Taking Down the Lion: The Rise and Fall of Tyco's Dennis Kozlowski (34 page)

Lessons We Can Learn from the
Tragic End of Kozlowski’s Career

I began this project as a learning experience, and I end it with what I learned (and I learned a lot):

1. Cover your ass! CYA! Document everything, make sure everything is documented, and recognize the risk in counting on other people to take care of important responsibilities for you—because if they don’t do their jobs, you are still responsible. Pay attention to the details in
   your work and in your life. Be mindful that you can’t delegate personal accountability.
   
2. Make sure everything that should be disclosed is disclosed.
   
3. As a business organization grows, ensure that adjustments are made to accommodate the growth. Make sure the proper people and policies are in place to operate a growing organization legally and ethically.
   
4. Be a responsible steward of company assets. Never mix personal and business finances.
   
5. Exercise good judgment. Remember that you are responsible for you. Do what you know to be right, despite pressure to do otherwise. Be proactive in doing what is right. Don’t wait until there’s trouble to evaluate your actions and decisions.
   
6. Protect your reputation. It is one of your greatest assets and once it is tainted, it is difficult to rehabilitate.
   
7. Never ever sign an employment contract that says your employer can be rid of you with no further financial obligation only if you’re convicted of a felony that’s materially injurious to the company.
   
8. Know the rules. Follow the rules, even when it’s a pain and takes too much time. Respect corporate formalities. They exist for good reasons. Cross every “t.” Dot every “i.” Consistently. Meticulously.
   
9. If company policies are bad for the company and hurt shareholders, change them to better serve those to whom you owe a duty. Don’t get caught in an “it’s-always-been-done-that-way” mentality. Don’t take advantage of loose company policies and lax governance.
   
10. Recognize that not everyone has a moral compass in their backpack; be sure that you always pack and use yours.
    
11. Be aware that prosecutors have perhaps the greatest power in our society, and when they exercise that power, the effects can be wide-reaching and may do as much harm as good.
    
12. Realize that media spin is everywhere. Believe little of what you read. Do real research, rely on reliable sources, and discover the truth. Remain aware that people in the media have their own biases and interests, none of which may have anything to do with reporting the truth.
    
13. Accept the fact that many people act only in their own self-interest. Be wise when deciding who to trust.
    
14. Respect the truth, because the truth matters.
    
15. And the most important lesson of all. Perspective. Remember that money is just money. It is far from the most important thing in life. It is unwise to measure success by the size of your earnings. The cost of going to prison, even for only a day, is far greater than any paycheck you could ever earn. Ask Dennis Kozlowski.
    

* * *

Mid-State Correctional Facility

Marcy, New York

May 24, 2011

Dear Cathy,

You asked what is the first thing I’ll do once I’m out of prison. I often think of freedom. I cannot wait to embrace my daughters and my two grandchildren. It will be great to be free of fences, razor wire, jingling keys, barked orders, strip searches, a 24/7 fluorescent light, and a metal rack next to a toilet as a bed.

I look forward to doing what free people do. Close a bathroom door, go to the store, drive a car, open a door, call on a telephone, touch a computer. No one will open my mail but me. No one will monitor my telephone calls. Eat something decent whenever, wherever I desire. Use a knife and a fork. See a dog. Walk a beach. See the moon and stars.

Simple pleasures and the freedom to enjoy them are more precious than you can imagine.

Best Regards,

Dennis
27

Notes

People v. Kozlowski I,
New York State Supreme Court, New York County, Indictment #5259-02, September 29, 2003–April 2, 2004.

People v. Kozlowski II,
New York State Supreme Court, New York County, Indictment #5259-02, January 18, 2005–September 19, 2005.

URLs for online sources found in the Bibliography.

Chapter One: Six Women and Six Men

1.
People v. Kozlowski II,
transcript at 16338:7–25, 16339:2, 16339:4, and 16339:13–24, June 17, 2005.

2. Dennis Kozlowski, interview with the author, Marcy, New York, May 21, 2011.

3. 2001 Annual Report Tyco International Ltd., “Consolidated Financial Statements,” December 3, 2001, 42.

