This document discusses the rise and fall of Tyco International and its former CEO Dennis Kozlowski. It outlines how Kozlowski grew Tyco into a large conglomerate through aggressive acquisitions, but also engaged in questionable accounting practices and took unauthorized pay, which led to fraud charges and his downfall. It also examines factors that may have contributed to the accounting issues like lack of oversight, auditing failures, and incentives for risky behavior when executive pay was tied to financial performance.

1. Kunal Patil PP15198
Tabish Siddquie PP15200
Swapnil Bakde PP15206
Akshay SG PP15210

2.  Tyco is the world’s largest fire and
security company with over three
million customers around the
world.
 Acquired AT&T Submarine
systems to gain R&D assets
 Tyco Telecommunications is the
world’s first vertically integrated
global optical network supplier.

3. Prior to July
1992
July 2001 Growth
Net Profits $95 million $5.1 Billion 54 times
Share price $4.3 $58 13.5 times
 Began work at Tyco in 1976 and worked his way up through the company
to become the CEO in 1992.
 Acquired 1000 companies in a decade.
 In 1999, Tyco acquired two S&P 500 companies in a buyout;
 In 1997, salary $ 8 million. In 1999, salary $ 170 million.
 Within 5 years, cash in hand increased from $240 mil to $4.8 bil.
 In 2002, EPS >40% growth.

4.  Questionable business decisions and poor judgement.
 Victim of corporate governance.
 Took unauthorized pay and bonuses $600 mil, abusing loan
programs and selling company’s stock at inflated prices.
 He was accused of using the company’s money to support an
extravagant lifestyle.

5.  Why acquisition strategy for growth
◦ Massively accelerate its rate of growth with an acquisition.
◦ Targeted non-cyclical industries which would be unaffected by economy.
 Benefit for Tyco
◦ Bagged non-related sectors to enhance Tyco’s business and presence.
◦ Revenue doubled instantly.
◦ Diversifying risks
 Benefit for Kozlowski
◦ Board rewarded Kozlowski with high rise in salary and increased
incentives.
◦ Managerial risk aversion.

6.  What leads to accounting manipulations by top management
◦ Hire trusted executives as board of directors in the organisation.
◦ Improper auditing through the organisation.
◦ Compensation of corporate executives is directly tied to the financial
performance
◦ No whistle blower, organisation culture is such that people are afraid to
speak up.

7.  Why accounting firms did not catch the manipulations
◦ Scope of internal audits never included the headquarters function.
◦ Actual function at the headquarter is where the fraud occurred.
◦ These transactions where booked at the level below what the external
auditors checked.

8.  Why Kozlowski and Swartz engaged in behaviour that they did?
◦ Clearly they intended to live a lavish lifestyle like Gaziano.
◦ Tyco core competency was stated as; ability to party hard.
 What motivated them to take such risks?
◦ No higher authority to oversee their activities.
◦ He grew up with company and thought company’s funds were his personal
funds.
◦ Raising economy and increasing growth of their aggressively acquired
companies.
 How risky they thought their behaviour was?
◦ Machiavellianism.

9.  This shows what happens when too much power is put into the hands of an
individual, it can lead to a decentralized corporate structure that makes it
difficult to detect misconduct.
 Sarbanes-Oxley: the full-disclosure law passed in the US and used
internationally as a transparency benchmark for vested interests.
 Board composition has seen structural shifts in the ratio of insiders to
outsiders.
 Establish guidelines from a value standpoint along with delegation of
authority from a governance standpoint.

10.  The final improvement on corporate governance came in the
Guide to Ethical Conduct.
 The guide was produced to advise employees as to correct
procedures and warn of unethical practices and behaviour.
 All employees are now required to take a brief ethics course
and sign an annual ethics statement.

11.  http://knowledge.insead.edu/responsibility/turning-around-
tyco-how-corporate-governance-saved-the-day-1168
 “Taking down the lion”-
http://www.denniskozlowskibook.com/
 http://www.forbes.com/sites/realspin/2013/12/09/former-tyco-
ceo-dennis-kozlowski-was-one-of-the-great-all-time-value-
creators/#7b3a5561583f
 https://hbr.org/2014/01/dennis-kozlowski-was-not-a-thief
 Daniels Fund Ethics Initiative-
https://danielsethics.mgt.unm.edu/pdf/Tyco%20Case
 Corporate strategy- Collins / Montgomery, McGraw-Hill