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When Strategies Go Bad – Part 4 – Tyco

By Dana Baldwin, Senior Consultant

Strategic Planning Expert

Note: This post is a part of a series taken from Dana Baldwin’s article When Strategies Go Bad previously published in Compass Points in April 2004.  In Part 1, we introduced the series and discussed what happened with IBM.  In Part 2, we discussed what happened to Global Crossing.  In Part 3, we discussed what went wrong with Worldcom, Enron, and the State of California.  In this part, we will discuss what went wrong with Tyco.

Tyco International Corporation’s former CEO L. Dennis Kozlowski treated Tyco as if it were his personal plaything. He decorated a lavish town house in New York City with a budget of $6 million of company money. He purchased two classic paintings, a Monet for $3.95 million and another at nearly $2 million. He gave himself raises without permission of the Board of Directors Compensation Committee. He authorized high bonuses for himself and a few key henchmen, again without the permission of the Board of Directors Compensation Committee.

He hired people and gave them outrageous salaries, raises, and bonuses. For example, he hired one employee originally as a receptionist and switchboard operator. She was later promoted to bookkeeper and flight attendant on the company jet. Still later, she was promoted to his personal financial assistant. In this role, she approved millions of dollars of expenses for art, restaurant bills and the bills for a birthday party for his wife in Sardinia which cost the company over $2 million. Later on, it appears that she approved a $5 million loan to purchase a diamond ring for his wife from a fund which was created to pay taxes owed on restricted stock, again, apparently without permission of the corporation. As a result of her rising positions within Tyco, the company paid for her daughter’s education at private high schools in Maine and Florida, and for college at the University of New Hampshire. The company also reportedly forgave a $239,000 mortgage on a home she bought in Florida after she was relocated there. She is now testifying against Kozlowski in his trial in New York City in which he and CFO Mark Swartz are charged with looting Tyco for approximately $600 million. Kozlowski apparently tried to buy the loyalty of his personal financial assistant with the largesse he doled out.

What happened here? Very simply, Kozlowski and Swartz apparently decided they were above the rules for ordinary people. They decided they were worth whatever they could take from the company. Their impression of their own importance was so large that they exceeded any possible boundaries. These were such egregious violations of ethics and securities laws that the State of New York had no choice but to prosecute. The complicity of Arthur Anderson here and with Enron prevented the public from learning the truth, and enabled the schemes of the top people to go on for much longer than they should have with proper audit and exposure to the public. Anderson was supposed to be the watchdog, but instead became a party to the problems. They let us all down.

Have you developed strategies to enable disclosure of this type of problem so the organization will be protected?

 

 

 

 

 

M. Dana Baldwin is a Senior Consultant with Center for Simplified Strategic Planning, Inc. He can be reached by email at: baldwin@cssp.com

© Copyright 2017 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission granted with full attribution.