discussion

Read the attached case and watch this YouTube video ,(h t t p s://w w w . youtube.com/watch?v=MYmLaVYsyHw)then answer the following questions. You are encouraged to comment on others’ answers.What did Dennis Kozlowski do to his former company Tyco that can be characterized as agency problems or managerial opportunism? Why do you think he engaged in such behavior? What motivated him to take such risks?
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Part 4 Implementing Strategy
PRACTICING STRATEGIC MANAGEMENT
Small-Group Exercise:
Evaluating Stakeholder Claims
Break up into groups of three to five people and
appoint one group member as a spokesperson
who will communicate your findings to the class.
Discuss the following:
1. Identify the key stakeholders of your educational institution. What claims do they place
on the institution?
2. Strategically, how is the institution responding to those claims? Do you think the institution is pursuing the correct strategies in view
of those claims? What might it do differently,
if anything?
3. Prioritize the stakeholders in order of their
importance for the survival and health of
the institution. Do the claims of different
stakeholder groups conflict with each other?
If claims conflict, whose should be tackled
first?
Article File 11
Find an example of a company that ran into trouble because it failed to take into account the rights
of one of its stakeholder groups when making an
important strategic decision.
Strategic Management Project: Module 11
This module deals with the relationships your
company has with its major stakeholder groups.
With the information you have at your disposal,
perform the tasks and answer the questions that
follow:
1. Identify the main stakeholder groups in your
company. What claims do they place on the
company? How is the company trying to satisfy those claims?
2. Evaluate the performance of the CEO of your
company from the perspective of (a) stockholders, (b) employees, (c) customers, and
(d) suppliers. What does this evaluation tell
you about the ability of the CEO and the priorities that he or she is committed to?
3. Try to establish whether the governance
mechanisms that operate in your company
do a good job of aligning the interests of top
managers with those of stockholders.
4. Pick a major strategic decision made by your
company in recent years and try to think
through the ethical implications of that decision. In the light of your review, do you think
that the company acted correctly?
The Rise and Fall of Dennis Kozlowski
Under the leadership of Dennis Kozlowski, who
became CEO of Tyco in 1990, the company’s
revenues expanded from $3.1 billion to almost
$40 billion. Most of this growth was due to a series
of acquisitions that took Tyco into a diverse range of
unrelated businesses. Kozlowski was initially lauded
in the business press as a great manager who bought
undervalued assets and then enhanced their value
by imposing tight financial controls at the acquired
companies. Certainly both profits and the stock
price advanced at a healthy clip during much of the
1990s.
Tyco financed the acquisitions by taking on significant debt commitments, which by 2002 exceeded
$23 billion. As Tyco expanded, some questioned the
company’s ability to service its debt commitments.
Chapter 11 Corporate Performance, Governance, and Business Ethics
Others claimed that management was engaging in
“accounting tricks” to pad its books and make the
company appear significantly more profitable than
it actually was. Tyco’s defenders pointed out that its
accounts were independently audited every year, and
the outside accountants had detected no problems.
These criticisms, which were ignored for some time,
were finally shown to have some validity in 2002
when Kozlowski was forced out by the board and
subsequently charged with tax evasion by federal
authorities.
Among other charges, authorities claimed that
Kozlowski treated Tyco as his personal treasury,
drawing on company funds to purchase an expensive Manhattan apartment and a world-class art collection that he obviously thought were befitting of
the CEO of a major corporation. Kozlowski even
used company funds to help pay for an expensive
birthday party for his wife–which included toga-clad
ladies, gladiators, a naked-woman-with-explodingbreasts birthday cake and a version of Michelangelo’s
David that peed vodka! Kozlowski was replaced by
a company outsider, Edward Breen. In 2003, after
a special audit requested by Breen, Tyco took a
$1.5 billion charge against earnings for accounting
errors made during the Kozlowski era (i.e., Tyco’s
profits had been overstated by $1.5 billion during
Kozlowski’s tenure). Breen also set about dismantling parts of the empire that Kozlowski had built,
divesting several businesses.
After a lengthy criminal trial in June 2005,
Dennis Kozlowski and Mark Swartz, the former
377
chief financial officer of Tyco, were convicted of
23 counts of grand larceny, conspiracy, securities
fraud, and falsifying business records in connection
with what prosecutors described as the systematic
looting of millions of dollars from the conglomerate
(Kozlowski was found guilty of looting $90 million
from Tyco). Both were sentenced to jail for a minimum of eight years. As for Tyco, in 2006, CEO Ed
Breen announced that the company would be broken
up into three parts, a testament to the strategic incoherence of the conglomerate that Kozlowski built.40
Case Discussion Questions
1. Under the leadership of Dennis Kozlowski, Tyco
grew rapidly for a decade. Why do you think
Kozlowski pursued his growth through acquisition strategy? How did it benefit Tyco? How did
it benefit Kozlowski?
2. What do you think leads top managers to engage
in accounting manipulations to pad earnings, as
apparently happened at Tyco?
3. During the period when Tyco’s profits were
apparently overstated to the tune of $1.5 billion,
its accounts were audited every year by a major
independent accounting firm that signed off on
them. Why do you think that the accounting firm
did not catch the manipulations at Tyco?
4. Why do you think Kozlowski and Swartz, both
bright successful businessmen, engaged in the
behavior that they did? What motivated them
to take such risks? How risky do you think they
thought their behavior was?

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