4.
People v. Kozlowski II,
direct examination of Dennis Kozlowski, transcript at 12095:7–9, April 27, 2005.

5. International Monetary Fund, “World Economic Outlook: The Global Economy After September 11,” December 2001. “The global slowdown that had started most prominently in the United States in 2000 had, by mid-2001, become a synchronized downturn across almost all major regions of the world.” Ibid. at 14. “Confidence is a major channel through which the September 11 attacks feed through to the global economy. An unforeseen event of the magnitude of the September 11 terrorist attack can radically alter the view of the future (including the level of uncertainty) for both consumers and businessmen. This provides an incentive to postpone or cancel spending, which, through Keynesian multiplier and trade channels, can reduce aggregate demand and output at home and in other countries.” Ibid. at 19.

6. 2001 Annual Report Tyco International Ltd., “L. Dennis Kozlowski, Chairman of the Board of Directors and Chief Executive Officer, Letter to Shareholders,” December 3, 2001, 15.

7. Ibid.

8. Kevin L. Kliesen, “The 2001 Recession: How Was It Different and What Developments May Have Caused It?”
Federal Reserve Bank of St. Louis Review
(September/October 2003). “The U.S. business expansion that started in March 1991 and ended exactly a decade later lasted more than a year longer than the previous record-long 1961–69 expansion.” Ibid. at 23. See also, “Economists Call It Recession,” CNNMoney, November 26, 2001. “The world’s largest economy sank into a recession in March [2001], ending 10 years of growth that was the longest expansion on record in the United States . . .” Ibid.

9. 2001 Annual Report Tyco International Ltd., “L. Dennis Kozlowski, Chairman of the Board of Directors and Chief Executive Officer, Letter to Shareholders,” December 3, 2001, 19.

10. Dennis Kozlowski, interview with the author, Marcy, New York, May 21, 2011.

11. Liz Harper, “Enron: After the Collapse,”
PBS Newshour with Jim Lehr
(June 2002); and Voluntary Petition,
In re Enron Corp.
, No. 01-16034, 2001 Extra LEXIS 159 (Bankr. S.D.N.Y. Dec. 2, 2001). See also, United States Bankruptcy Court, Southern District of New York, “Enron Corp. Bankruptcy Information,” last updated on February 22, 2013; Bruce Mizrach, “The Enron Bankruptcy: When Did the Options Market in Enron Lose It’s [
sic
] Smirk?”
Review of Quantitative Financial Accounting,
Vol. 27 (2006), 365; and David Stout and Sherrie Day, “Ex-Chief Says He Didn’t Know About Enron’s Accounting Woes,”
New York Times,
February 7, 2002.

12. John C. Coffee, “Understanding Enron: It’s About the Gatekeepers, Stupid,”
Columbia Law & Economics Working Paper No. 207,
July 30, 2002.

13. Simon Romero and Riva D. Atlas, “WorldCom’s Collapse: The Overview; WorldCom Files for Bankruptcy: Largest U.S. Case,”
New York Timtes,
July 22, 2002.

14. “ImClone ex-CEO Nabbed,” CNNMoney, June 13, 2002.

15. Ray J. Grzebielski, “Why Martha Stewart Did Not Violate Rule 10b-5: On Tipping, Piggybacking, Frontrunning and the Fiduciary Duties of Securities Brokers,”
Akron Law Review,
Vol. 40, No. 55 (2007), fn 7 and 56.

16. Securities and Exchange Commission Press Release 2002-110, “SEC Charges Adelphia and Rigas Family with Massive Financial Fraud,” July 24, 2002.

17. Dan Ackman, “House Committees to Investigate Global Crossing,”
Forbes,
March 13, 2002. “Had it not been for Enron—the scandal that has it all—the Global Crossing demise would have garnered more attention already on Capitol Hill and elsewhere.” Ibid.

18. “Graphic: A Long Line of Accounting Scandals,”
New York Times,
November 20, 2012.

19. Ibid.

20. Subrata N. Chakravarty, “Deal-a-Month Dennis,”
Forbes,
June 15, 1998. “ . . . Tyco’s performance with Kozlowski at the helm has been truly impressive . . .” Ibid. See also, William C. Symonds, “The Most Aggressive CEO,”
Businessweek
(Cover Story), May 28, 2001; and “The Top 25 Managers to Watch,”
Businessweek
(Cover Story), January 13, 2002.

21. See for example, Daniel Eisenberg, “Corporate Greed: Dennis the Menace,”
Time,
June 17, 2002; and Laura Italiano and Dareh Gregorian, “Pig Due to the Pen as Jury Pounds Tyco Thief Kozlowski,”
New York Post,
June 18, 2005.

