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Tyco International Scandal

Recent corporate scandals prove that the lessons of previous scandals have not yet been learned. As Jennings (2012) relates, "management still blames rogue employees, and pundits still blame business schools. Most companies would rather not touch the real cause: pressures that push management to test the boundaries of the permissible" (p. 164). As a result, some executives are inevitably confronted with more temptation to do the wrong thing, and more opportunity to do it, than they can resist.

Can you please help with notes and thoughts in addressing the following about Tyco International?
How did Tyco's initial problems establish this connection as a very real one for the U.S. markets?
What made Tyco's stock price fall initially?
How do you think the spending and the loans were able to go on for so long?
What questions could Mr. Kozlowski and Mr. Swartz have asked themselves to better evaluate their conduct?
Formulate a list of the lines Mr. Kozlowski crossed in his tenure as CEO.
Is it difficult for us to see ethical breaches that we ourselves commit?
Your answers should not simply be your opinion. For each response, support your thoughts with scholarly research that you can cite in order to validate your answer.

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Tyco International scandal

How did Tyco's initial problems establish this connection as a very real one for the U.S. markets?
Two problems took place during the time of the initial problems, which were outlined in the reference below.
1) Two high ranking Tyco executives were involved in the purchase of CIT Group for $9.2 billion - CEO Dennis Kozlowski and Director Frank Walsh.
2) From initial observation, it looked like the executives were just conducting shrewd business. In fact, one executive was cited as one of the top 25 corporate managers of 2001 by the popular US journal Business Week.

What made Tyco's stock price fall initially?
The split of Tyco into four independent, publicly traded companies, which took place in January of 2002.

How do you think the spending and the loans were able to go on for so long?
Apparently the ethical problems with the actions of these executives were not noted or discovered by the people who selected these corporate managers for praise. This fact suggests that their actions were not out of the ordinary in the eyes of business observers and the press.

What questions could Mr. Kozlowski and Mr. Swartz have asked themselves to better evaluate their conduct?
Koslowski could have asked whether or not the purchase of CIT Group was beneficial to their company, Tyco, or did it only benefit them. It turned out that as a result of this purchase and the subsequent splitting of the company, Tyco's share value decreased significantly. Kozlowski and Tyco CFO Mark Swartz sold more than $100 million of their Tyco stock the previous fiscal year despite public statements that they rarely sold their stock. Swartz could have asked if his knowledge of their plans for the upcoming year gave them a financial advantage that others did not have in the form of insider information.

Formulate a list of the lines Mr. Kozlowski crossed in his tenure as CEO.
- Kozlowski initiated a purchase with Tyco money of a finance company for 9.2 billion in cash and stock. Both he and Tyco director Frank Walsh personally benefited from this deal.
- A year before initiating this sale, Koslowski and Swartz sold 100 million of their own stock shares, utilizing his insider information to benefit from Tyco's assets before it lost them in the split of the company.
- Koslowski was indicted in a sales tax evasion case that involved $1 million dollars of state and federal taxes over a purchase of art.
- In 2002, a criminal indictment was brought against Kozlowski and Swartz accusing them of enterprise corruption for allegedly stealing more than $170 million from Tyco and obtaining $430 million by fraud in the sale of company shares.
- Koslowski saw to it that half of a 2 million dollar birthday party for his wife is paid for by Tyco.
- In 2005, Koslowski and Swartz were found guilty of stealing $150 million from Tyco.

Is it difficult for us to see ethical breaches that we ourselves commit?
Yes, often human nature will look at the illegal benefits that are received as payment for hard work, rather than seeing their salary as sufficient compensation.

In the textbook Business in Legal Ethical and Global Environment, Jennings lists many of the excuses that people make for behaving unethically, in the form of statements that are made:

Everybody else does it
If we don't do it, they'll get someone else to do it
That's the way it's always been done
We'll wait until the lawyers tell us it's wrong
It doesn't really hurt anyone
The system is unfair
I was just following orders

Jennings here stated that the first way to spot an ethical dilemma is by watching the language those involved use. A person could have a strong ethical background personally but when confronted with the complexities of business, that person often needs help in recognizing these kinds of dilemmas. (Jennings, 2000, p 48-49)

The second way to spot them is by category, Jennings listed twelve of them:

Taking things that don't belong to you
Saying things you know are not true
Giving or allowing false impression
Buying influence or engaging in ...

Solution Summary

This is a consideration of the Tyco scandal involving bribery, stock, and business ethics. It further discusses the difficulties involved in determining what is acceptable ethical behavior for head executives of multinational and multimillionare companies.

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