In 2001, Dennis Kowalski, chairman, and CEO of Tycoon International, was identified by Business Week as a manager to watch. In 2002, it turned out that he certainly was the man to watch!!! Tycoon International is an American conglomerate, operating in the electronics, healthcare, fire and security systems, underwater cables, commercial finance, and flow control industries. (http://www. Auburn. Deed/-stands/tycoon. HTML). The aim of this case study is to answer some questions given in the next pages. 1.
What are the ethical and legal issues in this case? There are many legal and ethical issue has been given in this case. The ethical and legal issues at Tycoon International range from discrimination, accounting fraud, grand larceny. The issues involved cohesion on the part of the CEO, and the members of his team. In addition, they placed great emphasis on placing their own values ahead of what was good for the organization. Ethical Issues: Leo Dennis Kowalski handpicked a few trusted people and placed them in key positions.
One of these individuals was Mark Swartz, who was promoted from director of Mergers and Acquisitions to SCOFF. Kowalski also recruited Mark Beeline to become Taco’s general counsel. The majority of the directors had been on the board for ten to twenty years, and they were very familiar with Taco’s strategies and Kilowatt’s management style. As directors, they were responsible for protecting Taco’s shareholders by disclosing any questionable situations or issues that might seem unethical or inappropriate, such as conflicts of interest.
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CEO, SCOFF and Board of directors are all involved in UN-ethical practices to extending the business on any cost. Board of directors found in taking the bonus, CEO made payments without informing the Board of directors, CEO involved in utilizing company fund inappropriate way and it seems that company influences to Merrill Lynch to give the company a better financial rating. Legal issues – Board of directors found involved in following illegal activities, while their role is to prevent such activities. Mark Swartz, SCOFF participated in loan-forgiveness programs. Richard S. Boatman, a venture capitalist, invested $5 million for Kowalski in a private stock fund managed by Boatman. Frank E. Walsh, Jar. , director of the board, received $20 million for helping arrange the acquisition of CIT Group without the knowledge of the rest of the board of directors. Walsh also held a controlling interest in two firms that received more than $3. 5 million for leasing an aircraft and providing pilot services to Tycoon between 1996 and 2002.
Foss received $751,101 for supplying a Cessna Citation aircraft and pilot services. Ashcroft used $2. 5 million in Tycoon funds to purchase a home. Leo Kowalski, CEO and Mark Swartz, SCOFF indicted on 38 felony count for allegedly stealing $170 million from Tycoon and fraudulently selling $430 million in stock options; Kowalski accused of taking $242 million from a program intended to help Tycoon employees buy company stock; Kowalski accused of granting $106 million to various employees through “loan forgiveness” and relocation programs. Swartz charged with falsifying documents in the loan program in the amount of $14 million. Beeline charged with larceny and trying to steer a federal investigation and taking more than $26 million from Tycoon; several former board members cited for conflict of interest issues; Beeline, Swartz and Kowalski faced criminal charges and a civil complaint from the SEC;; 2. What role did Taco’s corporate culture play in the scandal? Taco’s corporate culture was driven by the CEO, Dennis Kowalski who admired the extravagant and lavish lifestyle lavish of the former CEO, Joseph Gazing. He took an assertive approach to acquisitions and mergers, which helped Tycoon, maintain a 14-year growth within the business units.
He viewed himself as the organization, therefore, conducted business in its own way. The company’s culture was shaped by Kilowatt’s goal to make Tycoon the greatest company of the new century. Kowalski knew the company from the OTTOMH up and this gave him insight into how to grow the company to be the greatest. He hand-picked a group of people to help him achieve his goal. People that were willing to take risk as he was and those that thought it was acceptable to use company money for personal gain. 3. What roles did the board of directors, CEO, SCOFF, and legal counsel play?
They all acted in a deceitful unethical manner and they all contributed to the downfall of Kilowatt’s empire. Everybody put their personal benefits ahead then the corporate benefits and did not perform their duties as defined by role and law. For details, refer to answer 1 above. 4. Have Taco’s recent actions been sufficient to restore confidence in the company? Edward D. Breed, new CEO understood that he was taking on one of the toughest jobs in corporate America when he agreed to become chairman and chief executive officer of Tycoon International in July 2002. Breed dug in.
He fired 290 of the company’s top 300 executives. Then he turned around and fired the board that had just hired him. He closed Taco’s posh Manhattan offices and moved to West Windsor, NJ. He ordered consolidations throughout the company, paid down debt and, lately, has begun to focus on growth rather than impel survival. Breed told his audience that the courage to make decisions right or wrong along with the talent to both cut expenses and increase revenues are the hallmarks of a great chief executive. Today he manages a company with $40 billion in revenues and 250,000 employees worldwide.
Tycoon operates five main businesses: Fire and Security, including the ADD brand, electronics, healthcare, engineered products and services, and plastics and adhesives. So, yes the new leadership has demonstrated that they have learned from their history and have set up procedures to avoid some of the problems of the past. For example, shareholders elected a completely new board of directors and voted to make future executive severance agreements subject to shareholder approval. They also voted to require the chairman of the board to be an independent person, rather than a Tycoon CEO. . What other actions should the company take to demonstrate that it intends to play by the rules? Adopt policies that address conflict of interest and provide training to all staff and the board of directors. Define roles and responsibility clearly and followed all the gobo. Rules for doing the business. Implement the process which has been defined in the organization. 6. How will the implementation of the Serbians-Solely Act of 2002 prevent future dilemmas in Tycoon? The Act made securities fraud a criminal offense and stiffened penalties for corporate fraud.
Additionally, it created an accounting oversight board that requires corporations to establish a code of ethics for financial reporting and to develop greater transparency in financial reports to investors and other interested parties. Much of what occurred at Tycoon took place because the CEO was allowed/permitted too much power and was not required to be accountable. The Act also requires top executives to sign off on their firms’ financial reports, and they risk fines and long prison sentences if they misrepresent their companies’ financial position.
Finally, the Act requires company executives to disclose stock sales immediately and prohibits companies from giving loans to top managers. 7. Can the SEC trust Taco’s new board? Yes. Tycoon Internationally Board of Directors is responsible for directing, and providing oversight of, the management of Taco’s business in the best interests of the shareholders and consistent with good corporate citizenship. In carrying out TTS responsibilities, the board selects and monitors top management, provides oversight for financial reporting and legal compliance, determines Taco’s governance principles and implements its governance policies.
