Mgt 330 - Tyco and Ethics and Management

Tyco and Ethics and Management

By:

MGT 330

University of Phoenix

This paper will evaluate the planning function of the Tyco Company and analyze the impact that legal issues, ethics, and corporate social responsibilities have on management planning. The year 2000 was a year marked by scandal over the accounting practices of some of the biggest corporations in the world, including Tyco International Incorporated. Tyco’s top executives were indicted and convicted of fraud charges stemming from both improper accounting practices as well as improper personal use of company funds. The planning strategy of these executives seems to have been more focused on personal gain than on the best interests of the company and its shareholders. They ignored their responsibilities to the laws governing corporate management and to their investors and employees. Dennis Kozlowski, the chief executive officer, alone plundered the company of over 400 million dollars. Using company funds, he threw a toga party for his wife’s birthday that cost two million dollars. He bought millions of dollars worth of art to decorate his home. He spent six thousand dollars of company money on a shower curtain and 15 thousand dollars on an umbrella stand shaped like a poodle. Unlike most of the companies targeted by those investigations, Tyco survived the scandals and is still in business today because it changed the way that it operates. Three of the factors that influence management planning today are their ability to obtain materials and components for manufacturing, the rate of attrition for their home security products and services and the ongoing litigation and investigations.

Remembering the indictments and convictions of former CEO Dennis Kozlowski and CFO Mark Swartz, Tyco’s current management must always be very aware of their responsibility to obey anti-fraud legislation and the rules of the Securities and Exchange Commission. Because of the widespread accounting practices that came under scrutiny and censure, Congress passed the Sarbanes-Oxley act, which provides for more oversight of the accounting industry. In addition, the SEC now requires top level executives to personally certify the financial statements of their companies. Tyco is still under constant scrutiny by the SEC and other government agencies, and their practices must be not only legal, but also ethical. Their strategy must be designed with the company’s best interests in mind, rather than their own personal interests. The shareholders interests must also be a consideration. Investors are still somewhat leery and the managers have to be able to reassure them that they will not be defrauded again. According to Tom Walker, writing in the Houston Chronicle, Executives serious wrong-doings endanger jobs, pensions and investments ((2007, p. 6).

One of the main businesses at Tyco is Tyco Electronics. They manufacture home security devices and provide monitoring of those devices for customers. One major factor that influences planning is the ability to obtain enough raw materials, electronic components and equipment to manufacture these devices at prices that allow them to be competitive in this industry. Price fluctuations, availability of these items, even changes in political environments can adversely affect their ability to produce and distribute their products in a timely manner or in quantities sufficient to meet the demand. Their strategic planning would have to focus on these issues. Tactical planning would center on having teams in place, ready to put the process into play and operational managers would probably be planning how best to use the workers in units that can respond to the demand for product. Contingency plans would be made to guarantee alternate sources for any unavailable resources.

According to a recent Tyco prospectus (2007), Attrition rates for customers in our ADT Worldwide segment was 13.8% on a trailing 12-month basis as of September 29, 2006. If attrition rates were to trend upward, ADT Worldwide recurring revenue and results of operations would be adversely affected (p. 9). This is another factor that concerns management. Strategic planning for this potential problem would certainly include plans to introduce new products to their line