Individual Assignment Tyco International A Case o

Individual Assignment  Tyco International A Case of Corporate Malfeasance
Please make this original where no one has seen or turned it in for a grade
Read Case Study 26 Tyco International: A Case of Corporate Malfeasance on pp. 321-333 of Strategic Management.
Prepare a 700- to 1,000-word paper analyzing strategic implementation at Tyco that includes the following:
•	Describe how the lack of corporate governance at Tyco contributed to its downfall.
•	Explain how Dennis Kozlowski used organizational structure and controls to implement his strategic plan.
•	Analyze the role of Tyco leadership in strategic implementation.
•	Evaluate the role of strategic entrepreneurship in creating firm value at Tyco.
•	Reference your readings and at least two other sources, including the Internet, or other properly cited sources. 

Format your paper consistent with APA guidelines.
Case Study is Below
Michael J. Merenda
University of New Hampshire
Alison Volk
University of Wisconsin
Allen Kaufman
University of New Hampshire
On June 17, 2005, Tyco- former chief executive, Dennis
Kozlowski, and its former chief financial officer, Mark
Swartz, were convicted of grand larceny, conspiracy, and
fraud. In September 2005 Kozlowski and Swartz received
8- to 25-year sentences at Mid-State Correctional Facility
near Utica, New York. State Supreme Court Justice
Michael Obus ordered Kozlowski and Swartz to pay a total
of $134 million in restitution; in addition, Kozlowski
was fined $70 million, Swartz $35 million. The sentences
end a case that exposed the executives’ extravagant
lifestyle after they pilfered some $600 million from
the company including a $2 million toga birthday party
for Kozlowski- wife on a Mediterranean island and an
$18 million Manhattan apartment with a $6,000 shower
curtain.1
Kozlowski and Swartz were just two of the more celebrated
corporate malfeasance cases decided in the first
half of this decade. John Regas, former CEO of Adelphia
Communications, was sentenced to 15 years (it would
have been longer but he was 80 and in poor health at
the time of his sentencing) and his son Timothy, its chief
financial officer got 20 years. They were found quilty
of stealing $100 million and hiding $2 billion in corporate
debt, thus looting and defrauding shareholders.
Other notable sentences were Andrew Fastow of Enron
(10 years), Sam Wakal of ImClone Systems (7 years),
Jamie Olis of Dynergy (24 years), and Bernie Ebbers of
WorldCom (25 years). What is significant about these
cases is the severity of the sentences. Traditionally, corporate
malfeasance cases resulted in convictions that
amounted to a mere slap on the hand. These individuals
Tyco International: A Case of Corporate Malfeasance
Michael J. Merenda, Alison Volk, Allen Kaufman
Case 26
received longer prison terms that are similar to sentences
received by hardened criminals. Hubris cost these executives
dearly in terms of retribution payments, personal
freedom, and integrity.
These instances of corporate malfeasance ushered in
a new era in corporate governance. They dramatically
changed the relationship between corporate executives
and company boards of directors and their shareholders.
Increasingly shareholders’ are voting against the recommendations
of managers, particularly on the method by
which members of the boards of directors are elected
and the basis for keeping their seats on the board. One
particular hot issue being fought by radical shareholders
is their ability to vote out the chairperson of the board-
compensation committee at any firm they think overpays
managers.2
It is also evident that Tyco- board of directors
did not exercise its fiduciary duties to the shareholders.
Questions arise as to where and why it failed and
whether the directors receive prison sentences because
of their irresponsible and unethical behaviors. Finally,
people are reluctant to question success, and they tend
to give those responsible for “successful undertakings”
too much leeway. These factors, coupled with the ethical
and moral values of Kozlowski and the voodoo accounting
of Swartz, resulted in the outcomes described
in this case.
This case traces the events and decisions that led to
Kozlowski- and Swartz- demise at Tyco and their public
disgrace in the court room. It looks at management actions
that not only violate public trust, but undermine
the fabric of a democratic society. It is clear in the case
that the principal characters not only behaved unethically
and were socially irresponsible, but also broke the
law and misappropriated monies that should have been
distributed to shareholders.
