Tyco International Case Study Assignment
Discuss your written case with at least three experienced people whose wisdom you respect.
In a separate section (5-6 pages single-spaced), develop a careful analysis of the case. The analysis should include at least the following:
- An application of ethics concepts/frameworks from class readings or lecture and outside professional and/or academic sources
- A report on your “consultation with sages”
- At least two different options or courses of action. Give sound arguments for each of the choices and what values might exist leading to each.
- Your ultimate recommendation as to what the person(s) should do, including your supporting logic for why it is the best course of action
- A brief, but detailed description of what the “actor” in the case actually did.
Ethical Dilemma: A Case study of Tyco International
An ethical dilemma refers to a situation that arises when an individual or organization is presented with multiple options, each of which poses a moral or ethical challenge. In such a scenario, the decision-making process is not straightforward, and any choice made may have unintended consequences that result in harm or injustice. Ethical dilemmas can occur in diverse settings, including the workplace, healthcare, and social relationships, and resolving them often requires thoughtful consideration and ethical reasoning.
In these situations, leaders’ decisions may lead to a breach of ethical standards that companies are required to maintain, with the decision’s nature determining the extent of the ethical challenges involved. In such cases, neither choice is morally sound, and organizations must comply with societal norms, such as legal codes and religious doctrines. As such, ethical dilemmas demand adherence to established ethical principles, as personal and societal ethical guidelines may not offer a satisfactory resolution.
Businesses operate in complex environments where ethical and moral dilemmas are commonplace. These dilemmas arise due to the competing interests of stakeholders and the inherent tension between profitability and social responsibility. The approach leaders adopt when faced with ethical and moral dilemmas plays a crucial role in determining how best they handle conflicting situations (McWilliams & Nahavandi, 2006). Company leadership often provide practice scenarios to guide employees in maneuvering through ethical and moral dilemmas. The best approach to tackling these predicaments is by being prepared and sharpening ethical skills, which can enhance business performance and lead to a competitive advantage.
One of the primary factors that lead to ethical dilemmas in business is the emphasis on profits and results. Companies may overlook ethical breaches if workers achieve results using unethical practices. This is largely due to the prevalent “ends justify the means” mentality among entrepreneurs. Therefore, ethical dilemmas usually arise when employees feel compelled to engage in immoral actions to impress their superiors. The inability of employees to point out bad behavior exhibited by their colleagues or superiors is another common cause of ethical dilemmas in businesses (McWilliams & Nahavandi, 2006).
To address ethical dilemmas effectively, business leaders need to cultivate an ethical culture that emphasizes ethical decision-making and behavior. This requires a commitment to ongoing ethical training and development, as well as the integration of ethical considerations into all business operations. By doing so, businesses can not only avoid ethical breaches but also improve their reputation and build trust with stakeholders, which ultimately contributes to their long-term success.
Ethical Challenges in Tyco International
To gain a comprehensive understanding of the ethical challenges encountered by Tyco International, it is essential to delve into the organization’s historical background and its progression in the business realm. A thorough analysis of these aspects would facilitate a deeper comprehension of the decision-making processes that led to the ethical dilemmas faced by the company’s management.
Tyco International was established in 1960 by Arthur Rosenberg in Waltham, Massachusetts (McWilliams and Nahavandi, 2006). The company has since undergone several transformations in its organizational structure, with the division into three business segments consisting of fire protection, electronic, and packaging services. The business later expanded by incorporating other services such as electrical and electronic components, healthcare and specialty products, fire, and security services in 1990. In 2002, Tyco International embarked on an acquisition strategy that led to the assimilation of companies such as ADT, CIT Group, and Raychem, as documented by McWilliams and Nahavandi (2006). The rationale behind this approach was to broaden the scope of their business and enhance their competitive position in the market.
In 1992, Dennis Kozlowski became the chief executive officer of the company as he rose from being the company’s chief financial officer (McWilliams & Nahavandi, 2006). Kozlowski was good financial officer who had a good experience in managing the company’s financial records over the past decade. During his period as a chief executive officer, Kozlowski used various techniques in accomplishing a successful merger that lead to the acquisition of a number of companies. Kozlowski’s influence in the organization was well known as he picked up his own crony as company’s board of directors. Kozlowski influenced further escalated as he was even given the power to choose the firm’s corporate governance system (McWilliams & Nahavandi, 2006).
In 1999, Tyco International announced a stock split which sparked rumors about the company’s accounting practices (Arjoon, 2005). Allegations of financial fraud arose due to the company’s production of irregular financial accounting records. Despite these claims, Tyco’s leadership vehemently denied any wrongdoing and maintained that they were acting in accordance with ethical and legal standards. Tyco’s market valuation at the time was estimated to be approximately $30 billion in profits. Additionally, the company utilized its financial position to coerce and acquire multiple companies in the market, leading to further growth and profitability.
