The Price of Unethical Behavior
MGT7019-8 Ethics in Business
Laura M Brooks
July 21, 2013
We as a society have assumed companies in whole have been ethical in doing business. It wasn’t until Enron in 2001 that the public has become more aware of business activities. Shortly after Enron, Tyco International caught the public eye. One must first have an understanding of what it is to be ethical and moral. Once there is an understanding of these two terms, one may gain an appreciation of the occurrences in the corporate business world in the early 2000’s. One occurrence in particular is Tyco International. Tyco International will be evaluated. This evaluation will include the ...view middle of the document...
Later after Tyco changed its focus from growth to profits, Kozlowski became a board member in1987 and within 2 years was appointed as the president and chief operating officer (COO). In 1992, he became the chief executive officer (CEO) and in 1993 became the chairman of the board (Eric).
Kozlowski was known for his acquisitions, diversifying the company by branching into health care. Mark Swartz was the Chief Finance Officer (CFO) and worked under Kozlowski. Together, Swartz and Kozlowski committed fraud and worked against the shareholders and were never confronted by anyone within the company.
Tyco had two loan programs, the Key Employee Corporate Loan Program (the “KELP”) and a relocation program for those relocating from New Hampshire to New York (Jennings). KELP encouraged share ownership by offering loans when the shares were vested and taxes were due on those shares. This program allowed officers to pledge their shares for cash to pay for the taxes as an employee benefit. Many took advantage of this including Kozlowski, Swartz and Mark Belnick, the general counsel and executive vice president. The relocation program offered low interest loans to offset the cost of moving to a more expensive location (SEC). Kozlowski allowed Belnick to receive a relocation loan of $4 million even though he had a law office in New York and never lived in New Hampshire as the one requirement stated and later borrowed another $10 million to build a home in Utah. Both loans never had the corporate paperwork completed. As Belnick became uncomfortable with Tyco, he was offered more incentives and thus stayed with Tyco. Swartz received $85 million from the KELP program and $32 million from the relocation program (SEC). The vice president of HR, Patricia Prue, requested the documentation and received a memo from Kozlowski stating the board approved the loan forgiveness. Prue had her loans forgiven, given money to pay the taxes from the forgiveness and her bonuses. While Prue tried to be a whistleblower, and stop the abuse that was going on, she was benefiting from the same program that she was trying to report.
According to Eric (2012), “Tyco forgave a $19 million, no interest loan to Kozlowski in 1998 and paid the CEO’s income taxes on the loan.” Kozlowski was known for playing fast and loose with his board of directors (Kaplan 2009). When the Securities and Exchange Commission started to probe, they found that the stocks were over rated and both Swartz and Kozlowski sold 100 million dollars’ worth of shares and then misrepresented and misled investors (SEC). Kozlowski was known to live a lavish lifestyle. He owned an 18 million dollar 15 room apartment in Manhattan that had a $6000 shower curtain. For his wife’s 40th birthday he threw a party for her at Tyco’s expense. This party cost $2.1 million dollars and included a life size ice sculpture statue of “David” with vodka flowing out, roman orgy, and a Jimmy Buffett concert on a...