Three issues need to be addressed: (1) What things
led to Tyco- present state? (2) What can be done in the
© Don Hammond/Design Pics/Corbis
321
This case was written for the sole purpose of stimulating and promoting learning in the classroom. The case is not intended to imply effective or ineffective
handling of decisions and actions on the part of the principals. Not for reproduction or publication without the permission of the authors. Reprinted by permission
from the authors. All rights are reserved to the authors. Copyright © 2007 by Michael J. Merenda, Alison Volk, and Allen Kaufman. Reproduced by permission.
978-0-324-83469-7, Strategic Management: Concepts & Cases, Competitiveness and Globalization, 8e, Michael A. Hitt, R. Duane Ireland, Robert E. Hoskisson - © Cengage Learning
Case 26 • Tyco International: A Case of Corporate Malfeasance
322
organization to prevent these situations from arising in
the future? and (3) What resources does Tyco- new management
team have at its disposal to enhance the reputation
of the firm and turn it around? See Exhibits 1, 4 (on
page 330), and 5 (on page 331) for financial highlights
and financial ratios and indicators.
Tyco: The Pendulum Swings
Arthur Rosenberg,
Tyco- Founder
Tyco, Inc., began in 1960 as an investment and holding
firm in Waltham, Massachusetts. At that time, Tyco had
two principal holdings, Tyco Semiconductor and the
Materials Research Laboratory, which conducted industrial
research and development in solid-state sciences
and energy conversion. When Tyco merged these two
divisions in 1962, its major customer remained to be the
U.S. government.3 However, Arthur Rosenberg, Tyco-
founder, saw commercial opportunities. Over the next
two years, Tyco became an industrial products manufacturer,
going public in 1964. Tyco grew steadily over the
next few years, adding 16 companies by 1968. Five years
later, Tyco generated $40 million in sales.
Joseph Gaziano: Growth
through Acquisitions
In 1973, Joseph Gaziano, an engineer trained at MIT,
took over for Rosenberg as president and CEO. Under
his leadership, Tyco pursued a path of aggressive and
often hostile acquisitions. He wanted to turn Tyco into a
$1 billion company by 1985, using any means necessary.
Gaziano died of cancer in 1982. The company he left
behind, however, was large and diverse. It had a net worth
of $140 million and was bringing in more than $500
million in sales. The conglomerate housed manufacturers
of products as varied as undersea fiber optic cables,
fire sprinkler systems, polyethylene film, and packaging
materials.
John Fort: Performance over
Growth
John Fort, an aeronautical engineer who held degrees from
Princeton and MIT, became Tyco- third CEO in 1982.
As Tyco- new CEO, Fort decided to set a different tone.
He veered away from the acquisition-centered growth
strategy of his predecessor and immediately trimmed
the tremendous debt that Gaziano had accumulated and
focused instead on cutting costs wherever possible. Fort
told investors, “The reason we were put on earth, was to
increase earnings per share.”4 He was thrifty and unglamorous,
preferring to gain Wall Street- respect through his
own economic restraint. Under Fort- leadership, Tyco became
a company without frills. When it came time to find
a location for the company- headquarters, for example,
Fort had builders clear land in Exeter, New Hampshire.
The facility that they consequently constructed consisted
of three unpretentious, low-rise office buildings, without
even a cafeteria on site.5 He drastically cut costs and
discarded a number of businesses that were not directly
related to Tyco- operations. He separated the company-
Exhibit 1 Tyco International: Historical Stock Price, 1990-2002
70
60
50
40
30
20
10
0
1990 1991 1992 1993 1994 1995 1996
Year
Price($)
1997 1998 1999 2000 2001 2002
Low High
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Case 26 • Tyco International: A Case of Corporate Malfeasance
323
various businesses into three parts: Fire Protection,
Electronics, and Packaging. This consolidation, however,
did not signal an end to Tyco- acquisition strategy. Tyco
simply became more selective about the companies that
it pursued. Fort- main focus was on profits rather than
growth. The stock price rose from $1.55 in January 1982
to $29.56 in July 1990. Sales grew to $3 billion in 1991.
