In 1960, Arthur J. Rosenberg founded Tyco, Incorporated which was later named Tyco International.  Over the next four decades, Tyco experienced a roller-coaster ride with investments and divestments.  Tyco was embroiled in a corruption scandal, with money diverted to fund the lavish lifestyle of its chief executive Dennis Kozlowski.

 

Daniels Fund Ethics Initiative (https://danielsethics.mgt.unm.edu/

 

 

1.  Provide a brief summary of the corruption case.
2. Why is this a case of abuse of leadership power, unethical behavior, and corruption?
3. Discuss why leaders are held to a high moral standard.
4. What changes were put in place to address ethical conduct?

 

Answer:

Tyco Corporation under the leadership of CEO Kozlowski between 1997 and 2002 posted 48.7% in profits. As soon as in 2002, the four major segments of the company were split. Later that year, a string of corruption and ethics scandals rocked the company's top management including the CEO, CFO and many members of boards of directors. They were indicted in cases ranging from grand larceny, fraud, falsifying documents and stealing money from the company and selling stock options from insider information. A loss estimated to be over $420 million was found to have occurred. It caused immense loss to shareholders and discussion of various corporate governance and conduct issues.

The reasons why this case is considered a case abuse of leadership power, unethical behavior, and corruption are the following:

1. The case is one of abuse of leadership power as the misconduct and criminal actions of the Chief Executive Officer (CEO) Kozlowski and Chief Financial Officer (CFO) Schwartz among other functionaries like Board of Directors. By way of information available due to their positions of power, they misused their leadership power to gain insider information and sold stock to cause loss of $430 million.

2. CEO Kozlowski misled the public by claiming to be frugal in an interview given to a business magazine. In fact, the Manhattan office of the company was full of wasteful expenses. This conduct was unethical as it involved lying to the public. The CEO Kozlowski personally restructured the firm and handpicked Schwartz in the CFO position. CFO Swartz was aware of CEO Kozlowski's illegal actions but did not disclose it or questions those actions.

3. As the CFO of Tyco, Schwartz withheld information about the illegal actions of CEO Kozlowski. 

Finally, the CEO was convicted of thirty-eight counts of stealing $170 million from Tyco and selling $430 million of stock in an illegal manner. The CFO Swartz was also convicted of falsifying documents.

Furthermore, a member of the Board of Director was charged with grand larceny and attempting to steer a federal investigation. He was also found to have stolen $26 from Tyco. Many members pg boards of directors who were under the duty for disclosure of unethical conduct deliberately withheld vital information. In fact, many boards of directors made investments in companies where they had a conflict of interest. A board of director was also found to use company funds to purchase a home.

These above cases of moral turpitude and criminal actions prove that those in leadership positions were hand in glove with each other. They colluded in an unethical manner, abused leadership power and used it for corruption.

The reasons why leaders were held to a high moral standard are the following:

1. Leaders are held to high moral standards as they can do the most to improve ethical conduct in their organizations. It has been proven by research conducted by Keller in 1988 that leader can do most to improve the ethical conduct of employees. 

2. They are integral to theorganization's ethics and are required to articulate the organization's values and keeping a high standard of conduct.

3. Leaders help develop a code of conduct and keep it alive by effectively updating ethical values and addressing ethical conduct.

4. Leadership ethics brings good reason and internal reflection of company's values among company employees. This helps solve complex problems. 

Changes that were put into place to address ethical conduct are as follows:

At the Annual General Meeting, shareholders elected a new board of directors and voted to have more shareholder say in future executive agreements. The shareholders voted to have the board chairperson to be independent and someone other than the Tyco CEO.  

At the company level, Tyco made the implementation of a corporate ethics program under the new V.P. of Corporate Governance, Eric Pilmore. 90% of the headquarter staff responsible for the corruption and ethical issues were replaced. The company also made an official Tyco Guide to ethical conduct.

Talks on ethics were undertaken by managers. Employee ethical awareness was reported to be 100% as measured by tracking of data from ethical initiatives.

Lastly, Tyco made itself a part of the World Economic Forum Against Corruption Initiative and as of 2010 had a good reputation for good ethical conduct