Tyco International: Earnings Management

Group 4Mai San YadanaDe Ocampo, GezelleDimalibot, DanicaEndaya, Maria Angelica MaeZarraga, Fatima

1960Arthur J. Rosenburg1974Tyco is listed on the New York Stock Exchange.History1975Dennis Kozlowski began to work under the CEO Joseph Gaziano.1980Tyco organized its subsidiaries and divided them into three segments.1982Gaziano died and was replaced by John F. Fort III.1986Tyco reorganized its subsidiaries and divided them into four segments:

1992CEO Dennis Kozlowski1999Rumors began to spread about Tycos accounting habits.History (cont.)1990Tyco International2000Tyco acquired more than 30 major companies.2002Tycos scandal was taken place.

Greed and corruption are few of the words to describe the mismanagement of earnings and funds of Tyco Internationals CEO Dennis Kozlowski.

Tyco, one of America's largest conglomerates, situated in Waltham, Massachusetts, was founded by Arthur J. Rosenburg.

Introduction

Introduction (cont.) In September 12, 2002, national television showcased Tyco Internationals 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. As Kozlowski rose to become the second highest paid CEO, some red flags pointed toward the impending disaster.

CEO Dennis Kozlowski 2. CFO Mark H. Swartz

Those who issue red flags will be terminatedEmployees are discouraged to speak their mindsKozlowskis self-priority

Transparency is not observedUnauthorized funds came out of the companyMisappropriationsBriberyAccounting FraudHigh Bonuses

The company should have a committee of independent non-executive directors on its Board of Directors who are responsible for ensuring that systems are in place in the corporation to assure employee compliance with the Code of Ethics. The fair treatment should root in all area of management. The company should be responsible for ensuring greater transparency in its financial reporting.

4. The company should research, develop, and document policies and processes around that define, identify, and report ethics violations. 5. The company should avoid hiring managers and even employees that have close connection or relation to the top management. 6. The company should delegate the powers of the top management. No one should anchor double function.

SolutionDamageBenefitFairness1Costly because of the compensation for the additional committee.Because of additional cost, income will be lessen but can avoid a large corruption even in the top management.The additional committee as well as the company will benefit, however, the cost is situated to the company.2Costly because of the additional compensation of the employees.Employees will be more dedicated to the efficiency of their work.The employees as well as the company will benefit, however, the cost is situated to the company.3Costly because of the compensation for the services of outside auditors.It will ensure reliable financial statements.Benefit the whole company.

4Research cost is at minimal.MonitoringThe company can ensure reliable and ethical work from the bottom of the management up to the top.Benefit the whole company.The burden of monitoring is situated in the Human Resource Department.

Upon the assessment of the alternative solution, the researchers came up with two (2) most appropriate solution to lessen conflict of interest. having a committee on ethical conductdelegate the power of the executive to avoid misuse and overuse of power

SolutionDamageBenefitFairness5Cost is minimal.Applicants ability and courage can be hard to discover.The company can ensure unbiased work from its employees.This can lessen the intervention of the top management in each departments duties.Benefit the whole company.Burden the Hiring department.

6Difficulty of the executives in choosing whether to be a part of the board or the top management.No cost is needed.This can lessen misuse and overuse of power.Work can be efficient but no assurance of having the most qualified part of the board or top management.

Establish a clear company's policy with guide procedures in every internal or external transaction. Delegate the powers to the different executives.Conduct monthly board meeting.Create a committee who'll be focusing on the ethical conduct regarding those of the policies of the company. The committee will be assigned in seminars regarding ethical conduct. The committee will also be in charge of taking corrective actions to those who have been found guilty of committing unethical actions.

The Tyco International scandal gives the business world an overview of what could happen if too much power is put in the hands of an individual.

This should serve as a lesson to others that greed will not lead to anything good and if they think that it would never be discovered there are always loopholes that could reveal the acts.

Proverbs 28:20 The faithful man will prosper with blessings, but whoever is in a hurry to get rich will not escape punishment.

Timothy 6:10 For the love of money is a root of all kinds of evil. Some people, in their eagerness to get rich, have wandered away from the faith and pierced themselves with much pain.