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Tyco international case analysis
Debate over executive compensation
Tyco international case analysis
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Unethical Perspectives: Tyco & the Price of Unethical Behavior
Prior to what has become known as the Tyco scandal, the company was among one of the largest conglomerates, with a market capitalization of more than $1 billion. The CEO of the company Dennis Kozlowski was thought of as one of the top 25 manager of the year, and had been included on a list of people to watch by Fortune Magazine because of his turn-around of the company’s sprinkler-system division at the beginning of his rise into management. In 2002, Kozlowski was charged with cheating on taxes related to $1 million of sales tax on his art purchases, and 38 felony counts for stealing $170 million directly from Tyco through forgiven loans not approved by the board, and an additional $430 million gained through the sale of stock. The Tyco stock price dropped from $60 a share to $7 a share because of the scandal. (Karabell, 2010)
There are mixed opinions on whether Dennis Kozlowski was rightfully depicted as a criminal who is guilty of embezzlement from Tyco, or just seen as many of the corporate leadership of large companies are as being too greedy, and has been made a scapegoat. Kozlowski strongly believes he just had “bad judgment, and was piggy”, and if that was the ground for incarceration, much of Wall Street should be right there with him in prison (Kaplan, 2009, p. 2).
Greed or Corporate Embezzlement
In the case of Tyco, the level of unethical activities that were undertaken by Kozlowski was extensive over the period of years that they occurred. The question of whether executive compensation is permissible and how much is appropriate is separate from the question of whether there was criminal activity by Kozlowski. Kozlowski in his defense of his actions ...
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... D.A. (2009). KOZ makes his case. Fortune, 160(11), 14-16.
Karabell, S. (2010). Turning around Tyco: How corporate governance saved the day. INSEAD Knowledge, Retrieved on April 26, 2014 from http://knowledge.insead.edu/csr/turning-around-tyco-how-corporate-governance-saved-the-day-1168
Moriarty, J. (2009). How much compensation can CEOs permissibly accept? Business Ethics Quarterly, 19(2), 235-250.
Schneider, P. J. (2013). The managerial power theory of executive compensation. Journal of Financial Services Professionals, 67(3), 17-22.
Stephens, W., Vance, C., & Pettegrew, L. (2012). Embracing ethics and morality. CPA Journal, 82(1), 16-21.
Symonds, W.C. (2002). Commentary: Tyco: How did they miss a scan so big? Bloomburg Businessweek, Retrieved on April 26, 2014 from http://www.businessweek.com/stories/2002-09-29/commentary-tyco-how-did-they-miss-a-scam-so-big
Ferrell, O. C., Fraedrich, J., & Ferrell, L. (2011). Business ethics: Ethical decision making and cases: 2011 custom edition (8th ed.). Mason, OH: South-Western Cengage Learning.
The three main crooks Chairman Ken Lay, CEO Jeff Skilling, and CFO Andrew Fastow, are as off the rack as they come. Fastow was skimming from Enron by ripping off the con artists who showed him how to steal, by hiding Enron debt in dummy corporations, and getting rich off of it. Opportunity theory is ever present because since this scam was done once without penalty, it was done plenty of more times with ease. Skilling however, was the typical amoral nerd, with delusions of grandeur, who wanted to mess around with others because he was ridiculed as a kid, implementing an absurd rank and yank policy that led to employees grading each other, with the lowest graded people being fired. Structural humiliation played a direct role in shaping Skilling's thoughts and future actions. This did not mean the worst employees were fired, only the least popular, or those who were not afraid to tell the truth. Thus, the corrupt culture of Enron was born. At one point, in an inter...
Jordan Belfort is the notorious 1990’s stockbroker who saw himself earning fifty million dollars a year operating a penny stock boiler room from his Stratton Oakmont, Inc. brokerage firm. Corrupted by drugs, money, and sex he went from being an innocent twenty – two year old on the fringe of a new life to manipulating the system in his infamous “pump and dump” scheme. As a stock swindler, he would motivate his young brokers through insane presentations to rile them up as they defrauded investors with duplicitous stock sales. Toward the end of this debauchery tale he was convicted for securities fraud and money laundering for which he was sentenced to twenty – two months in prison as well as recompensing two – hundred million in restitution to any swindled stock buyers of his brokerage firm (A&E Networks Television). Though his lavish spending and berserk party lifestyle was consumed by excessive greed, he displayed both positive and negative aspects of business communications.
Brooks, L., Dunn, P. (2012) Business & Professional Ethics for Directors, Executives & Accountants. 6th Edition. Thompson South-West.
