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Tyco Sues Former Chief Over Self-Serving Gifts

Sep 16, 2002 | USA Today

There were no limits to the greed and audacity of Dennis Kozlowski, according to allegations in a lawsuit filed last week by Tyco International, the company he formerly headed.

The lawsuit says Kozlowski not only looted Tyco to fund a lavish lifestyle, but also used $43 million of Tyco's cash to bankroll his pet charities.

CEOs typically get involved in how corporate contributions are doled out, but Kozlowski went much further, often making donations in his own name and for his personal benefit, the lawsuit claims.

For instance, in 2001 he donated $1.3 million of company money to the Nantucket Conservation Foundation, according to the complaint. In return, the documents say, the foundation purchased property adjacent to Kozlowski's Nantucket estate preventing future development of the land.

Officials at the Nantucket Conservation Foundation did not return calls for comment. And Kozlowski's lawyer, Stephen Kaufman, declined to comment on the charges in the lawsuit.

For its part, Tyco is not seeking to recover the charitable contributions, says spokesman Gary Holmes. But Tyco is reviewing unfulfilled pledges.

Remembering his alma mater

The allegations in the Tyco lawsuit paint a picture of a man who used his company's largesse to enhance his social standing. Kozlowski, a police officer's son, worked his way through Seton Hall University in South Orange, N.J., by waiting tables and playing guitar in a wedding band. Today, a building on the Seton Hall campus is named after him. Kozlowski Hall opened in fall 1997. Among other things, it houses the school of business.

The donations also provided Kozlowski a measure of influence. For example, the lawsuit accuses him of donating $1 million of company money to his alma mater and includes a copy of a 1997 letter that accompanied the check. In it Kozlowski congratulates John Shannon on his appointment as vice president of university affairs and goes on to say, ''We should discuss my commitment to ensure a mutual understanding in your new role.''

Seton Hall has little to say about the allegations. ''We're not in the practice of divulging the specific amounts donated to the university,'' says Robina Schepp, director of public relations. ''I can only confirm that both Mr. Kozlowski and Tyco have donated to Seton Hall.''

Bad light on charitable giving

The flap puts charities and institutions like Seton Hall in an embarrassing position. But they would have had little reason to question the donations, experts in corporate philanthropy say. Certainly, top executives like Kozlowski often earn enough in salary, bonuses and stock options to be able to afford generous contributions.

And charities would be reluctant to probe the origins of a million dollar donation, except to make sure the check clears. ''They'd be very afraid to do anything that might cause them to lose a big contribution,'' says Daniel Borochoff of the American Institute of Philanthropy, a watchdog organization.

Donors have the right to earmark their contributions for a specific use, and the charity has the right to reject it if they can't oblige, says Bennett Weiner, chief operating officer of the Better Business Bureau's Wise Giving Alliance.

But that can backfire if a charity seems to be doing the personal bidding of a donor.

''A charity has a responsibility to use money for its mission,'' Borochoff says. So, for example, if the allegations about the Nantucket Conservation Foundation are true, they could tarnish its reputation and hurt its ability to raise funds. ''Others could say, 'How can I trust you to protect the land with the greatest ecological interest?' '' he says.

It's common for foundations and charities to reward big donors with awards and honorary positions. In January, Kozlowski was inducted into the Seton Hall Athletic Hall of Fame.

In its lawsuit, Tyco claims that Kozlowski used company cash to make a $1 million pledge to the Shackleton Schools, a Massachusetts-based program for high school students that focuses on leadership.

The lawsuit includes a copy of a 1999 letter from Kozlowski to the school in which he pledges five $200,000 donations. He states that his daughter Cheryl introduced him to the school. The following year, Cheryl was appointed to the school's board.

Shackleton Schools did not return a call for comment. The last installment of Kozlowski's pledge, for $25,000, which is due on July 1, 2003, is in question now that Tyco is re-evaluating his pledges.

Other strings attached

The Tyco lawsuit also refers to a donation made to Berwick Academy, a private school in Maine that his daughters reportedly attended. A letter attached to the complaint refers to an enclosed check for $300,000, which was the final payment in a pledge.

The Berwick Web site includes a photograph of the Kozlowski Athletic Center. It's unknown if Tyco money helped build the center.

Kozlowski was apparently a sailing enthusiast. He allegedly submitted $110,000 in expenses for the use of Endeavor, a Tyco-owned 130-foot yacht. And he spent $10 million of Tyco money on the California International Sailing Association, the suit alleges.

The complaint also refers to $1 million in Tyco money that Kozlowski contributed to Cambridge University. The university's Web site says a donation from Tyco and Kozlowski helped endow a professorship in the name of a former Tyco director, Robert Monks. The topic of the Cambridge professorship: teaching and research in corporate governance, particularly corporate leadership and accountability.

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