Fort retired in 1992 after serving 10 years as CEO. Dennis
Kozlowski, Tyco- then chief operating officer, replaced
him and further refined Tyco- art of acquisition.
Dennis Kozlowski: The Early Years
Kozlowski- Background
Dennis Kozlowski was the product of a working class family
from Newark, New Jersey. His father was an investigator
with Public Service Transport (which would later become
New Jersey Transit) and his mother was a school crossing
guard. He went to Seton Hall University in South Orange
and majored in accounting. He lived at home to help save
money and he worked at a variety of different jobs.
Kozlowski graduated from Seton Hall in 1968 and
landed his first job as an auditor for SCM Corporation.
In 1974, he was hired at Nashua Corporation, an office
equipment manufacturer in New Hampshire, as the director
of auditing. William Conway, Nashua- former CEO,
described Kozlowski as “a smart young guy who could
really help a business. Any problem that came up in the
company—in administration, selling, manufacturing—he
always had suggestions about how to fix it.”6
Kozlowski stayed at Nashua for a year and was then
approached by a headhunter to work at Tyco as the
assistant comptroller and head of auditing. Shortly after
he began, Gaziano purchased Grinnell Fire Protection
from I.T.T. Kozlowski was promoted to vice president. At
the time Grinnell was the largest of Tyco- divisions, but it
was barely scraping by. In six months, Kozlowski cut costs
and Grinnell showed $1 million in profit. Over the next
seven years, Grinnell increased profits to $212 million. In
1983, Kozlowski became president of the division. In the
next four years he managed to raise the division- profits
to $700 million. His performance earned him an invitation
to serve on Tyco- board in 1987, followed by a promotion
to president and COO in 1989. In fact, Kozlowski
engineered the acquisitions that generated the enormous
revenue growth (from $1 billion in 1988 to $3 billion in
1991) under Fort- watch. Three years later, he took over
the reigns from John Fort as CEO.
Kozlowski: The Great
Conglomerator
I never started out with a game plan to be a $76 billion
company. But I always envisioned one that had to grow
every year in order to be successful.7
During Kozlowski- 10-year reign at Tyco, the same word
kept popping up to describe him—aggressive. One Tyco
board member said, “Dennis has only one gear—forward
at 300 miles an hour. There is no reverse.” He pursued
acquisitions with a vigor that Tyco had not seen since the
days of Gaziano. His style, however, was markedly different.
He told the Boston Globe that he always followed
two rules for acquisitions: Never do a hostile deal and
immediately cut costs at the new facility.8 He had learned
from watching Gaziano that unfriendly takeovers often
lead to failed business ventures. Kozlowski preferred that
deals be made quickly and on good terms.
When Kozlowski took over as CEO, Tyco was a
$1.3 billion (net revenue) company divided into four
divisions: fire protection; valves, pipes and “flow control
products”; electrical and electronic components; and
packaging materials. Fire protection generated 53 percent
of Tyco- revenues, flow control 23 percent, electronics
13 percent, and packaging 11 percent.9 Even though Tyco
operated in many industries, the majority of its divisions
sold products to the construction industry, which accounted
for 80 percent of Tyco- income.10
Changing the Product Mix
Kozlowski wanted to decrease Tyco- reliance on the construction
business, which is infamously unpredictable,
and transition into manufacturing products for more reliable
consumers. This sentiment led the new CEO to suggest
buying Kendall International in 1994, a producer of
medical supplies, for $1 billion. Tyco- board balked, considering
that Kendall had filed Chapter 11 two years earlier
and their revenues were only increasing by 3 to 4 percent
per year. Kozlowski, however, was determined to repair
the company and the board agreed to the acquisition.
