Securities Exchange Commission Took Conglomerate

¶ … Securities Exchange Commission took conglomerate Tyco International to court in 2003, a move that nearly wiped out the company. The SEC charged that Tyco violated federal securities law on a number of fronts -- that it overstated its financial results, smoothed reported earnings, hide "vast amounts" of executive compensation and transactions from investors (SEC, 2003). While the action did not wipe the company out entirely, the company was subject to credit rating downgrade, depressed stock price and considerable restructuring at the executive level. This lead to massive changes at Tyco, such that virtually an entirely new company emerged from the ashes of the pre-failure Tyco.

Organizational behavior can lend some insight into the failures at Tyco. The primary performance motivator for Tyco executives, including Dennis Kozlowzki, was in the form of stock bonuses and options. This oriented the management team to short-term results, which ultimately encouraged the financial manipulation that brought the company down.

Leadership at Tyco was the primary cause of the company's near collapse. The leadership culture not only encouraged short-term decision making, but it placed emphasis on deal-making instead of on building the business over the long run (Hellreigel & Slocum, 2007). This ethical culture was prevalent at the top levels of the company and from there disseminated down to the rest of the employees (Kemmerer & Shawyer, 2007). The firm takes its ethical cues from leadership, so when leadership is devoid of good ethics, the company as a whole will be too.

The company's failure could have been predicted. It was clear that the company was oriented strongly to short-term results, and was using transactions to obtain those results. The leadership of the firm made exorbitant amounts of money, and the company's expenses showed a number of unsual, high, expenses that related to the executive suite. This could have been interpreted as the company having an orientation more towards money-making than to the development of strong ethics.

Leadership, or lack thereof, made a strong contribution to the Tyco failure. The company's leaders set the cultural tone of the firm, but they were also among the primary actors engaged in the fraud. Kozlowski and the other executives were front and center in the fraud, and committed many of the egregious acts themselves. There is little doubt that the Tyco failure had more to do with the caliber of the company's leadership that with any issues surrounding the employees themselves. For the most part, the structure and the leadership were the reasons for the Tyco failure.