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Copy of TYCO International

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on 24 June 2014

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Transcript of Copy of TYCO International

Damaged reputation
The company closed 300 plants during 2003-2006 period
Employees were fired and laid off
Replacement of Board of directors and top managers
Fraud Triangle
Dennis Kozlowski become CEO
over 1000 companies were acquired
Doubled Revenues-$214 Million
TYCO became embroiled in a massive scandal...
by
Oscar Hernandez
Janelva Williams
Caroline Stauffer

Greed:
A Tyco Fraud Case

Dennis Kozlowski
million
Mark H. Swartz
TYCO's former CFO
$600
TYCO's former CEO
TYCO's KELP Program
Designed to encourage ownership of Tyco common shares by executives and other key employees.
KELP loans and relocation loans that Koslowski, Swartz, and Belnick and other employees owed were forgiven and written off TYCO's books, by being called "bonuses".
Kozlowski and Swartz directed others to falsify TYCO's books and to offset the costs of the relocation loan forgiveness program against an unrelated gain realized on IPO of TYCO's subsidiary.
STOLEN
Conclusion
SIGNED
NON-DISCLOSURE AGREEMENT
Kozlowski and Swartz used $170 million for personal purposes, without any regard for the legitimate and authorized purposes of the two loan programs.
TYCO' s Relocation Loan Program
Designed to assist Tyco employees who were required to relocate from New Hampshire to New York and to Boca Raton.
Self Engineered Forgiveness Program
...t
12 counts - grand larceny
8 counts -falsifying business records
1 count conspiracy
1 count - securities fraud
$430 million gain via TYCO share sale
$170 million taken as loans
Weak system of internal controls.
poor documentation and approval procedures

inadequate procedures for proper corporate authorizations

a lack of oversight by senior management at the corporate level

intimidating culture, where people were very unwilling to speak up
INVOLVED PARTIES
SHAREHOLDERS
COMPANY AND EMPLOYEES
STAKEHOLDERS IN GENERAL
REBUILDING THEIR ETHICAL REPUTATION
Dennis Kozlowski and Mark Swartz:
8 1/3-25 years
sentence in prison,
total of
$134 million
of restitution payment,
$70 million
fine for Kozlowski,
$35 million
fine for Swartz.
Tyco International Ltd.:
$2.975 billion
settlement of securities and accounting fraud claims.
Tyco’s former auditor, PricewaterhouseCoopers:
$225 million
settlement of securities and accounting fraud claims
Loss of over
$90 billion
, more than 80 percent of TYCO’s peak market value
Tyco scandal was one of numerous corporate scandals America and the world witnessed in 2002.
Led to decrease of investors confidence in stock markets and to development of new federal regulations.
Hiring of Eric Pillmore, the first ever SVP Corporate Governance
Replaced board of directors and 290 of the 300 corporate employees
Current 4 Key Values
Integrity
Ecellence
Teamwork
Accountability
“Tyco Guide to Ethical Conduct.”
CASE OBJECTIVES
Company Background
Key Players
What Happened
Fraud Triangle
Conclusion
Founded by Arthur J. Gandua
Focus in governmental research
Incorporation: Schaffhausen, Switzerland
Operational/corporate: Princeton, New Jersey
Leading Technology in Security and Safety
1970s-1990
2002
Growth under Joseph Gaziano
Acquisitioner
Died of Heart Cancer
1970s-1990s
1992
2002
"Bird's of a feather flock together"
Key Players...
Mark Belnick
Chief Legal Officer
Mark Swartz
Chief Financial Officer
Chief Executive Officer
OPPORTUNITY
FINANCIAL PRESSURE
RATIONALITY
What happened
Corporate bubble
22
keeping score
Self-Entitled
"I WAS NOT INVOLVED..."
Not at Fault
Greed
-Kozlowski
In 2004, Tyco was recognized with an award- the “Outstanding Improvement in Board Governance” award, from the Centre for Corporate Change.
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