THE DECISION MAKING PROCESS

ETHICAL LEADERSHIP, INDIVIDUAL FACTORS, ORGANIZATIONAL FACTORS

CASE STUDY:

TYCO INTERNATIONAL SCANDAL

LEADERSHIP CRISIS

GROUP 1 – MMBM ANG. 20

Daisy Rahmawati

Esther Tiara Alexandra

Rama Luhur Islamy

Raman Anggorodi

Sudarsono

CHAPTER 1

INTRODUCTION

A. Tyco Corporate Profile

V ision & Goals

Tyco Vision: Why We Exist and the Essence of Our Business

To be our customers’ first choice in every market we serve by exceeding commitments, providing new technology solutions, leveraging our diverse brands, driving operational excellence, and committing to the highest standards of business practices - all of which will drive Tyco’s long-term growth, value and success.

Tyco Goals: What We Seek to Achieve

GovernanceAdhere to the highest standards of corporate governance by establishing processes and practices that promote and ensure integrity, compliance and accountability.

CustomersFully understand and exceed our customers’ needs, wants and preferences and provide greater value to our customers than our competition.

GrowthFocus on strategies to achieve organic growth targets and deploy cash for growth and value creation.

Teamwork and CultureBuild on the company’s reputation and image internally and externally while driving initiatives to ensure Tyco remains an employer of choice.

Operational ExcellenceImplement best-in-class operating practices and leverage company-wide opportunities and best practices.

Financial Strength & FlexibilityEnsure that revenue, earnings per share, cash and return on invested capital objectives are met.

Tyco History

Tyco International was founded in 1960 by Arthur J. Rosenburg, Ph.D. who opened a research laboratory to conduct experimental work for the U.S. government. The business was incorporated as Tyco Laboratories in 1962, and its focus turned to high-tech materials science and energy conversion products for the commercial sector. In 1964, the company went public, and in 1965 it began to acquire other companies to fill gaps in its development and distribution network. As a result, Tyco's thrust changed to manufacturing industrial products.

1960Tyco, Inc. is formed as an investment and holding company in Waltham, Massachusetts with two primary holdings: Tyco Semiconductor and the Materials Research Laboratory. The business focused on applications in the fields of solid-state science and energy conversion.

1962Materials Research Laboratory and Tyco Semiconductor merge. The business turns its focus from U.S. government research contracts to commercial applications of its work. Tyco begins to look for acquisitions to develop product, manufacturing and marketing capabilities.

1964Tyco becomes a publicly owned company.

1965Mule Battery Products becomes Tyco's first acquisition. Tyco Inc. changes its name to Tyco Laboratories.

1973 - 2001: Growth through AcquisitionsIn 1974, Tyco's stock is listed on the New York Stock Exchange. Over the next three decades, Tyco becomes a much bigger and more diverse company with annual revenues of more than $500 million and a net worth of nearly $140 million. Much of this growth is achieved through acquisitions, including:

1974Simplex Technologies, manufacturers of undersea fiber optic telecommunications cable

1976Grinnell Fire Protection Systems, fire sprinkler systems manufacturer and contractor

1986Grinnell Corporation, manufacturers and distributors of industrial/construction products

1988Allied Tube and Conduit, steel pipe and related tubular products manufacturer

1989Mueller Company, manufacturers of water and gas flow control products

1991Wormald International Ltd., manufacturers, contractors and suppliers of fire protection systems and products

1995 o Tectron Tube, manufacturers of pipe and tubular productso Unistrut, manufacturers of metal framing products and services

1996 o Watts Waterworks Businesses, manufacturers of valves, hydrants, and fittings used

primarily in water utility, wastewater treatment and power generation marketso Sempell, a manufacturing and servicer of specialty valves used in industrial and power

generation application

1997 o American Pipe & Tube, a manufacturer of steel pipe, tubing for the fire protection and

fence markets, and steel studs/tresses for the residential and commercial construction markets

o ADT, a leading provider of electronic security systemso Keystone, a leading designer and manufacturer of industrial valves, actuators and

accessories

1998Wells Fargo Alarm, EntAlarmingmguard, and Holmes Protection Group, providers of electronic security services, including intrusion, fire detection and monitoring, and CCTV and access control

