Upload
sonia-dwi-utami
View
162
Download
1
Embed Size (px)
DESCRIPTION
Tyco cases for ethics paper
Citation preview
CHAPTER I
INTRODUCTION
I.1. The Background
Human beings are God's most perfect creation, both physically and in the
way of thinking. Thus making the man into a creature of the most decisive in the
sustainability of life on earth. Humans and the environment has a very close
relationship and mutually influence each other, if the people who live in the
environment that has a good personality, be appropriate ethics and norms, then
the environment will be maintained and protected environment.
Man who has a good personality will create a good environment, and so does
the man who has a bad personality will create an unhealthy environment. Man has
ethical in his life will have a clear direction for his life, and he can determine where
things are good for life and where the things he should avoid.
People who live in the ethics he would be able to bring himself, in an
organization where he became a supervisor in a company he would know what to
do, what are the rules that should he apply for the company that he can lead goes
well, the role of a supervisor is very influential in the implementation of good
corporate governance (GCG).
Good corporate governance (GCG) describes how well the implementation of
the governance of the company, all employees who are in the company to
participate and take part in the development and success of the company's
ongoing activities, and attract investors to invest in the company, and make the
shareholders believe and confidence in the performance of the company and
strengthen the cooperative relationship with the company.
Companies with the implementation of good corporate governance can be
seen also on how the company is environmentally responsible company, for
example, the implementation of corporate social responsibility (CSR). CSR is a
process with the aim to embrace responsibility for the company's actions and
encourage a positive impact through its activities on the environment, consumers,
employees, communities, stakeholders and all other members of the public sphere
who may also be considered as stakeholders.
Based on the above theory we will discuss the case of Tyco International ltd,
is a Swiss company security systems company incorporated in Switzerland have
been cases of frauds and fund companies conducted by Tyco's three top
corporate officers CEO, its CFO, and its Chief Corporate Counsel.
1.2. Identification of Issues
Based on the background of the problem, identify the problems and
limitations problem, then the problem can be formulated as follows:
Understanding the background of the Tyco case
Understanding the impacts of the case
1.3. The Objectives Compilation
1.4. The Benefit Compilation
The expected benefits of the preparation of a paper on the ethics of this are:
1.5. The Systematics Compilation
Broadly speaking, the systematic preparation of this paper is divided into
four chapters, namely:
Chapter I: Introduction contains background of the problem, formulation of the
problem, the purpose of the preparation, compilation and systematic compilation
benefits.
Chapter II: The Identifications of that contains the human and framework, the
definition of environmental ethics, environmental ethics theories, the role of
humans in the environment, and the role of environmental ethics and ethical
behavior and environmental impact of deviations
Chapter III: The cover contains the conclusion of the problems described and
suggestions are to be conveyed, either for personal or group interests.
Chapter IV: Bibliography contains references, or literature sources used in the
preparation of this paper.
CHAPTER II
IDENTIFICATION OF THE CASE
2.1. Description Tyco situation before the scandal
Prior to the Tyco scandal, the company was one of America's largest
conglomerates, with operating revenues of 38 billion dollars and 240,000
employees, worldwide. Tyco Laboratories began operations in 1960, performing
experimental work for the U.S. government. The firm went public in 1964 and
quickly expanded, mostly by acquisition, to exploit the commercial applications of
its work. Dennis Kozlowski joined the company in 1975 as an assistant controller.
The company subsequently shifted its focus from growth to profits within its
three primary divisions: fire protection, electronics, and packaging. Kozlowski
joined Tyco's board in 1987 and became president and chief operating officer two
years later. Kozlowski engineered a coup to become Tyco's chief executive officer
(CEO) in 1992 and the chair of the board in 1993. He diversified the company,
branching into health care. Tyco eventually became the second largest producer
of medical devices in the United States. On December 5, 2001, the Tyco shares
were trading for 59.76 on the NYSE.
2.2. The Peoples in the company who involved in the scandal
The primary people that were identified for responsibility of the scandal were
Dennis Kozlowski and finance chief, Mark Swartz. Kozlowski joined the company
in 1975 as an assistant controller at Tyco. He worked in the company during a time
of rapid expansion and moved to the board of directors in 1987, become CEO in
1992, and became chairman of the board in 1993. Kozlowski was known for his
vicious acquisitions, and gained a lot of attention by his extremely lavish lifestyle.
