Weekly Assignment Unit 7

Organizational Theory and Behavior, University of the People

BUS 5113 - AY2021-T4

Dr. Givens

May 25th, 2021

Abstract

This case study will likewise characterize the part of moral initiative's commitment to the

organizational achievement and the unethical and illegal conduct of Tyco's leaders including

the expenses for its internal and external partners, like gross misappropriation of organization

funds on personal expenditures and duplicitous stock sales.

Keywords: Tyco International, abuse, corruption, fraud, acquisition,

organizations, leadership, power

Introduction

Leadership style is a leadership method of providing direction, executing plans and

motivating people. (Kotter, J., 2001). Adhering to ethical business standards and practices is a

necessary part of business sustainability in today’s market (Alleyne et al., 2013). There is no

replacement for ethical leadership when endeavoring to achieve organizational success. It is

clear from its downfall that Tyco’s leaders fell significantly short of this standard in many

occasions.

Brief Summary

Kozlowski was the main person that influenced and convinced other senior Tyco

employees to get involved about his operations in exchange for financial benefits. The CEO

and CFO started to abuse the organization’s assets and started to use capital from the

company for personal expenses. For example, Kozlowski made Tyco pay $30 million for his

apartment and $14,7 million for a single artistic painting.

The fraud was executed through the CEO and CFO who provided themselves with

loans containing very low interest sometimes even disguised as bonuses that weren’t

approved by the board and never paid back. Tyco took an advantage of the financial term

“acquisition” and implemented accounting loopholes to mislead stakeholders. To acquire the

admiration market watchers with remarkable and incredible financial performance, Tyco

followed a special path of acquisitions. Throughout that it concentrated solely on showing

outstanding results avoiding the weak natural growth the organization actually achieved. It

acquired several companies within fifteen years and insisted on pursing that scheme for few

years playing a wicked gimmick to hide the slow natural growth by taking advantage of the

accounting techniques of acquisitions and disposals to inflate the “Cash Flow from

Operations”.
 In 2006, SEC (The U.S. Securities and Exchange Commission) has filed a complaint

alleging the Tyco violated the law of federal securities by engaging in several improper

practices. The complaint stated that Tyco distorted its financials by overstating the results

through misusing acquisition accounting standards by misrepresenting its operating income

and boosting it by around $500 million. Tyco also misled investors by hiding considerable

party transactions and excessive compensations and bonuses to senior executives. (U.S.

Securities and Exchange Commission, 2006).

Why is this a case of abuse of leadership power, unethical behavior, and corruption?

Lord Acton, a British historian of the late nineteenth and early twentieth centuries

said: "Power tends to corrupt, and absolute power corrupts absolutely" (Dictionary, n.d.).

Power and leadership often go hand in hand, as those in positions of authority typically have

significant responsibilities to the company and to their employees. However, misplaced or

misused power can disrupt the way a business function. Immoral, unethical or deceitful

power plays can reduce morale, impact productivity and damage the reputation of an

organization (McQuerrey, n.d.). This is exactly what happened in Tyco International and is

being discussed in this case study. Kozlowski has clearly misused his power and created an

unethical scheme within Tyco International which led to reduce morale within the staff

working under his supervision and this has created a perfect atmosphere for corruption and

misuse of the organization’s assets.

Why leaders are held to a high moral standard?

Leaders are held to a high moral standard, especially when they lead powerful or

influential entities that can have a direct positive or negative impact on our lives. A common

trait of the great leaders is the executive who blends personal humility with extreme

professional focus on achieving a corporate vision. A great leader shares credit with others,
accepts blame and responsibility for mistakes and surrounds himself / herself with people

who are equally committed to making whatever they do better. But in that quest, they never

lose sight of humility, which is another way of saying that their pursuit of excellence

embraces the demand to treat team members with dignity (Herring, 2018).

What changes were put in place to address ethical conduct?

Tyco international took major step in improving the company’s organizational

structure to avoid future ethical issues. In order to respond to the ethical issues brought about

by actions of Kozlowski and his team, the new management acted by re-electing a new board

of directors and assigned an independent individual as the chair of the board. This is to avoid

future conflict of interest brought about by ethical dilemmas (McWilliams et al., 2006). The

new management team also cultivated a new corporate culture by setting a strict code of

conduct within their business scope (Daniels Fund Ethics Initiative, n.d.).

Conclusion

Many organizations face ethical issues that can lead to misbehavior in the future.

However, what is important is how the company approaches the ethical challenges and the

type of decision will define the future of the company. The outcome of all the ethical

challenges Tyco international faced were unethical and promoted a negative corporate

culture. Organizations should ensure proper management of every aspect and following the

ethical code of conduct can help improve the image and the conducts of the employees in the

future.
References:

Alleyne, B., & Amaria, P. (2013). The effectiveness of corporate culture, auditor education,

and legislation in identifying, preventing, and eliminating corporate fraud. International

Journal of Business, Accounting, & Finance, 7 (1), 34

Daniels Fund Ethics Initiative. (n.d.). The University of New Mexico.

https://danielsethics.mgt.unm.edu/pdf/Tyco%20Case.pdf

Harleigh, S. “What Is Leadership?”. Chron. https://smallbusiness.chron.com/leadership-

56438.html

Herring, R, H. (2018). “Should Leaders be Held to a Higher Ethical Standard?”. Jewish

philanthropy. https://ejewishphilanthropy.com/should-leaders-be-held-to-a-higher-ethical-
standard/

Kotter, J. (2001, December), What Leaders Really Do. Retrieved from HBR

https://hbr.org/2001/12/what-leaders-really-do

McQuerrey, L. (n.d.). Adverse Aspects of Power in Leadership. Chron.

https://smallbusiness.chron.com/adverse-aspects-power-leadership-74301.html

McWilliams, V., & Nahavandi, A. (2006). Using Live Cases to Teach Ethics. Journal of
Business Ethics, 421-433

Power tends to corrupt; absolute power corrupts absolutely. (n.d.). Dictionary.

https://www.dictionary.com/browse/power-tends-to-corrupt-absolute-power-corrupts-
absolutely

Sorkin, A. R. (2011, September 13). Two Top Tyco Executives Charged With $600 Million
Fraud Scheme. Retrieved from New York Times:
http://www.nytimes.com/2002/09/13/business/2-top-tyco-executives-charged-with-600-million-
fraud-scheme.html?pagewanted=all

U.S. Securities and Exchange Commission. (2006). SEC Brings Settled Charges Against
Tyco International Ltd. Alleging Billion Dollar Accounting Fraud. Washington, D.C., United
States of America. https://www.sec.gov/news/press/2006/2006-58.htm