1999 o Raychem, a leading international designer, manufacturer and distributor of high-

performance electronic products for OEM businesses and a broad range of specialized applications

o Glynwed, producer of steel tubing, steel electrical conduit and similar productso Central Sprinkler, which designs, manufactures, and distributes a complete line of fire

sprinklers, valves and accessories, PVC pipe and fittings

2000AFC Cable, a leader in the design, manufacture and supply of pre-wired armor cable, flexible conduit, modular wiring systems and electrical fittings

2001 o SecurityLink and Southern California Edison fire and security serviceso Sensormatic, the world's leading retail security firm. Acquisition enables Tyco to offer a

complete security package to retailers around the globeo Simplex Time Recorder. Acquisition makes Tyco the largest fire alarm company in the

worldo Scott Technologies, a leading designer and manufacturer of high-performance

respiratory protection systems, gas detection instruments and fire-fighting products for fire-fighting, industrial, aviation and government customers

2005

Plastics, Adhesives and Ludlow Coated Products businesses sold to an affiliate of the private investment firm Apollo Management, L.P.

Tyco publishes its first annual Environment, Health and Safety (EHS) report, part of its ongoing commitment to develop EHS excellence and best practices across the company.

2006Tyco Board of Directors approves a plan to separate the company’s portfolio of businesses into three separate, publicly traded companies: Tyco Healthcare (now known as Covidien),Tyco Electronics and Tyco International.

2007Tyco completes its separation into three independent companies on June 29. The new Tyco International is composed of five business segments: ADT Worldwide, Fire Protection Services, Safety Products, Flow Control and Electrical & Metal Products.

2008

Infrastructure Services business sold to AECOM technology Corporation Nippon Dry-Chemical Co. Ltd., sold to a subsidiary of Japan-based investment bank Daiwa

Securities SMBC Co. Ltd. ADT acquires FirstService Security to strengthen the systems integration capability in its

electronic security platform. Ancon Building Products business sold to to CRH plc. Tyco acquires Sensormatic Security Corporation, the last major Sensormatic® franchise Tyco acquires Vue Technology, Inc., a leading provider of radio frequency identification

technology, to strengthen the technology portfolio offered to retailers through its Sensormatic business

Tyco International proposes change in place of incorporation from Bermuda to Switzerland

2009

Tyco Board of Directors unanimously approves moving the company’s place of incorporation from Bermuda to Switzerland

Tyco's flow control business acquires Hiter Industria e Comercio de Controle Termo-Hidraulico Ltda (Hiter), a leading privately held Brazilian valve manufacturer, and takes full ownership of an existing joint venture with Valvulas Crosby Industria e Comercio Ltda.

2010

Tyco announces a definitive agreement to acquire Brink's Home Security Holdings, now operating as Broadview Security

Tyco announces intention to spin off its electrical and metal products business Tyco completes acquisition of Broadview Security Tyco announces definitive agreement to divest European Waterworks business Tyco completes sale of European Waterworks business Tyco announces agreement to to sell majority interest in its electrical and metal products

business to private equity firm Clayton, Dubilier & Rice

Tyco Products

Tyco International Ltd. is a highly diversified global company that provides thousands of products and services vitally important to residential and commercial customers. Those products range from electronic security and alarm monitoring to fire-fighting equipment and breathing apparatus, and from water purification and flow control solutions to galvanized steel tubes and armored wire and cable.