In the long run, Kozlowski- gamble paid off. After one
year, the acquisition helped Tyco- earnings grow to $214
million. Kendall became the center of Tyco Healthcare,
which, in turn, became a major producer of medical supplies,
second in the country only to Johnson & Johnson.11
By 1998, Tyco had six divisions: fire protection, flow control,
disposable medical products, Simplex Technologies,
packaging materials, and specialty products.
Between 1992 and 1998, Kozlowski perfected Tyco-
acquisition strategy. In many respects, it resembled the
conglomerate strategy developed during the 1960s and
then abandoned by the 1980s. Originally, conglomerates
assembled businesses in unrelated fields to counter business
cycle movements. When one business was strained
during the downside of a business cycle, another division
would be performing well. This portfolio approach was
to assure the corporate holding company a steady stream
of cash. The central office functioned as a bank, using the
firm- operating cash to weather economic storms, to acquire
new cash-generating companies and to divest those
978-0-324-83469-7, Strategic Management: Concepts & Cases, Competitiveness and Globalization, 8e, Michael A. Hitt, R. Duane Ireland, Robert E. Hoskisson - © Cengage Learning
Case 26 • Tyco International: A Case of Corporate Malfeasance
324
firms that no longer fit the conglomerate portfolio. As
long as cash streams steadily grew, the conglomerate-
stock price rose, allowing the company- stock to be takeover
currency.
Bring on the Hungry
Young Talent
Tyco- central office functioned much like a conglomerate
holding company, acquiring and divesting parts.
However, Tyco did not seek out unrelated acquisitions
to beat the business cycle. Instead, Kozlowski hunted
after targets that fit into Tyco- broadly defined business
divisions. Targets had to be the sort that investment
bankers had favored for takeovers during the
1980s: “underperforming firms that were fat, dumb and
happy.”12
He would then replace highly paid executives with
young, energetic middle managers, preferably ones who
were “smart, poor and who wanted to be rich,” which is
how Kozlowski saw himself when he was younger. These
ambitious individuals would strive for productive efficiency
by closing facilities and dislocating workers. For
example, in consolidating the firms that it acquired in
2001, Tyco closed approximately 300 plants and eliminated
approximately 3,000 jobs.13
In this loosely held empire, the central office set
stringent budgets and financial controls to oversee performance.
By focusing on its financials, Tyco imitated
the conglomerates that preceded it. But, to ensure that
Tyco had syngery Kozlowski would annually ask investment
bankers to map out a break-up strategy. If it beat
Tyco- current value, then Kozlowski promised that he
would undo the company.14 Until 2002, Tyco outperformed
break-up scenarios and Kozlowski did not have
to make good on his promise.
In 1999, BusinessWeek reported that Kozlowski was
scouting anywhere from 30 to 40 different business opportunities
at a time. Tyco- biggest acquisitions during
this period included Earth Technology Corporation
(1995), builders and operators of wastewater and water
treatment facilities; Carlisle (1996), makers of packaging
materials and clothing hangers; and AMP (1999), manufacturer
of electrical, electronic, and fiber-optic wireless
devices.15
The merger with Bermuda-based ADT in 1997 was
one of Tyco- most notable additions during this time
period. The $5 billion plus deal added the world- largest
producer of home security systems to Tyco- portfolio.
The merger also allowed Kozlowski to transfer
Tyco- headquarters from New Hampshire to Bermuda.
The move saved Tyco $400 million in taxes in just one
year.16
Under Kozlowski, Tyco had become larger and more
diversified than ever, with subsidiaries that manufactured
everything from medical syringes to undersea fiberoptic
cables. Between 1997 and 2002, Tyco purchased
more than 1,000 companies and spent $60 billion on acquisitions.
17 This growth enabled Tyco- stock to climb
from just over $5 per share in 1992 to a high of $62 in
2001.18 Between 1996 and 2001, revenues increased by
48.7 percent per year.19 BusinessWeek named Tyco one of
the 50 best companies in 1997.
