Tyco Case Study Essay

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Before the Tyco scandal, the company was one of America's largest corporations, with operating revenues of $38 billion and over 200,000 employees worldwide. Tyco Laboratories began operations in 1960, performing investigational work for the U.S. government (www.businessweek.com). The firm went public in 1964 and quickly grew, mainly by acquisition, to exploit the commercial claims of its work. Dennis Kozlowski joined the company in 1975 as an assistant controller (finance/accountant) (www.businessweek.com). The company later shifted its focus from development to profits within its three main divisions: fire protection, electronic engineering, and packaging. Kozlowski joined Tyco's board in 1987 and became president and chief operating officer just two years later. Kozlowski contrived an upheaval to become Tyco's CEO in 1992 and the chair of the board in 1993 (www.businessweek.com). The key people that were identified for accountability of the scandal were Dennis Kozlowski and CFO, Mark Swartz. As previously stated, Kozlowski joined the company in 1975 as an assistant controller at Tyco (www.businessweek.com). He worked in the company during a time of speedy growth and moved to the board of directors in 1987, becoming CEO in 1992 and becoming chairman of the board in 1993. Kozlowski was known for his vicious acquisitions, and gained a lot of attention by his extremely lavish lifestyle (www.businessweek.com). The situation began to develop when the Securities and Exchange Commission was searching into a reassertion of the company's stock price. Kozlowski's business practices raised many questions and in 1999, the Securities and Exchange Commission introduced an inquiry into Tyco's practices that resulted in a summary of the company's earnings (www.businessweek.com). In January, 2002, questionable accounting practices started to get questioned. Tyco had previously forgiven a $19 million, loan to Kozlowski in 1998 and had paid the CEO's income taxes on the loan (www.businessweek.com). The scandal was discovered by groups that were put in place to thwart fraudulence and to protect investors. Once the scandal was uncovered, the company filed a lawsuit against the people that were involved (www.businessweek.com).

Question 1 Kozlowski’s motivation for not paying sales tax on his paintings probably boil down to greed. Once Kozlowski started making millions of dollars, he got used to having large amounts of money and most likely thought he was above the law. In addition, by avoiding paying taxes on the paintings, Kozlowski was able to cover up the fact that he used Tyco funds to pay for the paintings, among other lavish goods and services.
Question 2
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