Tyco is composed of five business segments: ADT Worldwide, Fire Protection Services, Tyco Safety Products, Tyco Flow Control, Tyco Electrical & Metal Products. Following is a snapshot of these segments, which design, sell, install and service Tyco products:

ADT Worldwide

As the world’s largest electronic security provider, ADT helps to protect more than 7.4 million residential, commercial, industrial and governmental customers.

Fire Protection Services

As a global leader in fire and life safety, Fire Protection Services provides fire detection, sprinkler, suppression and special-hazard solutions to customers in 43 countries.

Tyco Safety Products

Tyco Safety Products designs, manufactures and sells products across three key business platforms: electronic security, life safety and fire suppression.

Tyco Flow Control

Tyco Flow Control is a leading global manufacturer and marketer of valves and controls, water and environmental systems, and thermal control solutions for vital industries, including energy, power, water, mining, chemical, food and beverage, and construction.

Tyco Electrical & Metal Products

Tyco Electrical and Metal Products is an industry leader in the manufacture of glavanized steel tubing and pipe, metal clad cable, metal framing and cable tray systems, as well as building components.

Tyco Worldwide

Tyco International Ltd. operates in all 50 U.S. states and over 60 countries around the world. Tyco offers the products and services the modern world needs to grow. Critical infrastructure components in many

countries and municipalities have been designed, constructed, and are even managed by Tyco companies.

B. Timeline Of The Tyco Scandal

Key dates and events that led to the convictions of former Tyco CEO L. Dennis Kozlowski and CFO Mark Swartz:

March 13, 2001: Tyco announces $9.2 billion cash and stock deal to purchase the CIT Group, a commercial finance company. Tyco director Frank Walsh helps arrange the deal.

Dec. 5, 2001: Tyco shares close at a high of $59.76 on the New York Stock Exchange.

Jan. 14, 2002: Business Week magazine lists Tyco CEO L. Dennis Kozlowski as one of the top 25 corporate managers of 2001.

Jan. 22, 2002: Kozlowski announces plans to split Tyco into four independent, publicly traded companies. The announcement starts a slide in the price of Tyco shares.

Jan. 29, 2002: Tyco shares drop sharply, one day after the company filed a proxy report with the Securities and Exchange Commission disclosing that Walsh got a $10 million fee on the CIT Group deal, and that another $10 million went to a charity where he was a director.

Jan. 30, 2002: The New York Times reports that Kozlowski and Tyco CFO Mark Swartz sold more than $100 million of their Tyco stock the previous fiscal year despite public statements that they rarely sold their stock. Kozlowski and Swartz say they will buy 1 million shares with their own money.

June 3, 2002: Kozlowski resigns unexpectedly as The New York Times reports he is the subject of a sales tax evasion investigation by Manhattan District Attorney Robert Morgenthau's office.

June 4, 2002: Morgenthau announces a criminal indictment accusing Kozlowski of conspiring to evade more than $1 million in state and city sales tax on fine art purchases.

Sept. 12, 2002: Morgenthau announces a criminal indictment accusing Kozlowski and Swartz of enterprise corruption for allegedly stealing more than $170 million from Tyco and obtaining $430 million by fraud in the sale of company shares. Former Tyco corporate counsel Mark Belnick is charged separately with falsifying records to conceal more than $14 million in company loans.

Dec. 17, 2002: Former Tyco board member Frank Walsh pleads guilty in an alleged scheme to hide the $20 million in fees for the CIT Group deal.

Oct. 7, 2003: The first trial of Kozlowski and Swartz begins with opening statements in which prosecutors characterize them as crime bosses who looted Tyco. Defense lawyers call them honest executives who deserved and disclosed all corporate payments and perks.

Oct. 28, 2003: The jury is shown a video of a birthday party Kozlowski threw for his wife at a resort in Sardinia. Tyco paid roughly half the $2 million cost of the event, which featured entertainers clad in togas and an appearance by singer Jimmy Buffett.

Nov. 25, 2003: Prosecutors show the jury a video of the $6,000 shower curtain and other lavish furnishings that decorated Kozlowski's Tyco-owned apartment in Manhattan.

