Written Assignment 7: Tyco International: Leadership Crisis

University of the People

Submitted in fulfilment of the partial requirement for BUS 5113

To

Ian Peters

August 3, 2021
 Unethical behavior by organizational leadership can have major unintended

consequences on organizations, shareholders, employees and the global marketplace at large.

The Tyco International case shows how leadership failed to embody ethical standards, which

affected the reputation of the company. This paper presents an analysis of this case, regarding the

abuse of leadership power, unethical behavior and corruption. It also details the importance of

ethical leaders and the changes Tyco put in place to address ethical conduct.

1. Brief summary of the corruption case

Tyco International Inc., founded in 1960 by Arthur J. Rosenberg, is a large global

conglomerate that produces electronic components, healthcare products, and fire and security

systems. Questions began to surface in 2002 concerning the validity and legality of Tyco’s

bookkeeping, which resulted in an investigation into Tyco’s CEO at the time, Dennis Kozlowski

(Kay, 2000). Kozlowski, as well as CFO Mark Swartz and Chief Legal Officer Mark Belnick,

were accused of misappropriating funds of more than $170 million with no formal approval or

knowledge of shareholders.

The case made headlines, not only for its shocking corporate misconduct, but also for the

lavish personal lifestyle of Kozlowski and Swartz at the company’s expense. Both men were

convicted on 22 of 23 counts relating to theft and fraud, and were each sentenced to a maximum

of 25 years in jail.

The case shows lack of morals and ethics, but this is not an isolated incident. It is

therefore important to note that it is unlikely that this greedy behavior is a result of an immoral or

unethical organization, but a product of the prevalent societal norms inherent in today’s business

world as they have influenced the individuals within an organization.

 2. Abuse of leadership power, unethical behavior and corruption

Abuse of trust and loyalty, stealing, fraudulent financial dealings and misappropriation of

funds for personal gain are some of the issues of unethical conducts that are considered in

this case. These behaviors were sustained by Kozlowski and Swartz. Swartz, the CFO, was

meant to portray trust, honesty and truth, but he turned out to be the architect, an accomplice

and a collaborator of the unethical acts at the firm. As Boostrom and colleagues (2011) note,

the directors at Tyco Inc. under Kozlowski should have been responsible for safeguarding

Tyco’s shareholders through the discovery of questionable inappropriate and unethical

issues. But, as Eshiet (2017) argue, they failed to do this.

Kozlowski also abused his leadership power. For instance, as well as giving out

outlandish rewards to high performers, he filled important positions at the executive level

with his own people, who will be under his influence (Boostrom et al., 2011). His executives

also acted in ways of conflicting interest of the company. Kozlowski’s abuse of leadership

power is illustrated by his indifference towards the unethical practices and a desire to acquire

more power and wealth for himself.

Perhaps the clearest example of corruption in this case is the way Kozlowski avoided

paying import taxes for artwork purchased for his Manhattan apartment. This misuse of

power resulted in heavy fines.

3. Leaders held to a high moral standard

Trevino, Hartman & Brown (2000) note that people view moral managers as having traits

such as integrity, honesty and trustworthiness and models these through visible action. Moral

managers also do the right thing, show concern for people, and are open and have personal
morality. When it comes to decision making, a moral manager is objective, shows concern for

society and follows ethical decision rules. Leaders are held to a high moral standard because they

are the face of the company. Trevino & colleagues (2000) note that ethical leaders influence

employee commitment, satisfaction and engagement. Further, if leadership of the organization

reflect ethical values, this will attract and retain the best employees and people will want to do

their best for the company. Employees are also more ethical themselves when they model

behavior from moral leaders.

4. Changes to address ethical issues

Tyco’s move to restructure its governance mechanisms started by hiring a new CEO,

Edward Breen. They also formed a new independent board of directors and developed a new

process for reporting (Kemmerer & Shawver, 2007). Tyco’s organizational culture was also

restructured to emphasize the need for each employee being accountable for the conduct and

success of the company.

Kemmerer & Shawver (2007) posit that changes in corporate culture can be traced to

direct pressure from both company stakeholders and the general population to require reforms at

Tyco Inc. That is, pressure from investors and society resulted in huge ethical reforms at top-

management level, as well as the understanding that these values need to be passed down.

A major change at Tyco was the split into three separate publicly traded companies

focused on its major divisions of healthcare, electronics & fire and security products (Varchaver

& Levinstein, 2006). This breakup ensures that additional oversight can improve the

governance mechanisms, rather than everything being situated in one giant conglomerate. The

company hired a Vice President of Corporate Governance and ensured that all levels of the
company had leaders with strong ethics, morals and accountability. Boostrom & colleagues

(2011) also note how the company began publishing regular reports about the concerns of

employees. This gives the employees a say in the ethical process of the organization.

Conclusion

Tyco’s corporate ethical and moral failures can be attributed to poor decision making on

the part of the leaders and poor organizational governance mechanisms. These factors could be

the result of self-serving greed, influence from investors and the business society. Even though

public policy and legislation propose changes to avoid these failures, it is important to note that

strong ethical values are still the best preventive measures. The Tyco case emphasizes the need

for strong ethical individual and corporate values within organizations.

 References

Boostrom, R., Ferrell, L., & Ferrell, L. (2011). Tyco International: Leadership crisis. Daniels

Fund Ethics Literature, 1(1), 1-9.

Eshiet, U. (2017). Implications of Accountants’ Unethical Behavior and Corporate Failures.

International Journal of Business, Economics and Management, 4(4), 82-94.

Kay, J. (2002). Tyco: US conglomerate fails amid revelations of greed and corruption. Retrieved

from http://www.wsws.org/articles/2002/jun2002/tyco-j18-shtml.

Kemmerer, C., & Shawver, T. (2006). Tyco: A Top-down Approach to Ethical Failure. Journal

of Accounting, Ethics & Public Policy, 6(2), 155-166.

Trevino, L., Hartman, L., & Brown, M. (2000). Moral person and moral manager: How

executives develop a reputation for ethical leadership. California management review,

42(4), 128-142.

Varchaver, N., & Levinstein, J. (2006). What is Ed Breen Thinking? Fortune, 153(6), 54-59.