Mark Swartz was the Chief Finance Officer of the company and worked
under Kozlowski. from 1995 through August 2002, and a Tyco director from
February 2001 through August 2002. It was determined during trial that the two
had worked synonymously in committing fraud, and working against the
shareholders.
Mark Belnick was served as Tyco's Executive Vice President and Chief
Corporate Counsel from September 1998 until June 10, 2002. Who helped lauch
efforts Mr. Kozlowski, made the Board Committees do not realize the fraud and
closed off from the public.
2.3. Scandal in Tyco International, Ltd
Dennis Kozlowski was a CEO of Tyco International,Ltd, at that time, he was
rolling along often using company money for his personal life, he is took $2 million
dollar 40th birthday party for his new wife on the Mediterranean island of Sardinia,
more than half of which was paid for by Tyco. The U.S Securities and Exchange
Commission (SEC) also took an interest and charges for civil fraud regard in
looting of the company and other misdeeds were laid on September 12, 2002, and
with his Tyco CFO Mark Swartz, they cooperate in the fraud within the company to
prosper themselves. An abbreviated version of the improper conduct of
management was published by Tyco in their SEC 8-K information filing with the
SEC on September 17, 2002. This pattern of improper and illegal activity occurred
for at least five years prior to June 3, 2002, L.Dennis Kozwolski was concealed the
activity from the Board and its relevant committees.
2.3.1. Relocation Programs
Mr. Kozlowski, Mr. Swartz and Mr. Belnick take interest-free loans that do
not qualify and gain unauthorized funds are not available for the entire company,
with big different loans, they use the grounds relocation loans to purchase real
estate and property.
Mr. Kozlowski improperly borrowed approximately $29,756,000 in non-
qualifying relocation loans to purchase land and construct a home in Boca Raton,
Florida during the years 1997 to 2000, and improperly borrowed approximately
$7,012,000 in non-qualifying relocation loans to purchase a cooperative
apartment in New York City in 2000.
In short:
$7,011,669 in interest free loans was charged by Mr. Kozlowski for
purported New York relocations that did not qualify under the New York
Relocation Program, $29,756,110 in interest free loans was charged by Mr.
Kozlowski for the acquisition of property under an unauthorized Florida relocation
program, and $24,922,849 in interest free loans was borrowed by Mr. Kozlowski
for the acquisitions of other properties that were not authorized by any relocation
program.
Of Mr. Kozlowski's total $61,690,628 of unauthorized interest free
relocation loans: $21,697,303 were actually repaid by him, but without interest;
$19,439,392 were repaid through unauthorized forgiveness, discussed in the
next section, that he bestowed upon himself, and $20,553,933 were reclassified
to other Mr. Kozlowski loan accounts that he maintained with the Company.
Mr. Swartz also borrowed approximately $20,992,000 in unauthorized
relocation loans purportedly to purchase property in Boca Raton, Florida during
the period 1997-2000. Neither of these programs was authorized by the
Compensation Committee or the Board.
In short:
$7,668,750 in interest free loans were taken by Mr. Swartz for property
acquisitions in New York and New Hampshire under the unauthorized New York
Relocation Program, $20,992,000 in interest free loans were taken by Mr. Swartz
under an unauthorized Florida relocation program, and $4,437,175 was
borrowed, interest-free, for the acquisition of other properties that were not
authorized by any relocation program.
Of Mr. Swartz's total $33,097,925 of unauthorized interest free relocation
loans: $10,786,977 was repaid by him, but without interest; $9,792,000 was
repaid through forgiveness that Mr. Kozlowski was not authorized to bestow; and
$12,518,948 was reclassified to other Mr. Swartz loan accounts that he
maintained with the Company.
Mr. Belnick used the unauthorized version of the New York relocation
program to borrow approximately $4,217,000 from September 1998 through May
2001, From 2001 through March 2002, Mr. Belnick borrowed an additional
$10,418,599 to purchase land and build a home. In short, this indebtedness was
not incurred through an authorized employee relocation plan available generally to
all salaried employees, and as such was not exempt from disclosure in the Company's
proxies. There was no colorable benefit to Tyco for any of Belnick's loans.
2.3.2. The “TyCom Bonus” Misappropriation
Mr. Kozlowski caused Tyco pay unapproved bonus to 51 employees who
had relocation loans with the company totaling $56,415,037, and to pay
compensation sufficient to discharge all of the tax liability, Mr. Kozlowski
($32,976,000) and Mr. Swartz ($16,611,000) received of which amount from
gross wages for paid by the company $95,962,000. The benefits weren’t approve
by or disclosed to the Compensation Committee or the Board Directors. The
employee who led by Mr.Kozlowski believe that they were part of a Board
approved program, they didn’t know the truth.
