Tyco International Ltd.’s proposal to keep two board members who served under the company’s indicted former chief executive violates the spirit of its $5 million settlement with the state, a top New Hampshire securities regulator said.
“I believe such a move would not be in the spirit of the corporate governance reforms you are endeavoring to implement at Tyco,” Mark Connolly, director of the New Hampshire Bureau of Securities Regulation, said in a letter to new CEO Ed Breen.
In an interview Thursday, Connolly said a decision to renominate the directors, set for a board vote Friday, also was against the spirit of the settlement, which included an agreement by the company to review its corporate governance procedures.
The agreement between Connolly’s office and Tyco last month settled allegations that shareholders and the public were hurt by alleged fraud by some of the company’s former top officials.
The settlement followed a Sept. 10 filing with the Securities and Exchange Commission in which Tyco said all members of the board that were appointed prior to July and served under CEO L. Dennis Kozlowski would not stand for re-election.
On Wednesday, however, a company official said Tyco was proposing to keep board members Richard Bodman and Michael Ashcroft, both of whom served under Kozlowski.
“There’s a balance between a need for a majority of new directors responding to the shareholders and a need for corporate memory and institutional memory going forward,” director Wendy Lane told The Associated Press.
A spokesman for Tyco did not comment on the proposal.
In his letter to Breen, Connolly said if continuity is the goal, one or two board members could serve in a transitional role for up to one year, but should have no voting authority.
“It’s time for a new Tyco to take hold a company committed to the best practices of corporate governance, as you have so meaningfully articulated,” he wrote.
New Hampshire has no authority to force the board members to resign, but has been pressuring Tyco to do so.
The manufacturing conglomerate, which is headquartered in Bermuda, with U.S. offices in Exeter, has been under fire from shareholders and regulators over charges of improper payments to top executives.
Kozlowski, who resigned in June, and former chief financial officer Mark Swartz have pleaded innocent to charges of enterprise corruption and grand larceny. They are accused of stealing $600 million from the company.
Former corporate counsel Mark Belnick also has pleaded innocent to charges that he falsified business records to cover up $14 million in improper loans.
Several directors also have resigned, amid accusations they knew what Kozlowski was doing and that they also benefited from improper payments.
Bodman recently disclosed that Kozlowski invested $5 million in a private stock fund he managed, raising questions about his independence. Bodman denies he was compromised by the investment.
Ashcroft, who joined the board after selling his security systems company, ADT, to Tyco, also has been criticized for his ties to Kozlowski. Tyco is investigating whether the company improperly bought a home owned by Ashcroft in Florida.
New Hampshire regulators have alleged that Kozlowski, Swartz and Belnick misused corporate funds, made transactions without proper approval and filed false and incomplete regulatory statements with the state. Former board member Frank Walsh also was named.
Tyco admitted no wrongdoing in settling the accusations, though it said most of the allegations were uncovered by its own internal investigation and reported to the Securities and Exchange Commission.
The company agreed to give the state a report on its corporate governance practices, and to update the state about its policies and practices once a year for the next two years.