22. Dennis Kozlowski, interview with the author, Marcy, New York, May 21, 2011.

Chapter Two: BA 0.043

1.
People v. Kozlowski II,
transcript at 16339:25, 16340:2–25, 16341:2–25, 16342:2–25, 16343:2–25, and 16344:2–10, June 17, 2005.

2. Dennis Kozlowski, interview with the author, Marcy, New York, May 21, 2011.

3. Joel Stashenko, “Ex-Tyco Executives Contest Use of Findings From Internal Probe,”
New York Law Journal,
September 3, 2008. “In 2005, Kozlowski and Swartz were each convicted by a jury of 22 of 23 counts, including grand larceny, falsification of business records, securities fraud and conspiracy. Prosecutors said the case was the largest larceny ever prosecuted in New York state.” Ibid.

4. Andrew Ross Sorkin, “Ex-Chief and Aide Guilty of Looting Millions at Tyco,”
New York Times,
June 18, 2005.

5. Dennis Kozlowski, letter to the author, March 17, 2011.

Chapter Three: 950 Fifth Avenue

1. F. Scott Fitzgerald,
The Crack Up,
ed. Edmund Wilson (New York, NY: New Directions, 1945). “When Fitzgerald’s friend Edmund Wilson came to put together ‘The Crack-Up,’ the volume of Fitzgerald miscellany that appeared in 1945, five years after Fitzgerald’s death, he included this entry, explaining in a footnote that ‘Fitzgerald had said, ‘The rich are different from us.’ Hemingway had replied, ‘Yes, they have more money.’’” Letter to the Editor, “The Rich Are Different,”
New York Times,
November 13, 1988.

2.
Psycho,
directed by Alfred Hitchcock (Los Angeles, CA: Paramount Pictures, 1960).

3. Dennis Kozlowski, interview with Morley Safer, “Dennis Kozlowski: Prisoner 05A4820,”
60 Minutes,
originally broadcast March 25, 2007; and “Party’s Over: Tyco’s Kozlowski,”
American Greed,
originally broadcast March 19, 2008.

4. See for example, Joann S. Lublin, “Dennis Kozlowski Talks Jail, Pay,”
Wall Street Journal,
October 21, 2012. “As convicted hedge-fund manager Raj Rajaratnam gets ready to enter the prison system, L. Dennis Kozlowski, a poster child for the last wave of corporate scandals, is hoping he’ll soon get out.” Ibid. See also, William G. Flanagan,
Dirty Rotten CEOs: How Business Leaders Are Fleecing America
(New York, NY: Citadel Press, 2004). “And what of the poster child for corporate greed, L. Dennis Kozlowski? Kozlowski got to be the first of the Dirty Rotten CEOs in the criminal docket mainly because he was so flamboyant.” Ibid. at 271; and Scott Green,
Sarbanes-Oxley and the Board of Directors: Techniques and Best Practices for Corporate Governance
(Hoboken, NJ: John Wiley & Sons, 2005). “In Dennis Kozlowski, prosecutors believe they have found the perfect poster child for executive greed and unethical practices.” Ibid. at 194.

5. Michael J. De La Merced, “Dennis Kozlowski’s Homecoming, of Sorts,”
New York Times,
March 16, 2012.

6. Temporary Release Programs,
New York State (NYS)
Department
of Corrections and Community Supervision, “Temporary Release,” New York State Department of Corrections and Community Supervision defines “work release” as a program “which allows an inmate to leave a facility for up to 14 hours in any day to work at a job in the community or gain on-the-job training.” Ibid.

7. New York State Department of Corrections and Community Supervision defines “furlough” time as that “which allows an inmate to go home to stay with his/her family for up to seven days to maintain family ties, look for employment or to seek post-release housing.” Ibid.

8. Dennis Kozlowski, letter to the author, July 14, 2011.

9. Ibid.

10. Dennis Kozlowski interview with the author, New York City, New York, June 23, 2012.

11. Ibid.

12. Ibid.

13.
People v. Kozlowski I,
direct examination of Mariola Tarnachowicz, transcript at 05266:16–23 and 05273:6–12, November 25, 2003.

14. Dennis Kozlowski, interview with the author, New York City, New York, June 23, 2012.

15. Ibid.

16. Dennis Kozlowski, interview with the author, New York City, New York, June 23, 2012; and
People v. Kozlowski II,
direct examination of Dolly Lenz, April 22, 2005.

