Read an Excerpt
Taking Down the Lion
The Triumphant Rise and Tragic Fall of Tyco's Dennis Kozlowski
By Catherine S. Neal Palgrave Macmillan
Copyright © 2014 Catherine S. Neal,
All rights reserved.
ISBN: 978-1-137-41357-4
CHAPTER 1
Six Women and Six Men
Supreme Court, New York County
Manhattan Criminal Courthouse, 13th Floor
100 Centre Street
New York City, New York
June 17, 2005
The People of the State of New York
against
L. Dennis Kozlowski & Mark H. Swartz, Defendants
Court Officer: Come to order, part 51 is now in session.
The Court: As the parties are aware we have a note from the jury which states we have reached a verdict, so in a moment we will have the panel come out and take their verdict. I will just ask that everybody not react to whatever the verdicts may be and remain in the courtroom until we are finished taking the verdicts. If you have a Blackberry or something like that and you want to operate it that is fine, but nothing that is going to make noise and I don't want people running in and out while the verdicts are being taken, so whoever is here can remain but should remain until the verdict is taken. If anybody wants to leave now you are welcome to do that.
(Jury enters courtroom).
The Court: Good afternoon ladies and gentlemen, we have received your note which indicates you have reached a verdict.
The Clerk: Will the foreperson please rise. Mr. Foreperson, have you agreed upon a verdict?
The Foreperson: Say again.
The Clerk: Have you agreed upon a verdict?
The Foreperson: Yes, we have.
The Clerk: I'm going to take the verdicts as to defendant L. Dennis Kozlowski first and then the verdicts of the second defendant, Mark Swartz.
* * *
At one point in his life, Dennis Kozlowski could get just about anyone on the phone. "Except maybe the Pope," he conceded. He was successful, wealthy, well-known, and well-connected with a lifestyle that reflected his status. Kozlowski enjoyed expensive hobbies, homes, and habits, and he regularly rubbed elbows with celebrities, politicians, business moguls, and world leaders. He seemed to be blessed with the Midas touch; he was admired for his business acumen and frequently recognized for his achievements. After working hard almost his entire life, L. Dennis Kozlowski relished the rewards of twenty-seven extraordinarily successful years at Tyco International Ltd., the last ten of which were spent as the multi-national conglomerate's Chief Executive Officer (CEO) and Chairman of the Board of Directors.
During Kozlowski's decade of leadership, Tyco successfully acquired hundreds of companies; many were small and others were multi-billion dollar deals. Through both acquisitive and organic growth, Tyco expanded exponentially from a little known New Hampshire company with around $20 million in annual revenue when Kozlowski joined the organization in 1975 to a global giant with a quarter million employees in more than a hundred countries and annual revenue of close to $40 billion in fiscal year 2001 — Kozlowski's final year with the company.
In his letter to shareholders published in Tyco's 2001 Annual Report, which was Kozlowski's ninth opportunity to address his constituents at the conclusion of a fiscal year, the CEO described a year of outstanding performance. It wasn't the first time he shared good news with shareholders. Tyco experienced forty consecutive quarters of increasing profits when Kozlowski was the company's CEO.
At the close of the 2001 fiscal year, Kozlowski bolstered shareholder confidence by pointing to Tyco's consistently strong results — double-digit percentage increases in revenue and earnings that were especially meaningful in 2001, a year in which a global economic downturn was exacerbated by terrorist attacks on September 11, 2001. Kozlowski reminded shareholders that "[m]any outstanding companies found it impossible to meet their financial targets last year; and some couldn't make any money at all. Yet in the worst economic environment we have seen in a decade, Tyco managed to exceed its profit goals. All of us at Tyco are very proud of that achievement." Kozlowski backed his rhetoric with results and took great satisfaction in informing Tyco shareholders that "[f]or the ninth consecutive year, we increased revenues and earnings substantially. Revenues rose 25 percent to $36.3 billion and earnings grew $1.4 billion to $5.1 billion, a 38 percent increase over the prior year."
Kozlowski was correct. It was tough to flourish when the recession hit. Of course, he and Tyco had benefited from the booming economy of the prior decade. The longest economic expansion in history began in 1991 and stretched until early 2001, overlapping almost entirely Kozlowski's tenure as Tyco's CEO (July 1992 — June 2002). But the bull market ended; for the first time since he was named CEO, Kozlowski had to steer the company in a faltering economy.
And he did. Tyco weathered the recession of 2001 and Kozlowski felt certain the company was solid. He had spent ten years reducing Tyco's dependence on cyclical industries and establishing steady, predictable earnings growth, thus making the conglomerate less vulnerable to fluctuations in the economy. His vision for the company had become a reality and the results were convincing. To shareholders in 2001, Kozlowski stated with conviction that Tyco could grow its business in virtually any environment. He also expressed confidence in the state of the company, unconditionally declaring that Tyco was "poised to deliver many years of exciting returns." Even though Tyco was facing some atypical difficulties near the end of 2001, Kozlowski made it clear that he was "optimistic about Tyco's future."
