BUSINESS: UNETHICAL BUSINESS PRACTICES
L. Dennis Kozlowski, CEO of Tyco International Scandal
A fish rots from the top down. This phrase sums up the scandal of Tyco International when its CEO, Dennis Kozlowski, was found guilty on many fraudulent accounts. His actions were in direct violation of the accounting ethics. Kozlowski was arrested along with many of his company officials as partners in crime. When the CEO of a company is involved in violating code of ethics and professionalism, the employees and subordinates find it convenient to follow suit.
Former chief executive and chairman of Tyco International, Dennis Kozlowski and firm’s CFO Mark H. Swartz were accused of stealing the company’s money by the prosecution. Kozlowski failed to explain to the court the $25 million he received from the company as forgiveness loan failed to show up on his W-2 form (Stanwick & Stanwick 2013). The former executives were tried the first time in 2004, and after the 2005 trial both individuals were found guilty of larceny and conspiracy and falsification of business documents (Stanwick & Stanwick 2013).
Kozlowski was found guilty of stealing money from the company. The money he used for his private affairs never showed up on the company books. He committed theft, the money belonged to the investors who trusted Kozlowski and his company. Also, the major beneficiary of the stolen money was the CEO himself.
The former CEO of Tyco International served over six years in a prison in a correctional facility in New York, later he was moved to Lincoln Correctional facility (Weiss, 2014). The court’s ruling was that Kozlowski was to serve a minimum of eight years and four months, with an aggregate maximum of 25 years (Weiss, 2014). In 2014 he was given conditional release.
Being the CEO gives power and authority, and it becomes easier to influence others to be corrupt as well. According to the government, Kozlowski allegedly took $600 million in unauthorized bonuses, loans, stock sales and other forms of payments from the company (Peterson & Ferrell, 2005). A person’s personal moral values affect their workplace. This is especially true for top managers. A higher position in a company increases their circle of influence. It is a fact that the situations that business decision makers face usually involves more complex ethical issues than the ethical issues they face in their personal lives (Cross & Miller, 2008). But there is a definite line between criminal financial behavior and a minor deceit.
Sometimes the CEOs and top management find it justified to keep extracting loans from their company. This money belongs to the investors and stock holders. They do not care if the firm is suffering or going through financial turmoil. In case of Tyco International the executive extracted hundreds of millions of dollars in terms of loans every year (Cross & Miller, 2008). This sort of behavior is not only unethical but criminal.
The result of such behavior is devastating for the firm. It must be noted that the CEO is not the owner or the partner of the firm. The damage such scandals bring to the firm generate negative publicity bringing down stock price and diving away the investors. In case of Tyco, the firm’s response to Kozlowski’s behavior was natural; the firm filed a law suit against the CEO in the hopes of recouping $244 million (Sims, 2003).
The reason this paper argues about the leadership being unethical having more damage to the firm than anything else is because of its influence. In Tyco’s episode of litigation, it turned out that the auditing firm PricewaterhouseCoopers (PWC) also did not live up the standards of professionalism and ethical guidelines. The prosecutors also accused the auditing firm of knowing the fraudulent transactions but did not investigate (Stanwick & Stanwick 2013). The top position can somehow influence to get favorable decisions.
Being unable to catch the unethical behavior early is an encouragement to the perpetrators to further their plans. If they were planning to steal ten million initially, failure of the auditing firm gave them the go ahead to make it hundreds of millions.
Digging deep into unethical behavior of a person can reveal cause and effect patterns. These patterns are much similar to someone stealing a pen and stealing money from a company. Kozlowski avoided his sales tax and stole Tyco’s money because of his materialistic desires. He failed to control his greed. It might seem juvenile but the core of unethical behavior at any level is usually something as primal as greed.
Normally frauds of such magnitudes are committed over the course of years; in other words it is not a onetime robbery. The criminal becomes habitual of their own greed or material desires. It becomes hard to control themselves to the point where it becomes a compulsion for them. Their brain becomes accustomed to the ‘reward’ of unethical behavior.
The CEOs might have find some justification for their behavior as well. Kozlowski purchased artwork from the money. He was adamant and carefully planned out the money extraction and sales tax evasion. The reason why the auditing firm failed to apprehend Kozlowski in the first place was they were perhaps involved in the plan. It should have been much easier for the firm to recognize so many expensive artworks being purchased in such a short amount of time.
Unethical behavior at any level is damaging to the society at large. Unethical behavior by a clerk over a small amount is not that damaging as a fraud of hundreds of millions of dollars by the top manager. The top manager has a larger circle of influence. Moreover, leaders have followers. If the leaders engage in unethical behavior the employees would find it easier to follow the same behavior.
References
Cross, F. & Miller, R. (2008) The Legal Environment of Business: Text and Cases – Ethical, Regulatory, Global, and E-Commerce Issues. Cengage Learning.
Peterson, R. A., & Ferrell, O. C. (2005). Business ethics: New challenges for business schools and corporate leaders. ME Sharpe.
Sims, R. R. (2003). Ethics and corporate social responsibility: Why giants fall. Greenwood Publishing Group.
Stanwick, P., & Stanwick, S. D. (2013).Understanding business ethics. Sage.
Weiss, J. W. (2014). Business ethics: A stakeholder and issues management approach. Berrett-Koehler Publishers.