April 2, 2004: A mistrial is declared after a juror says she received a letter pressuring her to convict Kozlowski and Swartz. Some observers said the juror, Ruth Jordan, had previously appeared to make an "O.K." sign to defense lawyers. She subsequently denied making any gesture toward the defense team.

July 15, 2004: In a separate trial, former Tyco corporate counsel Mark Belnick is acquitted of charges that he received millions in loans from the company and failed to disclose the payments.

Jan. 26, 2005: The second trial of Kozlowski and Swartz begins with opening statements in which prosecutors switch tactics to focus on money the two allegedly stole from Tyco. They do not mention Kozlowski's $6,000 shower curtain or the Sardinia birthday party for his wife.

April 27, 2005: Kozlowski, who did not testify at his first trial, takes the stand and testifies that the millions of dollars in Tyco payments and perks he received had been properly authorized and disclosed.

June 17, 2005: A Manhattan jury finds Kozlowski and Swartz guilty of stealing more than $150 million from Tyco. They each could face 25 years in prison.

CHAPTER 2

ETHICAL ISSUES

A. ETHICAL ISSUES IN THIS CASE

The ethical and legal issues at Tyco International range from accounting fraud, insider trading, and grand larceny. The issues involved cohesion on the part of the CEO, and the members of his team and also with the third party for example with CIT, and Merrill Lynch.

In addition, they placed great emphasis on placing their own values ahead of what was good for the organization. The strategy planning of the executives were to focus on personal gain than on the best interests of the company and its shareholders.

Below we provide the details of ethical issues occurred in Tyco International during Leo Dennis Kozlowski leadership.

o Tax evasion conducted by Kozlowski to increase company profit.o Tyco engaged in an aggressive accounting implementation. Although still according to General

Accounting Acceptance Principles, its initial intention was to increase reported Earning above what they would have been if more conservative accounting had been employed.

o Board of Directors tend to make decision by their own perspective, never ask advice from stakeholders. Board of Directors use company assets to enrich themselves not the shareholders – corruption, collusion and nepotism:

Dennis Kozlowski, Tyco former CEO , Mark Swartz Tyco’s former CFO and Mark Belnick the company’s legal counsel had taken over $170 million in loans from Tyco without receiving appropriate approval from Tyco’s compensation committee and notifying shareholders. For the most part these loans were taken with low to no interest. Many of them were offset as bonuses without open approval.

Kozlowski and Swartz also sold seven and a half million shares of Tycostock for $430 million without informing the investors. Formal charges were made by the SEC September 12, 2002.

Taking $242 million from a program which was intended to help Tyco employees buy company stock so that Kozlowski could buy things for personal usage (yachts, fine arts, and luxury homes).

Dennis Kozlowski threw a toga party for his wife’s birthday party that cost $2 million dollars. Dennis Kozlowski opened an unpublicized Manhattan office overlooking central park and lavished

it with every imaginable perks and use Tyco fund to purchase and furnish apartment for key executive and employees in New York’s pricey Upper East Side.

Belnick was charged with larceny and trying to steer a federal investigation, as well as taking more than $26 million from Tyco.

o Conspiracy between Kozlowski, Mark Swartz and former Legal Counsel, Mark Belnick:

The CEO, CFO and legal counsel, due to the nature of their positions, were not honest and transparent with the stakeholders concerning the issues relating to the accounting fraud and conflicts of interest. They all engaged in an enterprise of corruption and collusion.

Granting $106 millions to various employees through “loan forgiveness” and relocation programs.

Falsifying documents in this loan program in the amount of $14 millions

o Conflict interest issues for other board members (exclude CEO, CFO, and Legal Counsel)

Richard S Bodman, a venture capitalist, invested $5 million for Kozlowski in a private stock fund managed by Bodman.