Tyco- board members seemed to be relatively pleased
with Kozlowski- performance. He was given a lot of freedom
in running the company. In 1997 the board voted to
allow the CEO to spend up to $50 million on an acquisition
without getting their approval first. That number was
increased to $100 million in 1999 and then $200 million
in 2000. Tyco- steady stock climb allowed Kozlowski to
borrow heavily to fund his purchasing spree. At its peak,
Tyco- debt reached $28 billion, a figure that exceeded
shareholder equity.
Management Incentives
and Compensation
Running the Company
Kozlowski preferred Tyco to be a decentralized organization.
The divisions acted almost entirely independent
of one another. Managers from different operating
segments rarely spoke to each other. Some thought
that this kept Tyco from experiencing restraints on its
growth potential. One top lieutenant said, “There is
no limit to how big the company could get because
of the way we manage it.”20 It seemed that Kozlowski
had a deep disdain for bureaucratic hierarchies or
managerial organization. He forbade memos and kept
meetings short. He preferred communicating briefly
with others, either over the phone or through e-mail.
Kozlowski wanted his employees to be accountable
for their own work and compensated or penalized
accordingly.
Compensation Packages
To get the most out of his executives, Kozlowski liked
the idea of a compensation package with a low base salary
but weighted heavily with incentives. Tyco- managers
would not get a bonus unless their division had
achieved 15 percent of earnings for the year. If the division
hit 15 percent, then the executives would receive
compensation that would be, at a minimum, equal to
their salary. If the division surpassed 15 percent, then
“the sky was the limit.”21
For senior executives, Tyco, like other large oldline
companies, used stock options for incentive pay.
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Case 26 • Tyco International: A Case of Corporate Malfeasance
325
This preference arose from the Reform Tax Act of
1993, which disallowed firms to pay executive salaries
that exceeded $1 million for tax purposes. During the
1992 presidential contest between George Bush and
Bill Clinton, CEO pay became a contentious issue.
Although wages for average workers remained stagnant
during the Bush administration, CEO pay had
increased steadily. Once in the White House, Clinton
pursued tax policies designed to curb excess CEO salaries,
hence the Tax Reform Act- deduction limit on
executive salaries. The Tax Act, however, still allowed
companies to continue to write off incentive-based pay.
Congress believed that performance-based pay was
compensation well deserved.
Stock Options and
Other Incentives
Among the various sorts of incentive pay, corporate
board compensation committees found stock options to
be the most attractive. Although the federal government
allowed these bonuses to be tax deductible, accounting
rules did not require firms to report options as an expense.
Thus, from a tax vantage point, options reduced
the firm- tax burden. From an accounting standpoint,
they were costless compensation. Shareholders were enamored
by these plans for they allegedly aligned managers
to shareholders’ interests. Tyco- board did not differ
from its Fortune 500 peers. Driven by tax and accounting
incentives, Tyco- board loaded executive compensation
packages with stock options. For example, in 2002,
Kozlowski owned 3 million Tyco shares and held option
on another 10 million.22 Tyco- executives now had
powerful incentives to push up shareholder value by any
means possible. Tyco- compensation structure illustrates
this change. In 1999, Kozlowski- first year as CEO and
chairperson, he earned $1.2 million while Tyco- second
highest executive received $950,000. By 2000, Kozlowski
earned more than twice the second highest paid executive
(CFO Mark Schwartz).