17. Dennis Kozlowski, interview with the author, New York City, New York, June 23, 2012; and
People v. Kozlowski II,
direct examination of Dolly Lenz, April 22, 2005. See also, Gabrielle Sherman, “Tyco Slashes Co-op,”
New York Observer,
March 8, 2004; and Michael J. de la Merced, “Inside Stephen Schwarzman’s Birthday Bash,”
New York Times,
February 14, 2007.

18.
People v. Kozlowski II,
direct examination of Dolly Lenz, April 22, 2005.

19. Ibid. at 11764:2.

20. Joshua M. Berman, letter to the Board of Directors, 950 Fifth Avenue Corporation, March 30, 2000.

21.
People v. Kozlowski II,
direct examination of Dolly Lenz, transcript at 11764:13, 11766:13–16, and 11764:20, April 22, 2005.

22. Dennis Kozlowski, interview with the author, New York City, New York, June 23, 2012.

23.
People v. Kozlowski II,
direct examination of Kathy McRae, transcript at 11386:23–25, April 20, 2005.

24.
People v. Kozlowski I,
direct examination of Brian Moroze, transcript at 02070:22–25, October 22, 2003.

25.
People v. Kozlowski II,
direct examination of Dennis Kozlowski, transcript at 12252:17–25, 12253:2–4, and 12253:5–8, April 27, 2005. See also,
People v. Kozlowski I,
direct examination of Brian Moroze, transcript at 02073:9, October 22, 2003.

26.
People v. Kozlowski II,
direct examination of Kathy McRae, transcript at 11385:23, April 20, 2005; and cross-examination of Dolly Lenz, transcript at 11886:13 and 11761:14–16, April 26, 2005.

27. Dennis Kozlowski, interview with the author, New York City, New York, June 23, 2012.

28. Ibid.

29.
People v. Kozlowski II,
direct examination of Mark Foley, transcript at 04783:10–18, February 24, 2005.

30. Dennis Kozlowski, interview with the author, New York City, New York, June 23, 2012.

31. Tyco International Ltd., “Minutes of a Special Meeting of the Board of Directors,” Tuckers Town, Bermuda, May 12, 1999, 7; and “Minutes of a Regular Meeting of the Board of Directors,” Pembroke, Bermuda, October 3, 2000, 12.

32. Dennis Kozlowski, interview with the author, New York City, New York, June 23, 2012.

33. Ibid.

34. New York Department of Finance, Automated City Register Information System, “Manhattan, Block 01391, Lot 0001,” document number 2004120802167001, Units 10 and 11, 950 Fifth Avenue, December 14, 2004.

35.
People v. Kozlowski II,
direct examination of Linda Auger, transcript at 08058:12–13, March 23, 2005.

36. New York Department of Finance, Automated City Register Information System, “Manhattan, Block 01391, Lot 0001,” document number 2004120802167001, Units 10 and 11, 950 Fifth Avenue, December 14, 2004.

Chapter Four: Executive Perquisites

1. John Lennon and Paul McCartney, “Strawberry Fields Forever,”
The Beatles,
Capitol Records, 1967.

2. David Sheff, “The Playboy Interviews,”
Playboy
(January 1981).

3. Robert Palmer, “Lennon Known Both as an Author and Composer,”
New York Times,
December 9, 1980.

4. Michel Marie Deza and Elena Deza,
Encyclopedia of Distances,
2nd ed. (New York: Springer), 2010, 586.

5. Dennis Kozlowski, interview with the author, New York City, New York, June 23, 2012.

6. “Divorce Deal Reveals Welch’s Perks,” CNNMoney, September 6, 2002; Matt Murray, Rachel Emma Silverman, and Carol Himowitz, “GE’s Jack Welch Meets Match in Divorce Court,”
Wall Street Journal,
November 27, 2002; ibid. quoting Nell Minow, editor of
The Corporate Library;
PBS NewsHour
transcript, “Executive Perks,” September 16, 2002; and Edwin A. Locke, “Jack Welch Earned His Perks,”
Christian Science Monitor,
September 23, 2002.

7. Dennis Kozlowski, letter to the author, February 19, 2011.

8. Beth Healy, “Executive Perks Are Still Alive and Well,”
Boston Globe,
April 12, 2013. See also, Daniel Fisher, “The Most Outrageous Executive Perks,”
Forbes,
June 27, 2012; and Nelson D. Schwartz, “The Infinity Pool of Executive Pay,”
New York Times,
April 6, 2013.