In short, the program was discriminatory in scope, terms or operation in
favor of executive officers. First, forgiveness was offered to some people who
never moved, some people at the operating division level who were never part of
the corporate relocation to Florida and people who did not even have a Tyco
mortgage. Second, forgiveness was never offered to those who were originally
eligible for relocation, yet declined to move. In short, forgiveness was never part
of the Florida Relocation Program, but rather was an extra-program benefit.
Regardless of advice that may have been offered relating to the disclosure
requirements for nondiscriminatory relocation benefits, the forgiveness benefit
was not applied in a nondiscriminatory fashion as part of a nondiscriminatory
program and, therefore, should not have qualified for nondisclosure.
2.3.3. The “ADT Automotive Bonus” Misappropriation
Mr. Kozlowski asked Tyco's to pay in cash awards of restricted shares of
Tyco common stock and payment of taxes associated with about 17 officers and
employees, while 17 officers and employees have been paid in full by Tyco. Mr.
Kozlowski and Mr. Swartz received a bonus of restricted stock and relocation
allowances are not recognized and not known by the compensation committee
and board of directors. Mr. Kozlowski made senior executives believe that ADT
automotive award of restricted stock is recognized program council.
2.3.4. The Key Employee Loan (KEL) Program
In KEL program case where many executive officers other than borrow
money to pay the taxes and borrowing the amount that exceeded the limit of the
maximum amount allowable under this program. Mr. Kozlowski is the biggest
players in the program, he took more than 200 loans KEL, some of the millions of
dollars and some of the small and the total he borrowed passes $ 250 million,
and loans that he did not use for the benefit of the company but for personal
interests such as purchase of real estate, yachts and maintenance. as well as
mr.swartz than buying for personal use he has also initiated a variety of business
investment at risk.
2.3.5. Attemted Unauthorized Credits to Key Employee Loan Accounts
In this case Mr. Kozlowski and Mr. swartz trying to clear outstanding debt
KEL by Mr. Kozlowski for $25 million and Mr. swarzt of $12.5 million without the
knowledge or approval of the compensation committee. Mr. Kozlowski through
his attorneys to Tyco he admitted that he did not get approval for a loan he did at
KEL. He admitted that it was not true and he was obliged to pay the amount to
Tyco, as well as mr. swartz willing to pay the debt with interest and he has paid
most of the amount. Tyco has reversed these entries and a related unauthorized
entry, thereby increasing the outstanding balances for the KEL accounts of each
individual involved
2.3.6. Executive Compensation
On this problem, Mr. Belnick as Chief Corporate Counsel received
compensation totaling $ 34,331,679 from 1999-2001, from the result of a secret
agreement with Mr. Kozlowski, Mr.Belnick awarded undisclosed incentives to
assist and facilitate Mr. Kozlowski diverting company funds for personal gain.
they make the letters included in the letter agreement dated August 19, 1998,
and signed by Mr. Kozlowski, then Mr. Belnick keep the letter in his private office
that is not known by the Tyco board, the board's compensation committee or
resource departments of Tyco.
2.3.7 Perquisites
In this case, Mr. Kozlowski and Mr.Swartz to earn extra income in excess
of $ 50,000 per year, which should be reported to the proxy, but they do not
report to the proxy on the addition, they are able to restore more enterprising
than that amount, but they are unable to return any additional income earning
more of that amount to the company. Tyco now know Mr. Kozlowski several
times to make personal use of property in north hampton, NH, Boca Raton, FL,
NYC, and New castle, NH.
2.4. Self Dealing Transactions and Other Misuses of Corporate Trust
2.4.1. Kozlowski Evidence Tampering
At least for the last five years, Mr.Kozlowski has systematically abused his
position and caused Tyco to expend funds for his personal benefit, which did not
advance the Company's interest in any colorable way.
2.4.2. Kozlowski Bargain Sale
Upon Mr. Kozlowski's instructions, a Tyco subsidiary purchased a
cooperative apartment in New York City in November 1998 for $5,547,248 and
made subsequent improvements to it. Without authorization from, or approval by,
the Board or its Compensation Committee, Mr. Kozlowski purchased this property
from the Tyco subsidiary in May 2000 at the depreciated book value of
$7,011,669, rather than its then current market value. In its civil action against Mr.
