Tyco International Company Culture - Essay Example

Tyco International Company Culture Introduction: Company Ethics Ethics signifies the habit, customs, disposition and significance of an individual (Smith & Hansen, 2006). Ethics has been related to honesty and morality conducted by an individual or employee in their personal or professional lives (Smith & Hansen, 2006). Although, there is no widely accepted definition of business ethics but according to author Lewis it is defined as rules, standards, principles, codes, which provide guidelines for the morally right behavior and the truthfulness in certain specific situations (Smith & Hansen, 2006). It is observed that an organization with a diverse workforce face various situational dilemma and issues arising out of ethical values. Ethics can be termed as set of moral standards that help the managers and the employees to arrive at a unified decision with the stakeholders (Holme, 2008). The influence of the legal laws on the managerial decision making is huge and has a considerable amount of influence on the personal and professional lives of the people. The study will cover the various facets of business ethics and also will help in uncovering the ethical dilemma faced by the management of Tyco International Ltd and their breach of ethical conduct. The author of the study will try to conduct a situational analysis of Tyco International shower curtain incident. Finally, the study will cover the various ethical theories that could have served purposeful in acting as guidance for the management of Tyco International. Situational Analysis: Tyco International Ltd It was observed that after the scandalous activity performed by the management of Enron Corporation the share prices of Tyco International started decreasing gradually. Initially, the accountability of the decreasing shares was given to the heavy intraday trading in a particular day which amounted to US $68 million. However, the share price of the company started decreasing drastically from $4.45 to $ 47.95 per share. The final blow to the employees and the shareholders was when the management announced that the total earnings of the company had dropped down drastically to 24 percent in the year 2001 compared to the year the 2000. The share price of the company had dropped down to $29.90 which was a decrease by 50 percent since January 2002. Tyco International was facing one of the biggest financial crises and the incident had sparked controversies in the entire Unites States of America (Exeter, 2005). This had led to the management of the company to borrow funds and an analyst had called the situation as “crisis in confidence”. Factors responsible for Financial Crisis of the Tyco International It was observed that were various factors which were responsible for the sudden downfall of the company like fraud accounting procedure, huge amount of personal expenditure made by the CEO and assistance from the company’s loan program (New York Times, 2013). The investors were bewildered with the fact that the company was incurring huge amount of debt in spite of large amount of cash flow (White, 2005). The major reason behind the inflated accounting was because of the fraud accounting procedure adopted by the management. The assets which were acquired and sold were not reported in the accounting books of the Tyco International without any significant value. Therefore, the profit it made out of selling the assets were not reported in the accounting books of Tyco International. The management did not reveal actual reasons behind the sudden downfall in the share price of the company which led to further speculation among analysts regarding the functioning procedure of the company. Finally, the legal counsel of the company gave the management a warning which contained questionable accounting treatments and also in the preparation of the financial treatment. Additionally, the accounting department had warned the management about the unnecessary expenditure made by the CEO Dennis Kozlowski and former chief financial officer Mark H. Swartz. The company management was accused of thefts worth $150 million from the company accounts. The accounting books of the company covered several personal expenses like gift items providing to friends, relatives and throwing an expensive party were some of the unnecessary expenditure sought by the CEO and former CEO. These top level managers were accused of providing themselves with low interest or no interest at all. Mostly, these loans were in the form of disguised loans which were according to them was an important part of the “Key Employee Loan Program” (KELP). They were also accusing of selling the company stock without the consent of the shareholders. Mainly, the management was accused of stealing $600 million and spending on unnecessary items like $6000 on shower curtain, $200 on trash can and $ 2 million on birthday party. Even 40 employees had taken loan from the loan relocation program and were forgiven as routine procedure of the loan forgiveness program. Outcome & Result In the year 1999 as per the findings and analysis of the investigation conducted by the US legal counsel there were questions raised on the accounting procedure followed by the company and the strict legal procedure was carried out during the tenure 1999 to 2000. This investigation procedure focused on the several acquisition and real estate sales made by the company. In the year 2002 Tyco International