questionable actions by the chairman of tyco international limited group 1: rachel alexander,...
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Questionable Actions by the Questionable Actions by the Chairman of Tyco Chairman of Tyco
International LimitedInternational Limited
Group 1: Rachel Alexander, Group 1: Rachel Alexander, Jonathan Crawford, Matt Kambic, Jonathan Crawford, Matt Kambic, You-Chen Lu, and Brittany SnyderYou-Chen Lu, and Brittany Snyder
OverviewOverview
Introduction and Summary of Situation – Introduction and Summary of Situation – Matt KambicMatt KambicBenefits and Harms – You-Chen LuBenefits and Harms – You-Chen LuRights Involved – Brittany SnyderRights Involved – Brittany SnyderEconomic, Legal, and Ethical Situation – Economic, Legal, and Ethical Situation – Rachel AlexanderRachel AlexanderMoral Solution and Conclusion – Jonathan Moral Solution and Conclusion – Jonathan CrawfordCrawfordQ & A – GroupQ & A – Group
Company Information for Tyco Company Information for Tyco International LimitedInternational Limited
Domestic ManufacturerDomestic Manufacturer ElectronicsElectronics Fire and Security TechnologyFire and Security Technology HealthcareHealthcare Engineered Products and ServicesEngineered Products and Services
Among market leaders in all industriesAmong market leaders in all industries
Global companyGlobal company
Company Performance HistoryCompany Performance HistoryPrior to July 1992Prior to July 1992 Net Profits = $95 millionNet Profits = $95 million Return on Sales = 3.1%Return on Sales = 3.1% Stock Price $4.30Stock Price $4.30
July 1992July 1992 Hired Dennis Kozlowski as CEO and President of Hired Dennis Kozlowski as CEO and President of
OperationsOperations
July 2001July 2001 Net Profits = $5.1 billionNet Profits = $5.1 billion Return on Sales = 13.8%Return on Sales = 13.8% Share Price = $58.00Share Price = $58.00
Kozlowski’s RewardsKozlowski’s Rewards
Praised for company performancePraised for company performance
Substantially rewardedSubstantially rewarded $25 million salary$25 million salary $86 million stocks options sales$86 million stocks options sales
First InvestigationFirst Investigation
SEC launched investigation in late 1999SEC launched investigation in late 1999FindingsFindings Overstated expected costs of new Overstated expected costs of new
acquisitionsacquisitions Made acquisitions appear financially unstableMade acquisitions appear financially unstable
ResultsResults Technically no laws were brokenTechnically no laws were broken Tyco agreed to restate earningsTyco agreed to restate earnings No fines assessed or penalties imposedNo fines assessed or penalties imposed
Second InvestigationSecond InvestigationJune 2004June 2004
CEO Dennis Kozlowski and CFO Mark CEO Dennis Kozlowski and CFO Mark SwartzSwartz
Tax EvasionTax Evasion
Improper use of company fundsImproper use of company funds See Next SlideSee Next Slide
Payoffs were paid to directors to cover upPayoffs were paid to directors to cover up
Undisclosed stock salesUndisclosed stock sales $430 million made by Kozlowski and Swartz$430 million made by Kozlowski and Swartz
Use of Company Funds for Private Use of Company Funds for Private PurposesPurposes
$13.8 million for paintings$13.8 million for paintings
$2.5 million for a home in Florida$2.5 million for a home in Florida
$9 million for additional property$9 million for additional property
$5 million for Massachusetts property$5 million for Massachusetts property
$900,000 for Connecticut property$900,000 for Connecticut property
$240,000 jewelry for Mrs. Kozlowski$240,000 jewelry for Mrs. Kozlowski
Many more…Many more…
Ethical QuestionEthical Question
How wrong were Kozlowski and Swartz?How wrong were Kozlowski and Swartz?
Totally “Wrong” ?Totally “Wrong” ?
Somewhat “Wrong”, still did good for Somewhat “Wrong”, still did good for company?company?
