Tyco International was established in 1960 by Arthur Rosenberg, as a research laboratory that dealt with experiment for the United States government, later changing into manufacturing industrial products. However in 2002, Tyco was in crisis amid revelation of corruption mainly within top management, which led to the resignation of the then CEO, Dennis Kozlowiski. At that time, the conglomerate was at risk of bankruptcy.
Tyco had over 240,000 employees, thus being a major player in the economy. Despite Tyco registering large profit in the past years mainly through mergers and acquisitions, it was however revealed that its large earnings were because of fraud and accounting tricks. This proved that Tyco was led by fraud, greed, and criminal activities that camouflaged as hard work, allegedly leading to the company’s success.
In May 2002, a criminal investigation was opened to investigate the actions of the CEO, Kozlowiski, which included avoidance to pay income tax, and the transportation of $13million in terms of art in to the company’s headquarters, New Hampshire, as a means to escape over $1million sales tax.
Tyco absorbed many companies as it rose to a conglomerate, in which it would pay these companies; but, rather than indicating this cost as an expense, it would report it as a reduction in earnings. Therefore, the company absorbed massive amounts of goodwill to about $35billion. In addition, many companies were affected by the crisis of Tyco, since they had invested in the company’s shares, (Kay, 2002).
Organizational -behavior theories that could have predicted or explained the company’s failure
Culture of an organization determines the type of leadership involved within the organization, as it determines the degree of motivation present in a firm, which results to performance, satisfaction, and development of an employee. Organizational behavior involves people’s behavior in an organization and the way their behavior affects the organization’s performance.
According to Cole (2001, p.6), management theory involves goal setting, leadership, employee motivation, teamwork and coordination. An organization is made up of management and employees, with the management duty being to co-ordinate, direct and assign task to employees, who in return tackle the tasks to their best capability.
It is however evident that the management of Tyco used employees to perform unethical tasks, like altering financial records and engaging in fraud, actions that are clearly unethical for the organization. Indeed, management fraud can go unnoticed for a long time, as the management has the absolute control of the organization, hence it can engage in any activities as it pleases.
When management is irresponsible, there is a possibility for a calamity in the future, which could result to bankrupts; however, Tyco was lucky, as its case did not result to bankruptcy, despite the executive having stolen close to $600 for their personal gain.
According to Thoreen (2008, p.28), fraud is committed sometimes as a means of rewarding oneself due to their hard work, a similar case in Tyco where the top management rewarded themselves in term of bonuses without the stakeholders’ knowledge. Nevertheless, if the internal controls were keenly monitored, it could have been easier for auditors to discover malpractices in Tyco in earlier stages.
It is however evident that the top executive ordered their employees to commit fraud on their behalf by altering the financial records and offsetting imaginary costs. Sometimes, employees are left with no choice other than adhering to their seniors’ orders, in order to keep their jobs.
Compare and contrast how leadership, management, and organizational structures contributed to the failure
Management skills determine effective and ineffective managers, whereby, skills are the key to achieving goals. According to Proust (n.d, p.7), Mintzberg’s managerial roles include being a figurehead, whereby a manager is required to perform a number of legal duties, and he is responsible for motivating and directing employee.
However, the CEO of Tyco acted contrary to his role and led the company down the drain, as he led in overstating the company’s operating income. Kozlowiski and his management team failed to disclose millions of compensations to the senior management.
A manager’s duty is to direct his employees, however, Tyco management failed on this area when it encouraged its employees to engage in illicit payments to foreign individuals as a way of retaining business for the company.
The ineffective leadership at Tyco, led by Kozlowski, contributed greatly to the collapse of the once booming conglomerate. Kozlowiski was mainly concerned with his personal interest, as he applied million of dollars for personal interests.
This act of greed inconvenienced approximately 240,000 employees who would lose their jobs incase the company was rendered bankrupt. Nevertheless, the millions used for his court cases were at the cost of the company; therefore, he acted contrary to his managerial and leadership ethics and put many shareholders and employees at risk of losing everything.
Kozlowiski portrayed characteristics of a selfish, greedy, and unethical leader, who tarnished his image for those who admired him as a role model over the years. Despite Kozlowski having big ambitions for Tyco, he preferred unethical practices in handling the activities, other that hard work, and determination.
Kozlowski, Swartz and Belnick, were accused of stealing from the company, in terms of unapproved bonuses and loans, whereby, they would give themselves low-interest loans or interest-free, which they would camouflage them as bonuses. Nevertheless, poor strategic decisions, overexpansion of acquisitions, dominant CEO, greed, and desire for more power were the key factors that led to the business failure at Tyco.
The poor leadership by Kozlowiski and his management team resulted in fraud practices at the expense of employees and stakeholders. The CEO managed to get away with his actions as he had backup of some members in the board of directors.
Kozlowski was a goal achiever in the way he led Tyco, however, he would go to any lengths to accomplish those goals, thus hurting the company in the end. Nevertheless, Kozlowski can be defined as a derailed leader who never gave anyone an opportunity to question him, thus decisions made were poor and final.
Conclusion
Management of any firm should first concentrate on ethics and then profitability, since a company may be booming but on unethical practices, which when discovered lead a firm in to crisis and in the verge of loosing almost everything. However, if an organization is run on pure ethics, all its operations are genuine and free from fraud, therefore, all the profits it accumulates are based on hard work and integrity.
Nevertheless, in case of fraud concerning big entities like Tyco, the government uses a lot of tax money for investigations. In addition, if the firm has to close down, many families suffer, as the employees loose their jobs.
Secondly, potential foreign investors lose faith in countries whose companies are associated with fraud, thus affecting the country’s whole economy. Ethics starts from the management down to the employees, however, if the management entertains unethical practices, the employees eventually follow suit.
References
Cole, G. (2001). Organizational Behavior; Lets Higher Education List Series. OH: Cengage Learning EMEA Publisher.
Kay, J. (2002). Tyco: US conglomerate falls amid revelations of greed and corruption. World socialist website. ICFI publishers. Web.
Proust, M. (N.d). What is organizational behavior? Chapter1. (Attached material).
Thoreen, T. and Jakobsen, A. (2008). Greed at the Top: Fraud and the Failure of Oversight at Adelphia Communications Corporation and Tyco International Ltd. Norwegian School of Economics and Business Administration. Web.