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Indictment In Tyco Scandal Passes Quietly

Sep 16, 2002 | The Michigan Daily

Unlike other major corporations that have faced corruption crises this past year, Thursday's indictment of former Tyco International chief executive officer Dennis Kozlowski and former chief financial officer Mark Swartz on charges of corruption, conspiracy and grand larceny sent nary a ripple through Wall Street.
According to the indictment, Kozlowski and Swartz have stolen more than $170 million from Tyco and obtained more than $430 million by fraud through sales of securities since 1995.

Tyco, which operates in more than 100 countries and employs more than 250,000 people, absorbed Thursday's news calmly. In addition, Tyco's stock, down 70 percent from its 52-week high, has actually been on the rise since the appointment of Edward Breen as the new CEO in July.

Eric Lundberg, the University's chief investment officer, said the University recently purchased Tyco stock because "it was a good investment." Lundberg also said unlike Enron and WorldCom, the crisis did not send Tyco's stock price plummeting for several reasons, including market expectations.

"A lot of the damage was already done, so (the indictment) didn't come as a surprise. The new governing structure fired the people who were indicted and replaced the management," he said.

"The bad news associated with the people has come to light and the stock price has adjusted tremendously."

Lundberg also said executives in the different corporations had various incentives to cheat.

"There is a difference in the nature of these scandals. (WorldCom and Enron officials) lied to make the company look better than it did. Tyco executives lied and cheated and inflated earnings to benefit themselves," he said.

"WorldCom wasn't nearly as profitable as the management led on so the stock price should be less. That's why Tyco's a little different."

Business School graduate student Vijay Raghavendra, who works in Tyco's Global Automotive Division, said the news of the indictment has caused mixed feelings among the company's employees, but business had quickly returned to normal.

"The (charges) have certainly provided a field for gossip. Employees were very disappointed about how Kozlowski and his team hijacked everything ... but I really don't see much of a difference," he said.

Though the indictment did not significantly affect last week's stock prices, Lundberg said the recent media attention on corrupt corporate executives has caused many companies to "go back and look at their auditors."

The recent flurry of scandal in the business world has also forced company boards, the government and regulatory groups such as the Securities and Exchange Commission to pass stricter measures against fraud.

"In a sense it's good this is coming to light. I believe that most people are good. They want to do a good job. They don't want to be tainted by someone who's gone crazy," Lundberg said. "The system works. They can't run their corporations like their own personal businesses. They have responsibilities. That's the message."

In Tyco's case, Raghavendra said, that message has been heard loud and clear.

"Successful companies provide value for their consumers, and those executives were (too busy) trying to make their number (targets) by hook or crook to deliver, he said. "They lost sight of the goal."

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