UNIT VI - CASE STUDY
TYCO: DID KOZLOWSKI DO NOT THE EASY THING, BUT THE RIGHT THING
Student name: Chi Huong Nguyen
Student I.D.: 217505
Columbia Southern University

Case Summary
Once talking to the graduates at St. Anselm’s College in Manchester, New Hampshire about moral standard, Dennis Kozlowski’s advice to them was to do not the easy thing, but the right thing. The later Tyco scandal pointed out “the right thing” of Dennis Kozlowski seems to be too far away to morals.
Since Dennis Kozlowski became CEO of Tyco until he was demanded to step down on June 3, 2002, he wrote a story of a greed and arrogance man who not only used the money of his company for personal wants and desires but also to turn him into a king. He threw Tyco money into buying things for himself, which were luxury houses, yachts, car, and famous paintings. Besides of assets, he used Tyco money for royal parties, which the most famous was his wife’s birthday where everyone dressed in Roman togas while an ice sculpture of David urinates Vodka into a crystal bowl. Dennis Kozlowski created his era at Tyco.
It was Tyco’s luck or due to Kozlowski’ insatiable greed or both, Tyco scandal started when rich stingy guy Kozlowski, who had all the best things in life with Tyco money, still did not find the necessary to pay taxes. In avoiding taxes on impressionist paintings that he brought in Manhattan, he had the clerk to write out the bill of sale to make those paintings appeared to be shipped to Tyco’s office in New Hampshire. In reality, empty crates was sent and those paintings were hung on the wall at Kozlowski apartment at Fifth Avenue. Kozlowski was not immediately under investigation until New York City started a general investigation into why it was not receiving enough tax revenue from New York based art galleries. The investigation found Kozlowski’s other dubious investments: the $6,000 shower curtain; the $2.1 million 40th birthday party on the island of Sardinia; a one of a kind umbrella stand that looked like a dog for $15,000!

It was later discovered that Kozlowski and CFO Mark Swartz worked as a team to shift expenses so that Tyco paid for their personal items. In addition, by having generous allowances, forgiven loan, and moving compensation for employees, Kozlowski and Swartz took more money from Tyco while those programs also created benefits and numerous financial links to Tyco’s board. Conflicts of interest were around in the atmosphere.
After several investigations, Kozlowski and Swartz were sent to trial for fraud in September 2003. The first trial, having Ruth Jordan supported the defense table, was result in a mistrial when there was information that one juror was being pressured into convicting the two Tyco executives. Being retried, Kozlowski and Swartz were convicted in June 2005 of fraud, grand larceny and conspiracy, and falsifying business records with total 22 criminal charges. They were accused of stealing over $150 million from Tyco in illegal bonuses and payments of personal loans. During the trial, Kozlowski was again found not declare $25 million bonus on his personal tax return.
Questions for Thought
1. What do you think Kozlowski’s motivation for trying to avoid sales taxes on his art purchases was? Explain.
There might be two reasons that Kozlowski trying to avoid sales taxes. He might be, at first reason, a stingy man who did not want to spend money on any purpose that was not for his own interests. He spent $2.1 million dollars for his wife birthday party because it served his purpose to please his wife and to make him more or less a king but, he might consider paying taxes to Government was a waste of money. The second reason is likely to be simple that Kozlowski might hate paying taxes. This second assumption was pretty close to be true because Kozlowski had moved Tyco headquarters to Bermuda also to avoid paying corporate taxes. By choosing an unethical behavior, not to obey the law, Kozlowski risked everything and lost.
2. Explain the concept of commingling assets with respect to the Tyco case.
The Free Dictionary (n.d.) defines commingling is to mix the funds and assets of two parties into one. A member of corporation’s board of directors commingles funds and assets, is to mix his or her personal funds and assets with funds and assets of corporation. This commingling, after a period of time, are easy to mix ownership of the funds and assets. In the Tyco case, Kozlowski illegal commingled Tyco’s assets as their own assets. From his point of view, he might think he made money for Tyco, thus he owned Tyco and its assets. Due to this reason, Tyco had to pay for his bill.
3. Would it have been possible for the board of directors to see the adjustments taking place in the many different programs at Tyco? Explain.
There are two assumptions, the first assumption is that the board of directors would not have been possible to see the adjustments. Kozlowski was CEO and the Chairman of the Board which created a disproportional amount of power in one person. These two top and powerful titles gave Kozlowski complete control of the board. The chairman is the one who decides what information will be addressed, what subjects will be discussed at the board meeting. Therefore, the board probably only received information that Kozlowski provided in the way he wanted it to be. The second assumption is that the board of directors would have been possible to see the adjustment however, they chose to ignore the signal, and found happy with Kozlowski’s dominance. At the matter of facts, Kozlowski’s strategies moved Tyco forward, non-stop expanding, and grow strong. In the other hand, under Kozlowski’s governance, Tyco provided a generous remuneration including forgiven loan, which might give benefits to the board. At the result, considered either company aspect or individual aspect, Kozlowski made profits and brought benefits to the board, thus, they might all saw the signals of frauds but did not treat it as a serious issue.

References:
Stanwick, P. A., & Stanwick, S. D. (2009). Understanding business ethics. Upper Saddle River, NJ: Prentice Hall.
The Free Dictionary (n.d.). Legal dictionary. Commingling. Retrieved from: http://legal-dictionary.thefreedictionary.com/Commingling