Catherine S. Neal - Taking Down the Lion: The Triumphant Rise and Tragic Fall of Tycos Dennis Kozlowski

Taking Down the Lion

Taking Down the Lion

The Triumphant Rise and Tragic Fall of Tycos Dennis Kozlowski

Catherine S. Neal

This book is dedicated to my parents

Joyce Honaker Neal and Creston Neal
the best people I know.

And to Kora Jane.

TAKING DOWN THE LION

Copyright Catherine S. Neal, 2014

All rights reserved.

First published in 2014 by PALGRAVE MACMILLAN in the U.S.a division of St. Martins Press LLC, 175 Fifth Avenue, New York, NY 10010.

Where this book is distributed in the UK, Europe and the rest of the world, this is by Palgrave Macmillan, a division of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS.

Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world.

Palgrave and Macmillan are registered trademarks in the United States, the United Kingdom, Europe and other countries.

ISBN: 978-1-137-27891-3

Library of Congress Cataloging-in-Publication Data

Neal, Catherine S.

Taking down the lion: the triumphant rise and tragic fall of Tycos Dennis Kozlowski / Catherine S. Neal.

pages cm

ISBN 978-1-137-27891-3 (hardback)

1. Kozlowski, Dennis. 2. Chief executive officersUnited StatesBiography.
3. Tyco International Ltd. 4. Business ethicsUnited States. 5. CorporationsCorrupt practicesUnited States. I. Title.

HC102.5.K69N43 2014

338.7681092dc23

2013032153

A catalogue record of the book is available from the British Library.

Design by Letra Libre, Inc.

First edition: January 2014

10 9 8 7 6 5 4 3 2 1

Printed in the United States of America.

Contents

Part One

Mogul Style

Part Two

Timing Is Everything

Part Three

Ring around the White-Collar of Criminal Justice

Part Four

Inglorious Ending

Preface

I first became aware of Tyco International Ltd. and its then CEO Dennis Kozlowski when both appeared on the radar during the 1990s as the company achieved impressive results for its shareholders quarter after quarter, year after year. My interest grew during the early 2000s when Tyco and Kozlowski became involved in a highly publicized scandal. I left the private practice of law for academia in 2002, the same year that Kozlowskis tenure as the remarkably successful CEO of Tyco came to a sudden end. The textbooks I used in my business ethics and business law courses began including case studies about the Tyco corporate scandal soon after I began teaching.

I began this project with a clear objective, but with no plans to write a book. I simply wanted to understand a situation that on its face didnt make sense to me. How did a successful, high-profile executive end up in a New York State prison? Why was he prosecuted by a local district attorney, and not a U.S. attorney? It was a very unusual circumstance that set the case apart from others. In the other major corporate scandals that occurred during the same time period, only federal crimes were alleged and charged. But federal prosecutors declined to charge anyone connected to Tyco. Instead, Tyco executives, including Dennis Kozlowski, were indicted and tried by the Manhattan District Attorney under the state laws of New York.

In addition to being intrigued by his unusual prosecution, I was confused by how Kozlowskis crimes were described. Why did prosecutors and the media say that he received undisclosed compensation and took secret loans through the companys employee loan programs? How could his compensation and loans be considered secret when so many people knew about them? The transactions were processed and recorded in the normal course of business and were audited by one of the most respected accounting firms in the world. During Kozlowskis criminal trials, not a single Tyco employee testified that he or she concealed information, and not one believed anything was wrong inside the company. Plus, Tycos accounting methods were examined and investigated numerous times, yet no material errors were ever identified. It didnt add up. The more I knew, the less I understood.

I first contacted former CEO Dennis Kozlowski in January of 2011. Spurred by my curiosity about the scandal, I wrote a letter to him at the Mid-State Correctional Facility, what he often referred to as the gated community, in upstate New York. I simply asked if he would discuss his case with me.

Kozlowski responded with a one-page, handwritten letter in which he indicated his willingness to address my questions. We exchanged several letters and in May of 2011, I met Kozlowski face-to-face at the prison. I visited Kozlowski several times and maintained regular contact with him for two and a half years. I asked and he answered hundreds of questions about his life, his career, and the twenty-seven years he spent at Tyco. Kozlowski gave me access to his attorneys, former colleagues, family members, and friends. Our ongoing conversation and thousands of hours of research evolved into this book.

In addition to interviewing Kozlowski, I spoke with another former Tyco CEO, and with former Directors, executives, and other Tyco employees. I talked with Kozlowskis family members, his friends, the man who served as foreperson of the jury that convicted Kozlowski, and I met with legendary former Manhattan District Attorney Robert Morgenthau, who prosecuted the Tyco executives. The information in this book was found in tens of thousands of documents, hundreds of articles, Securities and Exchange Commission filings, the applicable laws and regulations, and numerous court opinions. I also relied on the evidence presented during two criminal trials that, in total, stretched over eleven months and spawned transcripts that contain 28,338 pages of sworn testimony, legal arguments, judicial decisions, a mistrial, and shocking verdicts. I sought the counsel of experts when I needed help interpreting and understanding what I found.

Its fair to say that I am biased. Im a business ethics professor. I spend my life studying and teaching the importance of thoughtful, legal, and ethical behavior in business. Im probably more critical than most people about right and wrong. I have strong opinions about what is acceptable and what is unacceptable behavior, with particularly high expectations of those in positions of leadership. Im not a likely advocate for a man who is widely considered one of the most notorious of all the corporate executives tried and convicted as a result of Enron-era scandals.

But here is what I know (and Ive heard myself say it dozens, maybe hundreds of times in classrooms full of business students): Its important to do whats right, even when its unpopular, even when its criticized, even when its difficult. Especially when its unpopular, criticized, and difficult. As I looked into Dennis Kozlowskis life and explored the Tyco scandal, I didnt find what I expected to find. As I studied, read, researched, asked hundreds of questions, dug through thousands of documents, and immersed myself in the scandal and criminal prosecutions, I found far more than, and not at all what I expected.

It would have been easy for me to write the same story about Kozlowski that has been written hundreds of times. I could have focused on the $6,000 shower curtain and his Roman orgy-themed birthday party on the Italian island of Sardinia. I could have skimmed the surface of the facts (saved myself thousands of hours of work) and written a book consistent with the publics perception of the former CEO of Tyco International. Instead, I decided to write exactly what I found, what I read, what I heard, and what, after more than thirty months of reasoned thought, I believe to be the truth.