The CEO's buoyant letter to shareholders in the 2001 Annual Report would be his last, and his optimism about a bright future proved erroneous. When he penned the letter to Tyco shareholders in December of 2001, Kozlowski did not predict that less than six months later, he would be fired. He didn't anticipate that three months after being fired, he would be indicted by the Manhattan District Attorney along with then Chief Financial Officer (CFO) Mark Swartz, Chief Corporate Counsel Mark Belnick, and Frank Walsh, a former member of the Board of Directors — the four accused of malfeasance in Tyco's C-suite and boardroom. As he approached the ten-year mark and looked back at a wildly successful decade as Tyco's Chairman and CEO, Kozlowski must have felt invincible. Nearly everything had gone his way. He could not have imagined his career ending the way it did, with him and the company to which he devoted most of his adult life entangled in a very public scandal.
* * *
Several extraordinary events happened around the time Dennis Kozlowski addressed Tyco shareholders at the end of 2001. Enron Corp., a global energy corporation based in Houston, Texas, a company with nearly 21,000 employees in over thirty countries and with stated annual revenue of more than $100 billion, on December 2, 2001 filed for bankruptcy protection under Chapter 11 of the United States Code. The $65 billion bankruptcy was, at the time, the largest corporate bankruptcy in U.S. history. The New York Stock Exchange de-listed Enron stock on January 15, 2002 after the price plummeted from a high of $90 a share in August of 2000 to $.40 a share on December 3, 2001, the first day of trading after Enron sought bankruptcy protection. The massive bankruptcy forced an autopsy of the corporate corpse and the pathology revealed a litany of diseases; accounting irregularities, conflicts of interest, shredded documents, securities violations, and unprecedented fraud were among the allegations that created a line of Enron executives invoking their Fifth Amendment right against self-incrimination when they were questioned before the United States Congress in February of 2002. Some of those who testified were later charged with and convicted of crimes related to their leadership of the defunct energy giant.
The wake of Enron's failure was wide and powerful. One of the direct casualties was Arthur Andersen, an enterprise that for decades set the standard for excellence and integrity in the accounting profession. Arthur Andersen suffered irreparable damage when the firm was implicated in some of the wrongdoing at Enron. The accounting firm was one of many organizations directly affected by the Enron scandal, in addition to the impact felt by tens of thousands of employees, retirees, creditors, and shareholders. The unparalleled direct costs of Enron's bankruptcy were compounded when the magnitude of the failure shook the entire market and caused both immediate and long-term changes in American business and legal environments. The lasting effects of Enron's collapse are significant; the ultimate costs, incalculable.
Enron was undoubtedly the linchpin of the scandals exposed during the early 2000s, but many others came to light during the same brief yet critical time period. Enron's bankruptcy was the "largest in U.S. history" for fewer than eight months before telecommunications giant WorldCom filed a $107 billion bankruptcy in July 2002.
The same summer that WorldCom collapsed, Sam Waksal, the founder and then CEO of ImClone Systems, Inc., was charged with illegal insider trading for tipping off family members and friends when he learned that the Food and Drug Administration (FDA) would soon deny approval of the biopharmaceutical company's anticancer drug Erbitux. In addition to alerting those close to him of the imminent drop in ImClone's stock price, Waksal attempted to sell millions of dollars worth of stock he owned before the company's bad news from the FDA reached the market.
One of the shareholders allegedly tipped off was domestic guru, media mogul, corporate executive, and Sam Waksal's friend Martha Stewart, who was convicted of lying to federal investigators about the timing of her sale of ImClone stock. Alleged tippee Stewart, who was a very wealthy and successful CEO at the time, avoided a loss of only $45,673 by selling a relatively small number of ImClone shares a day before news of the FDA's decision on Erbitux was made public. Had she waited twenty-four hours to sell her ImClone stock, after the bad news was made public, the transaction would not have been tied to Sam Waksal's inside information and would not have caught the attention of federal investigators. Interestingly, Stewart was never convicted of illegal insider trading, only of obstructing justice and lying to investigators. She was sentenced to and served five months in a federal prison.
Joining Enron, Arthur Andersen, WorldCom, ImClone, Waksal, and Stewart in this very ugly episode of U.S. business history were Adelphia and the Rigas family, Global Crossing, Fannie Mae and Freddie Mac, HealthSouth and its CEO Richard M. Scrushy, and with timing and allegations that forever placed them in this undesirable group, Tyco International, CEO Dennis Kozlowski, and CFO Mark Swartz.
In addition to rousing the interest of the U.S. Congress, federal and state regulators, and law enforcement agencies, the Enron-era scandals grabbed the attention of the media. When similar scandals happened in decades past, the news cycle and the number of outlets were limited. For example, during the savings and loan crisis of the 1980s, business news was primarily found once a day in the Wall Street Journal. But by the early 2000s, the news cycle was never ending. Coverage of the scandals was 24/7 and appeared in almost limitless outlets: newspapers, tabloids, periodicals, on the Internet, and on network and cable television. The public was deluged with stories about massive corporate bankruptcies, lost jobs and pensions, greedy CEOs, and a shocking list of legal and ethical lapses. Scrutiny of corporations, their boards of directors, and corporate executives was at its peak when Dennis Kozlowski and Tyco made headlines in 2002.