Kozlowski, Tyco seeks to recover for this bargain sale.
2.4.2. Overpayment to Kozlowski.
Without disclosure to, or approval by, the Board or its Compensation
Committee, Mr. Kozlowski and others caused a Tyco subsidiary to purchase
property in Rye, New Hampshire from Mr. Kozlowski on July 6, 2000 for
approximately $4,500,000. After an appraisal in March 2002 valued the property at
$1,500,000, Tyco wrote down the carrying value of the property to the appraised
value and charged Mr. Kozlowski's $3,049,576 overpayment to expense. In its civil
action against Mr. Kozlowski, Tyco seeks to recover this overpayment.
2.4.3. Kozlowski Non Legitimate Business Expense
Mr. Kozlowski also used millions of dollars of Company funds to pay for his
other personal interests and activities during the Relevant Period, including a
$700,000 investment in the film "Endurance"; more than $1 million for an
extravagant birthday party celebration for his wife in Sardinia; over $1 million in
undocumented business expenses, including a private venture (West Indies
Management - $134,113); jewelry ($72,042); clothing ($155,067); flowers
($96,943); club membership dues ($60,427); wine ($52,334); and an
undocumented $110,000 charge for the purported corporate use of Mr.
Kozlowski's personal yacht, "Endeavour." In its civil action against Mr. Kozlowski,
Tyco seeks to recover for these improperly expensed reimbursements.
2.4.5. Kozlowski Charitable Contribution for Personal Benefit
Also during the Relevant Period, Mr. Kozlowski caused Tyco to make
donations or pledges to charitable organizations totaling over $106 million. Of this
total, at least $43 million in donations were represented in transmittal letters or
otherwise as Mr. Kozlowski's personal donations, or were made using the
Company's funds for Mr. Kozlowski's personal benefit.
2.4.6. Walsh Payment
In early 2001, Frank E. Walsh, Jr., Tyco's Lead Director and the former
Chairman of its Compensation Committee, recommended to the Board that Tyco
acquire a financial services company, and later proposed that he introduce Mr.
Kozlowski to the Chairman and CEO of The CIT Group, a large financial services
company. Subsequent negotiations led to an agreement for Tyco to acquire CIT,
which closed in June 2001. After the terms of the CIT transaction had been agreed
to, Mr. Kozlowski caused Tyco to pay to and for the benefit of Mr. Walsh a $20
million fee for his role in the transaction.
2.4.7. Swartz Breach of Nominee Agreement
Since April 2000, Mr. Swartz has lived in a Tyco-owned apartment at 30 E.
85th Street, New York. On May 6, 2002, he caused the Company to enter a
notation in its books and records purporting to transfer title to that apartment,
including fixtures and furniture, to himself at its depreciated book value of
$9,646,975, which Swartz paid in cash. No appraisal was performed in connection
with this transfer. The transaction was not authorized, and on July 18, 2002 Mr.
Swartz agreed to reverse that transaction. Title to the apartment was never
conveyed to Mr. Swartz, and Tyco continues to hold title to the apartment.
Swartz's KEL account has been credited $9,646,975
2.4.8. Swartz Personal Expense Reimbursement
On March 1, 2002, without approval by the Compensation Committee or the
Board, Mr. Swartz caused Tyco to pay him a reimbursement of $1.2 million to
cover lost deposits on personal real estate transactions involving apartments in
Trump Tower on 5th Avenue in New York. Tyco will seek to recover this improper
reimbursement in arbitration.
2.5. The end of the criminal cases in Tyco International ltd
Tyco announced that it had launched a civil lawsuit against Kozlowski for
breach of fiduciary duties, fraud and other wrongful conduct, and other lawsuits
against executive considered complicit in these schemes. This brings to three the
major suits faced by Kozlowski launched by New York, the SEC and Tyco, but
does not include class action suits by aggrieved investors. Tyco also began to
replace its board members.
On June 17, 2005, 58-year old Kozlowski and 44-year old Swartz were
each convicted of 22 of 23 counts including grand larceny, conspiracy, securities
fraud and eight of nine counts of falsifying business record. On September 21,
2005, Kozlowski and Swartz were sentenced to up to 25 years in prison. Many
observers thought that was about right, but others, including business leaders
thought it to be too much. In comparison, it was pointed out that some violent
crimes like rape and manslaughter carried a sentence of 20 years in jail.
