A Corporate Governance Failure

Prepared By

Karan Bhagatwala : Roll No. 09Harshit Bhinde : Roll No. 12Meghana Bhogle : Roll No. 13Sonali Gohil : Roll No. 35Avinash Kadam : Roll No. 52 Snehal Kadam : Roll No. 53

September 12th 2002

Meghana Bhogle (13)

TYCO History Investment company focused on Science and Energy conversion.

1964: Public Trading.

1968: Acquisitions.

1982: Re-organization of Business Segments.

1986: Growth through acquisitions.

Prior to scandal: $ 38 billion OR & 2,40,000 employees worldwide.

Meghana Bhogle (13)

Rise of Dennis Kozlowski 1975: Assistant Controller

1987: BOD

1992: CEO

1993: Chairman

Meghana Bhogle (13)

In 1999, the SEC initiated an inquiry into Tyco's practices.

In January, 2002, questionable accounting practices came

to light.

Robert kept digging into the record keeping of Tyco and

Kozlowski.

No individual whistleblower.

Scandal had already spread extensively.

Robert Morgenthau : Sherlock Holmes

Snehal Kadam (53)

Courtroom Drama Kozlowski hired an attorney that defended his actions.

Asking for lenient sentence citing his immense charitable

donations.

Owen Heimer asked the judge that no leniency be shown to

Kozlowski.

Citing his excessive spending spree and disregard for the

shareholders of the business.

Snehal Kadam (53)

Kozlowski

Firm’s board of directors including:

Mark Swartz, CFO;

Lord Michael Ashcroft, who

joined with the ADT merger;

Richard S. Bodman, a venture

capitalist;

Stephen W. Foss, CEO of a

textile concern;

Frank E. Walsh, Jr.

TYCO: Corporate Governance System Composition

Harshit Bhinde (12)

Frank E. Walsh, Jr. received $20 million commission.

Walsh also held controlling interest in 2 firms that received >$3.5

million for supplying aircraft and pilot services to Tyco.

Stephen Foss received $751,101 for supplying aircraft and pilot

services to Tyco.

Lord Michael Ashcroft used $2.5 million in Tyco funds to purchase a

home.

CEO and CFO had sold 100 million dollars' worth of shares, and

then stated to the public that they still owned them.

Key Details of Misconduct

Harshit Bhinde (12)

Kozlowski received $81 million in unauthorized bonuses.

Tyco forgave a $19 million, no-interest loan to Kozlowski .

Kozlowski’s income taxes on the loan was paid by Tyco.

Kozlowski used Tyco to avoid around $1 million import taxes after

purchasing $14 million in rare artwork.

$2.1 million for the birthday party of Kozlowski's wife was billed to

Tyco.

Kozlowski granted $106 million to employees through “loan

forgiveness” and relocation programs.

Key Details of Misconduct

Harshit Bhinde (12)

In all 38 felony counts.

For:

Allegedly stealing $170 million from Tyco.

Fraudulently selling an additional $430 million in stock options.

Taking $242 million from a program intended to help Tyco

employees buy company stock.

Granting $106 million to various employees through “loan

forgiveness” and relocation programs.

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

million.

Criminal Charges on CEO & CFO

Sonali Gohil (35)

Worst-practices included:

Poor documentation.

Inadequate policies and procedures to prevent the misconduct

of senior professionals.

Inadequate procedures for proper corporate authorizations.

Inadequate approval procedures and documentation.

A lack of oversight by senior management at the corporate

level.

Aggressive accounting & improper auditing by auditors.

Internal Control & Governance Failures

Sonali Gohil (35)

Damage Control

Edward Breen appointed as new CEO.

Company filed suit against Dennis Kozlowski and Mark Swartz for

more than $100 million.

Breen launched a review of the company’s accounting and

corporate governance practices to determine whether any other

fraud had occurred.

Restate its 2002 financial results by over $2 billion.

Management declaration about flaws in previous management

style.

Karan Bhagatwala (09)

Corporate Governance Re-Boot

Reorganized the company and recovered some

of the funds allegedly taken by Kozlowski.

Elected a new board of directors.

Voted to make future executive severance

agreements subject to shareholder approval.

Voted to require the board chair to be an

independent person rather than a Tyco CEO.

Hired Eric Pillmore as Vice President of

Corporate Governance.

Karan Bhagatwala (09)

Implemented a corporate ethics program & replaced 90% of the

HQ staff.

Created the “Tyco Guide to Ethical Conduct”.

An ombudsman position at Tyco who can mediate between

employees and management.

Tyco published a confidential hotline, called ConcernLINE.

Tyco now publishes a quarterly report based upon the concerns

that employees have brought up.

Corporate Governance Re-Boot

Karan Bhagatwala (09)

Conclusion

In 2004 CEO Edward Breen was listed as one of Businessweek’s “Best Managers.”

That same year Tyco won the Center for Corporate Change Award for “Outstanding Improvement in Board Governance.”