For several years, the media lauded Kozlowski's success as a CEO. He appeared on covers of magazines, was described as "impressive," "ambitious," a "deal-maker," a "top manager," and some even said there wasn't a better CEO in America than Dennis Kozlowski. That was before the summer of 2002.
Once scandal was suggested, the media immediately portrayed Kozlowski very differently. There was no more praise and admiration; instead, his career and his character were mercilessly attacked. He was called "greedy," "Dennis the Menace," a "pig," and a "thief." Kozlowski's legacy was forever changed. He would no longer be remembered as the successful and respected CEO who helped build one of the largest companies in the world; instead, he would be identified as one of the loathed executives who made headlines for all the wrong reasons. Seemingly overnight, and well before he was tried and convicted, Kozlowski's accomplishments were reduced to a mere footnote.
Dennis Kozlowski's story should not have taken a tragic turn. He was on a hard-earned and enviable trajectory. He was supposed to enjoy the security of lucrative retirement benefits, a golden parachute, and the wealth he earned and amassed during decades of hard work. He likely would have become an angel investor and dabbled in private equity. He could have been mentoring young entrepreneurs and perhaps teaching in a business school. He was supposed to spend time with his family and friends — the people he loved and neglected during the decades he was a busy executive. Dennis Kozlowski planned to travel for pleasure, to cook, and to play with his dogs. He wanted to teach his grandchildren to sail. For the first time since he started delivering newspapers as a kid, he would have been able to unchain himself from work and kick back. His life should have been filled with handshakes and hugs, not handcuffs and strip searches. His career should not have come to an inglorious end; he should be known as the architect of a giant global conglomerate, not as the "laundry czar" (his self-appointed title) in a New York State prison.
Not once during his twenty-seven years with Tyco, and most certainly not when he expressed optimism about the future to Tyco shareholders in December of 2001, did Dennis Kozlowski imagine he'd be in a courtroom charged with nearly two dozen felonies — accused of wrongfully taking millions of dollars from the company he loved. But that's where he found himself in June of 2005. He was standing with his defense team in front of the Supreme Court of the State of New York at the conclusion of a lengthy criminal trial, facing a jury of six women and six men who held his fate in their hands.
CHAPTER 2
BA 0.043
In baseball, one measure of performance is a player's batting average (BA) which is calculated by dividing the number of base hits by the number of official times at bat. For example, if a player has 25 hits in 100 times at bat, the player's BA is 0.250. Going 1 for 23 (BA 0.043) is crushing.
* * *
Supreme Court, New York County Manhattan Criminal Courthouse, 13th Floor 100 Centre Street New York City, New York
June 17, 2005
The Clerk: How say you to count number one against the defendant L Dennis Kozlowski, grand larceny in the first degree?
The Foreperson: Guilty.
The Clerk: How say you to the second count of the indictment charging defendant L Dennis Kozlowski with the crime of grand larceny in the first degree?
The Foreperson: Guilty.
The Clerk: How say you to the third count of the indictment charging defendant with grand larceny in the first degree?
The Foreperson: Guilty.
The Clerk: How say you to the fourth count of the indictment charging defendant with the crime of grand larceny in the first degree?
The Foreperson: Guilty.
The Clerk: How say you to the fifth count of the indictment charging defendant with the crime of grand larceny in the first degree?
The Foreperson: Guilty.
The Clerk: How say you to the sixth count of the indictment charging defendant with the crime of grand larceny in the first degree?
The Foreperson: Guilty.
The Clerk: How say you to the eighth count of the indictment charging defendant with grand larceny in the first degree?
The Foreperson: Guilty.
The Clerk: How say you to the ninth count of the indictment charging defendant with grand larceny in the first degree?
The Foreperson: Guilty.
The Clerk: How say you to the 10th count of the indictment charging defendant with the crime of grand larceny in the first degree?
The Foreperson: Guilty.
The Clerk: How say you to the 11th count charging the defendant with grand larceny in the first degree?
The Foreperson: Guilty.
The Clerk: How say you to the 12th count charging defendant with grand larceny in the first degree?
The Foreperson: Guilty.
The Clerk: How say you to the 13th count charging defendant with grand larceny in the first degree?
The Foreperson: Guilty.
The Clerk: How say you to the 14th count charging defendant with conspiracy in the fourth degree?
The Foreperson: Guilty.
The Clerk: How say you to the 15th count of the indictment charging defendant with violation of General Business Law 352 C subsection five?
The Foreperson: Guilty.
The Clerk: How say you to the 16th count of the indictment charging defendant with falsifying business records in the first degree?
The Foreperson: Guilty.
The Clerk: How say you to the 17th count charging defendant with falsifying business records in the first degree?
The Foreperson: Guilty.
(Continues...)
Excerpted from Taking Down the Lion by Catherine S. Neal. Copyright © 2014 Catherine S. Neal,. Excerpted by permission of Palgrave Macmillan.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
