Tyco International Ltd. (NYSE: TYC) is a Swiss security systems company incorporated in Switzerland, with United States operational headquarters in Princeton, New Jersey (Tyco International (US) Inc.). Tyco International is composed of two major business segments: Security Solutions and Fire Protection.Leonard Dennis Kozlowski[1] (born November 16, 1946) is a former CEO of Tyco International, convicted in 2005 of crimes related to his receipt of $81 million in purportedly unauthorized bonuses, the purchase of art for $14.725 million and the payment by Tyco of a $20 million investment banking fee to Frank Walsh, a former Tyco director. He is currently serving 8.33 to 25 years at the Mid-State Correctional Facility in Marcy, New York. His earliest release date is January 17, 2014, when he becomes eligible for parole. According to New York state inmate directory he has been granted conditional release at Lincoln Correctional Facility in New York City.

1. CSGB6102 : Business Ethics and Corporate Governance
Tyco International
Business Ethics and
Corporate Governance
(CSGB6102 )
Alireza Khosroyar
CGA110033

2. CSGB6102 : Business Ethics and Corporate Governance
Tyco International
1973 CEO: Joseph
P. Gaziano
1975 Dennis
Kozlowski
1982 New CEO:
John F. Fort III Kozlowski Promoted
to President of
largest Division
• -98% paper work, cut
salary convert to bonus
• Business Week
“corporate tough guy,
respected & feared in
roughly equal measure”
•President of company,
then CFO
•Acquired $ 360 mil of
global fire-protection

3. CSGB6102 : Business Ethics and Corporate Governance
Tyco International
1992 Fort resign as
CEO
1992 CEO:
Kozlowski, 46
•Acquired Kendall &
doubleddoubled earning
•Increase salary $ 2.1 mil
1999 CEO salary
$ 170 mil
1997 CEO salary
$ 8 mil
2002 EPS >40%
growth
Assisted by CFO,
acquisition escalated,
operating margin +22.1%
Assisted by CFO,
acquisition escalated,
operating margin +22.1%
2002, spent $ 8 bil on >700
acquisitions in last 3 yrs
2002, spent $ 8 bil on >700
acquisitions in last 3 yrs
SEC investigate on
amending Tyco’s EPS
during 1999-2000
SEC investigate on
amending Tyco’s EPS
during 1999-2000

4. CSGB6102 : Business Ethics and Corporate Governance
Tyco International
The fall of Dennis Kozlowski and others
In early 2002, Frank Walsh’s scandal
Receiving $20 million commission for his part in
securing and aiding the CIT merger, without the
knowledge of the rest of board.
Kozlowski had made the payment.
Paying bribe, either unethical and
against the law!

5. CSGB6102 : Business Ethics and Corporate Governance
Tyco International
The fall of Dennis Kozlowski and others
Also in 2002, authorities of the
bank discovered Kozlowski had
sough to avoid $1 million taxes!
He purchased $14 million rare
artworks.
He instructed the shipping
company to send empty boxes to
New Hampshire along with
invoices!
He resigned as CEO on June 2,
2002 and was arrested on June 3.

6. CSGB6102 : Business Ethics and Corporate Governance
Tyco International
The fall of Dennis Kozlowski and others
In September 2002, Kozlowski and Swart (CFO) were indict on:
 38 felony counts for allegedly stealing $170 million from Tyco!
 Selling an additional $430 million Tyco stocks and not reporting!
Kozlowski also accused of
granting $106 million to various
employees through “loan
forgiveness” program.
 Swart also accused of falsifying
documents in this program in the
amount of $14 million.

7. CSGB6102 : Business Ethics and Corporate Governance
Tyco International
•New York prosecutors indict KozlowskiNew York prosecutors indict Kozlowski
and Mark H. Swartz (former Tyco CFO)and Mark H. Swartz (former Tyco CFO)
on numerous counts of grand larceny,on numerous counts of grand larceny,
securities fraud, and enterprisesecurities fraud, and enterprise
corruption.corruption.
Judge:
•Kozlowski & Swartz pay $ 134 mil
to Tyco
•Fine $ 70 mil & $ 35 mil
•Jail : < 7 years (appeal)

8. CSGB6102 : Business Ethics and Corporate Governance
Tyco International
The fall of Dennis Kozlowski and others
• The consequences of CEO’s
misconducts:
• President of Fire & Security: Fired
(false account which impact on EPS)
• Auditor: Fired (Signed off Tyco’s audit
report 2002)
• Share price dropped from $60 on Jan to $18 in Dec
• Many of 260,000 employees were also shareholders, watched their
savings dwindle.
• Tyco’s retirees: retired plan tired to company stock price

9. CSGB6102 : Business Ethics and Corporate Governance
Tyco International
Ethical and legal issues in this case
• Discrimination
• Accounting Fraud
• Bribery
• Irresponsibility
• Conflict of interest
• …

10. CSGB6102 : Business Ethics and Corporate Governance
Tyco International
Rebuilding an empire
General action
 Company filed suit against Kozlowski and Swartz for more than $100
million.
 The SEC (The U.S. Securities and Exchange) allows companies to sue insiders who
Profited by buying and selling company stock
 To restore investors faith, new management team recovered some of the
funds taken by Kozlowski.

11. CSGB6102 : Business Ethics and Corporate Governance
Tyco International
Rebuilding an empire
Fundamental changes:
 Review of the company’s accounting and corporate governance practices
New board of director voted to
 make future executive severance agreement.
Require the board chair to be an independent person rather than a
Tyco CEO.
Eric Fillmore was hired as Vice President of Corporate Governance.
To transform Tyco from a model of poor governance to a leader

12. CSGB6102 : Business Ethics and Corporate Governance
Tyco International
During five years :
Eric installed a corporate ethics program.
A dramatic corporate culture was implemented
90% of headquarters staff were replaced.
In 2008 ,Tyco was named Corporate Citizen of the year
for helping the homeless
Today TYCO ‘s ethics program stands as a role model for
how one can clean up corporate misconduct.

13. CSGB6102 : Business Ethics and Corporate Governance
Tyco International
Conclusion:
Centralization vs. Decentralized structure
unethical issues
Difficult to detect misconduct

Decreasing tolerance 99% 1%
Tolerance t hat today’s government and investors have for misconduct
Tyco survival proves that some companies can survive
major ethical scandals.