The Fame Game
In the late 1990s, Tyco- board brought in an imageconsultant
from New York City to help bolster Kozlowski
and Tyco- reputation. Tyco modeled this campaign
after GE- celebrity CEO, Jack Welch. As institutional
investors came to dominate the stock market, money
market managers increasingly relied on a CEO- reputation
when evaluating investment opportunities. If a
CEO had charisma, the markets reacted favorably. CEO
charisma requires a publicity campaign that gives the
CEO a larger-than-life appearance—a perception that
is generally achieved with large offices, fancy suits, corporate
jets, and expensive tastes.23
At Tyco, Kozlowski gave openly to charity, spoke at
well-publicized events, and joined the boards of for- and
not-for-profit organizations. Kozlowski- presence was
felt especially in southern Maine and New Hampshire,
where a number of local agencies benefited from his
philanthropy. The Berwick Academy in South Berwick,
Maine, was able to build a multimillion-dollar athletic
center in 1997 after receiving a $1.7 million contribution
from Tyco. The University of New Hampshire, Franklin
Pierce College, St. Anselm- College, and the United Way
of the Greater Seacoast also received a number of large
donations from the company at the CEO- request. UNH
in particular was able to set up a Tyco scholarship in the
College of Engineering and Physical Science after the company
presented a $5 million gift to the UNH Foundation
Office. Kathy Gallant, owner of Blue Moon Market and
Green Earth Cafè in Exeter, described Kozlowski as “the
most engaging, generous human being.”24
CEO/Senior Executive
Entitlement
At the same time that he was giving openly to notfor-
profit agencies, Kozlowski started buying lavish
homes in New York and Boca Raton and filling them with
exquisite furnishings and decorations. He used Tyco-
cash to bankroll these investments. He also used Tyco-
resources to benefit other members of his inner executive
circle. These decisions seemed to make good business
sense. For example, once Tyco decided to move corporate
headquarters to New York, the Board- compensation
committee approved Kozlowski- relocation expenses
under the firm- New York City Corporate Headquarters
Relocation Loan Program. It awarded relocated executives
interest-free home loans, with some restrictions. In
May 2000, Kozlowski received more than $7 million as a
loan to relocate to 610 Park Avenue.
Kozlowski soon left this address and took up residence
in a co-op at 950 Fifth Avenue that better suited
Tyco- business needs than the Park Avenue address.
Stephen Schwartz, a well-known investment banker and
president of the prestigious Blackstone Group, owned
the co-op, which had only seven units. Like other Fifth
Avenue co-ops, Kozlowski had to gain the co-op board-
approval. He interviewed with two co-op owners:
Jonathan Tisch, CEO of Loews Hotels and member of
the Tisch family, which controlled Loews Corporation;
and Robert Hurst, a vice chairman at Goldman, Sachs,
the investment banking firm with which Tyco had dealings.
This move cost Tyco $16 million. Still, Kozlowski-
name appeared on the title because the co-op prohibited
corporate ownership.
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Case 26 • Tyco International: A Case of Corporate Malfeasance
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TME Corporation and Tyco-
Board of Directors
However, not every transaction that benefited Kozlowski
or senior executives had board approval. Although Tyco
under Kozlowski grew into a global company with more
than 2,000 subsidiaries and 270,000 employees, corporate
headquarters consisted of a staff of fewer than 400.
These employees received their pay from another subsidiary,
TME Management Corporation, which constituted
Tyco- headquarters’ company and employed about 40 senior
executives.25
As a publicly traded corporation, Tyco- board of
directors had final authority over the enterprise and its
executives. To carry out its responsibilities, Tyco- board
established a number of committees, including a board
nominating and governance committee, an audit committee,
and a compensation committee. Legally, TME
Management answered to the board and its committees.
Yet, as Tyco expanded rapidly and as Tyco- market value
continued to grow, TME gained de facto discretionary
powers in a variety of corporate functions. These divested
responsibilities could easily be acquired because
TME had separate treasury, tax, finance, investor relations,
human resources, and internal audit units. Within
TME, Kozlowski, as Tyco- CEO and board chair, exerted
considerable influence. For example, TME- internal audit
committee reported to him rather than directly to the
board- audit committee. (See Exhibit 2 for a listing of
Tyco- directors, officers, and key management.)
Mark Swartz and KELP
Tyco- chief financial officer, Mark Swartz also had considerable
powers within TME. Appointed CFO in 1997,
he joined Tyco- board in 2001. Within TME, Swartz controlled
fund transfers, accounting entries, and those parts
of human resources that oversaw various executive compensation,
bonus, and loan programs.26 Employees had
few incentives to question Swartz- authority and powerful
incentives to comply. For example, Patricia Prue, head
of human resources, earned $15.1 million between 1999
and 2001.27
One policy—the Key Employee Loan Program
(KELP)—became particularly useful for TME executives.
