Failure at Tyco International, Ltd. - Corporate governance Essay Example
Tyco International Ltd is a diverse manufacturer who grew tremendously in the 1990’s and early 2000’s - Failure at Tyco International, Ltd. introduction. The company had big ambitions with an aggressive program of acquisitions during this period where they spent an estimated $62 billion to purchase more than 1,000 companies. However, unbeknownst to the shareholders of Tyco and the world, Tyco was led by a management team and CEO (L. Dennis Kozlowski) that did not use wise or truthful business practices and organizational behavior.
In the following paper, I will examine the failure that occurred at Tyco, compare, and contrast contributions of leadership, management, and organizational structures to the failure. Management Failure Tyco spent the most of the 1990’s purchasing and acquiring new companies, which grew into a large empire. This large conglomerate had big ambitions, and it was said that Tyco would become the next General Electric. However, Tyco did not live up to that title, and unfortunately, due to the misdealing’s of Tyco top executives, and the company had a major setback in June of 2005.
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Top executives became engulfed in accounting scandals and white-collar crimes. Tyco’s e leader and CEO (Kozlowski) was also accused of mishandling funds, fraud, conspiracy, and grand larceny charges. In 1992, Dennis Kozlowski became the CEO of Tyco International and he helped the company adopt an aggressive acquisition strategy. He was able to increase Tyco revenue 48. 7% each year from 1997 – 2001 (Bianco, Symonds, Byrnes, 2002, p. 5. ). Kozlowski structured acquisitions as a reverse takeover, which enabled Tyco to assume companies and a network of offshore subsidiaries to shelter foreign earnings from U.
S. taxes. This structure benefited Tyco as stocks soared and the company became more profitable to shareholders. Kozlowski spent a lot of money both personally and with business funds. Kozlowski’s rampant sense of entitlement and extreme spending helped create a false sense of security for the company. Some would say that this company ran into some back luck; however, the executive management did not practice organizational behavior that best served the company, employee, and customers. The downturn of the economy triggered the cash crunch within the United States.
This created a deal-making environment that executive management used to create shortcuts and more aggressive corporate bookkeeping. Sustaining these profit margins and growth was at an end. Albert Meyer, a short seller at investment research firm Tice Associates stated: “Tyco management ran out of help from their accountants. The days of pushing the envelope are over. Tyco realized that it just wasn’t going to be able to make its numbers without some massaging” (Caplan, 2002). By June 2005 Kozlowski and his top lieutenant, Mark H. Swartz, were charged with fraud, conspiracy and grand larceny.
According to The New York Times (2010), “The Manhattan jury found the two men guilty of defrauding shareholders of more than $400 million” (Tyco International Ltd. , para. 2). In the past, corporate crooks tended to act on their own; however, Kozlowski was able to get many of his executive staff involved in this financial trickery. He was able to persuade or involve lawyers, accountants, executives, and board of directors to help portray Tyco as a lean and profitable company. Kozlowski and his executive staff came to symbolize an era of corporate greed.
Organizational Structure & Behavior at Tyco. To understand Tyco’s failure one must look at the organization culture and management behavior. “Organizational behavior is concerned with the study of what people do in an organization and how their behavior affects the organization’s performance. ” (Robbins and Timothy, 2007, p. 10). A healthy organization responds to globalization and increasing market share by understanding its’ foreign assignments, people from different cultures, managing diversity, and foreign implications. Tyco quickly made acquisitions and developed offshore networks that were managed by executives that did not enforce an ethical code of behavior.
Tyco falsified accounting records in order to meet U. S. standards and profitability. Tyco set their sights on strategies that would improve growth and investments, with disregard to any type of business code of ethics or standards. Complications surfaced that the company was not handling money correctly and top management was to blame. Either the company did not properly train their management (especially those who handled the financial aspects of the business) or management was not governing themselves by company policies and procedures that would make the business successful.
It appears Kozlowski and his top executives were able to persuade many employees to overlook company policies and procedures to pursue high margins of profitability. This demonstrates that the organizational culture and management behavior was overlooking their ethical obligations to the shareholder, company, and employees of Tyco. They were willing to compromise the entire company financial stability for short-term gains. In the end, the poor management and organizational behavior of Kozlowski and his executive team harmed Tyco.
Going forward, Tyco will need to acknowledge their mistake and make a change in management, which enforces company policies regarding financial aspects of the business. Another issue was embezzlement, which is also a serious ethical issue. Kozlowski and other top executives were forced to resign and pay back the money; however, this is another weakness in Tyco management. From this example, the company needs to train management to operate the financial aspects of the business in an ethical manner.
They need to develop a code of conduct with consequences that are enforced by management, if broken. Some changes would include employing honest people in management positions to handle the financial aspects of the business. They will need to put in place a new and stronger code of conduct and security measures to prevent this type of fraud from happening again. The company can also offer seminars, workshops, and similar training programs to try to improve ethical behavior and break old company culture and past behaviors that are now deemed unacceptable.
Tyco’s aggressive behavior and their managements’ desires for extreme greed brought about their failure in 2005. Tyco future success will be determined by how well they set goals, communicate to employees, and create an honest company culture based on a code of ethics and security measures. Tyco management can learn from their past and embrace organizational theories and guidelines, which will help them cultivate a strong and healthy corporate environment.
Bianco, A., Symonds, W., & Byrnes, N. (2002, December). The Rise and Fall of Dennis Kozlowski. BW Online, 7. Caplan, J. (2002, April). Deconstructing Tyco. CFO.com, 4. The New York Times. (May 25, 2010). Retrieved from http://topics.nytimes.com/top/news/business/companies/tyco_international/index.html Robbins, S. P., & Judge, T. A. (2007). Organizational behavior (12th ed.). Upper Saddle River, NJ: Pearson Education.