Walsh, a former board member who received a $20 million bonus for the CIT merger, pleaded guilty and agreed to repay the $20 million plus an additional $2 million in court costs

Walsh also held controlling interest in two firms that received more than $3.5 million for leasing an aircraft and providing pilot services to Tyco between 1996 and 2002.

Stephen W Foss, CEO of a textile concern, received $751,101 for supplying a Cessna Citation aircraft and pilot services.

Lord Ashcroft, used $2.5 million in Tyco funds to purchase a home. Jerry Boggess the president of Tyco Fire and Security Division was fired and accused of creating

numbers of “bookkeeping issues” that had a negative impact on earnings to shareholders. No transparency in sharing information to the stakeholders. This shows with the substitution of

Jeanne Terrile, an analyst for Tyco at Merrill Lynch who was not so impressed with Kozlowski’s activities and Tyco’s performance.

In some cases, some of the board members were not aware of the fraud, and other unethical deals that were going on behind the scenes. The board members that were aware, did not bring the issues to the other members of the board, therefore, they were just as guilty of unethical behaviors as the CEO and his direct reports. The reason this could have transpired is probably due to the majority of board members being on the board >10 years, and the relationships that had been established over time.

B. FACTORS THAT CAUSED THE ETHICAL ISSUES

We find that there are some factors that caused the ethical issues in Tyco International. The biggest contributor is Leadership Crisis.

1. Leader :

Unethical leader (CEO, CFO, and some board members) who didn’t have integrity, could not be the role model for the employees. The leaders didn’t commit to Tyco Corporate Culture. They steal the company assets to enrich personal assets.

In fact, Tyco's corporate culture was driven by the CEO, Dennis Kozlowski who admired the extravagant and lavish lifestyle lavish of the former CEO, Joseph Gaziano. He took an assertive approach to acquisitions and mergers, which helped Tyco, maintain a 14 year growth within the business units. He viewed himself as the organizations, therefore, conducted business as such.

2. Organizational Structure:

The design of the organization itself, was a decentralized organization. The system caused only few people, including members of the board of directors have a true picture of the firm’s activities and finances.

The company was organized into four distinct divisions – fire protection (53%), valve pipes, and other “flow control” devices (23%), electrical and electronic components (13%), and packaging material (11%). There was little interaction among them.

Each division’s president reported directly to Kozlowski, which then Kozlowski will report to the board.

There was also little transparency in the organization system. Kozlowski, has the power to manipulate financial reports and other important documents before it is reported to the board.

C. PARTIES CONCERNED REGARDING THE ISSUES

1. ShareholderThe scandal clearly harmed shareholder’s benefit. No financial report transparency provided by Tyco International. The company assets is used to enrich (corruption, colusion the Board members).

2. Employees & familyMany employees were terminated during the company acquisition. Kozlowski forced the acquired company, to scale back sharply and eliminate anything and anyone that did not produce revenue.

3. Underwriter companyTyco made the underwriter Company, Merrill Lynch to become unethical while making recommendation for investor regarding the Tyco Performance and activities. Jeanne Terrile, an analyst for Tyco at Merrill Lynch was removed due to her degrading analysis regarding the true activities and performance of Tyco International.

4. Auditor Company Richard Scalzo, was removed from PWC after signing off on Tyco’s 2002 audit.

CHAPTER 3

THEORY & ANALYSIS

A. ETHICAL DECISION MAKING PROCESS AND ETHICAL LEADERSHIP

An ethical decision making process can be encountered in any situation, either in a family environment, organization, or work group. In this discussion, we will focus mainly on ethical decision making process in a work group or business environment. A business ethical decision making process involves several factors. The figure below outlines on what factors are usually involved and how the process flows until an ethical decision is made.