Originally established in 1983, this program offered executives,
who had been awarded stock as part of their compensation,
loans to pay off state and federal taxes once the
stock vested. Yet, Kozlowski used this program in 1997
and 1998 to borrow more than $18 million for personal
properties in Connecticut, New Hampshire, Nantucket,
and Boca Raton—monies that were never reported in the
Director and Officer Questionnaire. Swartz, along with
several other senior executives, benefited from this program
as well. Control over the accounting books also allowed
loan forgiveness. For example, in 1999, Kozlowski
and Swartz were able to make accounting entries that reduced
Kozlowski- KELP debt by $25 million and Swartz-
by $12.5 million.
Kozlowski viewed this KELP financing of senior executives’
homes and other private purchases as sound
business decisions. Kozlowski reasoned that senior executives
would have to sell off large amounts of their vested
stock and stock options in order to buy large ticket items
such as real estate and yachts. These sales would have
surely spooked big investors, pushing down Tyco- stock
value and hurting the average shareholder. Even though
Kozlowski and other senior executives exercised KELP in
dealings for which it was not designed, Kozlowski found
these actions were true to KELP- spirit.28
Exhibit 2 Tyco International Directors, Officers, and Key
Management
Directors
L. Dennis Kozlowski
Chairman of the Board and
Chief Executive Officer
Lord Ashcroft KCMG
Chairman
Carlisle Holdings Limited
Joshua M. Berman
Richard S. Bodman
Managing General Partner
Venture Management
Services Group
John F. Fort
Stephen W. Foss
Chairman and Chief
Executive Officer
Foss Manufacturing
Company, Inc.
Wendy E. Lane
Chairman
Lane Holdings, Inc.
James S. Pasman, Jr.
W. Peter Slusser
President
Slusser Associates, Inc.
Mark H. Swartz
Executive Vice President
and Chief Financial Officer
Frank E. Walsh, Jr.
Chairman
Sandy Hill Foundation
Joseph W. Welch
Chairman and Chief
Executive Officer
The Bachman Company
Officers
L. Dennis Kozlowski
President
Chief Executive Officer
Mark A. Belnick
Executive Vice President
Chief Corporate Council
Michael J. Jones
Secretary
Mark H. Swartz
Executive Vice President
Chief Financial Officer
Business Segment
Presidents
Jerry R. Boggess
President
Tyco Fire and Security
Systems
Albert R. Gamper, Jr.
President
Tyco Capital
Jurgen W. Gamper
President
Tyco Electronics
Richard J. Meelia
President
Tyco Healthcare
Source: Tyco International Annual Report 2002, 90.
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Case 26 • Tyco International: A Case of Corporate Malfeasance
327
The “Art” of the Deal
In 2001, Kozlowski used KELP to purchase artwork
worth nearly $12 million for his New York City residence.
Again, Kozlowski judged these purchases as Tyco investments.
His well-provisioned Fifth Avenue co-op substituted
as an office where he negotiated acquisition deals
with investment bankers under the pretense of shared
collector enthusiasm. Through this ruse, Kozlowski hid
his acquisition deal-making from the business press.
Conventional wisdom informed Kozlowski and other
Tyco executives that had these negotiations become public,
the news would have adversely affected Tyco- purchase
price, as investors bid up target company stock.
Finally, without board approval, TME dispersed
bonuses to select executives. For example, after Tyco-
successful public offering of TyCom- shares and the
lucrative divestment of ADT- (a Tyco subsidiary) automobile
auction division, Tyco- top executives received
handsome bonuses. In the TyCom issue, Tyco executives
garnered $76.5 million, with $33 million going directly
to Kozlowski. Tyco senior executives did not fare as well
after the ADT divestiture. They earned $56 million in
bonuses, with Kozlowski pocketing nearly half.
Although these sums may seem large, they were only
a small portion of the prof