Dennis Kozlowski, while pillaging Tyco and its shareholders, taught a valuable lesson about leadership and the expectations of ethical behavior, responsibility, and accountability. Tyco’s culture of corruption and lack of governance during the Kozlowski reign enabled him to exert his power to not only grow the company, but to abuse his power and grow himself and his constituents, the board of directors. The central argument is that leaders must watch for corruption and maintain their integrity. Corruption existed at Tyco, but after Kozlowski’s rampant abuse of leadership, Tyco learned how to govern itself.
The Tyco Corruption
Dennis Kozlowski came into Tyco as an accountant in 1975 under another extravagant CEO, Joseph Gaziano, and worked up to CEO in 1992 (Thanos, 2015, p.2). As CEO, he built his own extravagant kingdom at Tyco, went on expensive vacations, abused the employee loan program, and sold $575 million in stock in insider trading (Crawford, 2005). He was an incessant reveler with extremely expensive houses (Thanos, 2015, p.2). Kozlowski was finally caught and investigated after tax evasion when he dodged paying import tax on $14 million of artwork, which created many more investigations at Tyco. He was convicted in 2005 of stealing nearly $100 million from Tyco and sentenced to 25 years in prison (Kaplan, 2015). Kozlowski is known for being unethical and excessive, having little regard for Tyco’s stakeholders (Thanos, 2015, p.4).
Despite his extravagance, during his reign at Tyco, he was known as a “ruthless cost cutter” to Tyco (Kaplan, 2015). Called “Deal-a-Day Dennis” by some (Kaplan, 2015), Dennis Kozlowski was known as being an extremely aggressive CEO. Growing revenue through mergers and acquisitions, he grew Tyco from $3 billion in all the way to $40 billion in annual revenue before the split (Daniel Funds Ethics Institute, 2011, p.7).
Abuse of Leadership Power, Unethical Behavior, and Corruption
Kozlowski hand-picked his board of directors, many of which had troubling red flags of corruption, such as Richard Bodman investing on behalf of Kozlowski, Frank Walsh helping Kozlowski to do the merger acquisition of CIT without board approval, Walsh held controlling ownership in firms that received millions of dollars for leasing aircraft to Tyco, Stephen Foss received over $750,000 for providing aircraft and pilot services, and Lord Michael Ashcroft used $2.5 million of Tyco’s funds to buy a house (Daniel Funds Ethics Institute, 2011, p.3).
Kozlowski lied to the public about the austerity of Tyco with humble offices in New Hampshire while he secretly moved the executive offices and apartments to a luxurious headquarters in Manhattan. (Daniel Funds Ethics Institute, 2011, p.4).
The ADT Bermuda acquisition enabled an offshore tax haven for Kozlowski and Tyco (Daniel Funds Ethics Institute, 2011, p.3). Kozlowski manipulated external firm Merrill Lynch to replace the analyst in order to change their position on Tyco stock. Through all of this, he became the second highest-paid CEO at the time (Daniel Funds Ethics Institute, 2011, p.4).
Between the corruption at the board, the unethical behavior regarding acquisitions, and lying to the public about the perks for executives (and the existence of the Manhattan office), Tyco’s upper management had a culture of corruption, abuse of power, and making unethical decisions.
Leaders: Held to a High Moral Standard
Leaders set the examples and standard for the rest of the organization. Leaders are in a position of power and are watche and highly visible. They influence people and processes, and they create change (Workplace Coach, 2013). Jim Collins, author of Good to Great discusses “Level V Leadership” (the ultimate level) as being humble, responsible and accountable (Herring, 2018). People feel outraged when leaders do not live up to the higher ethical expectations. Leaders should live by a code of conduct, be committed, be judged by their actions, so they absolutely need to live up to a higher moral standard (Daskal, n.d.). Leaders are put up on a pedestal and are role models for not only their company and their corporate culture, but for the public.
Tyco’s Improvements & Changes
Tyco replaced Kozlowski with Edward Breen as CEO and crated a new management team. Shareholders elected a new board of directors as well, removing the corruption of the previous board. They also replaced ninety percent of the headquarters staff. Tyco also hired Eric Pillmore as Vice President of Corporate Governance to create an ethics program and created the Tyco Guide to Ethical Conduct (Daniel Funds Ethics Institute, 2011, p.6). Tyco also created an anonymous whistleblower report which they publish quarterly and created a confidential hotline called ConcernLine (Daniel Funds Ethics Institute, 2011, p.6).
As a result of this aggressive ethical turnaround, Tyco was able to stay successful, make great change, and keep revenues high at $40 million before the company split into four separate companies. Tyco joined the World Economic Forum Partnering Against Corruption Initiative in 2010 in order to combat bribery as well, in its journey to improve its reputation (Daniel Funds Ethics Institute, 2011, p.7).
Leaders are under scrutiny and have the biggest and most visible impact on their company and its culture. As a result, leaders must strive to be ethical, responsible, and accountable. Held to a higher moral standard, leaders are influential to many, so need to be committed to a higher morality. Kozlowski is an example of what happens when leaders have no moral compass and are given the power to indulge in extravagance at the expense of their company, their shareholders, and the public.
Crawford, K. (2005, June 21). Ex-Tyco CEO Kozlowski found guilty. https://money.cnn.com/2005/06/17/news/newsmakers/tyco_trialoutcome/index.htm
Daniel Funds Ethics Institute. (2011). Tyco International: Leadership crisis. The University of Mississippi. https://danielsethics.mgt.unm.edu/pdf/Tyco%20Case.pdf
Daskal, L. (n.d.). Why You Need to Lead With a Higher Standard to Succeed. https://www.lollydaskal.com/leadership/need-lead-higher-standard-succeed/
Herring, H. (2018, January 16). Should Leaders be Held to a Higher Ethical Standard? https://ejewishphilanthropy.com/should-leaders-be-held-to-a-higher-ethical-standard/
Kaplan, D. (2015, March 1). Tyco’s ‘Piggy,’ Out of Prison and Living Small. https://www.nytimes.com/2015/03/02/business/dealbook/dennis-kozlowskis-path-from-infamy-to-obscurity.html
Nguyen, T. (2021, May 26). Tyco International: Leadership Crisis. https://www.linkedin.com/pulse/tyco-international-leadership-crisis-trinh-quoc-nguyen/
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