NOT WRONG AT ALL
SOMEWHAT WRONG
COMPLETELY WRONG
Benefit to SomeBenefit to Some
Company’s CEO Dennis Kozlowski, and Company’s CEO Dennis Kozlowski, and CFO Mark SwartzCFO Mark Swartz
Inside and outside directors who were Inside and outside directors who were involved involved
Company saves on taxesCompany saves on taxes
Company and employeesCompany and employees
CustomersCustomers
Harm to OthersHarm to Others
TycoTycoGovernmentGovernmentIntegrity of the company’s CEO and CFOIntegrity of the company’s CEO and CFOCompany’s reputationCompany’s reputation PerformancePerformance Stock priceStock price Employees and their families Employees and their families Executives that were not involvedExecutives that were not involved StockholdersStockholders
Rights ExercisedRights Exercised
Kozlowski’s right to live Kozlowski’s right to live lavishlylavishly
Board’s right to spend the Board’s right to spend the company’s money as it sees company’s money as it sees fitfit
Right to overestimate future Right to overestimate future costs costs
Right of the SEC to Right of the SEC to investigateinvestigate
Rights DeniedRights Denied
Right of the government to tax its citizensRight of the government to tax its citizens
Rights of the citizens of New York for fair Rights of the citizens of New York for fair taxestaxes
Rights of the company’s employees and Rights of the company’s employees and shareholders to fair, honest reportingshareholders to fair, honest reporting Spending of corporate dollarsSpending of corporate dollars AcquisitionsAcquisitions
Moral QuestionsMoral Questions
Is it right to make another company Is it right to make another company appear more unstable that it really is?appear more unstable that it really is?
Is it right to use corporate money for Is it right to use corporate money for personal use?personal use?
Is it right to bribe board members?Is it right to bribe board members?
Is it right to have undisclosed sales of Is it right to have undisclosed sales of stocks?stocks?
Economic OutcomesEconomic Outcomes
Pre Kozlowski: Pre Kozlowski: Stock - $4.30 per shareStock - $4.30 per share
Ten years later:Ten years later:Stock - $58 per shareStock - $58 per share
Post Kozlowski:Post Kozlowski:Stock – $16.05 per shareStock – $16.05 per share
Economic OutcomesEconomic Outcomes
Extravagant purchases helped to boost Extravagant purchases helped to boost economyeconomy
Purchases took away profit from Tyco Purchases took away profit from Tyco International Ltd., its employees, and International Ltd., its employees, and shareholdersshareholders
Legal RequirementsLegal Requirements
No law against overstating future costNo law against overstating future cost
Tyco would restate earningsTyco would restate earnings
June 2004: Tax evasion chargesJune 2004: Tax evasion charges
Personal purchases as companies Personal purchases as companies expenseexpense
““What is legal, is not always right!”What is legal, is not always right!”
Ethical DutiesEthical Duties
Public Company: Financial Statements – Public Company: Financial Statements – Overstating expensesOverstating expenses
AcquisitionsAcquisitions
Undisclosed sales of stockUndisclosed sales of stock
Company funds for personal expensesCompany funds for personal expenses
Special “bonuses” to keep quiet!Special “bonuses” to keep quiet!
Kozlowski, CEO – Tax EvasionKozlowski, CEO – Tax Evasion
Kozlowski and Social ResponsibilityKozlowski and Social Responsibility
Kozlowski falls between the Obstructionist Kozlowski falls between the Obstructionist and Defensive Approaches and Defensive Approaches
The Court’s Decision: The Court’s Decision: CONVICTEDCONVICTED
Fraud against shareholders of over Fraud against shareholders of over $400 million$400 million
22 counts of grand larceny for 22 counts of grand larceny for unauthorized bonuses totaling over unauthorized bonuses totaling over $150 million$150 million
Currently serving 8 to 25 years in prisonCurrently serving 8 to 25 years in prison
Moral SolutionMoral Solution
Support the Court’s decision Support the Court’s decision ““Superstar” status among CEO’s does not Superstar” status among CEO’s does not forgive ethical misconductforgive ethical misconductWas aware of the ‘fine print’ and knowingly Was aware of the ‘fine print’ and knowingly Cheated Cheated LiedLied Broke the lawBroke the law
Not isolated incidentsNot isolated incidents
ConclusionConclusion
Matt Kambic - Introduction and History of Matt Kambic - Introduction and History of CompanyCompanyYou-Chen Lu - Benefits and HarmsYou-Chen Lu - Benefits and HarmsBrittany Snyder - Rights Exercised / Rights Brittany Snyder - Rights Exercised / Rights DeniedDeniedRachel Alexander - Economic Rachel Alexander - Economic Outcomes/Legal Requirements/Ethical Outcomes/Legal Requirements/Ethical DutiesDutiesJonathan Crawford - Moral SolutionJonathan Crawford - Moral Solution
Q & AQ & A