Causes of Corporate

Failures
TYCO INTERNATIONAL SCANDAL 2002
THE SATYAM SCANDAL
THE WORLDCOM SCANDAL
 TYCO INTERNATIONAL SCANDAL
 Tyco2002
International was founded in 1960.It is a Swiss security
systems company. With its United States operational
headquarters in Princeton, New Jersey. It is composed of two
major business segments security solutions and fire protection.
During all its years in operation, Tyco International grew and
shrank through the acquisitions of other companies and
subsequent split into smaller companies. In 1992 Dennis
Kozlowski became the CEO after climbing up from executive,
president, and CFO position.
 He used a very aggressive approach to gain acquisitions
and mergers during his period as CEO. In choosing the Tyco Inc.
Board of Directors, Kozlowski only picked his own people and
composed the firm's corporate governance system. In 1999, after a
stock split, rumors began to spread about Tyco's accounting habits.
It was said that Tyco was producing irregular financial accounts,
but it was denied by Tyco's leaders. Throughout the years of
Kozlowski's leadership, Tyco merged and bought out several
companies, making their profits grow beyond $30 billion.
 Corporate Failures
The Tyco scandal shows that ethics issues can occur in various
aspects and components of an organization, including the top corporate
leadership. Leaders and executives trusted by stakeholders and with
seemingly commendable backgrounds could exhibit unethical behavior
and facilitate unethical and illegal practices that harm the business and its
stockholders. Considering Kozlowski’s activities, outsiders or third parties
could get involved in these ethics problems. Thus, codes of ethics and
regular assessments of the business must apply to all employees’ at all
organizational levels, and to third parties or external players, such as
accounting and auditing firms.
The main ethics issues in Tyco’s case were as follows:
 1. Unethical Leadership
 2. Unethical business practice of subordinates
 3. Questionable auditing practice on Tyco’s business
 THE SATYAM SCANDAL
 On 27 June 1987, Ramalinga Raju founded Satyam Computer Services
along with his brother-in-law. At first, there were as little as twenty
employees, but the organization determined itself as a large-scale
player in the country’s IT sector, concentrating on the services
concerned with software outsourcing. In 1991, the company made a
successful first public appearance on the Bombay Stock Exchange. In
four years, the company launched Satyam Infoway (“Sify”) that
suggested back-office outsourcing services to a variety of customers in
the US and Europe.
 In 1999, Sify was operating in thirty countries and became the first
company from India to be listed in NASDAQ (National Association
of Securities Dealers Automated Quotations). Raju was getting on
good terms with Indian business and political leaders. In 2000, during
the US President’s visit to Hyderabad, Raju shared the podium with
him. He built friendly relationships with many other leaders and
important people. In 2007, Satyam was appointed the official IT
service provider for the FIFA World Cup in 2010 in South Africa and
the FIFA World Cup 2014 in Brazil. In the same year, Raju was
awarded the Ernst and Young Entrepreneur of the Year award for
expanding his IT Company to more than 50,000 employees.
 Raju was regarded to be one of the most successful Indian
businessmen in many countries of the world. In 2008, the company’s
revenues exceeded $2 billion, and Satyam won many distinguished
awards. In November, Raju co-chaired the World Economic Forum
Summit that took place in New Delhi, India. At the summit, Raju
announced his firm’s outstanding performance and promised to find a
way out for Satyam in the global economic crisis. However, because of
crucial mistakes in the governance system, Satyam turned out to be a
huge failure, causing a lot of losses and trouble to its managerial team,
stakeholders, and partners.
 Corporate Failures
The company's collapse began at the end of 2008, following
Raju's shocking admission of inflating the company's performance
data. The World Bank blacklisted Satyam for eight years on
December 23rd for bribing bank officials and data theft. The
company's demise began in early 2009, preceded by Raju's shocking
admission about numerous manipulations and fraudsters at Satyam.
The company's share price dropped 78% after the confession letter.
 Satyam's actual cash and bank balance was $65 million,
but the inflated balance was $1.03 billion. The inflated accrued
interest was $7.7, but there was none. The true liability was
undisclosed, but the inflated liability was $252 million.
Furthermore, the actual number of employees was 10,000
lower than the number reported by Raju - there were 40,000
employees rather than the 50,000 stated. Raju used fictitious
names to divert $4 million from the company's accounts on a
monthly basis.
 THE WORLDCOM SCANDAL
WorldCom was founded initially as a small company
named Long Distance Discount Services in 1983, it merged
with Advantage Companies Inc. to eventually become
WorldCom Inc., naming its CEO as Bernard Ebbers.
WorldCom achieved its position as a significant player in the
telecommunications industry through the successful
completion of 65 acquisitions spending almost $60 billion
between 1991 and 1997, whilst also accumulating $41 billion
in debt.
 Corporate Failures
The eventual failure of WorldCom was caused by the disruption of the
cycle, as discussed before, when the planned acquisition of Sprint
Corporation in 1999-2000 was stopped by pressures from the US
Department of Justice and the European Union over concerns of it
creating a monopoly. As a result WorldCom lost its main growth strategy
and left Bernard Ebbers few options to enhance the business further.
Either they had to consolidate all the previous acquisitions into one
efficient business, which they had failed to do so far, as they had only
concentrated on the takeovers or to find other creative ways to sustain
and increase the share price.
 According to the research of Theodere, there are two main reasons why
WorldCom gradually fall and ended up in bankruptcy. On the research that
was conducted it stated that, "the driving factor behind this fraud was the
business strategy of WorldCom's CEO, Bernie Ebbers. In the 1990's, Ebbers
was clearly focused on achieving impressive growth through acquisitions".
WorldCom pursued scores of increasingly large acquisitions. In 1998,
WorldCom acquire MCI Communications, a company with more than two-
and-a-half times the revenue of WorldCom. Once WorldCom acquired the
new companies, it failed to properly integrate the systems and policies that
not only led to very high levels of overhead in proportion to the revenue but
also to an extremely weak internal control environment (Breeden, 2003).