Tyco International - Assignment Example

Tyco International Answer The US people are familiar with share market debacles. Over the years, the US market has come across share market downfalls many times. Before Tyco there were cases of Enron and WorldCom. At that point of time the nature of the US market was skittish. Recently investors around the country came across the shock of Enron and WorldCom. Naturally investors were skeptical about their investments. It was quite obvious from the shareholders to play safe. They had bitter experiences with the Enron and they did not want to repeat the same thing in case of Tyco. Different rumors and activities from the side of the top level management of the Tyco made the investors confused. They were anticipating serious connection between the case of Tyco and Enron. Before the collapse of Enron, the company was performing their business operations very aggressively. Tyco was also doing the same. It was acquiring different companies aggressively without proper reporting in their books of accounts. It helped the investors to link up the situation of the company with the previous incidents of the stock market. All the above arguments are clearly indicating at that point of time, Tyco’s initial problems were real in the context US market. Answer 2 Three top level executives of the organization took unauthorized funds from the organization. This was totally the violation of moral ethics. Three of the top level managers sold their stocks without informing the stakeholders. According to the stipulated rule of the SEC, managers of the organization are only allowed to sell their shares only after the proper communication to the investors. In this case they did not do this which shocked the market. Goodwill of the Tyco shares took serious beating. Distrusts prevailed in the minds of the investors. This thing started just after the fall of Enron. It created confusions on the minds of the investors. After the case of Enron and World com shareholders in the US market became very alert. They anticipated that something is going wrong in the management level of the Tyco. They stopped investing on the company. As the investors stopped their investments share prices of the organization decreased automatically. At that point of time there were certain rumors in the market. According to those rumors $6,000 shower curtains, $2,000 trash cans and for the birthday party of Koslowskis wife $2 million dollar was spent from the company’s fund. All these rumors in the market dented the image of the company. Dented image of the company was also a reason for which share prices tumbled. It psychologically affected the minds of the shareholders. According to Pound and Zeckhauser, share prices are significantly dependent upon the rumors in the market. They also told that it has both positive and negative effects on the share prices (Pound & ZeckHauser, 1990, pp. 2-3). In this case different rumors about the company negatively impacted the share prices of the company. Answer 3 The unauthorized spending and distribution of illegal loan continued for long time. The main reason behind this was majority of the top level management of the organization was intentionally involved with this. It was a joint effort from the side of the top level management to increase their wealth at any cost. There was no significant whistle blower present in the organization to correct the situation. It worsens the situation of the company and wrongdoing continued for longtime. 40 top level executives of the organization took key employee loans and later on their loans were forgiven. Inadequate ethical knowledge of the executives was also a reason for which the fraud continued for the long time. Most of the executives were unaware that they were doing the wrong thing. But Mark Belnick, Mark Swartz and Dennis Koslowski were doing the wrong things intentionally. They tried to conceal their wrong doings by hiding their activities from the company’s books of accounts. They intentionally flaunted manipulated balance sheet. The nature of the case is clearly indicating that top three executives were hunting the unauthorized assets jointly and there were mutual understandings among them. Due to that mutual understanding they tried to hide each other’s unethical practices under the coverage of accounting fraud. Even Tyco director Frank Walsh, Jr. also paid huge money of $20 million as the finders fee which was also a questionable transaction of money. According to Hamilton, in case of deep rooted corruption it is very difficult to control the situation (Hamilton, 2009, pp.12). Here in this case big fishes of the company were involved and they used their positional influences to cover up the matter. In this case ethical corruptions took place at the top level of Tyco management, so it went for long time. Answer 4 Mr. Kozlowski and Mr. Swartz should ask different ethical questions to themselves. With the help of different ethical questions these two people can evaluate better their conducts. Being the senior level managers are they totally committed towards the betterment of the organization or they are only concerned with their own wealth making. This question can be an eye opener for them which can change their behaviors and can inspire them for ethical practices. They should consider that whether different business practices by them are doing justice with their shareholders or investors. They also asked if their shareholders are taken care of properly. It can help them to do justice with the shareholders money. They should ask themselves that whether they are using their position power in authorized fashions or not. They also should ask by manipulating the balance sheet, are they doing the right things and how long they can hide their wrongdoings by fraudulent accounting. They should ask whether they are performing their responsibilities according to the laws of SEC. All the above questions can help them to evaluate their conducts in better way. Answer 5 During the tenure as CEO, Mr. Kozlowski crossed the line for number of times. Here in this answer the lists of his unauthorized activities will be discussed. In this period he took interest-free or very low interest loans without any prior permission from the board. It is not at all permissible. Kieslowski sold his portion of organizational stocks. Before that he did not informed the investors also. According to the rules of the SEC, investors should be communicated in advance of the selling of stock. It is a great breach of stipulated conduct. By doing this he not only violated the rules but also breached the trusts of the shareholders. He stole almost $600 million dollars in unauthorized fashion from the fund of the organization. Kozlowski spent $2 million money for throwing the birthday party of his wife. The party was held in Italy in a lavish manner. He used company’s fund for the personal birthday party. Company’s fund cannot be used for the personal usages at any means. It was not at all permitted by the corporate governance rule of the company. To hide the wrong doing he manipulated the books of accounts of the company which compromised the interests of investors and shareholders. It was a serious line crossing from the side of the Kozlowski. Instead of correcting the situation he tried to do the damage control. Kozlowski purchased an artwork from New York. For that artwork he was supposed to pay a tax of $13 million. He did not pay that and faced the investigation for tax evasion. The artwork was purchased with the company’s fund. All the above arrays of unauthorized activities are clearly indicating that numbers of time he crossed the line. Answer 6 Yes, it is difficult for us to identify ethical breaches that we commit. According to Jennings, people have a tendency to comment that they would never behave unethically (Jennings, 2012, pp. 2-3). But they often see the end results and forget different in-between unethical steps. He further added it is very difficult because people often do not analyze their different activities. Here in this case three top level officials of Tyco did the same thing. They did not do the introspection of their activities and they kept on doing unethical activities. Their ethical senses did not prevent them from the wrongdoings. 40 top level executives of the company were not aware about their wrongdoings and they thought that they were doing the right things by taking the loans. It is a clear example of ethical unawareness. It is very difficult because people often forget to relate their ethical vulnerabilities with unethical persons. But each and every person has ethical vulnerabilities. Some people introspects those some does not. It is all about studying ourselves which is not at all an easy task to do. It is difficult for an individual to create a personal credo by introspecting himself. All these factors have made it difficult to identify ethical breaches. References Hamilton, S., (2009). Greed and Corporate Failure. Retrieved from: http://www.cfasociety.org/Istanbul/Linked%20Files/Prof%20Stewart%20Hamilton%20CFA%20Society%20of%20Istanbul%2015042009.pdf. Jennings, M. (2012). Business ethics: case studies and selected readings.7th ed. Mason: Cengage Learning. Pound, J. & ZeckHauser, R., (1990). Clearly heard on the street: the effect of street rumors on stock prices. The Journal of Business. 63(3). 291-308. Read More