was undergoing a major crisis when the company was again undergoing an investigation procedure for making a $20 million payment to the director Frank Walsh. Moreover, the company also failed to make payments in the acquisition of Commercial Investment trust (CIT) (Platt, 2005).This payment was later declared as finder’s fee which was not included in the accounting books of the company. Immediately, the CEO Mr. Dennis Kozlowski had resigned from his required post which also due to tax evasion reasons and failed to make payments worth $13 million for procuring artwork purchased in New York with the company funds. Presently, the company top managers like Kozlowski and Swartz have been pleaded guilty of committing several crimes, violating the rules of loan program, misrepresenting the company’s financial condition for raising the stock price to the customers and breaching the accounting regulation. Presently, both the top level managers are serving their prison sentences of tenure 2 to 25 years and a fine penalty of $100000 for committing the crimes. Practical Application of Ethical Theories & Morals From the above situational analysis it is observed that the incident was committed due to the lack of guidance of ethical theories followed by the employees and the management in Tyco international. The ethical theories which could have served the purpose of a guide for the employees but would also helped in the improvement of the working procedure of the company (Dench, 2008). The conglomeration of ethical theories like egoism, psychological and enlightened egoism theory have the potentiality of serving as a guide and also providing remedial solutions for varied managerial situations (Dench, 2008). Enlightened egoism theory would focus on treating individuals in the similar manner that he/ she wants to be treated (Dench, 2008). Psychological egoism would lays emphasis on the fact that the individuals are naturally egoistic and it would be unnatural for them not to be egoistic. Companies are supposed to follow a certain set of ethical standards which would help in improving the condition for sustainability and financial accounting disclosures (Capurro, 2008). The morality arises out of the awareness and respect of the individual and societal needs. The ethics can be categorized into two types; descriptive and normative. Normative ethics focuses on the values and beliefs that an individual possess and descriptive ethics focus on “What If” behavior of the individual and the employees (Dimitriou, Blum, Adams & Kim, 2011). Descriptive theory usually revolves around various subjects like anthropology, sociology and psychology. It helps in studying and identifying the different moral systems and ethical code practices by the company. The theory lays emphasis on the fact that most of the moral values and ethical standards practiced by the society are justifiable. The unethical conduct practices in the organization are due to the failure of implementation of the moral values and standards. Meta-ethics on the other hand includes composite elements of normative and descriptive theories. The only minuscule difference is that it indentifies the difference between the rationale behind the ethical principles and standards. However, this theory has various loopholes and lacks to serve the purpose of a guide. It is possible that an individual can face this kind of situation in any kind of organization and thus the employees can monitor the ethical system themselves. If the management of Tyco International had been able to follow each of the ethical theories then it would have been able to follow transparent accounting procedure and also perform proper sustainable accounting procedure at the same time. Normative and Metaethics would have helped the company management to control their expenses and reduce their unnecessary expenditure. It would have also helped them in distinguishing between the right and wrong activities which would have given insight to the top level managers in understanding the difference between the personal and professional expenditure. References Capurro, R. (2008). Intercultural information ethics: Foundations and applications. Journal of Information, Communication & Ethics in Society, 6(2), 116-126. Dench, S. (2008). How personal can ethics get? Journal of Management Development, 25(1), 1013-1017. Dimitriou, C.K., Blum, S.C., Adams, C., & Kim, S. (2011). The impact of a hotel's business ethics. Retrieved from http://scholarworks.umass.edu/cgi/viewcontent.cgi?article=1625&context=refereed . Exeter, N.H. (2005, June 18). Report: Tyco CEO spent $6,000 for shower curtain. USA Today. Retrieved from http://usatoday30.usatoday.com/money/industries/manufacturing/2002-08-07-tyco-ceo-money_x.htm Holme, C. (2008). Business ethics: Too little, too late. Industrial and Commercial Training, 40(5), 248-252. New York Times. (2013, August 16). Tyco International Ltd. The New York Times. Retrieved from http://www.123helpme.com/tyco-international-management-planning--view.asp?id=166099 Platt, S. (2005, June 17). Top 10 crooked CEOs. Time. Retrieved from http://www.time.com/time/specials/packages/article/0,28804,1903155_1903156_1903152,00.html Smith, M., & Hansen, F. (2006). Ethics of business strategy. Handbook of Business Strategy, 40(5), 201-206. White, B. (2005, June 18). Ex-Tyco executives convicted. Washington Post. Retrieved from http://www.washingtonpost.com/wp-dyn/content/article/2005/06/17/AR2005061701003.html Read More