CEO compensation has been a heated debate for many years recently, and it can be argued that they are either overpaid or that there payment is justified by the amount of work they do and their performance. To answer the question about whether CEO compensation is justified it must be looked at by the utilitarian viewpoint where the good of many outweighs the good of one. It is true that many CEO’s are paid an exorbitant amount of money; however, their payment is justified by the amount of money that they bring back to the company and the shareholders. There are many factors that impact the pay that the CEO receives according to Shah et.al CEO compensation relies on more than just the performance of the CEO, there are a number of factors that play a rule in the compensation of the CEO including the fellow people who help govern the corporation (Board of Directors, Audit Committee), the size of the company, and the performance that the CEO accomplishes (2009). In this paper the focus will be on the performace aspect of the CEO.
In modern day business, there can be so many pressures that can cause managers to commit fraud, even though it often starts as just a little bit at first, but will spiral out of control with time. In the case of WorldCom, there were several pressures that led executives and managers to “cook the books.” Much of WorldCom’s initial growth and success was due to acquisitions. Over time, WorldCom discovered that there were no more opportunities for growth through acquisitions when the U.S. Department of Justice disallowed the acquisition of Sprint.
Ferrell, O. C., Fraedrich, J., & Ferrell, L. (2013). Business ethics: Ethical decision making and cases: 2011 custom edition (9th ed.). Mason, OH: South-Western Cengage Learning.
Nottingham Trent University. (2013). Lecture 1 - An Introduction to Corporate Governance. Available: https://now.ntu.ac.uk/d2l/le/content/248250/viewContent/1053845/View. Last accessed 16th Dec 2013.
In his plea bargaining, Ivan Boesky agreed to pay one-hundred million dollars in fines and to fully cooperate with the SEC members in other investigations of insider trading cases. His cooperation has also led to major charges against Kidder Peabody, Martin Siegel, and other financiers. Without Boeskey’s help, catching other insider-trading criminals would have been almost impossible. Ivan Boesky even wrote a book about his involvement in the world of insider trading; he called it Merger Mania.
Jordan Belfort is the notorious 1990’s stockbroker who saw himself earning fifty million dollars a year operating a penny stock boiler room from his Stratton Oakmont, Inc. brokerage firm. Corrupted by drugs, money, and sex, he went from being an innocent twenty – two year old on the fringe of a new life to manipulating the system in his infamous “pump and dump” scheme. As a stock swindler, he would motivate his young brokers through insane presentations to rile them up as they defrauded investors with duplicitous stock sales. Toward the end of this debauchery tale he was convicted for securities fraud and money laundering for which he was sentenced to twenty – two months in prison as well as recompensing two – hundred million in restitution to any swindled stock buyers of his brokerage firm. Though his lavish spending and berserk party lifestyle was consumed by excessive greed, he displayed both positive and negative aspects of business communications.
The Tyco accounting scandal is an ideal illustration of how individuals who hold key positions in an organization are able to manipulate accounting practices and financial reports for personal gain. The few key individuals involved in the Tyco Scandal (CEO Kozlowski and CFO Swartz), used a number of clever and unique tactics in order to accomplish what they did; including spring loading, manipulating their ‘key-employee loan’ program, and multiple ‘hush money’ payouts.
The end of 2001 and the start of 2002 saw the end of a period of magnified share prices and booming businesses. All speculations of misrepresentation came to light and those firms which once seem unconquerable were now filing for bankruptcy. Within this essay, I shall discuss the corporate governance mechanisms and failures which led to the Enron scandal resulting in global corporate governance reforms being encouraged.
Norman, W., & MacDonald, C. (2004). Getting to the bottom of the "triple bottom line". Business Ethics Quarterly, 14(2), 243-262. http://dx.doi.org/10.5840/beq200414211
Ostapski, S.A. & Pressley, D.G. (1992). Moral Audit for Diabco Corporation. Journal of Business Ethics, 11(1), 71-80.
The Enron Corporation was an American energy company that provided natural gas, electricity, and communications to its customers both wholesale and retail globally and in the northwestern United States (Ferrell, et al, 2013). Top executives, prestigious law firms, trusted accounting firms, the largest banks in the finance industry, the board of directors, and other high powered people, all played a part in the biggest most popular scandal that shook the faith of the American people in big business and the stock market with the demise of one of the top Fortune 500 companies that made billions of dollars through illegal and unethical gains (Ferrell, et al, 2013). Many shareholders, employees, and investors lost their entire life savings, investments,