In a related announcement, the SEC and the lead auditor of Tyco, Richard
Scalzo a partner with PricewaterhouseCoopers (PwC) agreed that Scalzo was
permanently barred from preparing financial statements of publicly traded
companies. The Tyco account was reportedly worth $100 million per year to
PwC, and they retained the audit. The SEC found that Scalzo “was ‘reckless’ and
stood idle as the conglomerates leading figures manipulated accounting entries
to conceal their lavish spending and pay”.
CHAPTER III
ANALYSIS OF THE CASE
3.1. Human and Universe for Tyco International, Ltd case
In this case there is no impact on the environment around Tyco
International Ltd., as there was no pollution or environmental Damage of this case,
but this case affect human behavior that is cheating. Mr. Kozlowski and Mr..
Swartz has been affected by a life of luxury that makes them violate the norms and
ethics that should be followed. they no longer care about the existing rules and just
follow their desire to continue to meet and satisfy their personal needs.
Mr. Kozlowski did not feel guilty for the theft that he has done with mark
swartz, she underwent a company with its own rules and with which he made his
own assessment without reference to ethics. human life without following values or
rules he would be a selfish man and running things according to his desire without
thinking of the consequences that would result from his actions. people who
behave badly will create an environment where he does not live in a healthy, as
well as with this case, the result of these actions the company is not able to run
properly.
3.2. Theory of Ethics for Tyco International, Ltd case
In this case for the relationship problems including ethical theories into
psychological egoism, psychological egoism is a theory that explains that all
human action is motivated by selfish, because of actions taken by Dennis
Kozlowski is a selfish act that harms others, for the sake of personal interest he
stole money that should be used for the benefit of the company by using his
position as ceo at Tyco International ltd , along with Mark Swartz he uses all
means to gain personal wealth and not think about the harm they caused.
The utilitarian approach, we first identify the various courses of action
available to us. Second, we ask who will be affected by each action and what
benefits or harms will be derived from each. And third, we choose the action that
will produce the greatest benefits and the least harm. The ethical action is the one
that provides the greatest good for the greatest number. Makes human beings
different from mere things is that people have dignity based on their ability to
choose freely what they will do with their lives, and they have a fundamental moral
right to have these choices respected. People are not objects to be manipulated; it
is a violation of human dignity to use people in ways they do not freely choose.
Deontology is different from consequentialism in that deontologists focus
on the obligations or duties motivating a decision or actions rather than on the
consequences of action. Deontological ethics takes the position that rightness
depends upon the respect shown for duty, and the rights and fairness that those
duties reflect.There is an indication that there is any higher power involved in the
case of Dennis Kozlowski. He operated on its own value, by the law that he had
made, and then excused himself, as he does not violate the laws.
The virtue approach to ethics assumes that there are certain ideals toward
which we should strive, which provide for the full development of our humanity.
These ideals are discovered through thoughtful reflection on what kind of people
we have the potential to become.
3.3. Good Corporate Governance for Tyco International, Ltd case
A set of rules that define the relationship between shareholders,
managers, creditors, the government, employees and other internal and external
stakeholders in respect to their right and responsibilities, or the systems by which
companies are directed and controller.Based on the principles of good corporate
governance in these cases Kozlowski does not do justice to his employees, he
gave bonuses to all employees not only to some employees, while he used then
are still available bonus funds for personal gain. the lack of fairness in the
distribution of bonuses to employees and officers.
Mr. Kozlowski was not transparent about the use of corporate funds report
to the board committees and stakeholders within the company, so no one knows
he has committed fraud, and because he used the funds are funds that are not
approved and known by the compensation committee of the board, due to lack of
disclosure to shareholders it shows corporate accountability is not good.
Mr. Kozlowski and Swartz are currently in the process account for his
actions, they received 25-year prison sentence, after they successfully uncovered
fraud by the Securities and Exchange Commission.
3.4. Corporate Social Responsibility in Tyco Internatinal, Ltd case
We thought Mr. Kozlowski did a good social activity, he did charity of his
own money, but the money he gave to charity from the act that violates the norm
or fraudulent results, according to our deeds he did to cover up cheating he did.
This continually strikes us as a strange way to look at things, because the money
was stolen to begin with. No amount of good that a person does with stolen money
changes the fact that is was stolen.
He cared about no one but himself and what he could achieve. It is
possible that he respected those lower than him because he gave to charities, but
I believe he only donated to charities as a tax shield.
