TYCO INTERNATIONALLEADERSHIP CRISIS

By: Kanika Saxena Divya mehrotra Sanjay gajja Arnav talwar Ankit Roy S.Alekhya gayathri

GROUP 6 , SECTION 1

What are the ethical and legal issues in this case?

Kozlowski and swartz accused of stealing more than $430 million through fraudulent sales of tyco stock and concealing information from shareholders. $14 m concealed in personal loans. Mark swartz participated in loan forgiveness program. Bribery and corruption

Employees used Tyco funds to purchase home.

Kozlowski evaded tax of 3.1 million by showing that the artworks where being shipped to New hamshire while it was being sent to New york. Stealing of $170mn from company and selling additional $430 mn in stock options Frank walsh, a member of the board of directors, secured and aided the CIT merger, for which he received $20 million

What role did tycos corporate culture play in the scandal? What roles did board of directors, CEO, CFO or legal counsel play?

Early 2000s , > 30 acquisitions, 4 segments trade independently

BOD had picture of firms activities and finances. Little interaction among the 4 departments
Insiders are profiting by buying and selling company stock. Board of directors face conflict of interest , and many are yet to face charges. Wrong accounting methods used. This increased reported earnings more than it would have been.

New York prosecutors indict Kozlowski and Mark H. Swartz (former Tyco CFO) on numerous counts of grand larceny, securities fraud, and enterprise corruption.

Have tycos recent actions been sufficient to restore confidence in the company? What other actions should the company take to demonstrate that it intends to play by the rules?
The scandal had severe consequences. The share price reduced from $60 in jan 2008 to $18 in dec. This shackend the investor confidence. Reorganize the company and recover some of the funds allegedly taken by kozlowski. The shareholders elected new BOD and The board chairman to be an independent person. Abide the correct accounting standards. And avoid tax evasion of its products. Incorporate a strong and ethical corporate leadership. have a hotline where employees can report misconduct without retaliation. Have ethics awareness trainings across departments and employees.

How will the implementation of the Sarbanes-Oxley act of 2002 prevent future dilemmas in Tyco?

Also, known as the 'Public Company Accounting Reform and Investor Protection Act' , SarbanesOxley, Sarbox or SOX, is a United States federal law that set new or enhanced standards for all U.S. public company boards, management and public accounting firms. Wiki As a result of SOX, top management must now individually certify the accuracy of financial information. In addition, penalties for fraudulent financial activity are much more severe. Helps restore investor confidence by disclosing the knowable conflicts of interest. Auditor independence to limit conflicts of intersts.