Examining a Business Failure – Tyco International Ltd. LDR/531 Organizational Leadership March 01, 2010 Examining A Business Failure – Tyco International Ltd. Organizational behavior is concerned with human behavior in organizations. This essay seeks to explain how organizational behavior theories could have predicted or explain the failure of Tyco International Ltd. The theories that organizational behavior are built on are psychology, social psychology, sociology and anthropology.
According to Robbins and Judge (2009) , psychology seeks to explain changes in behavior in humans for example, impacts on learning, emotions, leadership, and decision making principles in an organization. Social psychology examines people’s influences on each other, attitudes, communication patterns, building trust, group behavior, power and conflict. Sociology focuses on the behavior of groups within an organization especially communication, power and conflict.
Anthropology is the study of human beings and their activities and it helps us to understand the differences in values, attitudes and behaviors among individuals in different organizations. Ultimately, an organization’s work is performed or tasks accomplished by the behavior of individuals that make up the organization. Hence, success or failure of an organization can be attributed to the behavior of individuals within an organization. Tyco International Ltd. Tyco International Ltd. is a multi- national company which manufactures products and provide services to customers all over the world.
Its products are quite diversified and range from residential and commercial security systems, fire suppression systems, electrical components, firefighter and medical diagnostic equipment, water purification systems, and building construction materials. In 2001 it reported revenues of $ 34 million. At the end of September 2002, Tyco revenues climbed to nearly $35 billion but it also had a loss of $9 during this same period, causing its stock prices to plummet. However, it was not these losses on the books that were responsible for the catastrophic failure of the company.
The Business Failure With this backdrop of financial problems, the company found itself in a scandal that evolved around its Chief executive Officer Mr. Dennis Kozlowski and his senior management team. The failure of Tyco International in 2002 was primarily due to fraudulent activity. It was the discovery of an unapproved finder’s fee, the attempted removal of confidential company documents as well as unpaid sales taxes by Mr. Kozlowski that caused the Board of Directors to examine management compensation and the corporate governance structure.
When investigated by the securities Exchange Commission for violation of the Securities Laws, it was found that the company had failed to disclose loan information to stock holders, had used improper disclosure and had submitted false and misleading statements. The acts of fraud included undisclosed compensation, secret loans, undisclosed related party transactions, fraudulent stocktaking, improper loans, misuse of relocation funds, and asset embezzlement by Mr. Kozlowski. Contributions to the Failure The company issued a statement after Mr.
Kozlowski had resigned which stated that his fraudulent activities were done unknown to the Board. However, all the parties within the organization were responsible for the fraudulent activity. They all ignored their responsibilities to the laws of corporate governance and to their investors and employees. The Boards of Directors were not protecting Tyco’s shareholders interest with due diligence. In fact they were negligent in their corporate duties and responsibilities. This shows that it was a board in name only as it had not put the proper mechanisms in place for the monitoring of ethical or financial conduct.
If it had, it would have uncovered the signs of fraudulent activity that were occurring over the five year period. They were therefore just as guilty as the CEO and his direct reports as they were not policing the organization. Mr. Kozlowski was once hailed as a paragon of corporate leadership but that all changed when he was accused of corporate fraud. His actions caused the scandal because he had violated his fiduciary duty because he was the agent of the shareholders and had misused their funds sustain his corporate greed.
He was more interested in personal gain than in the best interest of the company and its share holders. The Chief Financial Officer and the Legal Counsel are also to be blamed for the scandal because they should have reported the illegal activities and not join in this unethical behavior. The Auditors also contributed to the scandal as they ignored the warning that were communicated through the moving of Tyco’s headquarters to Bermuda which is a tax haven, excessive bonuses, ignoring due diligence and the huge salary increases of the CEO.
Explanation of Behaviors With reference to the theories on organizational behavior, Mr. Kozlowski behavior can best be explained using social psychology. Here was an individual who was hailed as a paragon of corporate leadership. He used his behavior to build trust, influence other people and groups and exert power and control. He was able to use his behaviors to influence the other persons in upper management to deceive the shareholders. He was able to communicate with the board in such a manner that built their trust.
Using sociology principles, he formed a group and used communication and power to control his upper management team. Using the principles of anthropology, we can infer that the values shared by Mr. Kozlowski were the same as those in upper management who joined him in his quest to satisfy his corporate greed. Finally, only psychology can be used to explain the changes of behavior in Kozlowski that could have caused him to be become a bastion of corporate greed as opposed to being a paragon of ethical leadership.
Conclusion In conclusion organizational behavior theories can be used to predict failure or success within an organization. Companies must therefore build a strong base of behaviors of personalities that are suited to goals, and the objectives of the organization and the best interest of the shareholders. Companies must choose ethical leaders whose behaviors will not negatively impact the organization otherwise; the business will fail or be put under the microscope for failing ethical and financial standards.