He created his own rules and governed his own ethics. I believe that this is
why he never saw anything wrong with the things that he was doing. Even until the
end he maintained that he didn't do anything wrong. I believe that because he was
judging himself by his own standard, which was created by him, and realizing that
he had not broken any of the pre-established rules, he felt innocent. He had no
stakeholder interest in mind when doing the things that he did, and only cared for
himself.
3.5. Code of conduct business and professional code of conduct (accountant) in
Tyco International, Ltd case
The Tyco Guide to Ethical Conduct- has been developed to advise
employees on what the correct practices and procedures are, when working for
Tyco, the guide also outlines examples of unethical behaviour and ways in which it
can be reported.
In this case, Tyco International failed to give true financial picture for
several years. Dennis Kozlowski, Mark Swartz and Mark A. Belnick were those
Tyco’s executives who committed fraud by charged with falsifying business record
to conceal a great amount of loan without approval. Besides, it had been found out
that Tyco engaged in “financial gimmicky” to deliberate and manipulating its
earnings. Jerry Boggess, the president of Tyco Fire and Security is the one who
involved in bookkeeping fraud that affected the earning per share in Tyco in this
case. Besides, Dennis Kozlowski also indicted on tax evasion for avoiding just
over $1 million in New York State and local sales tax (Andrew and Alex, 2002). In
addition, Scalzo (Tyco’s former auditor) who audited Tyco's financials from the
years 1997 until 2001, found that he failed to conduct sufficient steps in audit
procedures which related to certain executive benefits, executive compensation,
and related party transactions. Furthermore, he also engaged in improper
professional conduct.
Accountants and auditors in this case have breached their fiduciary duty.
They failed to provide an accuracy and reliability of financial statement and failed
to act in best interest of shareholders and stakeholders (creditors, bankers and the
users of financial information). They involved in earnings management and tried to
overstate the earning to show a more favourable statement. It is also called as
deception because they provided false statement and created untrue position.
3.6. Approaches to Ethical Decision Making in Tyco International, Ltd case
3.7. Questions of Tyco Looting Executive Style case
1. The pattern of illegal and improper conduct described above took place for at
least 5 years prior to june 3, 2002. What red flags or governance mechanisms
should have alerted the following people to this pattern :
a. Tyco management accountans?
b. Tyco internal auditors?
c. Tyco external auditors?
d. Tyco board of directors?
Answer :
Dennis Kozlowski persuaded all accounting manager stotake risks, tobe
"creative" in their accounting practices, and the way they report the numbers.
They present fraudulent transactions and take the money they receiveis not
actually for, and excessive spending. They do not matter to investors who have
long-term investing, making investors believe that the company was being
honest. Indeed all the practice they can only doin the shortrun, in the long run will
do all that they can’t be hidden and revealed in the company.
In the part of the board of directors, as CEO Dennis Kozlowski and CFO
Mark Swartzas do not want to see that the figures presented decreased
accounting manager, if they want to decrease the occurrence of all accounting
managers do what must be done. Kozlowski and Swartzare not documented
properly and through improper channels to approve benefits or bonuses. There
are bonuses and other forms of compensation provided to employees that senior
management do what ever they want to do. Because of the fear for a person who
violates the order or reveal what happened, then there is no whistleblower in the
ordeal.
Therefore, companies must modify their accounting methods with some sort of
regulation. Set the Auditor and the management(CEO, CFO and Chairman)
public companies to protect investors and maintain their confidence in publicly
traded companies.
2. Indentify and discuss the most important weakness in Tyco’s :
a. Internal controls, and
b. Governance systems
Answer :
Weaknesses in the control system in the Tyco is a lack of documentation of
any activity in the use of funds and other activities, and approval procedures for
each fund company does not get out too stringent oversight, making it Kozlowski
had no difficulty in doing misappropriation of company funds, so he simply get
the funds to his personal account. The Internal audit also reported directly to
Kozlowski rahter than to the audit committee, and Swartz submitted SEC
(Securities and Exchange Commission).
The vast amount of looting from Tycos is certainly not in the interesrt of the
remaining 210,000 employees, investors, and other stakeholders to the
company. Even though the looting was not disclosed to the board of directors, it
is their responsibility to oversee compensation of of executives, quality of
internals controls, and overall company performance, and we thinks, Kozlowski is
more of a leader than a manager. That is a weakness of the system of
governance Tyco, which also affects the internal control of the company.
