Examining a Business Failure - Tyco Examining a Business Failure - Tyco Introduction This paper will describe how specific organizational behavior theories could have predicted the failure Tyco International (Tyco). This paper will discuss the contributions of leadership, management, and organizational structures to the organizational failure of Tyco.
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In the case of Tyco, the organizational behavior of the company in 2002 was unethical in nature. Tyco's former CEO Dennis Koslowski, former CFO Mark Swartz, and former General Counsel Mark Belnick were accused of giving themselves interest-free or very low interest loans (sometimes disguised as bonuses) that were never approved by the Tyco board or repaid. Some of these "loans" were part of a "Key Employee Loan" program the company offered. They were accused of selling their company stock without telling investors, which is a requirement under SEC rules.
Koslowski, Swartz, and Belnick stole $600 million dollars from Tyco through their unapproved bonuses, loans, and extravagant "company" spending. Rumors of a $6,000 shower curtain, $2,000 trash can, and a $2 million dollar birthday party for Koslowski's wife in Italy are just a few examples of the misuse of company funds. As many as 40 Tyco executives took loans that were later "forgiven" as part of Tyco's loan-forgiveness program, although it was said that many did not know they were doing anything wrong.
Hush money was also paid to those the company feared would "rat out" Kozlowski. Essentially, they concealed their illegal actions by keeping them out of the accounting books and away from the eyes of shareholders and board members (http://money. howstuffworks. com/cooking-books9. htm). In an organizational world characterized by cutbacks, expectations of increasing worker productivity, and tough competition in the marketplace, it is not surprising that many employees feel pressured to cut corners, break rules, and engage in other forms of questionable practices.
What constitutes good ethical behavior has never been clearly defined. Employees see people all around them engaging in unethical practices. (Robbins ; Judge, 2007). Leadership Failure The senior managers at Tyco failed as leaders. They forgot that leadership was about serving others and not themselves. But it was also a failure of those who followed the leaders such as the corporate lawyers who failed in their duty to keep the leaders in check. Tyco lawyers wanted to please their bosses; instead they should have stepped in when corporate corruption was evident. Most of the people who became infamous for their misdeeds ; helip; were not evil people,” said William Lytton (general counsel for Tyco in 2002). As Lytton sees it, they lost sight of the cultural boundaries, blinded by their own career advancement goals. That is where the role of the corporate lawyer becomes critical. While it might prove difficult to stop bad things from happening, “Sometimes, you do need to just say no” (http://www. vermontlaw. edu/x7845. xml). Management Failure
Tyco’s top executives ignored their responsibilities to the laws governing corporate management; ignored responsibilities to their investors and ignored responsibilities to their employees. The planning and management strategies of these executives seem to have been more focused on personal gain than on the best interests of the company and its shareholders. As a result of their greed and fraudulent activities, the top executives at Tyco were indicted and convicted of fraud charges for improper accounting practices as well as unauthorized use of company funds for personal gain.
One viewpoint on leadership is that it occurs only when people are influenced to do what is ethical and beneficial for the organization and themselves. This definition of leadership does not include influence attempts that are irrelevant or detrimental to followers, such as a leader’s attempts to gain personal benefits at the followers’ expense (Yukl, 2006). In the case of Tyco, when Ed Breen took over as CEO, he fired 290 of the 300 managers who were employed at Tyco during the Kozlowski era along with the other senior managers.
He wanted to bring in new management and employees who would help build Tyco’s reputation up and create an ethical firm that consumers and shareholders could trust again. Organizational Failure While the organization was not solely to blame for Tyco’s failure, Tyco could have taken preventive measures which would have avoided this situation entirely, such as: o created codes of ethics to guide employees through ethical dilemmas o implemented policies for enforcing those codes create a corporate governance department and hire experienced professionals to ensure compliance with federal and state regulations are adhered to o offer seminars, workshops, and similar training programs to try to improve ethical behaviors Today’s manager needs to create an ethically healthy climate for his or her employees, where they can do their work productively and confront a minimal degree of ambiguity regarding what constitutes right and wrong behaviors.
In upcoming chapters, we’ll discuss the kinds of actions managers can take to create an ethically healthy climate and help employees sort through ethically ambiguous situations. We’ll also present ethical-dilemma exercises at the end of each chapter that will allow you to think through ethical issues and assess how you would handle those (Robbins ; Judge, 2007). Summary In 2002, Tyco was controlled by unethical businessmen more interested in personal gain than creating a successful company that shareholders, employees and consumers could trust, respect and benefit from.
They failed as leaders and managers; and as a result, made the organization as a whole suffer. They acquired businesses quickly, falsified accounting records, took out personal loans, withheld information from the public as well as shareholders, and caused the market share of the company to drop dramatically. All of this unethical business activity could have been avoided had an official corporate governance department been in place and a company code of ethics policy implemented.
References Robbins, S. P. ; Judge, T. A. (2007). Organizational Behavior, Twelfth Edition: Prentice Hall. Obringer, L. (1998-2009). How Cooking the Books Works. http://money. howstuffworks. com/ cooking-books9. htm: HowStuffWorks, Inc. Staff Report (2008). Lessons of Tyco: Just Say No. http://www. vermontlaw. edu/x7845. xml: Vermont Law School. Yukl, G. (2006) Leadership in Organizations, Sixth Edition: Pearson Prentice Hall
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