Examining a Business Failure

When a business fails the causes can be wide ranging, from poor management decisions, to a downturn in the economy, to not enough cash flow, to not able to compete with larger rivals, to name a few. However, when the reason a business fails is due to something like greed then a business failure takes on a whole new meaning.

Tyco Corporation and Taxes
Tyco CEO Dennis Kozlowski was not the first member of corporate America to get a little greedy, and he will not be the last. However, Mr. Kozlowski made a decision that proved to be one that cost not only him his job, but cost his company its reputation, its stockholders and stakeholders their money and trust, its board and some employees of Tyco their jobs, and the public their trust in the once good name of the company he represented. So why did Mr. Kozlowski do this, because he and other people who surrounded him at Tyco thought they could cheat the United States Government out of millions of dollars in Federal Taxes, no, plain and simple it was greed.
According to reports in 2002 Mr. Kozlowski’s downfall came when some irregular transactions came to the attention of the New York State Banking Department dealing with transfers into the bank account of a high-end art dealer over the period of a few short days. These transfers, in the seven figure dollar range, lead them to Mr. Kozlowski and the Tyco investigation began to unravel from there. What was eventually discovered was Mr. Kozlowski’s ability to avoid paying over $13 million in New York State and City taxes, and Tyco’s ability to set itself up as a corporation based in tax friendly Bermuda with offshoots in Barbados, the Cayman Islands, and Jersey, in order to slash its 2001 tax bill by $600 million. Tyco made the game of finding new ways of avoiding paying taxes into a new art form, according to some before the house of cards came tumbling down and the Security and Exchange Commission caught up with Mr. Kozlowski and his co-conspirators.

What Could Have Been Done
The public might never truly know what occurred behind the scenes at Tyco during Mr. Kozlowski’s reign. One can only surmise from reports that have been published that Tyco’s Board of Directors and upper level management knew what was occurring in regard to the creative ways that taxes were avoiding being paid. However, because no one stepped up and said anything, or so the public knows, or did anything before the New York State Banking Commission and the Security and Exchange Commission became involved, one can surmise that this behavior was condoned and therefore, approved.

If there had been a member or members of the Board of Directors or upper management willing to take or assume a leadership role or even play the part of whistleblower perhaps the fiasco that became the mess at Tyco could have been stopped long before 2002. There might have been someone who tried and was either stopped in his or her tracks, perhaps threatened with legal action or fired, the public might never know. But internal procedures should have been in place and someone should have stepped up and said that the company should be paying its tax obligation to the United States Government. The company had moved its headquarters to Bermuda in 1997, someone should have said or done something then, perhaps this all or some of it could have been avoided. In the case of Mr. Kozlowski’s personal tax issues, the Board of Directors and upper management cannot be responsible for its CEO’s lack of personal ethics, but most companies do have some sort of clause in the contract upper management signs in regard to conduct. One would believe that Mr. Kozlowski’s personal tax filings would fall under such a clause, and would also have to be scrutinized each year for irregularities. Perhaps if such a clause is not part of these contracts companies might want to consider making them part of them, to avoid just such a scenario as Mr. Kozlowski’s.

Tyco’s failure as a business was not due to a downturn in the economy or a cash flow problem, but something else entirely. It was due to greed, and the wish to do anything possible to avoid paying taxes to the United States Government. If not for one pair of sharp eyes noticing some odd banking transactions, the Tyco Corporation’s tax evasion scheme might still be going unnoticed today.

Byrnes, N. (2002, December 23). The Hunch That Led to Tyco’s Tumble. Business Week Online
Byrnes, N., & Brady, D. (2002, February 4). What to Look for in Tyco’s Numbers. Business Week Online
Mintzberg, H., Lampel, J., Quinn, J. B., & Goshal, S. (2003). Organization. In The Strategy Process: Concepts, Contexts, Cases, Global 4th Edition (pp. 207-241). : Prentice Hall.
Symonds, W. C., & Smith, G. (2002, July 1). The Tax Games Tyco Played. Business Week Online