The Fall of Tyco International Ceo, Dennis Kozlowski

BUS 150601- Spring 2011

Tonya Guercio

January 19, 2011

The Fall of Tyco International CEO, Dennis Kozlowski

In June of 2005, the jury came back with numerous guilty verdicts in the second trial (first trial was declared a mistrial) of former CEO of Tyco International, Dennis Kozlowski. These charges ranged from grand larceny, to falsifying business documents, to security fraud, to conspiracy after it was discovered that Kozlowski had misused more than $400 million dollars of the companies for personal use. This included a $6,000 shower curtain for his Manhattan apartment and a 2.1 million dollar toga party for his wife's 40th birthday. He was sentenced to eight years and four months in Mid-State Correction Facility in Marcy, New York.

Dennis Kozlowski was first hired by Tyco after being recruited by a headhunter in 1975 and at the age of 43 was promoted to president and COO (Chief Operating Officer) in 1989, then to CEO in 1992 after the resignation of John Fort III. Kozlowski was able to pull off some amazing feats that CEO's today could only dream of. During his tenure and before his conviction, Kozlowski had acquisitioned more than 1000 companies and raise revenue by 47.8% from 1997 to 2001. With an increase in revenue also came an increase in Kozlowski's compensation, and that is where he became notorious for his lavish lifestyle.

Kozlowski was able to misuse these funds by implementing corporate expense policies and revolving credit accounts for employees as well as restructuring the compensation policies to increase his own bonuses by $167 million a year. None of these changes were ever presented or authorized by the Board of Directors. He also implemented 2 separate relocation programs to move numerous head executives to New York into elaborate, fully furnished apartments in New York. How was he able to get away with this for so long? Of the 200,000 employees employed by Tyco, only about 400 worked at headquarters and of those only 5 to 10 had any knowledge of what Kozlowski was doing. All of which received millions in silence bonuses. It was only after the 20 million dollars "finder's fee" was paid to Tyco board Member Frank Walsh by Kozlowski that the board of directors realized that Dennis had been making all these changes without their knowledge. Even after this discovery, Dennis remained the CEO of Tyco with no further restriction. It was only after Kozlowski predicted that Tyco would be 50% upside down of its current value and investors became nervous did anyone really question the actions of Kozlowski.

After Dennis Kozlowski's 2002 indictment for tax evasion and resignation from Tyco, Edward Breen was appointed CEO for Tyco. In a means to rectify the situation created by his processor, Breen's first step was to replace the preexisting