Transcript Final_Presentation

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
Economic, Legal, and Ethical Situation –
Rachel Alexander
Moral Solution and Conclusion – Jonathan
Crawford
Q & A – Group
Company Information for Tyco
International Limited
Domestic Manufacturer
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Electronics
Fire and Security Technology
Healthcare
Engineered Products and Services
Among market leaders in all industries
Global company
Company Performance History
Prior to July 1992
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Net Profits = $95 million
Return on Sales = 3.1%
Stock Price $4.30
July 1992
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Hired Dennis Kozlowski as CEO and President of
Operations
July 2001
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Net Profits = $5.1 billion
Return on Sales = 13.8%
Share Price = $58.00
Kozlowski’s Rewards
Praised for company performance
Substantially rewarded
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$25 million salary
$86 million stocks options sales
First Investigation
SEC launched investigation in late 1999
Findings
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Overstated expected costs of new
acquisitions
Made acquisitions appear financially unstable
Results
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Technically no laws were broken
Tyco agreed to restate earnings
No fines assessed or penalties imposed
Second Investigation
June 2004
CEO Dennis Kozlowski and CFO Mark
Swartz
Tax Evasion
Improper use of company funds
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See Next Slide
Payoffs were paid to directors to cover up
Undisclosed stock sales
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$430 million made by Kozlowski and Swartz
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…
Ethical Question
How wrong were Kozlowski and Swartz?
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Totally “Wrong” ?
Somewhat “Wrong”, still did good for
company?
NOT WRONG
AT ALL
SOMEWHAT
WRONG
COMPLETELY
WRONG
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
Harm to Others
Tyco
Government
Integrity of the company’s CEO and CFO
Company’s reputation
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Performance
Stock price
Employees and their families
Executives that were not involved
Stockholders
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
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
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Spending of corporate dollars
Acquisitions
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?
Economic Outcomes
Pre Kozlowski:
Stock - $4.30 per share
Ten years later:
Stock - $58 per share
Post Kozlowski:
Stock – $16.05 per share
Economic Outcomes
Extravagant purchases helped to boost
economy
Purchases took away profit from Tyco
International Ltd., its employees, and
shareholders
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!”
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
Kozlowski and Social Responsibility
Kozlowski falls between the Obstructionist
and Defensive Approaches
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
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
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Cheated
Lied
Broke the law
Not isolated incidents
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
Q&A