Kozlowski was able to lead with way to build loyalty from the people who follow it.
He knows how to build teams and create groups and ensure that everyone feels
like a family. By doing so, he was able to gain loyalty and got a way with a lot
more than if he was just a manager.
Altough corporate and ethical culture was available, the leaders of the
company in this case the most influental, Mr. Kozlowski, CEO of the company
plays a role in determining the company’s direction. If the leader does not put
concern on the ethical issue, then the rest of the company will follow. The leader
plays a crucial role in ethical decision making.
Kozlowski has a strong vision of where the company is headed and led
others to follow that vision. Although thev is ionis to make all of his followers also
become corrupt.
3. Would a post SOX act whistle blowing program to the audit Committee of the
board have eliminated the improper and illegal actions? Why or why not?
Answer :
Whistleblowers may be the primary source that catching corporate frauds
run on. SOA may catch or prevent some frauds, but if no one has the courage to
be the whistleblower, whether an employee of the corporation, member of the
SEC, or auditor, these scandals may continue for years.
Furthermore,whistleblowers should be taken seriously or at least highly
considered.
The SOA has increased protection of whistleblowers in three prime ways,
recognizing that they may have significant roles in uncovering scandals
(Sarbanes Oxley and Whistleblower Protection, CPA Journal). Enhanced
protection of whistleblowers is extremely important, but it is difficult to analyze
whether these three areas are effective.
First, Public companies are required to have a system in place where
reports of anonymous whistleblowers can disclose their concerns or speculations
of the company. Second, Section 806 of the act states that “no publicly traded
company, or any officer, employee,contractor, subcontractor, or agent of such
company may discharge, demote, suspend, threaten, harass, or in any other
manner discriminate against an employee in the terms and conditions of
employment because of any lawful act done by the employee.” Lastly, Sarbanes-
Oxley provisions have made it clear that retaliation against whistle-blowers will
not be tolerated.
4. If you have been a professional accountant employed by Tyco during this time,
and you wanted to blow the whistle, who would you have gone to with your
story?
Answer :
Because this was occurring before 2002, an accountant didn’t have SOZ
protocols in place to refer to for guidance. However, reporting t the SEC or
United States Congress, utilizing the False Claims Act (1986) may have started
an investigation.
But we still thought Mr. Kozlowski is the brains of all the cheating they did
in the Tyco International, ltd. he who pioneered this scandal. therefore, we think
Mr. Kozlowski will be the first person we will report to the authorities the
commission of the crimes that occur within the company. after Mr. Kozlowski
caught the other parties involved in this crime will be revealed. which finance
chief, Mark Swartz. Kozlowski asassistant controller at Tyco, he is known for the
acquisition of the devil, and getting a lot of attention with a very lavish life style.
Mark Swartzis the Chief Finance Officer of the company and works under
Kozlowski. During the trial that the two have worked synonyms in the fraud, and
to work against shareholders.
5. Why were so many Tyco employees willing to go along quietly with the looting by
senior executives?
Answer :
51 employees received bonuses other employees may have been unware, naive,
or too concerned with avoiding retaliation.
6. How many years in jail do you think Kozwolski should have received for his white
collar crimes?
Answer :
we think the punishment should be accepted Mr. Kozlowski and Mr..
Swartz was sentenced to life imprisonment, or such systems are applied in china
is taking all things which he possesses of the crime proceeds to the company or
the state for restitution for the crimes he did, or give him a sentence in
accordance with the legislation in force the country. sentenced to 25 years in
prison but decided to Mr. Kozlowski and Mr.. Swartz is fair enough, and until now
the process is still ongoing until the end of their prison terms.
CHAPTER IV
CLOSING
4.1. Recommendation
After the analysis of problem issued from case study, we would like to give
some recommendations in order to improve the situation of the company. Conflict
of interest was the major issue in this case. The new management in the company
had elected a completely new board of director and assigned an independent
person to be the chairman, rather than a CEO to avoid the conflict of interest to
happen again. The actions taken by the company could be effective.
However, in our opinion, the company should also cultivate an ethical
corporate culture. To do so, code of conduct should be set by the company.
International Labour Organization mentioned that code of conduct is a company’s
statement to explain ethical standards and applications that should be apply by the
employees. Code of conduct could promote ethical and moral deeds among the
employees in the company. By following the code of conduct, the employees could
avoid themselves from convicting in conflict of interest. The guidelines to the code
of conduct should be given to employees so that employees could further
understand it.
