“Ethical Leadership” – The Case of Tyco
Sacrificing ethics in the name of profits can be seen as one of the main dilemmas of corporate governance, in which the major scandals had a profound role. It is suggested that good ethics are good business (Hartman, 2005, p. 185), while it can be stated that it was not always the case, at least not for Tyco International. The issue faced by Tyco’s scandal is largely connected to the actions of its now-former CEO Dennis Kozlowski, whose management of Tyco, not only led to him being charged for corruption but also partly influencing the company’s corporate image. Linking ethics and value, the case of Tyco is unambiguous, where “[i]n the nine years since Kozlowski, 54, was named CEO of Tyco International, the Bermuda-headquartered conglomerate’s sales have mushroomed to $38.5 billion from $3 billion” (Kozlowski, 2001). On the other hand, such achievements were linked to him exploiting “every legal accounting loophole and tax-avoidance scheme imaginable” (Bianco, Symonds, Byrnes, & Polek, 2002), which suggests the influence of CEO leadership lead to that “a lot of people [are] involved, and that’s the lawyers, accountants, executives, the board of directors” (Bianco, et al., 2002).
The main responsibility of the company to the ethical issue, aside from being charged guilty on most accounts, is the focus of the new CEO on the ethical aspects of the company. “Under Kozlowski… Tyco’s culture discouraged subordinates from questioning top executives and discouraged contact between directors and second-tier managers” (Lavelle, 2002). Thus, the main response was in placing ethics and social responsibility at the forefront of their activities” (Hartman, 2005, p. 186). The latter came in the form of the Guide to Ethical Conduct, the development of which was one of the first moves of the current CEO of Tyco, Ed Breen, who began the process of ethical reform when he joined the company in 2002.
The outcome of such reform can be seen in several dimensions. On one dimension the company made considerable improvements in governance rating, which is a rating conducted by consultants Governance Metrics International (GMI). The rating rose from 1.5 out of 10 in 2002, to 9 out of 10 in 2005 (Verschoor, 2006). Additionally, linking ethics and value, the commitment to ethical conduct has measurable results in performance, where the company’s revenues continued growth, with Breen leading one Tyco international, one of the groups that resulted from the separation of Tyco into three divisions in 2007.
“The Value Creation Model” –Steve Job’s Apple
If an industry is well established, it does not necessarily imply that value creation models cannot be created. In that regard, the role of the CEO is prominent in cases where the new business model created a value that generated wealth for the owners. Apple Inc. and its founder and CEO is a perfect example, where the “[d]iscovery of a new value creation model start[ed] with developing industry foresight through a thoughtful and imaginative assessment of underlying market drivers, trends, and critical discontinuities” (Rowe, 2001, p. 288). Accordingly, the period during Steve Jobs’ absence can be characterized as the development of managerial leadership, rather than visionary or strategic (Rowe, 2001, p. 89). Before the return of Jobs as CEO in 1997, Apple struggled with profits and innovations at the time when the CEO was Gil Amelio, mainly failing to recapture the value of Apple’s products.
With Steve Jobs assigned as a CEO, the main response to the state of the company was mainly seen in changing the strategy of the company, shifting from products toward marketing, making the Apple brand one of the most recognizable in the industry. The alliance with long-time rival Microsoft was also among the first steps made by Jobs as a CEO. Additionally, as an example of “developing industry foresight”, shifting a PC-only market toward the phone and the music business proved critical in Apple’s portfolio. “Wealth creation is… about growth and new business development (Gillan, 2004, p. 289).
The response to the strategy led by Steve Jobs can be seen in the revival from the losses that have mounted more than $1.5 billion over 18 months in 1997 (BOOTH, JACKSON, & MARCHANT, 1997) to being ranked by Fortune as the top admired company in the world in 2008 and 2009 (Fortune, 2010). In financial terms, it can be seen that reaching $24 billion in sales of a product that was not the core specialization of the company a decade ago, the iPod is a major indicator of success. Generally, the current financial statement of the company includes constant and regular growth, where for the last three years, the total sales of the company increased from $24 billion in 2007 to $42 billion in 2009. The issue of wealth creation is specifically evident in the rise in earnings per share from $3.93 in 2007 almost three times to $9.08 in 2009 (Apple, 2010).
References
Apple. (2010). APPLE THREE-YEAR FINANCIAL HISTORY. Apple Inc.Web.
Bianco, A., Symonds, W., Byrnes, N., & Polek, D. (2002). The Rise and Fall of Dennis Kozlowski. Business Week. Web.
BOOTH, C., JACKSON, D. S., & MARCHANT, V. (1997). STEVE’S JOB: RESTART APPLE. Time. Web.
Fortune. (2010). World’s Most Admired Companies. CNN Money. Web.
Gillan, S. L. (2004). Corporate governance at the crossroads : a book of readings. Boston, Mass.: McGraw-Hill.
Hartman, L. P. (2005). Perspectives in business ethics (3rd ed.). Boston: McGraw-Hill.
Kozlowski, D. (2001). NAILING 400 deals – L. Dennis Kozlowski of Tyco International Inc – Brief Article – Interview. Bnet. Web.
Lavelle, L. (2002). Rebuilding Trust in Tyco. Business Week. Web.
Rowe, W. G. (2001). Creating Wealth in Organizations: The Role of Strategic Leadership. The Academy of Management Executive (1993), 15(1), 81-94.
Verschoor, C. C. (2006). Tyco: An Ethical Metamorphosis. STRATEGIC FINANCE, Web.