Introduction
Tyco International exhibited an accounting fraud scandal in the year 2002 with its top-ranking officers as well as the CEO involved in unethical business practice. The organization had grown large in terms of business through numerous acquisitions but later deteriorated due to accounting fraud cases. As a CEO of the company, Kozlowski had an aggressive loom towards attaining mergers and acquisitions during his tenure, but he was hugely involved in numerous financial transactions that were not included in the company financial reports. His top ranking subordinates were given positions based on friendship and close relationship. According to Wells and Ellsworth (2017, p. 12) , Kozlowski's board of directors were entirely formed on a friendship basis to create a corporate governance scheme. The CEO had amble time to initiate unethical transactions with Tyco officers as well as lower-ranking employees to cover up illegal financial loopholes and involved transactions.
Accounting Fraud
The fraud escapades date back in the year 1999, when Kozlowski's leadership raised more questions than answers regarding the firm financial habits, especially after the stock split. The board of directors decided to launch an investigation towards its member’s immoral behaviors on account that the company had engaged in the production of irregular financial as well as economic accounts. Prior to the investigation, it was realized that the CEO's second wife had received diverted money from the firm to her account. Upon investigation, all top-ranking officers were forced to resign from their position and later arraigned in court for fraudulent activities. The court found Kozlowski and Swartz guilty of charges of stealing $170 million from Tyco International as well as the additional deceitful acquisition of $430 million from the stock options ( Wells & Ellsworth, 2017, p. 11 ). The CEO, together with other officers and board of directors, were imprisoned for engaging in illegal financial transactions and misusing Tyco International funds for their own personal gain with conflict of interest. Thus, Tyco International business declined as investors lost confidence in the company.
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Relevant Facts of the Fraud
The company operated its expenditure and loans on the unstructured way without considering any proper systems for checking fraud cases. The CEO only operated with trusted lieutenants at the company headquarters permitting them to oversee all financial transactions for over 200,000 staff. Despite initiating a lean management scheme at the point, the firm was ballooned to $ 36 billion, with the scheme failing to keep watch on the staff's behaviors and operations ( McGee & Byington, 2017, p. 55 ). The top manager positions were given based on the CEO mold or friendly handpicked instead of appointing a company president or hiring experts. According to El Mahdy (2019, p. 33) , the board of directors were all on the CEO's friendliest that they used a structure with seemingly obstinate blindness. The leadership structure, in terms of information and data, as well as the financial process, were full of corruption.
The company experienced unethical problems ranging from sustainability, reliability, and financially, among others. Tyco international lost its trust from loyal customers as it experienced losses due to unethical leaders since ethics within the firm played an important role in organizational sustainability ( Wells & Ellsworth, 2017, p. 15 ). The firm operated on the devoid ethical conduct, and this is the reason it did not last for long as it loses its reputation through embezzlement of funds and bribery that necessitated accounting fraud activities.
Evaluation of Ethical Issues
The case of Tyco International indicates that different parts of the organization can exhibit ethical issues. Unethical leadership, the business practice of subordinates, and auditing practice are the major ethical issues this case illustrates. Unethical leadership is observed from Kozlowski, whose decisions and attributes led to financial troubles and legal battles with stakeholders. The CEO was the main recipient of stolen money from the company with influences over the top and lower-ranking officers and employees. Through unethical leadership, Tyco International activities were brought down due to involved illegal financial activities (Mintz & Morris, 2020, p. 213). The employees on lower-ranking were also subjected to unethical business practices as the CEO convinced them to keep silent over the process through financial benefits. Finally, auditing firm PricewaterhouseCoopers failed to check the company's financial reports by scrutinizing illegal financial transactions, thus leading to unethical auditing practices ( Hamilton & Micklethwait, 2016, p. 79 ).
Applicable Ethical Theory
The CEO opted to ovoid sales tax on his art purchases with materialistic desires not to raise a red flag regarding illegal activities within Tyco International. The virtue of materialistic desire also reflected Kozlowski’s greed for financial and material gains. This is in relation to ethical egoism reflected by consequentialistic theory where moral conduct is predetermined by cost-benefit analysis and consequence of actions ( Bradley, 2018, p. 43 ). The CEO avoided tax and prioritized his materialistic gain over ethical conduct. Consequentialistic theory indicates that humans’ self-interest is poorly afflicted by a lack of morals, resulting in demands that are beyond self-interest. Living a healthy and meaningful life requires humans to act selfishly as per the theory. The CEO considers his own personal interest without considering the business impact on Tyco International operations. Kozlowski took the company assets as his assets leading to the commingling of Tyco International assets. The CEO would use the company funds to pay his personal expenses as indicated to the expenses paid for his second wife's birthday party, as well as the purchase of art pieces and household items.
Ethical Issues for a Christian Worldview
The principle of utilitarianism was violated by the actions of Kozlowski, top officers, and board of directors. The principle suggests that the virtue of happiness should be equal from one person to another rather than actions that create equality in terms of personal and humanity treatment ( Hao, 2017, p. 9 ). The CEO, together with the board of directors, did not consider the impact of their actions towards shareholder's plight and company reputation. Their unethical behaviors set the company into problems of adopting new investors to its investment programs who were not willing to invest due to trust issues and fear of fraudulent activities associated with the company. The company exhibited an ethical challenge and had no real financial picture that would have made the management make comparisons with the financial performance of other companies. The Christian perceptive requires an individual to be straight forward with openness to gain trust. The CEO and board directors were fraudulent, and no one would trust them in terms of investment.
Tyco International also violated the principle of rights through special relationships and particular roles assigned to greed. It was hard for shareholders, creditors, and the government to get hold of the company's accurate financial figures and statements as they were deprived. Despite the management team of Tyco International facing an ethical dilemma, the human rights of employees were violated by the actions of the Kozlowski and board of directors ( Sieckmann, 2018, p. 16 ). From the Christian view, everyone has to fulfill every desire he or she has been given, and failure indicates that you are against the divine intervention. The accounting section and people involved violated their fiduciary duty with inaccurate information regarding the financial performance of the company. Additionally, the accounts failed to protect the interest of stakeholders and shareholders.
Recommended Actions
The board of directors would have examined the programs of the company and establish whether they are fit to check and countercheck business loopholes. For instance, all illegal activities by the CEO, including unethical business activities and void financial transactions was as a result of loopholes and weakness within the financial programs. Additionally, the company requires proper management through re-electing a new board of directors, CEO, and president to uphold ethical good of conduct that would later improve Tyco International image and employee conducts in the future.
References
Bradley, B. (2018). Contemporary Consequentialist Theories of Virtue. In The Oxford Handbook of Virtue .
El Mahdy, D. F. (2019). Corporate Governance and the Financial Crisis: What Have We Missed?. Journal of Accounting & Finance, Forthcoming .
Hao, Y. (2017). The Cognitive Logic of the Legal Value under the Utilitarianism. Journal of Social Sciences , (5), 9.
Hamilton, S., & Micklethwait, A. (2016). Greed and corporate failure: The lessons from recent disasters . Springer.
McGee, J. A., & Byington, J. R. (2017). The C ‐ Suite and Fraud. Journal of Corporate Accounting & Finance , 28 (4), 53-57.
Mintz, S. M. & Morris, R. E. (2020). Ethical obligations and decision making in accounting (5th Edition). New York: McGraw Hill Education.
Sieckmann, J. (2018). Proportionality as a Universal Human Rights Principle. In Proportionality in Law (pp. 3-24). Springer, Cham.
Wells, J. R., & Ellsworth, G. (2017). The Six CEOs of Tyco International Ltd.
