Tyco International: Leadership Crisis

A disconnect between what the owners, the Ivanovic’s, have installed and where the CEO, Mathew McRae, is trying to take the business as arose. Thus, the company’s culture and core values have begun to deteriorate and are moving away from the family “social” atmosphere to a solely financial based one.

This $490 million came from the netting manipulation when they offset their expenses with unrelated gains on the sale of assets. The geography manipulation allowed them to move millions of dollars to different sections of the income statement to “make the financials look the way we want to show them” said James Koenig, one of the primary forces behind the scandal. However, none of the fraudulent activities would have gone unknown for so long without the aid of the auditors, Arthur Anderson LLP, involved with Waste Management.

The situation began to unfold when the Securities and Exchange Commission was probing into a restatement of the company's stock price. Kozlowski's business practices raised some eyebrows. In 1999, the Securities and Exchange Commission (SEC) initiated an inquiry into Tyco's practices that resulted in a restatement of the company's earnings. In January, 2002, questionable accounting practices came to light. Tyco had forgiven a $19 million, no-interest loan to Kozlowski in 1998 and had paid the CEO's income taxes on the loan. It was found that he company's stock price had been overrated, and that the CEO and CFO had sold 100 million dollars' worth of shares, and then stated to the public that he was holding them, which was a misrepresentation and misled the investors.

When Knudstorp became the CEO, the company was with negative cash flow and the real risk o which would have even led to a breakup of the company.

When an owner or senior management commit or make unethical financial business decisions this will ultimately affect the entire organization. Every employee will be at jeopardy of losing his or her job. The company may end up going out of business altogether. I know this personally. The reason at 50 years old I have only been at my current employer is because my last employer, took and distribute their federally funded sponsorship and put extra money into their own pockets as well as putting money back into the federal pockets of those who originally gave us the funds to begin with. As I have grown in my career and leadership, I have seen so much corporate and financial greed it makes my stomach turn for someone who is just trying to make an honest living and afford the finer things in life. People with money always want more money,

Another reason that prosecuting officers of corporations is fundamentally difficult is because a corporation is considered legally an entity or “person” in itself. As such, the corporation as a whole, commits the crime but you cannot really lock up a corporation. However, if you can pinpoint gross financial wrong doing, what is referred to as “white collar” crime, being done by a specific officer of a corporation, then that individual may be prosecuted for his or her actions. Furthermore, every corporation is chartered to make profits for shareholders, whether they be stockholders, employees, suppliers, or any other bone-fid person with a stake in the success of the corporation. So, were the officers and employees committing a crime, or being greedy with regards

A. Belnick, Dennis Kozlowski, and Mark Swartz. They were charged with falsifying business records in order to conceal their questionable tactics in regards to getting loans without obtaining anyone’s approval. The earnings per share was affected negatively by the fraudulent record keeping, and the president of the Fire and Security division, Jerry Boggess, was an accomplice and fired as a result . After avoiding a million dollar tax bill for the purchase of artwork worth $14 million, Dennis Kozlowski was indicted for tax evasion by the DA of New York. Richard Scalzo was responsible for auditing the financials of Tyco. He participated in improper conduct because he did not implement the proper measures within his audit duties as it pertains

People often question whether corporate boards matter because their day-today impact is difficult to observe. But, when things go wrong, they can become the center of attention. Certainly this was true of the Enron, Worldcom, and Parmalat scandals. The directors of Enron and Worldcom, in particular, were held liable for the fraud that occurred: Enron directors had to pay $168 million to investor plaintiffs, of which $13 million was out of pocket (not covered by insurance); and Worldcom directors had to pay $36 million, of which $18 million was out of pocket. As a consequence of these scandals and ongoing concerns about corporate governance, boards have been at the center of the policy

The SEC found three of Cardillo’s executives, CEO A. Walter Rognlien, COO Esther Lawrence, and Vice President of Finance William Kaye, guilty of violating several federal securities laws. All three executives provided false

Firstly there is a significant Ethical and morale lapse in a share floated company when the CEO engages in related party transactions. The moral issues arise

The executives are accountable to the board of directors. Instead of protecting the investors, the board enticed the culture of financial fraud in the company for selfish gains. It failed in its duties in keeping the executives in check.

Question 1 Summarize 1 one page how you would explain Enron’s ethical meltdown: Enron was an energy company founded by Kenneth Lay in 1985 through a merger of vast networks of natural gas lines. Enron specialized in wholesale, natural gas, and electricity, and made its money as a wholesaler between suppliers and customers rather than actually owning any. Enron in fact didn’t own any assets, which made their accounting procedures very unusual. The lack of accounting transparency at Enron allowed the company’s managers to make Enron’s financial performance better than it actually was. The organizational culture at Enron was to blame for it’s ethical meltdown. Enron’s accounting scheme slowly began to erode its ethical practices, which soon led the culture of Enron to become a more aggressive and misleading business practice. Enron reported profits from joint partnerships that were not yet attained in order to keep stock prices up (or make wall street happy). As this was happening employees began to notice the ethics in senior management (leadership) deteriorating, and soon after they to would follow in their footsteps. Senior management thought they were saving their company from financial ruin and though lying was ok if it meant saving the company. Investors would surely sell their stocks if they really knew the situation the

Wolfgang Keller is a 34 year old graduate of the Harvard Business School. After a fast moving career building a reputation for turning around failing businesses, Wolfgang Keller once again found himself facing the challenge of turning around a losing business. This time it was as managing director of the Ukrainian subsidy of the Konigsbrau Brewery. The company was experiencing €2.9 million per year with annual sales of €116 million, (Gabarro, 2008). Even though this was a bigger company that he was used to dealing with, he seemed to be well on his way to success after just three years. Sales had increased to €145 million and the company was finally turning a €7 million

Main character in this fraud is Mr. Dennis Kozlowski, the CEO of Tyco. He misappropriated around $270 million through unauthorized loans, sale of Tyco securities and undisclosed compensation. In order to conceal these amounts, the compensation was incorrectly offset against unrelated gains. This led to violation of GAAP and misrepresented financial statements. For example, $44.6 million of bonuses were offset against gain from IPO of one of Tyco’s subsidiaries. They have also netted the bonuses with gain on disposal of business and gain on sale of common stock. According to ASC 718 Compensation, these and other bonuses should have been disclosed in operating earnings and should have decreased operating income. However, since they were offset against one-time gains, they did not have any impact on operating income. This “hiding” of compensation occurred on several occasions – the expenses were also netted against gain on sale

There were several people responsible for the WorldCom scandal, as well as, whistleblowers that first discovered the accounting fraud. The former CEO, Bernard Ebbers was found to be the main offender of the fraud. He did it by capitalizing inflated revenues with phony accounting entries and he was eventually sentenced to 25-years for fraud, conspiracy and filing false documents with regulators. Scott Sullivan, the former CFO, pleaded guilty to one count of conspiracy to commit securities fraud and was sentenced to 5-years after testifying against Bernard Ebbers. The former Director of General Accounting, David Myers, pleaded guilty to