Framework for Understanding Ethical Decision Making in Business

The first step in ethical decision making is to recognize that an ethical issue requires an individual, work group and/or organization to choose among several actions that various stakeholders inside or outside the firm will ultimately evaluate as right or wrong. Ethical issue can be described as the ethical sensitivity of the individual or workgroup that faces the ethical decision-making process. Ethical sensitivity is personal to the person depending upon the values, beliefs, needs, perceptions, special characteristics of the situation and the personal pressures endured at the particular place and time. Research suggests that there are six “spheres of influence” when confronted with ethical choices-the workplace, family, religion, legal system, community, and profession – and that the level of importance of each of these influences will vary depending on how the decision maker perceives the issue to be. Also, the individual’s moral intensity of the situation, described as the person’s perception of social pressure and

Ethical Issue Intensity

Individual Factors

Organizational Factors

Opportunity

Business Ethics Evaluations

and Intentions

Ethical or Unethical

Behavior

the harm the decision would have on others, will increase the individual’s perceptiveness regarding ethical problems, which in turn reduces his or her intention to act unethically. Ethical issue awareness regarding specific problem areas and how the firm wants specific ethical issues need to be handled needs to be raised by managers to their employees. Specially if these employees have diverse values and backgrounds to increase their ability in making ethical decisions. Because these perceived importance will have a profound effect on the employee’s ethical judgement and behavioral intention. Managers can affect the degree to which employees perceive the importance of an ethical issue through positive and/or negative incentives (reward/punishment).

Therefore, an ethical decision making in an organization will not strictly depend upon the individual’s values and moral behavior, however, organizations with their culture and corporate governance combined with available opportunity will have its own influence and role.

Then the question would be what would be the “change agent” that would enable an ethical friendly business environment? This is where the role of a leader plays a critical role.

The Role of Leadership in Corporate Culture

Leadership is the ability or authority to guide and direct others toward achievement of a goal, it has a significant impact on ethical decision making because leaders have the power to motivate others and enforce the organizations rules and policies. Leaders are key to influencing an organization’s corporate culture and ethical posture. The following diagram explains the steps on how a leader should implement an ethical program in the workplace.

The Role of Leadership in Developing an Ethics Program

1. Conduct a rigorous self-assessment of the firm’s values and its existing ethics and compliance program

2. Maintain commitment from top managers3. Publish, post, and make codes of ethics available and understandable4. Communicate ethical standards through multiple channels5. Provide timely training to reinforce knowledge 6. Provide confidential resources to whom employees can go for advice or to report their

concerns7. Ensure consistent implementation8. Respond and enforce consistently, promptly, and fairly9. Monitor and assess using appropriate methods10. Revise and reform to ensure continuous improvement

Leadership Styles

Leadership Styles influences Ethical decisions. Six Leadership Styles that are based on emotional intelligence had been identified by Daniel Goleman are as follows.

1. Coercive LeaderDemands instantaneous obedience and focuses on achievement, initiative and self control.

2. Authoritative LeaderInspires employees to follow a vision, facilitates change, and creates a strongly positive performance climate.

3. Affiliative LeaderValues people, their emotions, and their needs and relies on friendship and trust to promote flexibility, innovation, and risk taking.

4. Democratic LeaderRelies on participation and teamwork to reach collaborative decisions.

5. Pace Setting LeaderSets high standards and works best for attaining quick results from highly motivated individuals who value achievement and take the initiative.

6. CoachingDevelop skills to foster long-term success, delegates responsibility, and is skillful in issuing challenging assignments.

Another way to consider leadership style is to classify them as transactional or transformational. Transactional leaders create employee satisfaction through negotiating, or “bartering” for desired behaviors or level of performance. Whereas transformational leaders strive to raise employees’ level of commitment and to foster trust and motivation.