Besides the set of code of conduct, the company should also organize
seminars and training for the employees in order to teach the employees to deal
with issue that related with conflict of interest for example the issue mentioned in
the analysis before, which are embezzling fund, accounting fraud, bribery and etc.
Whistle blowing culture should be encouraged to the employees during the training
and seminars.
Whistle blowing is an act that raises concern towards the person who
involved in wrong doing. While promoting the whistle blowing, the company should
also set up protections towards the whistle blower to protect them from the
possibility of being boycott by the colleagues. The protections given could at the
same time enable the whistle blower to raise the wrong doing of others without any
fear. The example of the protection that can be given by the company includes
keep the information of the whistle blower confidential. With a whistle blowing
culture, the fraud that may happen could be reduced.
Just as what had been mentioned in the analysis, leadership plays important
role in shaping corporate culture. The top management should have ethical
leadership so that the subordinates could have a good role model to follow. A
leader who is responsible and honest can help promote and transfer his or her
ethical and moral value to the subordinates. Hence, while recruiting new manager
or promoting an employee to become a manager, the criteria that company should
consider and emphasize not only the ability but also the personality and ethical
view of the person.
For the issue of inappropriate discharge of employees, we suggest that Tyco
International should provide sufficient notice and pay sufficient compensation to
the employees who have been discharged. The company should set the fairness
procedures in the process of discharging employees. The executive of Tyco
should know that employees are primary stakeholder in the company. They should
protect the employee’s right and respect them.
4.2. Conclusion
In every business, the company will always facing such ethical dilemmas and
then raise the ethical issues. Most of the ethical issues in the Tyco International
related to conflict of interest. Embezzling fund, bribery, accounting fraud were all
the issues that we had mentioned in the paragraphs before which relate to conflict
of interest. All these issues were also unethical in other perspective besides from
the perspective of conflict of interest. These issues had also breached other ethical
theories which we had further explained.
Due to the unethical issues that rose in the company, Tyco International had
faced the problem of sustainability. The company was nearly ruined by the
unethical leaders. From this point of view, we could conclude that ethics played
crucial role in sustaining the company. A company without ethical conducts will not
last longer than a company which has high and good ethical conduct.
As a conclusion, the company should play their roles by properly managed
their company by following the code of conduct and effectively controlled in all
division. By doing that, the company will run their businesses in ethical way and
those unethical issues such as embezzlement of fund, inappropriate employees
discharge, giving or receiving bribes, and also accounting fraud will not happen
again or at least will be decrease.
BIBLIOGRAPHY
1. Leonard J. Brooks , Paul Dunn - 2009 - Business & Economics.
2. Wikipedia, Tyco International,Ltd, http://en.wikipedia.org/wiki/Tyco_International
(accessed: Jakarta, Mei 09,2013)
3. www.google.com/search/gambar
(accessed: Jakarta, Mei 09,2013)
4. Dennis Kozlowski after going to jail, http://www.youtube.com/watch?v=5KTaloE-
3FM
(accessed: Jakarta, Mei 09,2013)
5. UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
http://www.sec.gov/Archives/edgar/data/833444/000091205702035700/a208939
8z8k.txt
(accessed: Jakarta, Mei 10,2013)
6. http://prezi.com/qvafyn4gydal/tyco-looting-executive-style/
7. Eric Jason, “The Fall of Dennis Kozlowski and the Impact on the Tyco Company”,
http://voices.yahoo.com/tyco-scandal-business-case-analysis-11330744.html?
cat=3, (accessed: Jakarta, Mei 10,2013)
8. Unethical issues or legal issues in Tyco International
http://www.lawteacher.net/company-law/essays//unethical-issues-or-legal-issues-
in-tyco-international-company-law-essay.php#ixzz2SyckkQQs
(accessed: Jakarta, Mei 10,2013)
9. Kozlowski's Foundation Gave Little to Charity, Records Say
http://articles.latimes.com/2002/sep/17/business/fi-tyco17
(accessed: Jakarta, Mei 11,2013)
10.Press Release, Tyco Files Suit Against Former Chairman and CEO, L. Dennis
Kozlowski for Misappropriating Money and Assets From the Company
http://investors.tyco.com/phoenix.zhtml?
c=112348&p=irolnewsArticle&ID=33323&highlight=
(accessed: Jakarta, Mei 11,2013)
Enclosure