In 2002, the company’s board of directors launched an investigation into the conduct of management, following claims of their involvement in unethical financial fraud made by external sources (McWilliams & Nahavandi, 2006). As a result of the investigation, Tyco’s management team, including Kozlowski, were taken to court and accused of financial fraud. They were forced to resign and face charges in court. Kozlowski and the company’s financial officer were accused of using over $170 million for fraudulent activities, in order to offset individual deals made by the company. Additionally, the management sold over $430 million in stock options to serve their own interests in the company (McWilliams & Nahavandi, 2006).
Kozlowski and his management team were accused of embezzling Tyco’s funds for personal gain, which resulted in a conflict of interest (Arjoon, 2005). However, Kozlowski and his team argued that the embezzled funds were actually used to benefit the company. The current success of Tyco International, they claim, is a direct result of the funds used to facilitate mergers and acquisitions. Kozlowski and his team were faced with the challenge of promoting the growth of Tyco International, and the mergers and acquisitions carried out demonstrate the urgent need for funds and thus, they believe, justify their actions.
The scandal resulted in a significant decrease in the value of shares, leading to panic among employees. Although Kozlowski and his team were able to achieve exceptional financial performance for the company in the market, their ethical violations ultimately led to their resignation. Despite this, their tenure at the company resulted in record-setting financial success (Arjoon, 2005).
Kozlowski and his team were faced with a difficult decision: either improve the company’s performance through acquisition or allow the company to face collapse. The acquisition and merger process also presented two options, both with dire consequences that could lead to the exit of Kozlowski and his team or failure of the company. Tyco International lacked an advantage in negotiating deals with the target companies for acquisition and merger (Arjoon, 2005). This forced Kozlowski and his team to consider using the company’s funds for their own interests in order to secure successful mergers and acquisitions. Ultimately, Kozlowski and his team were forced to resign due to their ethical violations. As a leader, Kozlowski was faced with various decisions for which he had to take responsibility, both during and after the choices were made. There was no way to avoid trouble for Kozlowski, as both options could have resulted in his exit from the company’s management position.
Analysis of Facts
Sorkin (2011) argues that the ethical and moral dilemmas faced by Tyco International resulted in a conflict of interest within the company’s structure. The actions of Kozlowski and his team in engaging in unethical practices conflicted with their position in the company, resulting in their exit from the management of the company. According to Sorkin’s analysis, Kozlowski and his team were willing to compromise the relationship with the shareholders for the sake of their own interests. In order to accomplish their selfless ambitions, they managed to compromise the position of the firm in the market through fraud and compromise the interests of the shareholders and stakeholders in the market. Based on the Financial Accounting Standard Board rules and regulations, the actions of Kozlowski are considered unethical.
Sorkin further assessed that the actions of Kozlowski and his team were a breach of the principle of ends through fraudulent activities. According to the principle of ends, companies are not to exploit others to achieve their objectives. In this case, Kozlowski and his team exploited the interest of the shareholders and the image of the firm to fulfill their ambition in the industry, violating the rights of the employees by forcing them to violate their own ethical principles to commit fraud against the accounting rules and regulations. Therefore, the actions of Kozlowski and his team were unethical and should not have been used to exploit others in return.
Sorkin further insists that the board of directors were also to blame for the fraudulent activities of Kozlowski and his team because they might have sanctioned the process. Therefore, there was a breach of duty by the board and Kozlowski, because of their role in the company of engaging in business through moral conducts and ethical standards. The principle of duty implies that every person has his or her own responsibility to act as a human being. The board of directors, Kozlowski and the management team had a duty to manage the company well by using ethical processes to achieve success. In this case, they failed to perform their duty in the company, which contributed towards the fraudulent activities of the company.
According to Sorkin’s analysis, Tyco International’s unethical behavior was influenced by the corporate culture at that time. The use of funds to persuade mergers and acquisition to other companies was very common, and Tyco International’s corporate culture was more focused on improving their financial performance in the market, which meant even to violate a rule of law or compromise the ethical standards of an institution. During Kozlowski’s period, Tyco International’s business operations did not emphasize on ethical corporate culture and therefore gaining personal interest at the expense of the company’s financial position was the norm of Tyco International.
According to Obringer (2015), accounting fraud was the main ethical issue Tyco faced during the 2002 scandal period. Tyco international had caused tensions between the company’s auditors, accountants and executives who had a duty to the shareholders and stakeholders of the company. Lee insists that because of the ethical dilemma Kozlowski and his team faced, people could not understand why they had to compromise the quality of the financial reporting of the company for their own interest in the company.
Because of the Kozlowski and his team’s actions, Tyco international had failed to give true financial picture for several years. Based on analysis of Obringer, the company’s management were further accused of falsifying business records in order to conceal a great deal of amount without the approval of the shareholders (Obringer, 2015). In order to gain an advantage over the merging companies to persuade their shareholders for the acquisition process, Tyco international had used its funds to sponsor the accusation which was not approved by the board and engaged in financial gimmicky to manipulate earnings.