Habits of Strong Ethical Leaders

Based on the adaptation of Archie Carroll’s “7 Habits of Highly Moral Leaders”, a University of Georgia business professor, there are “Seven Habits of Strong Ethical Leaders” that needs to be portrayed in a strong ethical leader:

1. Ethical leaders have strong personal character2. Ethical leaders have a passion to do right3. Ethical leaders are proactive4. Ethical leaders consider stakeholders’ interests5. Ethical leaders are role models for the organization’s values6. Ethical leaders are transparent and actively involved in organizational decision making7. Ethical leaders are competent managers who take a holistic view of the firm’s ethical

culture

B. A COMPARISON OF THE PHILOSOPHY IN BUSINESS DECISIONS

A comparison of the philosophy used in business decisions are:1. Teleology

Stipulates that acts are morally right or acceptable if they produce some desired result, such as realization of self interest or utility.

2. Egoism Defines the right or acceptable actions as those that maximize a particular person’s self interest as defined by the individual.

3. Utilitarianism Defines right or acceptable actions that maximize total utility or the greatest good for the greatest number of people.

4. Deontology Focuses on the preservation of individual rights and on the intentions associated with a particular behavior rather than its consequences

5. Relativist Evaluates ethicalness subjectively on the basis of individual and group experiences.

6. Virtue ethics Assumes that what is moral in a given situation is not only what conventional morality requires but also what the mature person with a “good” moral character would deem appropriate.

7. Justice Evaluates ethicalness on the basis of fairness: distributive, procedural, and interactional.

C. ANALYSIS

Based on Framework for Understanding Ethical Decision Making in Business

1. Ethical Issues Intensity: the company does not put attention on unethical issues that occured in the company. Awareness regarding ethical guidelines, policies and problem areas were never enacted.

2. Organizational Factor: Altough corporate and ethical culture was available, the leaders of the company in this case the most influental, Mr. Kozlowski, CEO of the company plays a role in determining the company’s direction. If the leader does not put concern on the ethical issue, then the rest of the company will follow. The leader plays a crucial role in ethical decision making.

3. Individual Factor : Mr. Kozlowski has the knowledge and skills to manipulate. 4. Opportunity: Mr. Kozlowski is using his absolute power supported by the decentralized

system of the company to gain personal wealth.

Those points supports Kozlowski’s intention to pursue his personal ambition to gain as much wealth as possible, using whatever source he can use. In this case, including using company’s funds and assets.

Based on the theory of the Role of leadership in corporate culture Mr. Kozlowski clearly does not implement the 10 points of Leadership in Corporate culture.

1. Conduct a rigorous self-assessment of the firm’s values and its existing ethics and compliance program He never asses and apply the firm values and ethics.

2. Maintain commitment from top managers Commitment was never shown by top managers.

3. Publish, post, and make codes of ethics available and understandable Code of ethics was never sociliazed to employees.

4. Communicate ethical standards through multiple channels No communication on ethical standards.

5. Provide timely training to reinforce knowledge No training for ethical issues.6. Provide confidential resources to whom employees can go for advice or to report their

concerns No reporting procedures for ethical misconduct.7. Ensure consistent implementation No implementation.8. Respond and enforce consistently, promptly, and fairly No Implementation. 9. Monitor and assess using appropriate methods No implementation.10. Revise and reform to ensure continuous improvement No implementation.

Based on his leadership style Mr. Kozlowski implements a coercive and transactional leadership style. This can be proven by his ambition to acquire maximum profit and to dominate the industry by aggresively taking over other companies. His ambition to achievement by using every possible means available and only asses his employee’s performance based on how they can contribute to increase “the numbers”.

Based on the theory of Habits of Ethical Leaders, we can see that Mr. Kozlowski is a strong leader without an ethical behavior. A strong ethical leader must be a good role model and have courage and most complete information to make decisions that will be the best in the long run. Strong ethical leaders must stick to their principles and, if necessary, be ready to leave the organization if its corporate governance system is so flawed that it is impossible to make the right choice.

Based on the comparison of the Philosophy used in Business Decision, Tyco scandal was unethical neither by Deontology or Utilitarianism.

