Denise Parker 8:54amNov 4 at 8:54amManage Discussion Entry In 2002, Tyco International (now Johnson Controls International) was caught in a scandal, as its former CEO Dennis Kozlowski was involved in...

Denise Parker

In 2002, Tyco International (now Johnson Controls International) was caught in a scandal, as its former CEO Dennis Kozlowski was involved in unethical business transactions. Moreover, many on the Tyco board of directors were also engaged in corrupt behavior, which caused the company's downfall.

Tyco and many US companies practice the Anglo-American model of corporate governance. In theory, the Anglo-American corporate governance posits that corporations are directed by shareholders (owners), governed by a board of directors, and operated by a chief executive officer (CEO). The CEO manages the internal organizational structure. However, Clarke (2009) affirms that, in reality, the Anglo-American model of operations is driven by the CEO.

The historical dysfunction of Anglo-American governance is greed, wealth, and power of top executives, boards, and auditing firms. Tyco CEO Kozlowski was entrenched in such immoral behavior costing the company millions. The company was established in 1960 and publicly traded in 1964. The security systems corporation grew through several acquisitions (Romero, 2020). Kozlowski and his CFO, Mark Swartz, were charged and convicted of misappropriating more than $170 million. They were liable for $340 million in fraudulent stock sales (Daniels Fund Ethics Initiative, n.d.). Other Kozlowski team members (subordinates, general counsel, and BOD) were also involved.

Kozlowski was able to pick and place trusted individuals in critical positions, which would later help to fuel his greed and desire for more power and wealth. Kozlowski's salary would go from $8 million in 1997 to $170 million in 1999 (Daniels Fund Ethics Initiative, n.d.). The overpayment in salaries and bonuses of executives and investors is a way to disincentivize individuals from speaking up and taking the moral high road.

If I were a senior leader at Tyco, I would have sounded the alarm and resigned from my position. I would have placed the CEO on notice that I disagree with his ethics. Note: He probably would have conjured up a lie to fire me. Giving too much power and money to CEOs with little to no shareholder oversight is dangerous. More checks and balances need to be put in place to decrease the gap in CEO salary percentage in relation to employee salary. Tyco made drastic changes under the leadership of the new CEO, including revising the code of conduct, electing a new BOD, hiring an independent board chair (not the CEO), hired a VP of corporate governance. In addition, all executive severance pay now needed shareholder approval (Daniels Fund Ethics Initiative, n.d.).

References:

Clarke, T. (2009). A critique of the Anglo-American model of corporate governance.Comparative Research in Law & Political

Economy, 15. https://digitalcommons.osgoode.yorku.ca/clpe/129/

Daniels Fund Ethics Initiative. (n.d.).Tyco International: Leadership crisis. https://danielsethics.mgt.unm.edu/pdf/Tyco%20Case.pdf

Romero, J. (2020, September 18).Tyco corporate scandal of 2002 (Ethics Case Analysis). http://panmore.com/tyco-corporate-scandal-2002-case-analysis

Katie Hawkes

The Pacific Gas & Electric Company (PG&E) faced a fair number of scandals, even prior to the 21st century. Notably, a case of water contamination revealed in the 1990s was dramatized in the 2000 film Erin Brokovich.Throughout the past 3 decades, PG&E has also been found responsible in multiple deadly and destructive wildfires in California. I lived in San Francisco from 2013-2020 and remember several of the fires, including the Camp Fire in 2018 that destroyed an entire town (Paradise) near the Bay Area. Inefficiency of allocation of resources is one issue here since it’s the subpar, outdated infrastructure that caused the fires -- something the company could have addressed many times.

It’s difficult for me to imagine that PG&E is ultimately a moral or ethical company at its core, given the sheer number of scandals it’s had and subsequent lives lost. When your company’s reputation for nearly the past century includes one serious issue after another, it signifies to me that something is fundamentally broken. Ultimately, PG&E remains concerned with profits and pleasing wealthy stakeholders. Also, they aren’t afraid of the threat of competition -- there is none! Living in Northern California, I had zero other options for a utility company outside of PG&E.

Truthfully I’m not sure I would ever take a position with PG&E or lasted long with the company if I had. However, say I joined the company somehow without knowing about any of the deadly negligence and was working there when a big issue occurred, such as the Camp Fire. The position of moral leadership I’d ascribe to would be deontology, and I'd consider it a duty to do right by people in the communities we served. To support this view, I’d strive to implement a code of conduct in advance of any issues, as well as high transparency internally so employees could safely flag issues and leaders could be held accountable by the organization. Although I’ve said in past posts that I’m no fan of Immanuel Kant, if he wasn’t personally sexist and racist I would better appreciate his (ironic) view that “all humans must be seen as inherently worthy of respect and dignity” and recognize the “categorical imperative” to act in their best interest (Misselbrook, 2013, p. 211).

References

Misselbrook, D. (2013). Duty, Kant, and Deontology.British Journal of General Practice, 63(609), 211. https://doi.org/10.3399/bjgp13X665422