Last week a jury in a New York courtroom saw a video of a luxurious
toga party on the Italian island of Sardinia, 4,200 miles east of New
York City. The tycoon who threw the bash was not Italy's multi-millionaire
prime minister Silvio Berlusconi but America's multi-millionaire Dennis
Kozlowski, the (former) chief executive officer of a large corporation,
Tyco International.
A multinational company with over 260,000 employees in over 100 countries,
Tyco is a major player in electronics, plastics, adhesives, fire protection,
security, and healthcare. Its 2002 revenues of $36 billion exceeded
the revenues of the state of Wisconsin.
On January 14, 2002, Business Week characterized CEO Kozlowski "as
perhaps the most aggressive deal maker in America" with $62 billion
worth of deals since 1992." Kozlowski took credit for leading Tyco
through the recession of 2001 and lifting its earnings 38 percent by
cutting costs and slashing 11,500 jobs.
By September 2002, however, Kozlowski, his predecessor Mark Swartz,
and former chief counsel Mark Belnick were led into a Manhattan courtroom
in handcuffs. They were charged with inflating Tyco's earnings for five
years--by over $400 million in 2002--and with the theft of $600 million.
Yet, from 1998 to 2001, Tyco's board of directors had rewarded Kozlowski
with close to $293 million in salary, bonuses, and stock proceeds.
What makes the looting of Tyco so sensational are the insatiable excesses
to which Kozlowski diverted the corporation's funds. It was for his
second wife's 40th birthday on June 11, 2001, that he invited 75 guests
to a $2 million extravaganza at a Sardinian hideaway. The videotape
of this Mediterranean splash records his welcome: "It's going to
be a fun week," he promised. "Eating, drinking, whatever.
All the things we're best known for."
According to Associated Press, "a stage was built resembling a
Roman temple with togas and torches all around," "scantily
clad models in Roman-themed attire parading around," and "an
ice statue of Michelangelo's David urinating vodka." For a reported
$250,000, country music crooner Jimmy Buffett flew in to entertain.
Kozlowski's attorneys claimed that he had paid half of the party's cost
himself and used the event to conduct Tyco business. Regrettably, however,
Dennis had been a menace to Tyco shareholders far too long. There were
reports of a $6,000 shower curtain in his 5th Avenue pad provided for
him by the company, a $15,000 umbrella stand, and a $17,100 "traveling
toilette box."
Ironically, Kozlowski first came to the attention of law enforcement
when he bought art worth $13 million but failed to pay the sales tax:
just $1 million. That, however, "turned out to be just the tip
of the ice sculpture," as the New York Daily News jested.
Tyco had set aside a fund to help executives relocate. Kozlowski, however,
felt free to dip into it to buy a $ 7 million Park Avenue apartment
for his first wife. Also stealing from the fund, Swartz bought himself
a 6.5 million East Side flat and Belnick a $14 million dig at Central
Park West and a ski chalet in Utah.
How could these three top executives--products of American higher education--get
away with so much fraud over five years? The New York Daily News reported
allegations that Kozlowski actually billed Tyco for tens of thousands
of dollars for clothing, jewelry, wine, and flowers.
Was there no criminal collusion or gross negligence by the members of
Tyco's board of directors, by accountants, and by auditors? As yet,
nobody else has been indicted. While Kozlowski rose to the top ranks
of America's business executives, even the excessive rewards he received
did not curb his greed. Did is success perhaps blind him so much that
he thought himself immune from the law?
The court could sentence him to 30 years in prison--$60,000 a year at
taxpayers' expense. Although such a long term is highly unlikely, there
ought to be a more productive way for Dennis Kozlowski to compensate
all those whom he defrauded.