Deontology focuses on the preservation of individual rights and on the intentions associated with a particular behavior rather than its consequences. Clearly, Tyco scandal violated individual rights. On Utilitarianism, an unethical behaviour might be ethical if it brings benefit to all of people. But in this case, Mr. Kozlowski only focuses on his personal benefit.

CHAPTER 4

SUMMARY

From the case study we conclude that the scandal is proven wrong according to both theory Deontology & Utilitarianism.

Besides that, we conclude that there are 3 important points regarding the leadership crisis as shown below:

1. Strong functional leadership and mentoring are critical to the ongoing development of high-integrity leaders and employees:

Absolute power tends to corrupt. Top leaders need strong functional leaders who can push back. Tyco was led by intimidating strong leader and supported by ‘yes' men and women. There was little mentoring in their functions. Mark Swartz at Tyco was not broad cross-functional leaders. He made headlines in the CFO magazines as the highest-paid CFOs. It leaves an organization with very little character inside it. It allows an intimidating leader to do what he needs to do to get things done.

At Tyco, Kozlowski took the company from $300 million to $36 billion with essentially the same leadership team. Kozlowski, by design, kept them very close, and this meant people were extremely loyal to him. He designed a structure of loyalty around him with little accountability.

2. Leaders must have a "web of accountability" surrounding them, with process disciplines in place to hold them accountable:

Leaders at the companies that ran into trouble had few systematic constraints on their actions. In the Tyco scandal, each Tyco’s division president only reported to Kozlowoski, who in turn reported to the rest of the board members. With pressures to make earnings forecasts, you are asking for trouble without that structure in place.

3. Boards and senior leadership teams must develop and implement sophisticated means to evaluate senior management character:

In the companies that got into trouble, managers were evaluated based on their ability to hit their numbers, but there wasn't much assessment of their character.

CHAPTER 5

RECOMMENDATION

1. Fit and proper test for selecting a competent leader that portrays seven habits of strong ethical leaders.

2. The evaluation system of the leaders should not only based on their contribution to financial performance but also considering leaders’ characters such the most important aspects to the long term success of the company.

3. There should be a clear review and monitoring tool from the board of directors to the shareholder.

4. Build a clear and strong organization structure to avoid absolute power.Leaders of HR, finance, legal, marketing, and other areas should also play a strong functional role.

5. Establish internal systems for the periodic sampling, review, and assessment of critical databases for reliability and validity.

6. Ensure that among the guidelines provided to external, ethical expectations associated with the provision be clearly specified and that the consequences of failure to comply with these basic standards be swift, severe, and unambiguous.

7. Encourage upper and middle-level management to participate in meaningful education on the process by which ethical decision making in business and industry can be accomplished.

8. Telling employees to ‘do the right thing´ just isn’t effective. Ethical dilemmas are not clear choices between breaking the law and being law-abiding; they are at times complex moral mazes with no easy answers. It is not illegal to place the health of the company and investors’ money into risky investments for short-term profits, but a case can be made that it is unethical.

9. There should be a whistle blower policy in the company.10. Asses and review the policies, firms values and its existing ethics and compliance programs

periodically.11. Create reward and punishment system to ensure sustainable ethics practices.

REFERENCES

Berten, K. Pengantar Etika Bisnis, 2000, Yogyakarta: Kanisius

Beauchamp, Tom L and Norman E. Bowie, Ethical Theory and Business, 2004, Pearson Prentice Hall

Ferrel O.C, et al Business Ethics Ethical Decision Making and Cases, 2008, South-western Cengage Learning

Weiss, Joseph, 2009, Business Ethics, Southern, Fifth edition

http://www.usatoday.com/money/industries/manufacturing/2002-12-30-tyco-investigation_x.htm

http://www.usatoday.com/money/industries/manufacturing/2005-06-17-tyco-timeline_x.htmhttp://www.tyco.com/wps/wcm/connect/tyco+our+business/Our+Businesses/Overview/