Tyco Compensation Board Chairman Defends Handling Of Swartz's SeveranceSep 27, 2002 | The Wall Street Journal
The chairman of Tyco International Ltd.'s compensation committee defended the board's handling of a controversial severance package with former chief financial officer Mark H. Swartz, but said he didn't know that prosecutors had supposedly warned Tyco officials only two days before the severance deal was approved that Mr. Swartz was under investigation for serious crimes.
Robert Morgenthau, the New York District Attorney, is quoted in Friday's New York Post as saying his investigators informed Tyco officials on Aug. 12, two days before the board approved the severance package that Mr. Swartz was under investigation for "substantial" thievery. Prosecutors recommended the company should fire Mr. Swartz immediately, Mr. Morgenthau said, according to the New York Post.
Stephen W. Foss, a Tyco director since 1983, said through a spokesman Friday that he "absolutely" hadn't been told of any meeting with prosecutors. "Whatever information the Manhattan DA told Tyco officials was not shared with Steve Foss, " the spokesman said.
The assertion raises questions about whether Tyco executives and attorneys gave board members full information before presenting them with the severance deal for Mr. Swartz. A spokeswoman for Mr. Morgenthau said she couldn't immediately confirm the accuracy of the New York Post article.
A Tyco spokesman didn't immediately respond to questions about the severance package and communication with New York prosecutors.
In an interview, Mr. Foss generally defended the severance package as appropriate and in the best interests of Tyco shareholders. Mr. Foss also said he was generally aware Mr. Swartz was under investigation by the Manhattan DA at the time the deal was struck, but wasn't aware he was likely to be indicted. In the interview, Mr. Foss was responding in part to criticism of Tyco's compensation committee for approving the severance deal.
Mr. Swartz and former Tyco chief executive L. Dennis Kozlowski were indicted earlier this month and charged with looting $170 million from Tyco through payments of unauthorized compensation. Both men have pleaded not guilty.
Explaining the background of the severance deal, Mr. Foss said that the company hurriedly requested a meeting of the four-member compensation committee on Aug. 14, and presented the committee with a severance deal for Mr. Swartz. The arrangement, Mr. Foss said, had been negotiated by attorneys at Boies Schiller & Flexner LLP, at the behest of new Chief Executive Edward D. Breen, who wanted to replace Mr. Swartz as quickly as possible.
"The compensation committee didn't negotiate it," Mr. Foss said, "We were given a presentation and either had to accept or reject it."
Under the agreement, Mr. Swartz received, among other things, $9.1 million in a lump sum severance deal, plus $24.5 million from an executive life insurance plan and $10.4 million from a deferred compensation plan.
Mr. Foss said the $9.1 million Mr. Swartz was paid in the lump sum severance was substantially less than he was due under an employment agreement. The deferred compensation and life insurance sums, he said, "were always his," and had been approved by the board and previously disclosed to shareholders.
Mr. Foss also pointed out that, under the severance deal, Tyco has the right to seek repayment of the money through arbitration.
In addition, Mr. Foss said that he had changed board procedures in early 2002 so that the entire board would have to vote on any compensation arrangement, not just the compensation committee. He said the entire board voted to approve Mr. Swartz's deal.