The actions of Kozlowski and his team violated the principles of utilitarianism which suggest that people should in a way that ensures greatest happiness to other people affected by their actions (Obringer, 2015). Kozlowski and his team failed to consider how their actions would affect the shareholders and the company’s reputation in the industry. prospects such as attracting major investors into the company’s investment programs is now an issue because investors are unable or unwilling to invest in a company that is charged with fraud. In addition, due to the company’s ethical challenge, the management could not compare their financial performance with other companies do not provide the true financial picture.
According to Obringer, Tyco international violated the principle of rights, which involves the right because of a particular roles and special relationship (Obringer, 2015). This means that other accounting users such as creditors, government and shareholders had been deprived the right know the true financial figures of the company’s financial statements. Therefore, any action that violated the human rights was considered unethical despite the ethical dilemma the company’s management team were faced. The management team who were involved in the accounting section of the company violated their fiduciary duty. This is because they failed to provide they failed to provide accurate information on the company’s financial performance and failed to act based on the interest of the shareholders and stakeholders (Obringer, 2015).
In order to appeal the creditors and other investors, the company was perceived as deceptive because they tried to overstate their earnings to appeal statement that is more favorable in order to attract more investments prospects (Arjoon, 2005). However, the company took some necessary step in order to reduce the severity of the damage done to the company’s reputation and financial position in the firm. The actions taken include applying a more conservative accounting approach rather the previous aggressive accounting approach, the board of directors were replaced with a new board and applying an enhanced corporate governance practice (Arjoon, 2005). The actions taken into account by the new corporate board was to increase good effects to the company and improve ethical conducts of the company in the future.
Obringer (2015) further suggest that the only reason why Tyco international failed to protect the actions of Kozlowski and his team was because of the negative publicity the company was likely to face throughout the process (Obringer, 2015). The actions of Kozlowski and his team his team were considered unethical despite their intention of boosting the company’s performance in the market. According to the company’s statement on the issue, the company could not compromise its reputation to protect the interest of Kozlowski and his team.
Tyco International’s Actions
Tyco international took major step in improving the company’s organizational structure to avoid future ethical dilemmas. In order to respond to the ethical issues brought about by actions of Kozlowski and his team, the new management acted by re-electing a new board of directors and assigned an independent individual as the chair of the board. This is to avoid future conflict of interest brought about by ethical dilemmas (McWilliams & Nahavandi, 2006). The new management team also cultivated a new corporate culture by setting a strict code of conduct within their business scope. This was to explain the ethical standards that should be followed by the company’s employees, board of directors and shareholders. The aim of this move is to promote ethical and moral conduct through decision-making process and among the employees of the company. According to Sorkin, when employees follow the code of conduct set forward by the company, they are likely to avoid situations that might lead them to ethical dilemmas (Sorkin, 2011).
Tyco international went as far as organizing seminars and training in order for the employees to learn various techniques of dealing with ethical dilemma situations to avoid conflict of interest that might jeopardize the interest of the company in the public (Arjoon, 2005). The company also encourages whistleblowing culture to improve the conduct of employees. Whistleblowing will help the company raise concerns towards the individual who is involved in wrongdoing and take necessary actions to avoid ethical dilemmas. As part of promoting whistleblowing culture within the company, the management have also set necessary rules that protects whistleblower from discrimination or unnecessary termination. This enables the whistleblower to point out concerns within the company without any fear of termination or boycott (Arjoon, 2005).
The management also made an effort in reorganizing its structure of command to ensure that the leaders promote ethical conducts and act as role model to the employees of the company. This is necessary because leadership plays an important role in shaping the corporate culture of Tyco international (Arjoon, 2005). When there is a right tone set at the top of the company’s leadership, employees tend to enumerate the actions of their leaders, hence promoting a positive culture within the firm. This means that a leader who is honest and responsible is more likely to help promote and transfer the same morals and values to the subordinates while at work. Therefore, this was a crucial component for the management during the recruitment process of the new management team. The team focused on the ability and personality of the new leadership of the company who were more concerned about ethical views (Arjoon, 2005).
Every business confronts ethical dilemmas that have the potential to create ethical problems down the line. Nevertheless, what really matters is how the company tackles these ethical challenges and the decisions that are made, as these will shape the company’s future. Tyco International faced various ethical challenges, such as fraud, conflicts of interest, and embezzlement of funds. The consequences of these ethical dilemmas were unethical and fostered a negative corporate culture. Furthermore, these ethical issues violated other ethical theories, which are explored in detail in this paper. However, the company can enhance its reputation and the behavior of its employees in the future by ensuring proper management of all aspects of the organization and adhering to ethical codes of conduct.
Arjoon, S. (2005). Corporate Governance: An Ethical Perspective. Journal of Business Ethics, 343-352.
McWilliams, V., & Nahavandi, A. (2006). Using Live Cases to Teach Ethics. Journal of Business Ethics, 421-433.
Obringer, L. A. (2015). How Cooking the Books Works. Business Jornal, 01-15.
Sorkin, A. R. (2011, September 13). Two Top Tyco Executives Charged With $600 Million Fraud Scheme. Retrieved from New York Times: http://www.nytimes.com/2002/09/13/business/2-top-tyco-executives-charged-with-600-million-fraud-scheme.html?pagewanted=all