loan program in the amount of $14 millions. 4.)The company opted to restructure the organization and recover the extravagant costs incurred by Kozlowski. The company has been operating well throughout the years, and it managed to survive because it still works. There might be some problems along the way but that is normal. Before dwelling on the recent actions of the company, it pays to start off with what actually happened in the company and what led it to do such actions. It is said earlier in the case that its former CEO Gaziano has a lavish style and Kozlowski seem to adopt it. He started out small and he is promoted. When Gaziano died, he was replaced by Fort, he is opposite to how Gaziano’s tenure. He is thrifty and he really wants to provide the shares the shareholders deserve.

Kozlowski went up to the corporate ladder and had fast acquisitions. Then-CEO Fort does not agree much on this since he wanted to slow the rate of activity in the acquisition. They disagreed over the fast changes in the fire-protection division. Kozlowski dealt with this by convincing the Tyco’s boards that the problems with Wormald is normal and that the strategy of attaining profitable companies that met the guidelines must be continued. The board agreed with him and Fort decided to resign. Kozlowski rose to having his empire and he even left his family for another woman. He really has been using the company and abusing it to supply on his greed. He had done great things and even doubled the company’s profit. He has true talents but he had misused this. He gets various luxuries with the company sustaining it.

His salary increased greatly and he spent it on luxuries. Those who really see the true picture of the leadership style of Kozlowski were shot down. Everything else follows, but there is always a downfall and it happened on Kozlowski. On September 12,2002, Two of Tyco International top executives, CEO L. Dennis Kozlowski and CFO Mark H Swartz were arrested and charged with misappropriating more than $170 million from the company. Another executive and general counsel was charged with concealing $14 million in personal loans. Appropriate measures were taken and they paid a huge amount of fine and got imprisoned, since it is not just the monetary value but also the serious harm done to the company by this misappropriated uses of the company’s money. The company had been right on attacking the root, which are its people. It is the people who hold the operations and the corresponding outcomes. It is the people who are responsible in the glory and downfall of an organization, because they compose the system that holds the functions collaboratively to attain and live out the company’s beliefs.

There is a detailed timeline and statement in the case that exposed the problems. Tyco’s corporate culture supported Kozlowski’s greed. The company has been focused in its profits rather than the concern for stakeholders; and this actually deviates away from doing the ethical actions. The new leadership of CEO Edward Breen also helped the company survived this crisis. He implemented a corporate code of ethics and installed a corporate ethics program in doing so. The accounting and corporate governance were checked to know if there are other fraud committed. Breen also took tough decisions onto standing at a moment when leadership takes toll on its extent.

He fired top management executives and even the board who has hired him. This is to restructure the organization. Debt has been really huge and it is his way of resolving it. Compassion is essential especially when adhering to do ethical actions in the business environment of today. The actions done by the company are derived from tough decisions. But there are things to really consider especially when compassion takes its toll. Of course, it is also not right to just fire people without really justified reasons. These are the tough actions that the company has to take in order to do an overhaul that brings a positive change to the company.

Besides, if this measure is wrong, the company will face charges in this. Strong functional leadership and mentoring are essential to the development of the organization’s people. The people, especially the leaders must be accountable and responsible with the actions and discipline that entails them to do their job well. These actions are there to correspond to the crisis of the company. But, there must be a continual improvement and the constant responsibility and discipline must always be present. Ethics are there to guide the actions, and the actions guided by ethics pay a long way to the real triumph of an organization.

5.) The organization should take an active part to train all employees on an annual basis and to initiate new policies and procedures that will strengthen and support the company position. Imposing ethics, compliance and appropriate behaviour within the company will help through training and communications. This will ensure that the organization understand and are committed to comply with all applicable laws living with the right values and adhering to the appropriate policies and procedures. This will also be an effective prevention and remediation of conduct or ways of the company that will be in conflict with the values, law or policies and ethical behaviour the company should carry out.

The organization should also create a culture of respect and honesty in which employees feel free to raise business conduct and other issues. It is their responsibility is to train employees that will support the company. In addition, the top management should be a role model to its employees to its performance that will reinforce appropriate actions to promote an ethical workplace culture. 6.) The Sarbanes-Oxley Act of 2000 greatly help in restoring the corporate governance that should have been present in their organization like in every organization that uphold transparency and accountability. With the help of this Act that is also called ‘Public Company Accounting Reform and Investor Protection Act’ (in the Senate) and ‘Corporate and Auditing Accountability and Responsibility Act’, it would improve Tyco through requiring them to have proper and detailed financial disclosure and the mandatory overseeing of their accounting segment.

Also, the Act provided for the criminal liability for any organization that would not comply or violate the act preventing corporate offenders to follow what Enron or Tyco officers have done in the past. Corporate responsibility in terms of rightful financial disclosure would prevent fraud and misleading information posted by organizations like Tyco in the future ensuring that the organization could be held accountable for anything the company reports to its shareholders. Internal controls inside the management is required by the Act ensuring that any material weakness inside the internal organization’s system is taken note of by the corporate executives and be act upon quickly as possible. This deters accounting professionals in manipulating the accounts by imposing them to follow Generally Accepted Accounting Principles (GAAP), commonly accepted standard of recording and reporting accounting data. This makes the organization be more transparent especially in the financial side of the business and prevent abuses in the future.

7.) Yes, the SEC can trust the new board. The timeline shows the competency and qualifications of the new board members. The SEC has its reasons because of what the company’s scandal presented. It is a common understanding that it is difficult to bring back trust once it has been broken. Using shareholder cash for personal and greedy reasons is bad enough, but SEC also is irritated because of the corporate officials’ failure to file the suitable paperwork, like the instance where the loans are not disclosed where it is required for the federal securities laws. If there are no truthful and comprehensive disclosures, the system breaks down. True, Tyco has been under a dysfunctional board. This is why the trust of SEC has been scarred. However, with this problem, it pays to put the trust again since it is a new board.Each and everyone must be given the benefit of the doubt. Everyone has its own distinctions and the new board deserves a chance to prove that they are fit to the positions and they can meet the requirements, and do actions guided by principles, even in the midst of the toughest trials.In this reason, the SEC should act professionally in terms of these situations.

The new board has started out by correcting and declaring previous mistakes. Continuing the process will bring back the competitive level on Tyco International. There are always new things that will come to challenge the organization’s system. There would be the trials that scar one’s image, but this must not be planted for long. There would always be the learning points and the actions that correspond to those. The new board is different from the previous one, and this is yet again another beginning to patch up. There would always be a mess, but the good thing is, one can always clean it up when s/he steps out to the will on doing it. This creates room for improvement since the trials are there to test one and they always bring something meaningful that could benefit one and create more significant possibilities.

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Tyco International: Leadership Crisis. (2017, Jan 23). Retrieved from http://studymoose.com/tyco-international-leadership-crisis-essay

Tyco International: Leadership Crisis
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